Written report of the general partner on item 6 of the agenda of the annual shareholders meeting and on the sole item of the agenda of the separate meeting of preferred shareholders on the reasons for the authorization of the general partner to exclude the subscription right in capital increases from the authorized capital The general partner and the Supervisory Board propose to the annual shareholders meeting on item 6 of the agenda authorising the general partner, subject to the approval of the Supervisory Board, to increase the share capital of the Company by issuing new bearer ordinary shares and/or preferred shares on one or more occasions in exchange for cash and/or contributions in kind by up to EUR 11,366,400.00 (authorized capital). The authorization includes the power to issue either new ordinary shares and/or non-voting preferred shares, which shall carry the same status as the previously issued non-voting preferred shares in the distribution of profits and/or the assets of the Company. The authorization to issue non-voting preferred shares may be exercised only in so far as the proportion of the non-voting preferred shares does not exceed half of the share capital (Sec. 139 (2) AktG). The authorization expires on April 26, 2021. The authorization under item 6 of the agenda of the annual shareholders meeting replaces the authorization of the general partner in accordance with article 6 (4) of the articles of association that is still in force and has not yet been utilized to increase, subject to the approval of the Supervisory Board, the share capital of the Company on one or more occasions up to May 5, 2016 by issuing new bearer ordinary shares and/or preferred shares in exchange for cash and/or contributions in kind by up to EUR 11,366,400.00. The purpose of the new authorized capital is to enable the Company to obtain equity on favourable terms and conditions quickly and flexibly when required. In the event that the authorized share capital is used, subscription rights must in principle be granted to the shareholders. The subscription right can also be granted to the shareholders in such a way that the new shares are acquired by one or more financial institutions or companies within the meaning of Sec. 186 (5) sentence 1 AktG specified by the general partner with the obligation to offer them to the shareholders for purchase (indirect subscription right). This may
be expedient for processing reasons. The subscription rights of the shareholders are not restricted here. However, subscription rights may be excluded by the general partner, subject to the approval of the Supervisory Board, in certain cases when the authorized share capital is used. The authorization provides to begin with that the general partner can, when ordinary shares and preferred shares are issued at the same time, exclude the right of holders of shares of one class to subscribe for shares of the other class subject to the approval of the Supervisory Board (crossed exclusion of subscription rights). This applies only when the new shares are issued in the previous proportion of the two classes of shares to each other. The crossed exclusion of subscription rights leads in this case to the proportion of the two classes of shares to each other and the relative holding of the shareholders of the respective class remaining constant. It is the opinion of the general partner that the crossed exclusion of subscription rights when there are two types of shares is the best way to take into account the intent of the subscription right, which is to maintain the existing proportionate voting rights and financial interests of the shareholders of the Company. The continued potential exclusion of the subscription right to compensate for fractional amounts in alternative (i) is a measure that is essential and appropriate for technical reasons for implementing a capital increase, especially for creation a practical subscription ratio. Without excluding the subscription right with regard to the fractional amount, the technical implementation of the capital increase would be made significantly more difficult, especially in a capital increase by round amounts. The new shares excluded from the subscription right of the shareholders as unassigned fractions will be realized either by being sold on the stock exchange or otherwise in the best possible way for the Company. For these reasons, the general partner and the Supervisory Board consider the authorization to exclude the subscription right to be appropriate. Alternative (ii) of the proposed resolution provides that the general partner can exclude the subscription right, subject to the approval of the Supervisory Board, in order to acquire contributions in kind, especially in the context of company mergers or the acquisition of companies, business units or equity interests in companies or of other assets or of claims to
the acquisition of other assets, including receivables from the Company or from companies controlled by it within the meaning of Sec. 17 AktG. This is intended to enable the Company to continue to strengthen its competitive position through acquisitions and as a result to facilitate long-term and continuous earnings growth. The Company must retain the possibility of being able to respond quickly and flexibly on the national and international markets to favourable offers or other opportunities that present themselves for acquiring companies, parts of companies or equity interests in companies. The same applies for the acquisition of other assets or claims to the acquisition of assets that may be connected with an acquisition project, including receivables from the Company or from companies controlled by it. Experience has shown that the owners of interesting acquisition targets frequently prefer to ask for shares instead of cash as consideration for the sale. In the competition for attractive investments or assets, advantages can therefore result when new shares in the Company can be offered to a seller as consideration. As shares have to be issued at short notice