1. Declaration of compliance 2017

Wording of declaration of compliance as of 17 March 2017

Declaration of Compliance 2017 by MOLOGEN AG pursuant to section 161 of the German Stock Companies Act as of March 17, 2017 

The Executive Board and Supervisory Board declare that the company has complied and will comply with the recommendations of the German Corporate Governance Code (Code) in the version dated 5 May 2015 (as published in the online Federal Gazette of 12 June 2015), with the following exceptions: 

The following numbers refer to the version of the Code mentioned above.

3 Cooperation between the Executive Board and the Supervisory Board

In Section 3.8 Para. 3, the Code recommends that, if a company takes out a directors’ and officers’ liability (D&O) insurance for its supervisory board, a deductible should be agreed for the supervisory board. The D&O insurance for the Supervisory Board taken out by MOLOGEN AG does not contain a deductible. The company is not of the opinion that the care and responsibility which the members of the Supervisory Board bring to their duties would be improved by a deductible in the D&O insurance.

4.1 Executive Board – duties and responsibilities

In Section 4.1.5 Sentence 1, the Code recommends that the executive board should pay attention to diversity when filling management positions and, in particular, aim for an appropriate consideration of women. The Executive Board has set target figures for the proportion of women in the two management levels below the Executive Board. The company has adopted a corresponding target for the proportion of women in accordance with Section 289a Para. 2 No. 4 of the HGB. No consideration has been given to further criteria of diversity in filling positions at management level and neither is this planned for the future. In this respect, there is a partial discrepancy. The Executive Board considers it appropriate that the selection of staff for management positions is principally based on their personal expertise and level of competence.

4.2 Executive Board – composition and compensation

Pursuant to Section 4.2.3 Para. 2 Sentence 6 of the Code, the amount of compensation must be capped both overall and for variable compensation components. Members of the Executive Board are included in a share option program for employees of the company. After a stipulated waiting period, the share options give the right to subscribe to shares in the company at a set price. Whereas the number of shares to be allocated is limited from the outset, no limit is set for the upside potential during the exercise period for the shares. The Supervisory Board is of the view that limiting the increase in value of the share price-related remuneration would contradict the fundamental aim of this type of compensation and would diminish its main incentive, which is to work towards increasing the value of the company. In addition, the Supervisory Board is not of the conviction that the Executive Board should benefit less than the remaining shareholders from any increase in share price. Given that there is no total limitation on the amount applied to all variable compensation components for members of the Executive Board, there is therefore also no cap on the amount of compensation overall. This represents a deviation from Section 4.2.3 Para. 2 Sentence 6 of the Code.

Pursuant to Section 4.2.3 Paras. 4 and 5 of the Code, when concluding Executive Board contracts, it is important to bear in mind that payments made to a member of the Executive Board on premature termination of their contract, including fringe benefits, should not exceed the value of two years’ annual remuneration (severance pay cap) and should not compensate more than the remaining term of the employment contract. Furthermore, the Code recommends that payments promised in the event of premature termination of an Executive Board member’s contract resulting from a change of control should not exceed 150% of the severance pay cap. The Supervisory Board has defined a severance pay cap for premature termination of Executive Board duties to a maximum of two times the fixed annual remuneration, which is in compliance with the recommendations in Section 4.2.3 Para. 4 of the Code. In the event of a change of control, the Executive Board members are entitled to a severance payment, which is limited to a maximum of two years’ remuneration, depending on the date of departure. This consequently falls short of the recommendation in the change of control clauses of the Code for limitation to 150% of the severance cap, which corresponds to three times the annual remuneration. However, in the event of a change of control, share options previously granted to Executive Board members become vested, which means it cannot be ruled out that the options combined with the remaining severance payment together exceed the recommended limitation in certain individual cases. In this respect, the company discloses a deviation from Section 4.2.3 Para. 5 of the Code. According to the Supervisory Board, the promise of payment in the event of premature termination of an Executive Board member’s contract resulting from a change of control is an appropriate regulation that respects the interests of all. While the fact that the options become vested can in combination with the remaining severance payment lead to the recommended cap being exceeded in individual cases, the inclusion of the vested options in performance-based remuneration ensures that the Executive Board member continues to act in the recognized long-term interests of the company prior to their possible departure from the company in the event of a potential change of control. 

