Managing Board, but by the Supervisory Board of the Company in accordance with the division of responsibilities as specified in German company law.

Transcription

1 Report by the Managing Board to the Annual General Meeting regarding Agenda Item 7 pursuant to section 186 (4) sentence 2 Aktiengesetz (AktG German Stock Corporation Act) in conjunction with section 203 (1), (2) sentence 2 AktG Under Agenda Item 7 of the Annual General Meeting, which will take place on February 20, 2018, the Supervisory Board and the Managing Board propose that the existing Authorized Capital 2013 be cancelled and be replaced by new authorized capital (Authorized Capital 2018). It is also planned to allow any new shares in connection with Authorized Capital 2018 to be issued on a non-pre-emptive basis, i.e. with the disapplication of pre-emption rights. The Managing Board therefore sets out below the reasons for the disapplication of pre-emption rights pursuant to section 186 (4) sentence 2 AktG in conjunction with section 203 (1), (2) sentence 2 AktG. The authorization that permitted the creation of Authorized Capital 2013 and that is still currently in force will expire on February 28, The intention is to continue to provide the senior management of the Company over the coming years with the ability to use this instrument to increase the Company's capital quickly and flexibly. As a result of the creation of the new Authorized Capital 2018, the Managing Board will be authorized to increase the Company s capital stock in the period up to February 19, 2023, subject to the consent of the Supervisory Board, by up to a total of 24,078, by issuing up to 24,078,562 new registered no-par-value shares, each representing 1.00 of the capital stock, in return for cash and/or non-cash contributions. The Managing Board may make use of the authorization on one or more occasions to increase capital in tranches, but the overall total under the authorization must not exceed 24,078, If the option to increase the capital stock from Authorized Capital 2018 were to be exercised, the existing shareholders would generally have pre-emption rights to the new shares. The pre-emption rights can also be granted by allowing the new shares to be bought by one or more credit institutions or companies within the meaning of section 186 (5) sentence 1 AktG, determined by the Managing Board, on condition that the credit institutions or companies offer the new shares to the shareholders for subscription (indirect pre-emption rights). However, the Managing Board will be authorized, subject to the consent of the Supervisory Board, to disapply shareholders' pre-emption rights in the circumstances described below. a) The Managing Board is to be authorized to disapply the statutory pre-emption rights of the shareholders, subject to the consent of the Supervisory Board, in the case of capital

2 2 increases for cash as specified in section 186 (3) sentence 4 AktG. This simplified disapplication of pre-emption rights enables the Company to target the placement of new shares in the capital markets quickly and flexibly, either in Germany or abroad, for the benefit of the business by exploiting favorable market conditions at short notice and issuing shares at the highest possible prices fixed close to market levels. This will enable the Company to strengthen its capital base to the greatest possible extent. Proceeds generated from a placement on a non-pre-emptive basis are generally significantly higher than those from a rights issue. One of the main reasons for this is that a placement can be made immediately after fixing the issue price without any statutory subscription period, which means that no price risk in the period up to the end of the subscription period needs to be factored into the issue price. A capital increase for cash on a non-pre-emptive basis can also be used to attract new groups of shareholders. Finally, the Company does not have to spend any time processing the preemption rights or incur any of the associated expenses. Capital increases under this authorization to disapply pre-emption rights are limited to a total of 10 percent of the capital stock, calculated on the basis of the capital stock of the Company at the time this authorization comes into effect or, if lower, at the time the authorization is used. This means that pre-emption rights can be disapplied on the basis of this authorization even if there are multiple capital increases within the authorization period as long as these capital increases do not equate to more than 10 percent of the capital stock in total. This limit is reduced by the capital stock attributable to those shares issued on a simplified non-pre-emptive basis in application, mutatis mutandis, of section 186 (3) sentence 4 AktG during the period up to each time this authorization is used, where such shares have to be issued to service conversion or option rights / conversion or option obligations, arising from bonds, other debt instruments or profit-sharing rights. A further deduction must be made for any shares issued or sold on a non-pre-emptive basis during the period up to each time this authorization is used under other authorizations pursuant to and in accordance with section 186 (3) sentence 4 AktG, such that the total value of shares issued on a simplified non-pre-emptive basis cannot exceed 10 percent of the capital stock. These requirements ensure that the need to protect shareholders from the risk of dilution of their shareholdings is taken into account in accordance with statutory provisions. In such circumstances, the Managing Board will make best efforts, taking into account the prevailing market conditions, to ensure that there is only a low discount, if any at all, on the market price. Furthermore, because the issue price of new shares is close to the market price, every shareholder has the opportunity to maintain the proportion of the shares that they hold by buying the necessary additional shares through the stock market on virtually the same terms. In accordance with the purpose of the statutory provision in section 186 (3) sentence 4 AktG, the above arrangements therefore ensure that the interests of shareholders in terms of their capital and voting rights are safeguarded if the