in the competition with potential buyers when acquisition targets emerge, which regularly involve complex transaction structures, this can generally not be decided upon by the annual shareholders meeting, which in principle takes place only once a year. The creation of authorized capital which the general partner can quickly access with the approval of the Supervisory Board is therefore essential. As soon as opportunities to make acquisitions materialize, the general partner will in each individual case carefully examine whether it should make use of the authorization to use the authorized share capital and in doing so exclude the subscription right of the shareholders. It will exclude the subscription right of the shareholders only if the acquisition in exchange for issuing shares in the Company is in the best interests of the Company and the shareholders. The issue amount for the new shares would here be determined by the general partner with the approval of the Supervisory Board in due consideration of the interests of the Company and its shareholders. There are currently no specific acquisition projects for the implementation of which the share capital will be increased with the subscription right excluded. Furthermore, alternative (iii) of the proposed resolution provides the authorization to exclude subscription rights when issuing new shares in exchange for cash in accordance with Secs. 203 (1) and 186 (3) sentence 4 AktG if the shares of the Company are issued in exchange for cash and the issue price per share is not significantly lower than the stock market price of
essentially similarly structured, already listed shares of the class in question at the time the shares are issued. This authorization does not relate to the full amount of the authorized capital, but only to a maximum of 10 percent of the share capital. The 10 percent limit of Sec. 186 (3) sentence 4 AktG may be used only once in total. This means that if and in so far as the Company makes use during the term of this authorization of simultaneously existing authorizations to exclude subscription rights in direct application or application mutatis mutandis of Sec. 186 (3) sentence 4 AktG, for example in connection with the resale of treasury shares, after the adoption by the annual shareholders meeting of the resolution on item 6 of the agenda, the number of shares that can be issued in a capital increase from the authorized capital while the subscription right is excluded in accordance with Sec. 186 (3) sentence 4 AktG is reduced accordingly. This limit takes into account the need of the shareholders to have their shareholding protected against dilution. The law additionally allows an exclusion of subscription rights pursuant to Sec. 186 (3) sentence 4 AktG only if the issue price is not significantly lower than the stock market price of already listed shares with essentially the same structure. The general partner will subject to the approval of the Supervisory Board keep the discount on the stock market price as low as possible given the prevailing market conditions at the time of the placement. The discount will in no event exceed 5 percent of the stock market price. The general partner and the Supervisory Board consider the authorization to exclude subscription rights in accordance with Sec. 186 (3) sentence 4 AktG to be necessary in order to enable the Company to cover any capital requirements at short notice and in this way to exploit market opportunities swiftly and flexibly. The exclusion of the subscription right allows action to be taken very quickly without a more cost and time-intensive implementation of the subscription right procedure and allows a placement close to the stock market price, i.e. without the discount usual in subscription rights issues. The Company will additionally be able to attract new investors at home and abroad with capital increases of this kind. Issuing shares at prices closely linked to the market price also protects the interests of the shareholders. For they must not have to fear any appreciable deterioration in the price and can conduct additional share purchases on the stock market at comparable prices that may be necessary to maintain their shareholding ratio.
Finally, the subscription right is to be excluded in alternative (iv) if this is necessary in order to grant holders or creditors of warrant and/or convertible bonds with option and/or conversion rights and obligations that are issued by the Company or one of the companies in which it holds a majority interest a right to subscribe to new shares in the extent to which they would be entitled after exercising the option or conversion rights or after fulfilling option or conversion obligations. To make it easier to place bonds on the capital market, the relevant conditions of the warrant or convertible bond generally include a dilution protection. One possibility for providing protection against dilution consists in granting the holders or creditors of the bonds a right to subscribe to new shares in following share issues as shareholders are entitled to They are thus treated as if they were already shareholders. In order to furnish the bonds with dilution protection of this kind, the right of the shareholders to subscribe for these shares must be excluded. This helps to facilitate the placement of the bonds and thus serves the interests of the shareholders in the Company having an optimal financial structure. Alternatively, only the option or conversion price could be reduced for the purposes of protecting against dilution if this is permitted by the terms and conditions of the warrant or convertible bond. This would, however, be more complicated and cost-intensive in terms of the processing for the Company. In addition, it would reduce the capital inflow from the exercise of the option and conversion rights or obligations. It would also be conceivable to issue bonds without dilution protection. This would be significantly less attractive for the market, however. A cumulative total ceiling of 20 percent of the share