Declaration on corporate governance

The Management and Supervisory boards of B.R.A.I.N. Biotechnology Research and Information Network AG (hereinafter referred to as BRAIN AG or the company) are oriented to sustained commercial and financial performance while fulfilling their societal responsibility. Transparency, responsibility and sustainability are the guiding values of their actions. This statement combines the corporate governance statement of BRAIN AG pursuant to Section 289f of the German Commercial Code (HGB) and the Group corporate governance statement for the BRAIN Group pursuant to Section 315d HGB. It comprises the statement of conformity pursuant to Section 161 of the German Stock Corporation Act (AktG), relevant information about corporate governance practices, the description of Management and Supervisory boards’ working methodology, as well as the composition of their committees.

Statement by the Management and Supervisory boards of the conformity of BRAIN AG with the German Corporate Governance Code (DCGK) pursuant to Section 161 (1) Clause 1 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 2-months or 3-months 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.

Relevant information about corporate governance practices

The corporate structure is oriented to the responsible, transparent and efficient management and controlling of the company. For this reason, the company also supports the targets and principles of the German Corporate Governance Code (DCGK). The Management and Supervisory boards as well as the other management levels and employees are obligated to adhere to these principles of responsible corporate governance. The Management Board is responsible for compliance with corporate governance principles within the company.

BRAIN AG has established compliance structures in the light of the company’s current size, and will further develop them in relation to growing requirements imposed by the regulatory environment and with a view to the company’s development and growth.

BRAIN AG has also established whistle-blower arrangements for potential misconduct on the part of its own employees. Employees can notify the whistle-blower office of potential misconduct, either anonymously or openly. After initial allocation, and depending on the corporate areas involved, the whistle-blower office forwards such notification to the Management Board and/or Supervisory Board to instigate countermeasures in the instance of actual misconduct, or for archiving at the whistle-blower office if it is established that no misconduct has occurred.

Furthermore, BRAIN AG has decided to obligate its subsidiaries' managers to comply with closed periods 30 days before the publication of business results. This enables transparent communication with the respective managers in the periods preceding the publication of business results, and ensures that the same governance rules apply to the persons involved.

The purpose of BRAIN AG and of the BRAIN Group is to identify, research, develop, produce and market biological, biochemical and biotechnology processes and products, especially enzymes, biocatalysts, microorganisms and other bioactive natural compounds for industrial applications at chemical companies, for the production of foodstuffs and animal feed, cosmetics and medical products, for the disposal of waste and hazardous materials, as well as to produce energy and raw materials, including the development, production and marketing of such processes and products that contain bioactive components, are based on biotechnical mechanisms, exhibit bioactive effects, or enable biotechnology applications. Within the BRAIN Group, services are also rendered for the pharmaceuticals industry.

The company complies with all statutory corporate governance regulations as well as the recommendations of the German Corporate Governance Code (DCGK) – apart from the exceptions specified and justified in the statement of conformity.

As far as the DCGK recommendations are concerned, the company also intends to comply with them in the future.

The Articles of Association of the Company can always be viewed on the Company's website at www.brain-biotech.com/investors/corporate-governance.

Transparency

The shares of BRAIN AG are listed in the Prime Standard segment of the Frankfurt Stock Exchange. The company is thereby subject to the highest level of statutory and stock exchange law transparency regulations. In particular, BRAIN AG reports on the situation and development of the company and Group in both German and English in the following form:

  • annual financial report for the financial year,
  • interim financial report as of the first half of the financial year (6M),
  • quarterly statements as of the first quarter (3M) and after the first nine months of the financial year (9M),
  • quarterly conference call calls,
  • corporate presentations,
  • publication of insider information, corporate announcements and IR announcements,
  • publication of notifications of shareholding threshold levels,
  • publication of ad hoc statements,
  • publication of PR, IR and marketing releases.

