DE

Statements of conformity 2020

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 was issued on 20 December 2019, BRAIN AG has complied with the recommendations of the “Government Commission on the German Corporate Governance Code” in the version dated 24 April 2017 (including correction dated 17 May 2017) with the following exceptions until 20 March 2020 (when the new version of the DCGK came into force).

  • 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: 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 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 5.4.1 (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: 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 Clause 3, semi-clause 2: 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 two- or three-month periods valid pursuant to Prime Standard regulations.

The Management and Supervisory boards of BRAIN AG declare that since the last statement of conformity on 20 December 2019, BRAIN AG has complied with the recommendations of the “Government Commission German Corporate Governance Code” in the version dated 20 March 2020 (“DCGK 2020”), and will continue to comply with them in the future, with the following exceptions.

  • Section B.5 DCGK 2020: An age limit shall be specified for members of the Board of Management and shall be stated in the corporate governance statement. The company has not yet set an age limit for members of the Supervisory Board. Given the age of the current Management Board members, BRAIN AG has not set an age limit for the Management Board members to date. Since the new GCGC 2020 also recommends an age limit, the Supervisory Board has decided on an age limit for the Management Board with effect from 11 December 2020. For this reason, a deviation is declared for the past with respect to the DCGK 2020.
  • Section C.2, semi-clause 1 DCGK 2020: An age limit shall be specified for members of the Supervisory Board and shall be stated in the corporate governance statement. The company has not yet set an age limit for members of the Supervisory Board. In the Supervisory Board’s opinion, this has enabled continuity and many years of expertise on the Supervisory Board in the interests of the company. As the new DCGK 2020 also recommends an age limit, the Supervisory Board has decided on an age limit for new members joining the Supervisory Board with effect from 11 December 2020. For this reason, a deviation is declared for the past with respect to the DCGK 2020.
  • Section D.1, semi-clause 2 DCGK 2020: The Supervisory Board shall adopt rules of procedure for itself and make them available on the company’s website. This is a new recommendation of the DCGK 2020 with regard to publication on the company’s website. The company’s existing rules of procedure for the Supervisory Board were not previously available on the company’s website. Following the entry into force of the DCGK 2020, the Supervisory Board adopted updated rules of procedure, which have been available on the company’s website since May 2020. For this reason, a deviation is declared for the past with respect to the DCGK 2020.
  • Section D.11 GCGC 2020: The Audit Committee shall regularly assess the quality of the audit of the financial statements. This is a new recommendation of the DCGK 2020. A formalized assessment of the quality of the audit of the financial statements by the Supervisory Board has not been performed in the past, although the quality of the audit has always been taken into account in the proposals for the appointment of the auditors. The formalized assessment by the Supervisory Board will take place for the first time after the end of the audit of the 2019/20 financial statements. For this reason, as a precaution, a deviation is declared here for the past.
  • Section F.2 GCGC 2020: The consolidated financial statements and the Group management report shall be publicly accessible within 90 days of the end of the financial year; the mandatory interim financial information shall be publicly accessible within 45 days of the end of the reporting period. 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. 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. Publication nevertheless occurs within the two- or three-month periods valid pursuant to Prime Standard regulations. The Management and Supervisory boards regard these as appropriate. Furthermore, in light of various unlisted subsidiaries and participating interests held abroad, publication of the consolidated financial statements and the Group management report as well as mandatory interim financial information 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 periods required in the Corporate Governance Code are not complied with.
  • Management Board compensation: Since publication of the DCGK 2020, recommendations G.1, G.2, G.3, G.4, G.7, G.9, G.10, G.11 and G.12 have not yet been implemented. The reasons for this are, firstly, the transitional provisions for the new regulations introduced into the German Stock Corporation Act (AktG) by the Act Implementing the Second Shareholders’ Rights Directive (ARUG II), and, secondly, the applicable agreements on Management Board compensation in the Management Board contracts still in force.
  • In detail: To the extent that section G of the DCGK 2020 links to the existence of a compensation scheme in the meaning of Section 87a AktG in the version applicable as of 1 January 2020, the corresponding recommendations could not yet be complied with, as the Supervisory Board - in accordance with the transitional provision of Section 26j of the Introductory Act to the Stock Corporation Act (EGAktG) - will pass a resolution concerning this new compensation scheme by the beginning of 2021 after in-depth discussion, and submit it to the company’s shareholders for approval at the 2021 Annual General Meeting. The remuneration structure applicable to date has been and will be reported on in the compensation report. The company is bound by the agreements entered into until the respective end of a Management Board member’s contract. In the course of the transfer of the position of Chief Financial Officer from Mr. Bender to Mr. Linnig in summer 2020, the Supervisory Board decided to initially structure the contractual conditions for Mr. Linnig in a manner comparable to previous Management Board contracts. If either of the two current Management Board members’ contracts are extended, the corresponding necessary adjustments to these contracts will be arranged on the basis of an approved compensation scheme. An earlier adjustment of the Management Board members’ contracts by mutual consent is not excluded.

Zwingenberg, December 2020

For the Supervisory Board of BRAIN AG:
Dr. Georg Kellinghusen, Supervisory Board Chairman

For the Management Board of BRAIN AG:
Adriaan Moelker, Chief Executive Officer (CEO)

Note: The statement of conformity was published on the Internet in December 2020 and will not be updated during the year.