Statements of conformity 2017
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 Management and Supervisory boards of BRAIN AG declare that, since its last statement of conformity on 23 December 2016, BRAIN AG has complied with the recommendations of the “Government Commission German Corporate Governance Code” (DCGK) in the version dated 5 May 2015 (hereinafter referred to as “Code 2015”) until 24 April 2017 as well as in the version dated 7 February 2017 (hereinafter referred to as “Code 2017”) from 24 April 2017 (along with correction on 17 May 2017), and will continue to comply with them, with the following exceptions.
All differences state to which Code version the difference relates.
Code 2015 and Code 2017
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.
Code 2017
Number 4.2.3 (2) Clauses 2 and 3: The Code recommends that variable compensation elements should generally have a multi-year measurement basis relating mainly to the future. The company will amend in the fiscal year 2017/18 the Management Board contracts to comply with this recommendation in the future.
Code 2015 and Code 2017
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 in February 2016 do not include a severance pay cap. The company has taken this into consideration for the first time in the case of a Management Board contract concluded after the IPO, and will amend in the fiscal year 2017/18 the contract of the second Management Board member currently in office to comply with the recommendation in the future.
Code 2015 and Code 2017
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 based on 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 has taken this into consideration for the first time in the case of a Management Board contract concluded after the IPO, and will amend in the fiscal year 2017/18 the contract of the second Management Board member currently in office to comply with the recommendation in the future.
Code 2015 and Code 2017
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 amend in the fiscal year 2017/18 the contracts of Management Board members currently in office so as to comply with this recommendation in the future.
Code 2015 and Code 2017
Number 5.1.2 (2) Clause 3: The Code recommends setting an age limit for Management Board members. Given the age of the Management Board members in office, BRAIN AG has not set an age limit for the Management Board members to date. The Supervisory Board of BRAIN AG is reviewing whether such an age limit should be set in the future.
Code 2015 and Code 2017
Number 5.3.2 Clause 3 (Code 2015) and Number 5.3.2 Clause 5 (Code 2017): The Code recommends that the Audit Committee chair should be independent and not a former member of the company’s Management Board whose appointment ended less than two years previously. Dr Georg Kellinghusen was the CFO of BRAIN AG until his (re-)election to the Supervisory Board on 9 March 2017. The recommended two-year waiting period was not complied with as a consequence. The position of Audit Committee Chairman was conferred on Dr Kellinghusen thanks to his very good specialist qualifications and the sector knowledge he has acquired.
Code 2015
Number 5.4.1 (2) Clause 1: The Code recommends that the Supervisory Board should specify 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 intends to set specific targets for its future composition to enable the recommendation to be complied with in the future. Aspects of the company’s specific situation, the number of independent Supervisory Board members and diversity were taken into consideration as part of the election proposals and the new elections of Supervisory Board members on 9 March 2017.
Code 2017
Number 5.4.1 (2) Clauses 1 and 2: The Code recommends that the Supervisory Board should specify concrete targets for its composition and develop a competency profile for the overall board, which – while considering the specifics of the enterprise – take into appropriate 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 is based on the competency profile that was prepared. To date, no regulations have been set for an age limit and a limit for a regular duration of membership of the Supervisory Board. The Supervisory Board intends to set specific targets for its future composition encompassing all recommendations from Number 5.4.1 (2) Clause 2 to enable the recommendation to be complied with in the future.
Code 2015 and Code 2017
Number 5.6: The Code recommends that the Supervisory Board conduct a regular examination of the efficiency of its activities. The Supervisory Board launched an in-depth efficiency audit in the 2015/2016 financial year. This efficiency audit was continued taking into account the change in the Supervisory Board in the 2016/2017 financial year, and it was concluded in December 2017. The Supervisory Board will take its findings into consideration for the future.
Code 2015 and Code 2017
Number 7.1.2 (4) semi-clause 1 (Code 2015): The Code recommends publishing consolidated financial statements within 90 days after the financial year-end.
Number 7.1.2 Clause 3, semi-clause 1 (Code 2017): The Code recommends publishing consolidated financial statements and the group management report within 90 days after the financial year-end. Due to the additional financial accounting requirements as a listed company, the auditing of the financial statements lasted, and lasts, longer than 90 days, so that the audited figures cannot be published with the annual reports within 90 days after the financial year-end, but instead not until after 90 days have elapsed. Prospectively, this will also remain the case with future annual consolidated financial statements.
Code 2015 and Code 2017
Number 7.1.2 (4) semi-clause 2 (Code 2015): The Code recommends publishing interim reports within 45 days after the end of the reporting period.
Number 7.1.2 (4) semi-clause 2 (Code 2017): The Code recommends publishing mandatory interim financial information 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.
Zwingenberg, December 2017
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)