Corporate responsibility and ESG

As corporate responsibility and ESG issues become more important, the Supervisory Board, the Management Board and employees are paying more attention than ever to the resultant aspects. Consequently, BRAIN AG intends to prepare a corporate responsibility report for the next financial year. Adriaan Moelker holds Management Board responsibility for Corporate Responsibility and ESG.

Description of the Management and Supervisory boards’ working methodology as well as composition and working methodology of the Supervisory Board’s committees

BRAIN AG is a public stock corporation under German law and the parent company of the BRAIN Group with subsidiaries in Germany, France, England and the USA. It is especially subject to the regulations of the German Stock Corporation Act (AktG), and also operates the normal dual executive and supervisory structure consisting of a management board and a supervisory board. The company’s Management and Supervisory boards work together closely in the company’s interest.

The Supervisory Board consults regularly with the Management Board concerning the management of BRAIN AG, and supervises the Management Board’s activities. The Management Board involves the Supervisory Board in good time concerning all decisions of fundamental significance for the company. It coordinates the company’s strategic orientation with the Supervisory Board, and discusses with it the status of strategy implementation at regular intervals. The Management and Supervisory boards’ joint goal is to successfully implement the corporate and growth strategy that has been approved.

Management Board working methodology

The Management Board manages the company’s business according to statutory regulations, the company’s bylaws and the rules of business procedure for the Management and Supervisory boards. It is subject in this context to the restrictions that the company’s bylaws or the Management and Supervisory boards’ rules of business procedure have established in relation to the power to manage the business, or which the Supervisory Board or the AGM determine within the scope of their powers. It informs the Supervisory Board regularly, promptly and comprehensively in the form of detailed written and verbal reports on all questions of relevance to the company relating to strategy, planning, business development, the risk position, risk management and compliance. The Management Board prepares the separate and consolidated annual financial statements.

Pursuant to Section 7 (1) of the company's bylaws, the Management Board consists of one or several individuals. The Supervisory Board determines the number of Management Board members. The Supervisory Board appoints the Management Board members, recalls them from office, and determines the allocation of their responsibilities. It can also appoint a Management Board Chair (CEO) and a Deputy Management Board Chair, as well as deputy Management Board members.

Composition of the Management Board

During the 2019/2020 financial year, the Management Board of BRAIN AG consisted of the following members.

Name Function Management Board member since Mandate end Contract end
Dr. Jürgen Eck Chief Executive Officer 21 June 2000 31 December 2019 30 June 2020
Adriaan Moelker Chief Executive Officer 1 February 2020 31 January 2024
Manfred Bender Chief Financial Officer 1 December 2018 30 September 2020 30 September 2020
Ludger Roedder Chief Business Officer 1 January 2019 7 July 2020 31 December 2020

All Management Board members are individually responsible for managing the business division with which they are entrusted; the company’s overall interest has to be taken into consideration at all times in this context. The allocation of business areas to the individual Management Board members is derived from the business allocation plan that is prepared with the Supervisory Board’s approval, and can be modified at any time with its approval.

The business allocation plan includes the following allocations during the 2019/20 financial year:

Dr. Jürgen Eck (Chief Executive Officer – CEO):

  • Business development of the BioScience segment
  • Technology management, research and development, technological process optimization
  • Grants and academic partnerships

Adriaan Moelker (Chief Executive Officer - CEO):

from February 2020

  • Corporate strategy
  • Coordinating the individual Management Board areas and contacts with the company's boards
  • Business development of the BioScience segment
  • Business development of the BioIndustrial segment
  • Press and public relations work (corporate communications)
  • Technology management, research and development, technological process optimization
  • Personnel, purchasing
  • Grants and academic partnerships
  • IT, digitalization
  • Product development
  • Formulation and application technology
  • Production, scale-up
  • Innovation management
  • Registration and approval
  • Patent strategy

Manfred Bender (Chief Financial Officer – CFO):