3 3 Company makes use of Authorized Capital 2018 by carrying out a capital increase for cash on a non-pre-emptive basis, while at the same time the Company is afforded further latitude in its activities for the benefit of all shareholders. b) The further authorization to increase the capital stock, subject to the consent of the Supervisory Board, on a non-pre-emptive basis in return for a non-cash contribution, is intended to enable the Company to compete internationally to acquire attractive assets and create the flexibility that is needed to respond quickly should an opportunity present itself. The authorization enables the Company to offer the new shares to third parties in connection with mergers or for the direct or indirect acquisition of businesses, parts of businesses, or investments in businesses, or other assets, or of rights to acquire assets or of receivables due from the Company or its subsidiaries within the meaning of section 18 AktG. In appropriate circumstances the Managing Board can acquire such assets or rights not only by the payment of a purchase price, but also by offering payment in the form of shares in the Company. It may be convenient or necessary, and therefore also in the interests of the shareholders, to provide the consideration for such an acquisition in the form of shares in the Company, depending on the size of the acquisition in question and the expectations of the seller. This arrangement helps the Company retain cash and reduce the extent of any funding that may be necessary. The authorization is also intended to provide the Company with the option of offering shares rather than a monetary payment to the holders of amounts due from the Company (whether in the form of a financial instrument or not), for example if the Company has initially undertaken to pay a monetary amount in connection with the acquisition of a business but, in retrospect, a payment in shares rather than cash becomes preferable. The granting of shares relieves the burden on the Company's liquidity position and can help to optimize the financing structure. The granting of pre-emption rights to shareholders would severely restrict the option of acquiring businesses, parts of businesses, or investments in businesses, or other assets, or of rights to acquire assets or of receivables due from the Company or its subsidiaries, in return for shares in the Company. It would therefore not be possible to generate the benefits for the Company and the shareholders described above. The proposed authorization to disapply pre-emption rights is therefore in the interests of the Company and its shareholders. The Company does not incur any disadvantage from this arrangement because the issuance of shares for a non-cash contribution requires the value of the contribution in kind to be commensurate with the value of the shares. When determining the relationship between the values, the Managing Board will ensure that the interests of the Company and its shareholders are properly protected and that the Company receives an appropriate consideration for the new shares. To this end, it will take appropriate account of the market price of the Company's shares and bring in external expertise if this is a possible and sensible course of action in the case in question.

