Takeover-Relevant Information

Explanatory report pursuant to Sections 289a, Paragraph 1 and 315a, Paragraph 1 of the German Commercial Code (HGB)

The capital stock of Bayer AG amounted to €2,387,333,027.84 as of December 31, 2018, (December 31, 2017: €2,116,986,388.48), divided into 932,551,964 no-par registered shares (December 31, 2017: 826,947,808). Each share confers one voting right. A small number of shares may be subject to temporary trading restrictions, such as retention periods, in connection with employee stock participation programs. We received no notifications in 2018 of direct or indirect holdings of shares in Bayer AG that exceed 10% of the capital stock. The company thus is not in possession of any notifications of holdings that exceed 10% of the capital stock.

The appointment and dismissal of members of the Board of Management are subject to the provisions of Sections 84 and 85 of the German Stock Corporation Act, Section 31 of the German Codetermination Act and Section 6 of the company’s Articles of Incorporation. Pursuant to Section 84, Paragraph 1 of the German Stock Corporation Act, the members of the Board of Management are appointed and dismissed by the Supervisory Board. Since Bayer AG falls within the scope of the German Codetermination Act, the appointment or dismissal of members of the Board of Management requires a majority of two thirds of the votes of the members of the Supervisory Board on the first ballot pursuant to Section 31, Paragraph 2 of that act. If no such majority is achieved, the appointment is resolved pursuant to Section 31, Paragraph 3 of the Codetermination Act on a second ballot by a simple majority of the votes of the members of the Supervisory Board. If the required majority still is not achieved, a third ballot is held. Here again, a simple majority of the votes suffices, but in this ballot the Chairman of the Supervisory Board has two votes pursuant to Section 31, Paragraph 4 of the Codetermination Act. Under Section 6, Paragraph 1 of the Articles of Incorporation of Bayer AG, the number of members of the Board of Management is determined by the Supervisory Board but must be at least two. The Supervisory Board may appoint one member of the Board of Management to be the Chairman of the Board of Management pursuant to Section 84, Paragraph 2 of the German Stock Corporation Act and Section 6, Paragraph 1 of the Articles of Incorporation.

Any amendments to the Articles of Incorporation are made pursuant to Section 179 of the German Stock Corporation Act and Sections 10 and 17 of the Articles of Incorporation. Under Section 179, Paragraph 1 of the German Stock Corporation Act, amendments to the Articles of Incorporation require a resolution of the Stockholders’ Meeting. Pursuant to Section 179, Paragraph 2 of the German Stock Corporation Act, this resolution must be passed by a majority of three quarters of the voting capital represented at the meeting, unless the Articles of Incorporation provide for a different majority. However, where an amendment relates to a change in the object of the company, the Articles of Incorporation may only specify a larger majority. Section 17, Paragraph 2 of the Articles of Incorporation of Bayer AG utilizes the scope for deviation pursuant to Section 179, Paragraph 2 of the German Stock Corporation Act and provides that resolutions may be passed by a simple majority of the votes cast or, where a capital majority is required, by a simple majority of the capital represented. Pursuant to Section 10, Paragraph 9 of the Articles of Incorporation, the Supervisory Board may resolve on amendments to the Articles of Incorporation that relate solely to their wording.

Provisions of the Articles of Incorporation concerning Authorized Capital I and Authorized Capital II are entered in the commercial register of Bayer AG. With the approval of the Supervisory Board and until April 28, 2019, the Board of Management may use the Authorized Capital I to increase the capital stock by up to a total of €530 million. New shares may be issued against cash contributions and / or contributions in kind, but capital increases against contributions in kind may not exceed a total of €423 million. If the Authorized Capital I is used to issue shares in return for cash contributions, stockholders must normally be granted subscription rights. The Board of Management may only exclude stockholders’ subscription rights to a volume of shares issued out of the Authorized Capital I that did not represent more than 20% of the existing capital stock at the time the respective resolution was adopted by the Annual Stockholders’ Meeting on April 29, 2014. Absent a further resolution on the exclusion of stockholders’ subscription rights, the Board of Management also may only exclude stockholders’ subscription rights to a volume of shares issued under other authorizations regarding capital measures (Authorized Capital II, bonds with warrants or convertible notes, purchase and disposal of own shares) that did not represent more than 20% of the existing capital stock at the time the respective resolution was adopted by the Annual Stockholders’ Meeting on April 29, 2014. In 2018, the Board of Management used €190,986,639.36 from the Authorized Capital I to issue 74,604,156 new shares, with subscription rights granted to existing shareholders. The Authorized Capital I amounted to €339,013,360.64 as of December 31, 2018.