  • Coordinating the individual Management Board areas and contacts with the company's boards (until February 2020)
  • Corporate strategy (until February 2020)
  • Press and public relations (corporate communications) (until February 2020)
  • Financial communications (IR)
  • Accounting and controlling
  • Personnel (until February 2020)
  • Compliance and quality assurance
  • Risk management
  • Legal, administration and organization, Group audit
  • IT, digitalization (until February 2020)
  • Purchasing (until February 2020)
  • Management of equity interests, M&A (corporate finance)
  • Business process optimization (until February 2020)

Ludger Roedder (Chief Business Officer – CBO):

until February 2020

  • Business development of the BioIndustrial segment
  • Product development
  • Formulation and application technology
  • Production, scale-up
  • Registration and approvals, commercialization strategy
  • Innovation management
  • Patent strategy
  • Press and public relations work (market and customer communications)

from February 2020

  • Development and expansion of the US and South American markets
  • Establishment of a joint US sales office
  • M&A US market

The Management Board has a set of rules of business procedure. The rules of business procedure for the Management Board were approved by the Supervisory Board and last updated on 27 February 2019. These particularly include regulations about the working methodology of the Management Board and the allocation of responsibilities between the Management Board members, as well as relating to collaboration with the Supervisory Board. They include a catalog of actions and legal transactions requiring Supervisory Board assent.

The Management Board has a set of rules of business procedure. The rules of business procedure for the Management Board were approved by the Supervisory Board and the allocation of business responsibilities was last updated in February 2020 in accordance with the Management Board’s proposal. These particularly include regulations about the working methodology of the Management Board and the allocation of responsibilities between the Management Board members, as well as relating to collaboration with the Supervisory Board. They include a catalog of actions and legal transactions requiring Supervisory Board assent.

The Personnel Committee of the Supervisory Board undertakes discussing long-term succession options with the Management Board. The Management Board and the Supervisory Board agree on requirements for the appointment of successors based on the planned development of the Company, which provide guidelines for the selection of candidates. The Supervisory Board strives to achieve a staggered duration of the mandates in the future, if possible, by means of mandate extensions or new appointments, so that it would not be necessary to fill several mandates of the Management Board at the same time, if no scheduled mandate extension takes place.

After the end of the reported fiscal year, the Supervisory Board decided on an age limit of 65 years for members of the Management Board.

Management Board meetings

Management Board meetings are held as required, which is generally every two weeks. They must be convened if the company’s interests so require. Management Board resolutions are passed with a simple majority of the votes cast, unless statutory provisions prescribe another majority. If the Management Board consists of at least three members, the vote of the Management Board Chair (CEO) is decisive given an equal number of votes.

Collaboration with subsidiaries

At least once a quarter, the Management Board of BRAIN AG and the management of the subsidiaries meet in person or hold conference calls on the course of business and forthcoming developments at the subsidiaries. The subsidiaries report monthly to BRAIN AG and consult with the Management Board at short notice in the event of deviations from the planning or forecast. The Management Board reports to the Supervisory Board on reporting and coordination with the subsidiaries and, if requisite, consults with it separately on individual topics.

Management Board compensation

The Supervisory Board sets Management Board compensation at an appropriate level on the basis of performance appraisal and reflecting any Group remuneration. It also regularly reviews such compensation. When setting and reviewing Management Board compensation, the Supervisory Board takes into consideration the fact that – pursuant to the provisions set out in Section 87 (1) AktG – the total compensation of an individual Management Board member must be suitably related to the Management Board member’s responsibilities and performance as well as the company’s position, and must not exceed normal compensation without special reasons. Consequently, particular criteria for setting appropriate Management Board compensation include the tasks and responsibilities of the individual Management Board members, their personal performance, the performance of the overall Management Board, the company’s business and financial position, the company’s success and future prospects, and the level and structure of Management Board compensation at comparable companies. The compensation scheme of BRAIN AG is oriented to the company’s sustainable development and growth. Compensation is set so that it is competitive in a national and international comparison, thereby offering an incentive for committed and successful work.