4 4 c) The Managing Board is also to be permitted to disapply the pre-emption rights of the shareholders, subject to the consent of the Supervisory Board, if this is necessary to grant the holders or beneficiaries of convertible bonds and/or warrant-linked bonds, profit-sharing rights or income bonds or warrants that are issued by the Company or by subsidiaries within the meaning of section 18 AktG a pre-emption right to new shares that is equal to the right they would have after exercising the conversion right or option or after fulfilling the conversion obligation or option obligation. For this to be possible, it is necessary to disapply the pre-emption rights of shareholders in respect of those shares to which pre-emption rights have been granted as a means of protection from dilution. To make it easier to place the instruments concerned, the terms and conditions of convertible bonds and/or warrant-linked bonds, profit-sharing rights or income bonds or warrants generally include dilution protection that allows for a discount on the conversion or option price and that, in the event of subsequent capital increases, provides for the option of offering the holders or beneficiaries of convertible bonds and/or warrant-linked bonds, profit-sharing rights or income bonds or warrants preemption rights to acquire new shares similar to those enjoyed by the existing shareholders. The holders or beneficiaries of these instruments are therefore placed in a position as if they were already shareholders. Pre-emption rights for the holders or beneficiaries of convertible bonds and/or warrant-linked bonds, profit-sharing rights or income bonds or warrants make it possible to avoid the need to discount the conversion or option price of debt instruments if there is a decision to increase capital stock on the basis of Authorized Capital This guarantees a higher issue price for the shares to be issued on implementation of a conversion or exercise of an option. d) The authorization will also permit the pre-emption rights of the existing shareholders to be disapplied so that new shares can be issued to members of the Company's Managing Board, to members of the representative body of an affiliated company, to employees of the Company, or to employees of an affiliated company. An issue of shares to managers and/or employees encourages the beneficiaries to identify with the Company and fosters a willingness to share responsibility. Share-based remuneration also means that some remuneration for managers and/or employees can, in suitable cases, be based on the long-term performance of the business. This arrangement is intended to make it possible to restrict the issue of shares to a particular group or particular individuals from the senior managers and employees described above, subject to compliance with employment law requirements. Within the framework permitted by section 204 (3) sentence 1 AktG, the Managing Board is to be given the option of covering the capital contribution to be paid on the new shares from the part of the profit for the year that the Managing Board and Supervisory Board may appropriate to other retained earnings in accordance with section 58 (2) AktG. This makes it easier to process the issue of the shares and reflects the fact that the issuance of new shares in such cases is of a remunerative nature. If it is planned to issue the new shares to members of the Company's Managing Board, the decision to grant the shares is not made by the

5 5 Managing Board, but by the Supervisory Board of the Company in accordance with the division of responsibilities as specified in German company law. e) The purpose of the authorization for the Managing Board, subject to the consent of the Supervisory Board, to remove any fractional amounts from the pre-emption rights of shareholders is to make it possible to set a practical subscription ratio that can be readily applied from a technical perspective and thereby facilitate the implementation of capital increases in which pre-emption rights are granted. The value of such fractional amounts is normally low, whereas the time, effort and expense involved in issuances where such amounts are not eliminated would be significantly greater. The new shares representing the fractional amounts eliminated from the pre-emption rights are sold to generate the best possible benefit for the Company. Because the new shares are restricted to these fractional amounts, the possible dilutive effects are minimal. The purpose of the disapplication of pre-emption rights in this case is to make it easier to carry out a share issue and is therefore in the interests of the Company and its shareholders. When specifying the subscription ratio, the Managing Board will give due consideration to the need to keep the fractional amounts as low as possible in the interests of the shareholders. The proportionate amount of the capital stock attributable to shares issued on a non-pre-emptive basis for cash and/or non-cash contributions in accordance with the authorization may not exceed a total of 10 percent of the Company's capital stock existing at the time this authorization becomes effective or, if lower, at the time this authorization is used. This capital limit provides the shareholders with additional protection against a dilution of their investment. The Managing Board will also take into account any shares that are issued or sold, or bonds, other debt instruments or profit-sharing rights with conversion or option rights / conversion or option obligations that are issued during the period of this authorization on a non-pre-emptive basis under other authorizations granted to the Managing Board to ensure it complies with the proviso that it may make use of the authorizations it has been given to increase capital on a non-preemptive basis only up to an overall increase of 10 percent of the existing capital stock. Currently, there are no specific plans to make use of the new Authorized Capital Both within Germany and internationally, it is common to prepare appropriate advance resolutions providing for the option to disapply pre-emption rights. The Managing Board will carefully review each individual case to establish whether the use of Authorized Capital 2018, and in particular the disapplication of pre-emption rights, is in the interests of the Company and its shareholders. If the proposed authorization is used, the Managing Board will report on the action taken at the subsequent Annual General Meeting.