capital applies for the exclusion of subscription rights in all of the alternatives proposed here with the exception of the crossed exclusion of subscription rights. The proportion of the share capital attributed in total to new shares for which the subscription right is excluded on the basis of this authorization may not exceed 20 percent of the share capital. Shares that are issued subject to the crossed exclusion of subscription rights are exempted from this restriction to 20 percent of the share capital, because in this case the shareholders do not experience a dilution in their equity interest in the actual sense, but can maintain their existing proportionate voting rights and financial interests in the previous ratio (see above on this). The key factor for calculating the 20 percent limit is the existing share capital at the time that the authorization comes into effect or is exercised, on whichever of these dates the share capital is at its lowest. To be offset against this overall ceiling are exclusions of subscription rights that the Company undertakes in other capital measures during the term of this authorization. Thus the overall ceiling is reduced further by the proportionate amount in the share capital that is attributed to treasury shares or to new
shares from other authorized capital or that relates to conversion or options rights or obligations arising from options or bonds that have been sold or issued during the term of this authorization subject to the exclusion of subscription rights. It is also to be seen as an exclusion of subscription rights here if the sale or issue is conducted in direct application or in application mutatis mutandis of Sec. 186 (3) sentence 4 AktG. The purpose of this limit is to restrict the possible dilution effect to a share volume of 20 percent in total of the share capital to the benefit of the shareholders. We point out that, besides the new authorized capital proposed under item 6 of the agenda, the Company no longer has any other authorized or contingent capital. The resolution of the annual shareholders meeting of May 4, 2012 provides current authorization, expiring on May 3, 2017, to acquire treasury shares in the scope of up to 10 percent of the capital at the time of the resolution; this authorization is to be cancelled in accordance with item 7 of the agenda and replaced by a new authorization to acquire treasury shares in the scope of 10 percent of the current share capital, the term of which will expire on April 26, 2021. Treasury shares acquired on the basis of the authorization could be sold in the same extent subject to the exclusion of the subscription right of the shareholders. Treasury shares sold subject to the exclusion of subscription rights during the term of the authorization would be credited to the above capital limit for subscription rights exclusions from the authorized capital. The general partner and the Supervisory Board will in each individual case carefully examine whether they should make use of the authorizations to increase the capital and in doing so exclude the subscription right of the shareholders. Any utilization of this option will be made only if in the opinion of the general partner and of the Supervisory Board this is in the best interests of the Company and thus of its shareholders. The general partner shall report on the details of the utilization of the authorization at the annual shareholders meeting that follows any issue of shares of the Company from authorized capital subject to the exclusion of the subscription right.
Written report of the general partner on item 7 of the agenda of the annual shareholders meeting on the reasons for authorising the general partner to exclude the sell option of the shareholders when acquiring treasury shares and the subscription right of the shareholders when selling treasury shares Sec. 71 (1) no. 8 of the German Companies Act offers the possibility of acquiring a total of up to 10 percent of the share capital on the basis of an authorization issued by the annual shareholders meeting. The annual shareholders meeting authorized the Company to acquire treasury shares up to May 3, 2017 most recently on May 4, 2012. As the existing authorization has been partially used, namely by the acquisition of 14,150 preferred treasury shares, this is to be cancelled prematurely and the authorization to acquire treasury shares while using the new volume limit is to be renewed once again with a time limit of five years in order to provide the Company with the possibility also in the future of buying back treasury shares. The proposed resolution envisages authorising the general partner to acquire treasury shares, which may account for a maximum of 10 percent of the share capital existing at the time the resolution is adopted or if this value is lower of the capital existing at the time the authorization is exercised. The exercise of the acquisition authorization is tied to the approval of the Supervisory Board. The acquisition has to be carried out here on the stock market, on the basis of a public purchase offer or on the basis of a public solicitations for offers. The principle of equal treatment under company law must be observed in each case. The general partner shall not be required, however, to buy back ordinary and non-voting preferred shares in the previous proportion of the share classes. Rather, the general partner is to be granted the possibility of acquiring exclusively or predominantly shares of one or the other class. It can make use of this possibility only when appropriate objective justification is present. The acquisition of shares of only one class can be justified in particular in light of the intended purpose of the shares to be bought back if, for example, only shares of one class are required for a company takeover or if the intention is to conduct a targeted price stabilization for a class through the targeted buyback of the relevant class. Purchase offers or solicitations for offers are to be addressed in each case to all shareholders of a class.