The Management Board compensation scheme is especially oriented to the company’s sustainable development and growth. The monetary compensation components include fixed elements and one variable element. The Supervisory Board in each case sets the targets for one-year variable compensation for one financial year. A subsequent change of the assessment parameters is not foreseen. Variable compensation can take both positive and negative developments into account. Along with these elements, the Management Board members receive ancillary benefits such as contributions to insurance policies and pensions. The employee stock ownership plan, which has also been updated, ensures long-term incentive effects for the Management Board members.

A remuneration scheme in accordance with the requirements of Section 87a of the German Stock Corporation Act (AktG) will be submitted for approval to the shareholders at the next Annual General Meeting, scheduled for 10 March 2021, in accordance with Section 120a of the German Stock Corporation Act.

The Company has taken out a directors' and officers' liability insurance (D&O insurance) for the members of the Management Board and the Supervisory Board with an appropriate deductible in accordance with Section 93 (2) sentence 3 German Stock Corporation Act (AktG) (Management Board).

Detailed information on the compensation structure and compensation of the individual members of the Management Board and the compensation of the members of the Supervisory Board can be found in the compensation report as part of the Group management report of the Company. This can be found in the notes to the consolidated financial statements.

Notifiable securities transactions

The Management and Supervisory board members, other individuals with management regularly access to the company’s insider information and who are authorized to take important business decisions as well as certain individuals closely related to the aforementioned, are obligated by law to disclose to BRAIN AG the purchase and sale of BRAIN shares and related financial instruments, especially derivatives, from upwards of an amount of € 20,000 in the calendar year. Notifications of corresponding transactions are also published on our website at www.brain-biotech.com/investors. For the 2019/20 financial year, the company was notified of such a securities transaction by Adriaan Moelker (published on 8 June 2020). Adriaan Moelker purchased shares for a price totaling € 42,500.00.

Supervisory Board working methodology

The Supervisory Board has all responsibilities and rights transferred or allocated to it by law, the company’s bylaws, or in another manner. This especially includes supervising the executive management of the company, the appointment and dismissal of Management Board members, as well as the amendment, cancellation and termination of employment contracts with the Management Board members. The Supervisory Board consults regularly with the Management Board concerning the management of the company. The Supervisory Board is involved in good time in all decisions of fundamental significance for the company. The Supervisory Board has established a set of rules for its own business procedures. These include, among other matters, the working methodology and type of passing of resolutions on the Supervisory Board, as well as the tasks of the Supervisory Board committees that are formed (the Audit Committee, the Personnel Committee, the M&A Committee and the Nomination Committee). Separate sets of rules are also approved through the committees to regulate their working methodologies. All rules of business procedure are adapted regularly to reflect any modifications to the German Corporate Governance Code (DCGK).

The Supervisory Board met for a total of five face-to-face meetings in the 2019/20 financial year. Otherwise the committees held six face-to-face meetings, and the Supervisory Board and its committees held nineteen conference calls. The Audit Committee held one face-to-face meeting and four conference calls in the 2019/20 financial year. The Personnel Committee held three face-to-face meetings in the 2019/20 financial year. The Nomination Committee held two face-to-face meetings and six conference calls in the 2019/20 financial year. The M&A Committee held no face-to-face meetings in the 2019/20 financial year. The Innovation Committee held no face-to-face meetings in the 2019/20 financial year. The M&A Committee and the Innovation Committee were dissolved as of May 2020, and have been replaced by bundled strategy meetings.

At the request of the Supervisory Board Chair, the Management Board participates in all ordinary Supervisory Board meetings, reports both in writing and verbally on all agenda items and proposed resolutions, and responds to questions from individual Supervisory Board members. The Supervisory Board Chair has the Management Board provide regular information concerning current business, forwarding such information in an appropriate form to the entire Supervisory Board.

