Statements of conformity 2018

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 the last statement of conformity on 20 December 2017, BRAIN AG has complied with the recommendations of the “Government Commission German Corporate Governance Code” in the version dated 24 April 2017 (with correction dated 17 May 2017), 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 equivalent to 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 generally unsuited 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 suitably qualified candidates.

Number 4.2.3 (2) Clauses 2 and 3 DCGK: The Code recommends that variable compensation elements should generally have a multi-year measurement basis relating mainly to the future. To this end, the company has decided that the variable compensation component in Management Board contracts should continue to be calculated applying a one-year measurement basis for the time being. However, the company regularly reviews whether to adjust Management Board compensation by way of mutual agreement. The company has also approved an employee stock ownership plan (ESOP) for the Management Board members, which ensures that they are exposed to a long-term incentive effect.

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 in the case of Management Board contracts concluded after the IPO.

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 has taken this into consideration in the case of Management Board contracts concluded after the IPO.

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.

Number 5.3.2 Clause 5: The Code recommends that the Audit Committee chair should be independent, and not be 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 thereby not complied with. 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.

Number 5.4.1 (2) Clauses 1 and 2: The Code recommends that supervisory boards set specific targets for their composition and develop a competency profile for the overall board. While considering the specifics of the enterprise, the composition of the supervisory board should 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. For the time, the Supervisory Board has decided being not to set any age limit and no normal limit for the duration of Supervisory Board membership. However, it engages with both of these issues in the case proposed elections to the Supervisory Board, taking the respective individual into consideration.

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 report within 90 days after the financial year-end, but instead not until after the expiry of 90 days. Prospectively, this will also remain the case with future annual consolidated financial statements.

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. Furthermore, 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 require for a company 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 or 90-day periods valid pursuant to Prime Standard regulations.

Zwingenberg, December 2018

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

For the Management Board of BRAIN AG:
Dr. Jürgen Eck, Chief Executive Officer (CEO)

Note: The statement of conformity was published on the Internet in December 2018 and will not be updated during the year.