Statements of conformity 2016

Statement of conformity by the Management and Supervisory Boards of BRAIN AG with the recommendations of the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act (AktG)

The shares of B.R.A.I.N. Biotechnology Research and Information Network AG (“BRAIN AG”) have been listed in the Prime Standard segment of the Frankfurt Stock Exchange since 9 February 2016. As a consequence, BRAIN AG hereby issues its first statement of conformity pursuant to Section 161 of the German Stock Corporation Act (AktG). To the extent that some recommendations (e. g. concerning the AGM topic) have not yet been applicable since the aforementioned date, the company will comply with these recommendations in the future, unless otherwise stated.

The Management and Supervisory Boards of BRAIN AG declare that, since the company’s IPO on 9 February 2016, BRAIN AG has complied with the recommendations of the “Government Commission German Corporate Governance Code” (hereinafter referred to as the “Code”) in the version dated 5 May 2015 as published by the German Federal Ministry of Justice on 12 June 2015 in the official section of the German Federal Gazette (Bundesanzeiger) and will continue to comply with them in the future, with the following exceptions:

Number 3. 8 (3): The Code recommends that in a D&O insurance policy (directors’ & officers’ liability insurance) for Supervisory Board members, a deductible of at least 10 % of the loss up to a minimum of one and a half times the fixed annual compensation be agreed. BRAIN AG has taken out D&O insurance cover, although it currently includes no deductible for the Supervisory Board members. The company regards a deductible as not generally suited to enhancing the quality of Supervisory Board activity, while at the same time it diminishes the attractiveness of the Supervisory Board mandate, making it more difficult to compete for correspondingly qualified candidates.

Number 4. 2. 3 (4) Clause 1: The Code recommends that when concluding Management Board employment contracts, care should be exercised to ensure that payments to a Management Board member on early termination of his / her contract, including fringe benefits, do not exceed the value of two years’ compensation (severance pay cap) and compensate no more than the remaining term of the employment contract. Management Board contracts concluded before the admission to stock market listing do not include a severance pay cap. The company took this into consideration for the first time in the case of a Management Board contract that was entered into after admission to stock market listing, and will take it into account when extending or concluding new contracts in future.

Number 4. 2. 3 (4) Clause 3: The Code recommends that the calculation of the aforementioned severance pay cap should be based on the total compensation for the respective financial year elapsed and, where relevant, also on the basis of the prospective total compensation for the current financial year. Management Board contracts concluded before the admission to stock market listing do not include a severance pay cap. The company took this into consideration for the first time in the case of a Management Board contract that was entered into after admission to stock market listing, and will take it into account when extending or concluding new contracts in future.

Number 4. 2. 3 (5): The Code recommends that payments promised in the event of early termination of a Management Board member’s contract in the case of a change of control do not exceed 150 % of the severance pay cap. The current employment contracts of the Management Board members do not include any severance payments in the case of a change of control. It should also be considered that BRAIN AG continues to endeavour to grow independently and not become a takeover candidate. The company will comply with the recommendations from Number 4. 2. 3 (5) in the case of future contract extensions and new contracts.

Number 5. 1. 2 (2) Clause 3: The Code recommends setting an age limit for Management Board members. BRAIN AG has not fixed any age limit for Management Board members to date. The existing Management Board contracts were entered into before the IPO and correspond to the structure selected before that date. The Supervisory Board of BRAIN AG is reviewing whether such an age limit should be set in the future.

Number 5. 4. 1 (2) Clause 1: The Code recommends that a Supervisory Board specifies concrete targets for its composition, which – while considering the specifics of the enterprise – take into account the company’s international activities, potential conflicts of interest, the number of independent Supervisory Board members in the meaning of Number 5. 4. 2, setting an age limit for Supervisory Board members and determining a standard limit to Supervisory Board membership, as well as diversity. The Supervisory Board’s current composition was implemented before the admission to stock market listing and consequently reflects the structures selected previously. The Supervisory Board intends to set specific targets for its future composition to enable the recommendation to be complied with in future.

Number 5. 4. 4: The Code recommends that Management Board members should not become members of the company’s Supervisory Board until two years after the end of their appointment, unless they are appointed upon a motion presented by shareholders holding more than 25 % of the company’s voting rights. In the latter instance, an appointment to become Supervisory Board Chair should be an exception to be justified to the shareholders’ general meeting. The Supervisory Board of BRAIN AG is carefully examining whether a switch by a Management Board member to the Supervisory Board entails conflicts of interest between executive and supervisory responsibilities. The Supervisory Board does not make its decision on the basis of fixed criteria, however, but rather considers risks of potential conflicts of interests on a case-by-case basis.

Number 5. 6: The Code recommends that the Supervisory Board conduct a regular examin­ation of the efficiency of its activities. The Supervisory Board introduced a review of its efficiency in the 2015 / 2016 financial year, although it had not yet been concluded as of the date when this statement of conformity was issued. After discussing the result, the Supervisory Board will take potential improvements into account for the future.

Number 7.1.2 Clause 4, Semi-clause 1: The Code recommends publishing annual reports within 90 days after the end of the financial year. As a result of the additional accounting requirements in the first year as a listed company, the final audit takes longer than expected, thus the audited figures will not be published as originally intended within 90 days of the end of the financial year but instead after the expiration of the 90 days (announced for 16 January 2017). The preliminary figures for the 2015/16 financial year were published as press releases on 19 December 2016. The company will comply with the recommendations from Number 7.1.2 Clause 4, Semi-clause 1 in the future.

Number 7. 1. 2 Clause 4, Semi-clause 2: The Code recommends publishing interim reports within 45 days after the end of the reporting period. In relation to the publication of interim reports, BRAIN AG complies with statutory regulations as well as the Prime Standard stock exchange regulations of the Frankfurt Stock Exchange. The Management and Supervisory Boards regard these as appropriate, especially given the fact that BRAIN AG reports on the whole Group every quarter. Also in light of various unlisted subsidiaries and participating interests held abroad, publication within shorter periods would necessitate the deployment of considerable financial and personnel resources that would not be appropriately related to the information that shareholders need for a company of the size of BRAIN AG. As a consequence, the 45 days required in the Corporate Governance Code are not complied with. Publication nevertheless occurs within the 60-day period valid according to the Prime Standard regulations.

Number 7. 2. 1 of the Code recommends that, prior to submitting a proposal for election, the Supervisory Board or, respectively, audit committee, obtain a statement from the proposed auditor stating whether, and where applicable, which business, financial, personal and other relationships exist between the auditor and its executive bodies and head auditors on the one hand, and the enterprise and the members of its executive bodies on the other hand, that could call into question its independence. The selection of the current auditor occurred before the admission to stock market listing on the basis of previously chosen structures, without obtaining such a statement. A statement concerning the auditor’s independence nevertheless exists, which the auditor conveyed independently to the Supervisory Board. The company will comply with this recommendation in the future.

Zwingenberg, December 23, 2016

For the Supervisory Board of BRAIN AG
Dr Ludger Müller, Supervisory Board Chairman

For the Management Board of BRAIN AG
Dr Jürgen Eck, Management Board Chairman (CEO)