Supervisory Board resolutions are generally passed at face-to-face meetings of the Supervisory Board members. Absent Supervisory Board members can submit a written vote through another Supervisory Board member. This also applies for the submission of the second vote of the Supervisory Board Chair. Outside the scope of attended meetings, the passing of resolutions is permissible through votes conveyed by written, telegram, telephone, telex or modern telecommunications means (by conference call or video conference or by email, for example), if so arranged for special reasons by the Supervisory Board Chair, or, if the Supervisory Board Chair is prevented from so doing, the Deputy Supervisory Board Chair. The Supervisory Board is considered quorate if all members are convened in good time via their last provided address, and at least half of the members of which it is to consist in total participate in the passing of the resolution. Supervisory Board members also participate in the passing of a resolution if they abstain from voting. Supervisory Board resolutions are passed with a simple majority of votes submitted, unless other majorities are required by law. This is also applicable in the case of elections. Abstentions are not counted when determining the results of voting. Given an equal number of votes, the Supervisory Board Chair – or if the Supervisory Board Chair is prevented from so doing, the Deputy Supervisory Board Chair – decides whether a further vote is to be held at the same meeting. Given a further vote on the same matter, the Supervisory Board Chair has two votes; the Deputy Supervisory Board Chair does not have this right to a second vote.

All Supervisory Board members must disclose conflicts of interest to the Supervisory Board, including potential conflicts of interest based on advising, or being a director of, a customer, supplier, lender or other third party, whereby this list is not conclusive. In the case of conflicts of interest that are significant or not just of a temporary nature, the respective Supervisory Board members must step down from office. The Supervisory Board provides information in its report to the AGM on conflicts of interest that arise and how they are handled. No conflicts of interest arose in the reporting period.

The Supervisory Board completed a self-assessment in August 2020. In order to conduct the self-assessment, the current situation was appraised based on questionnaires, and the results of the questionnaires were discussed by the Supervisory Board. After evaluating the results, the Supervisory Board notes that it performs its activities efficiently overall. Potential improvements identified as part of the audit are taken into consideration for the future. The Supervisory Board plans to conduct the next self-assessment in the 2022 calendar year.

Composition of the Supervisory Board

Pursuant to Section 9 (1) of the company’s bylaws, the Supervisory Board of BRAIN AG consists of six members elected by the AGM. Unless the AGM approves a shorter period for the election of individual members – or for the entire Supervisory Board – the Supervisory Board members are appointed until the end of the Ordinary AGM that approves the discharge for the third financial year after the start of the period of office. The year in which the period of office starts is not included in the calculation. Re-election is permissible. When a Supervisory Board member is elected, a replacement member can be elected at the same time who moves up to the Supervisory Board if the Supervisory Board member steps down before the end of the respective period of office without a successor having been appointed. The appointment of the replacement member moving up to the Supervisory Board in this manner lapses as soon as a successor for the departing member has been appointed, although this is to occur at the latest as of the end of the period of office of the departing Supervisory Board member.

The term of office of Dr. Martin B. Jager ended on 31 January 2020, when he stepped down from the Supervisory Board. The term of office of Dr. Rainer Marquardt ended with immediate effect on 27 February 2020, when he stepped down. The Supervisory Board consisted of four members from that date. As the Supervisory Board remained fully capable of acting and making decisions with this composition, no short-term court appointment was made. Rather, the selection process for proposals for new members was conducted in accordance with Section 104 (2) Clause 1 of the German Stock Corporation Act (AktG).

During the 2019/20 financial year, the Supervisory Board consisted of the following individuals:

Dr. Georg Kellinghusen, Chairman
Dr. Martin B. Jager, Deputy Chairman (stepped down as member of the Supervisory Board as of 31 January 2020)
Dr. Anna C. Eichhorn, Deputy Chair (since 23 February 2020)
Prof. Dr. Bernhard Hauer, Supervisory Board member
Dr. Michael Majerus, Supervisory Board member
Dr. Rainer Marquart, Supervisory Board member (stepped down as member of the Supervisory Board as of 27 February2020)

All members of the Supervisory Board are independent in the meaning of Section 5.4.2 and C.6, C.7, C.9 of the GCGC.