With the approval of the Supervisory Board and until April 28, 2019, the Board of Management is authorized to increase the capital stock by up to €211,698,560 in one or more installments by issuing shares out of the Authorized Capital II against cash contributions. The stockholders must normally be granted subscription rights. However, the Board of Management is authorized, with the approval of the Supervisory Board, to exclude subscription rights for stockholders provided the volume of shares issued out of the Authorized Capital II against cash contributions does not exceed 10% of the capital stock existing at the time this authorization is registered or at the time the new shares are issued and the issue price of the new shares is not significantly below the market price of the already listed shares. In 2018, the Board of Management used €79,360,000 from the Authorized Capital II to issue 31 million new shares, excluding subscription rights for existing shareholders. The Authorized Capital II amounted to €132,338,560 as of December 31, 2018.

Conditional capital of €211,698,560 exists in connection with an authorization – valid through April 28, 2019 – to issue bonds with warrants or convertible notes, profit-sharing rights or profit participation bonds (collectively referred to as “bonds”) with a total face value of €6 billion, €4 billion of which has already been used for mandatory convertible notes. The Board of Management may, with the consent of the Supervisory Board and under certain conditions, exclude the bond subscription rights that would otherwise be granted to stockholders. One of the conditions is that the total volume of shares required to service the bonds exceed neither 10% of the capital stock that existed at the time the respective resolution was adopted by the Annual Stockholders’ Meeting on April 29, 2014, nor 10% of the capital stock existing at the time this authorization is exercised. Any other shares issued without granting subscription rights to the stockholders in direct or analogous application of Section 186, Paragraph 3, Sentence 4 of the German Stock Corporation Act shall be credited against this 10% limit.

Further, by resolution of the Annual Stockholders’ Meeting on April 29, 2014, the Board of Management is authorized to purchase and dispose of own shares representing up to 10% of the capital stock existing at the time the resolution was adopted. The authorization to purchase own shares also includes the purchase of own shares using put or call options (derivatives) up to a volume of 5% of the capital stock existing at the time the resolution was adopted or at the time the authorization is exercised. This authorization also expires on April 28, 2019.

A material agreement that is subject to the condition precedent of a change of control pertains to the undrawn €4.5 billion syndicated credit facility arranged by Bayer AG and its U.S. subsidiary Bayer Corporation. This facility is available until December 2025. The participating banks are entitled to terminate the credit facility in the event of a change of control at Bayer and demand repayment of any loans that may have been granted under this facility up to that time.

A similar clause is also contained in the agreement on a syndicated credit facility in the original amount of US$56.9 billion granted to Bayer US Finance II LLC and Bayer AG in September 2016 to finance the acquisition of Monsanto (the “Monsanto credit facility”). Pursuant to the agreement, the Monsanto credit facility was reduced in 2016 by the US$4.2 billion net proceeds from the issuance of mandatory convertible notes, to US$52.7 billion, and in June 2017 by the US$1.2 billion net proceeds from the issuance of an exchangeable bond, to US$51.5 billion. The mandatory convertible notes were issued by Bayer Capital Corporation B.V., guaranteed by Bayer AG and mature in November 2019. The terms on which holders may convert the notes into shares before the maturity date are more favorable in the event of a change of control than they would be otherwise. The exchangeable bond was issued by Bayer AG and matures in 2020, and Bayer AG can flexibly exchange bonds for cash, Covestro AG shares or a combination of the two. Holders of these notes have the right to demand the redemption of unexchanged notes by Bayer AG in the event of a change of control if Bayer AG’s credit rating is downgraded within 120 days after such change of control becomes effective.

The Monsanto credit facility was drawn in June 2018 to finance the acquisition of Monsanto. The resulting loan had a value of US$4.9 billion as of December 31, 2018. The Monsanto credit facility and the loan were reduced in 2018 through the proceeds from the aforementioned capital increases, a further reduction of Bayer’s interest in Covestro AG, a series of divestments to fulfill antitrust requirements, a bond with a nominal volume of €5 billion issued by Bayer Capital Corporation B.V. and guaranteed by Bayer AG, and a US$15 billion bond in 144A / RegS format issued by Bayer US Finance II LLC and guaranteed by Bayer AG. Both bonds have largely the same terms in the event of a change of control as the aforementioned exchangeable bond, although the period for a potential deterioration of Bayer AG’s credit rating is only 60 days in the case of the US$15 billion bond.

The terms of the nominal €1.5 billion (as of December 31, 2018) in notes issued by Bayer in the years 2013 to 2017 under its existing Debt Issuance Programme also contain a corresponding change-of-control clause associated with a deterioration of the credit rating within 120 days. The terms of the US$7 billion bond in 144A / Reg S format issued in October 2014 also contain a clause to this effect. The outstanding amount of this bond as of December 31, 2018, was €4.6 billion.

Agreements exist for the members of the Board of Management in compliance with Section 4.2.3 of the German Corporate Governance Code to cover the eventuality of a takeover offer being made for Bayer AG. Under these agreements, payments promised in the event of early termination of the service contract of a Board of Management member due to a change of control are limited to the value of three years’ compensation and may not compensate more than the remaining term of the contract.

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