If the acquisition is conducted by means of a public purchase offer directed to all shareholders of a class or by means of a public solicitation for offers, the volume of the offer or of the solicitation can be restricted. This can result in the quantity of shares in the Company tendered by the shareholders exceeding the quantity of shares requested by the Company. In this event, an allocation must be carried out on a quota basis. It should here be possible in accordance with c) to conduct a scaling down based on the proportion of the shares subscribed or tendered (tender ratio) instead of in proportion to the number of shares held, because the acquisition procedure is technically easier to process in an economically reasonable framework in this way. Moreover, it should be possible to provide for a preferential acceptance of small lots of up to 100 tendered shares per shareholder. This possibility serves to avoid fractional amounts when calculating the quotas to be acquired and small residual amounts of shares and thus to facilitate the technical processing of the share buyback. Any factual discrimination against small shareholders can also be avoided in this way. Finally, it should be possible to provide for rounding based on commercial principles in order to avoid mathematical fractions of shares. In this respect, the acquisition quota and the number of shares to be acquired by individual tendering shareholders can be rounded in such a way as is necessary in order to ensure the acquisition of whole shares for technical processing purposes. The general partner and the Supervisory Board therefore consider the exclusion contained herein of any more extensive rights of the shareholders to sell to be objectively justified. In the public solicitation for offers, the recipients of this solicitation can decide how many shares they wish to offer the Company at what price (when a price range is defined). The price offered in each case and the limit values of the purchase price range defined by the Company per share of the same class and structure (excluding incidental acquisition costs) may not be more than 10 percent higher or lower than the volume-weighted average of the closing auction prices for shares of the same class and structure in Xetra trading (or on a functionally comparable successor system replacing the Xetra system) on the Frankfurt Stock Exchange on the last five stock exchange trading days before the date that the public purchase offer or the public solicitation of offers is publicly announced. If there are substantial fluctuations in the relevant price after a public purchase offer or a public solicitation of offers has been published, the offer or the solicitation of offers can be amended.
In this event, the volume-weighted average of the closing auction prices for shares of the same class and structure in Xetra trading (or on a functionally comparable successor system replacing the Xetra system) on the Frankfurt Stock Exchange during the last five stock exchange trading days before the adjustment is publicly announced will be taken as the basis. The purchase offer or the solicitation of offers can stipulate further terms and conditions. The general partner is further to be authorized to use the treasury shares acquired on the basis of the authorization for all purposes permitted by law and especially the purposes expressly listed below. The proposed option for selling treasury shares serves the purpose of simplified fundraising. In accordance with Sec. 71 (1) no. 8 sentence 5, the annual shareholders meeting can also authorize the Company to conduct the disposal in a different form than through the stock market or on the basis of an offer to all shareholders. The treasury shares purchased on the basis of this authorization resolution can be redeemed by the Company in accordance with alternative (i) without this requiring a new resolution of the annual shareholders meeting. In accordance with Sec. 237 (3) no. 3 of the AktG, the annual shareholders meeting of a company can resolve to redeem its fully paid-up no-par shares without this requiring a reduction in the share capital of the Company. The authorization proposed here expressly provides for this alternative in addition to the redemption accompanied by a reduction in capital. A redemption of the treasury shares without a reduction in capital automatically increases the imputed share of the other no-par shares in the share capital of the Company. The general partner should therefore also be authorized to carry out the amendment that becomes necessary to the articles of association in respect of the number of no-par shares that changes as a result of a redemption. In alternative (ii), the precondition for an exclusion of subscription rights is that the treasury shares are sold in accordance with Sec. 186 (3) sentence 4 AktG at a price that is not significantly lower at the time of the sale than the stock market price of the shares of the same class of the Company that are structured in essentially the same way and are already listed. This kind of exclusion of subscription rights is possible in law and common in practice. The principle of protecting shareholders against dilution of their shares is taken into account through the fact that the shares may only be sold only at a price that is not significantly lower
than the relevant stock market price. The final determination of the sales price for the treasury shares is made shortly before they are sold. The general partner will subject to the approval of the Supervisory Board keep the discount on the stock market price as low as possible given the prevailing market conditions at the time of the placement. The discount will in no event exceed 5 percent of the market price. The option of selling treasury shares subject to an exclusion of subscription rights and in another form than through the stock market or through an offer to all shareholders is in the interests of the Company in light of the strong competition on the capital markets. The opportunity thus opens up for the Company to offer treasury shares quickly and flexibly to national and international investors, to expand the circle of shareholders and to stabilize the value of the share. The financial interests of the shareholders are suitably protected with the sale at a purchase price that is not significantly lower than the stock market price and with the limitation of the proportion of treasury shares to a maximum of 10 percent in total of the share capital. In accordance with alternative (iii), the Company additionally has the option of having available treasury that it can offer as consideration when acquiring payments in kind, especially in the context of company mergers, when acquiring companies or equity interests therein or when acquiring other assets or claims to the acquisition of other