The recommendations in Section 5.4.5 2nd paragraph, 2nd sentence or C.4 and C.5 of the CCGC regarding the total number of mandates held are complied with by the Supervisory Board members.

The competency profile and the objectives of the Supervisory Board are composed as follows: the Supervisory Board is of the opinion that one third of its members should cover with particular expertise the areas of entrepreneurship/new business as well as corporate finance/capital markets and the sector and fulfills all self-imposed requirements in the intended number, taking into account the members of the Supervisory Board reappointed in October. Moreover, the Supervisory Board regards the recruiting of a further individual with knowledge of the North American market of relevance to the company as a medium-term objective. In terms of diversity, the Supervisory Board wishes to continue for the time being with the ratio of women that it has achieved. The women's quota had already been reached. Taking into account the members of the Supervisory Board reappointed in October, the women's quota has increased further. The Supervisory Board has set an age limit of 75 years for Supervisory Board members who are newly elected. To date, the Supervisory Board has not set a limit for the maximum length of service.

In the course of the selection process for the reappointment of two Supervisory Board mandates, care is taken to ensure that proposals for new members match the competence profile.

Committees

The Management Board of BRAIN AG has not formed any committees.

The Supervisory Board had formed a total of five committees to efficiently perform its work: an Audit Committee, a Personnel Committee, a Nomination Committee, a M&A Committee and an Innovation Committee. The committees prepare resolutions for the Supervisory Board as well as agenda items to be handled by the plenary meeting. In all cases, the committee chairs report on the committees’ work at the subsequent meeting. The M&A Committee and the Innovations Committee were dissolved by way of resolution dated 28 May 2020. The Supervisory Board met in August of this year for a strategy meeting, and plans to continue this at six-monthly intervals. As part of the strategy meeting, topics previously dealt with in the two former committees will also be discussed.

Audit Committee

The Audit Committee consists of the following individuals until the end of their respective periods of office (the chair and up to two further members):

Name Position Independence
Dr. Michael Majerus Chairman yes
Dr. Georg Kellinghusen Member yes
Dr. Rainer Marquart, until 27 February2020 Member yes
Dr. Anna C. Eichhorn, since 05 March 2020 Member yes

The information on independence refers to the two versions of the GCGC applicable in the 2019/20 fiscal year and the criteria for assessing independence stated therein.

The Audit Committee concerns itself especially with the supervising of financial accounting, the financial accounting process, the efficacy of the internal control system, the risk management system, the internal audit system, the audit of the financial statements, as well as compliance. The Audit Committee submits a substantiated recommendation for the election of the auditor to the Supervisory Board, which comprises of at least two candidates if the audit mandate is to be put out to tender. The Audit Committee supervises the auditor’s independence and concerns itself with services to be rendered additionally by the auditor, the award of the audit mandate to the auditor, the setting of focus audit areas, as well as arranging the auditor’s fee.

Pursuant to the German Stock Corporation Act (Sections 107 (4), 100 (5) AktG), the audit committee must include at least one supervisory board member with expertise in the financial accounting or financial auditing areas. The Audit Committee Chairman, Dr. Michael Majerus, meets the statutory conditions pursuant to the German Stock Corporation Act (Sections 107 (4), 100 (5) AktG), and also possesses specialist knowledge as a head of financial accounting and CFO, including at three listed companies. His activities focus on controlling, financial questions and financial accounting, among other areas. Moreover, he commands a broad spectrum of knowledge in compliance topics as well as in the investor relations area.