Section 4.2.3 Para. 6 of the Code recommends that the chairman of the supervisory board should provide one-time information to the Annual General Meeting on the salient points of the compensation system and then of any subsequent changes. The main points of the Executive Board compensation system and any changes are outlined in the management report and included in the Annual Report. It has not been the custom in the past to inform the Annual General Meeting again separately of the compensation system and any changes nor are there any plans to do so in the future, as the relevant information is included in the Annual Report, as mentioned above, and is therefore available to shareholders.

Pursuant to Section 4.2.5 Para. 3 of the Code, the remuneration report for financial years beginning after 31 December 2013 shall include the following for each member of the Executive Board: (i) the benefits granted for the year under review including fringe benefits as well as the maximum and minimum achievable compensation in the case of variable compensation components, (ii) the allocation of fixed compensation, short-term variable compensation and long-term variable compensation in/for the reporting year, broken down into relevant reference years, and (iii) in relation to pension provisions and other benefits, the service cost in/for the year under review. The reference tables provided in appendix by the Code shall be used to present this information. The company currently deviates from Section 4.2.5 Para. 3 of the Code. The compensation of the Executive Board is disclosed in a transparent manner in the remuneration report in accordance with statutory provisions. Disclosure beyond this does not seem necessary to satisfy the legitimate interest of shareholders and investors in information. 

5.3 Supervisory Board – formation of committees

In Section 5.3.1 to Section 5.3.3, the Code recommends the formation of professionally qualified committees by the supervisory board, depending on the specific circumstances and number of members. In addition, recommendations are provided in Section 5.2 Para. 2 and Section 5.3.2 relating to the chairmen of the respective committees. For example, the chairman of the supervisory board shall at the same time be chairman of the committees which deal with executive board contracts, but should not be chairman of the audit committee. The Supervisory Board of MOLOGEN AG, which consists of three members, has so far not formed any committees owing to its low number of members. Specifically, no Audit Committee or Nomination Committee have been formed. While the number of members remains as low as it is at present, no committees will be formed in the future. Consequently, the recommendations of the Code regarding the formation of committees and the appointment of a chairman to such committees as outlined in Sections 5.2 and 5.3 and sub-points have not been met so far, nor will they be in the future.

5.4 Supervisory Board – composition and compensation

Section 5.4.6 Para. 1 of the Code recommends that the chairmanship and deputy chairmanship of the supervisory board as well as the chairmanship and membership of committees should be taken into consideration as regards the compensation of the members of the supervisory board. The compensation of the Supervisory Board provided for in the current Articles of Association only takes into account the chairmanship of the Supervisory Board. The Code’s recommendation was not complied with in the past and is also not currently being met. However, the Executive Board and Supervisory Board no longer regard the existing remuneration arrangements as appropriate in consideration of the greater demands being placed on the activities of the Deputy Chairman of the Supervisory Board and the associated increase in workload. It shall therefore be proposed to the Annual General Meeting of the company that remuneration takes account of the deputy chairmanship. If the Annual General Meeting approves a corresponding resolution proposal, there will no longer be a deviation from the recommendation in Section 5.4.6 Para. 1 of the Code, once the corresponding amendment to the Articles of Association has been recorded in the Commercial Register relevant to the company. 

Berlin, March 2017

MOLOGEN AG

Executive Board

signed Dr. Mariola Söhngen (CEO) signed Walter Miller (member)

Supervisory Board

signed Oliver Krautscheid (Chairman)

 

 

 

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