assets, including receivables. The authorization proposed here aims to provide the Company with the necessary flexibility to be able to take advantage quickly and flexibly of opportunities that arise for acquiring companies or equity interests therein or other assets. The proposed exclusion of subscription rights takes this into account. When determining the valuation ratios, the general partner will ensure that the interests of the shareholders are adequately safeguarded. It will use the stock market price of the shares of the Company as the basis especially when measuring the value of the treasury shares granted as consideration. A systematic coupling of the valuation to a stock market price is not provided for here, however, in order to prevent any fluctuations in the stock market price from jeopardising the results of negotiations once they have been reached. The exclusion of subscription rights in alternative (iv) further enables the Company to offer treasury shares of the Company for sale to employees and/or members of the Executive Board of Drägerwerk AG & Co. KGaA (i.e. members of the Executive Board of the general partner in its capacity as the management body of the Company) or of a company affiliated with it. As a result, shares can be used as a remuneration component for employees and/or members of
the Executive Board of the Company and/or of a company affiliated with it, the equity interest of employees and/or members of the Executive Board in the share capital of the Company can be encouraged and thus the identification of the employees and the or members of the Executive Board with the Company can be strengthened in the interests of the Company and of its shareholders. In this connection, suitable vesting periods for the sale of the shares can be granted. If members of the Executive Board of the general partner are given preferential treatment, the selection of the beneficiaries and the determination of the scope of the shares to be granted to them is additionally the responsibility of the Supervisory Board of the general partner. Finally, the general partner is to be authorized in alternative (v) to use treasury shares acquired on the basis of the proposed authorization to service subscription and conversion rights that are created on account of the exercise or fulfillment of option or conversion rights and obligations arising from options and/or convertible bonds that are issued by the Company or one of the companies in which it holds a majority interest. No new authorization for granting further conversion or option rights is created by the proposed resolution. It serves only the purpose of granting the administration the possibility of servicing conversion or option rights that are issued on the basis of other authorizations or option exercise or conversion obligations established on the basis of other authorizations by using treasury shares instead of making claims on the contingent capital if this is in the interests of the Company in the individual company. There are currently not yet any option and conversion rights and obligations that come into consideration for servicing by treasury shares on the basis of the proposed authorization. The right of the shareholders to subscribe for treasury shares that have been acquired is excluded in so far as these shares are used in accordance with item 7 d) (ii) to (v) of the agenda in a way other than by sale through the stock market or by offer to all the shareholders. Moreover, it should be possible to exclude the right of shareholders to subscribe for fractional amounts in the event that the treasury shares are sold through an offer made to all shareholders. The exclusion of the subscription right for fractional amounts is necessary in order to enable the technical implementation of the issue of acquired treasury shares by way of an offer to all shareholders. The treasury shares excluded from the subscription right of the
shareholders as unassigned fractions will be realized either by being sold on the stock exchange or otherwise in the best possible way for the Company. The use of treasury shares subject to the exclusion of subscription rights comes into consideration only in so far as the proportionate amount in the share capital of the treasury shares used in this way, while offsetting the shares issued from authorized capital during the term of this authorization subject to the exclusion of subscription rights as well as the new shares to be issued on account of convertible and/or warrant bonds or participation rights issued during the term of this authorization subject to the exclusion of subscription rights does not exceed in total 20 percent of the share capital, where the key factor is either the share capital available at the time the authorization comes into effect or the share capital available at the time the treasury shares are sold, depending on at which of these times the amount of share capital is lowest. As a result, it is ensured in the interests of the shareholders that the possibility of using treasury shares subject to the exclusion of subscription rights is also limited to a share volume of in total 20 percent of the share capital when all other authorizations are taken into account. We point out that, in addition to the authorization proposed under item 7 of the agenda of the annual shareholders meeting to acquire and to use treasury shares, the administration is proposing the adoption of the resolution under item 6 of the agenda on new authorized capital of up to EUR 11,366,400.00, with which the existing authorized capital expiring on May 5, 2016 is to be replaced. The authorization to exclude the subscription right in capital increases from the authorized capital is limited to a total of 20 percent of the share capital. New shares issued from the authorized capital subject to the exclusion of subscription rights during the term of the authorization would be credited to the capital limit explained above for treasury shares used subject to the exclusion of the subscription right. When making the decision on the use of the treasury shares, the general partner and the Supervisory Board shall be guided only the best interests of the shareholders and of the Company. All measures of the general partner on the basis of the authorizations of the annual shareholders meeting in accordance with the resolution on item 7 a) to e) of the agenda of the
annual shareholders meeting, i.e. the use of the authorizations both to acquire and to use treasury shares, may be undertaken only with the approval of the Supervisory Board. The general partner will provide information on any utilization of the above authorizations to the annual shareholders meeting following the utilization. Lübeck, Germany, March 2016 Drägerwerk AG & Co. KGaA The general partner Drägerwerk Verwaltungs AG The Executive Board