Personnel Committee

The Personnel Committee consists of the following individuals until the end of their respective periods of office (the chair and up to two further members):

Name Position
Dr. Georg Kellinghusen Chairman (independent within the meaning of section C.10, GCGC in force since March 20, 2020)
Dr. Martin B. Jager, until 31 January 2020 Member
Dr. Michael Majerus Member

The Personnel Committee concerns itself mainly with personnel matters relating to the Management Board. In particular, it plays a preparatory role for the Supervisory Board in the selection, appointment and recall from office of Management Board members, the agreeing and supplementation of Management Board contracts and pension arrangements, setting the compensation scheme for Management Board members and its implementation in the Management Board contacts, target setting for the variable compensation, setting and reviewing the appropriateness of overall compensation of each individual Management Board member, and approving the annual compensation report. It also submits recommendations for resolutions. Moreover, the Personnel Committee can pass resolutions on the Supervisory Board’s behalf in relation to the following matters: certain legal transactions with Management Board members (e. g. in the meaning of Section 112 of the German Stock Corporation Act [AktG]), and approving Management Board members’ outside activities pursuant to Section 88 AktG, especially where Supervisory Board mandates outside the BRAIN Group are accepted.

Nomination Committee

The Nomination Committee consists of the following individuals until the end of their respective periods of office (the chair and up to two further members):

Name Position
Dr. Georg Kellinghusen Chairman
Dr. Anna C. Eichhorn Member

The Nomination Committee submits appropriate candidates to the Supervisory Board for it to propose to the AGM for election. Until further notice, two Supervisory Board members belong to the Nomination Committee.

M&A Committee

Until 28 May 2020, the M&A Committee consisted of a chair and up to three further members. The committee was dissolved with effect from 28 May 2020. No meetings or conference calls were held after 31 January 2020:

Name Position
Dr. Martin B. Jager, until 31 January 2020 Chairman
Dr. Georg Kellinghusen Member
Dr. Rainer Marquart, until 27 February 2020 Member

The M&A Committee advised the Management Board on all relevant strategic matters relating to the initiation and implementation of M&A transactions, especially in reviewing the strategic conformity of planned M&A measures, the implementation of acquisitions and disposals of companies or parts of companies, the valuation of target companies or transactions, the structuring and financing of transactions, the transaction-specific selection of suitable advisors, and the planning and implementation of integration scenarios. The M&A Committee prepared the decisions of the Supervisory Board in relation to the initiation and execution of M&A transactions, and prepares recommendations for Supervisory Board resolutions.

Innovation Committee

The Innovation Committee was dissolved by way of resolution dated 28 May 2020. Until 28 May 2020, it consisted of the following individuals (a chair and up to two further members):

Name Position
Dr. Anna C. Eichhorn Chair
Dr. Martin B. Jager, until 31 January 2020 Member
Prof. Dr. Bernhard Hauer Member

The Innovation Committee advised the Management Board on all matters concerning the company’s innovation strategy and innovation management, especially in relation to the design and development of new pro-ducts and applications, the allocation of individual projects to business segments or subsidiaries, and the initiation and implementation of research and development partnerships. The Innovation Committee prepared the Corporate governance report — Corporate governance statement decisions of the Supervisory Board in relation to innovation strategy and innovation management, as well as related recommendations for Supervisory Board resolutions. The Innovation Committee held two meetings.

Remarks concerning the working methodology of the Management Board, the Supervisory Board, and the committees in the financial year are also presented in the report by the Supervisory Board, which is included in the annual report of BRAIN AG.

Dialog with investors

The Supervisory Board discussed the suggestion from Number 5.2 (2) and A.3 of the German Corporate Governance Code (DCGK), and was in favor of the Supervisory Board Chairman being available to answer investors’ questions relating specifically to the Supervisory Board. The Management Board of BRAIN AG also welcomes this move.

Supervisory Board compensation

Pursuant to Section 14 (1) of the company’s bylaws, all Supervisory Board members receive not only reimbursement of their outlays but also a fixed annual payment of € 15,000.00. The Supervisory Board Chair receives twice this amount, and the Deputy Supervisory Board Chair receives one and a half times this amount. Supervisory Board members who have not been Supervisory Board members for a full year of service receive the aforementioned compensation pro rata temporis to the level of one twelfth for each month of service they commence. Furthermore, all Supervisory Board members a meeting fee of € 1,000.00 for each meeting of the Supervisory Board and Committees they attend. The chairs of the Supervisory Board committees also receive an annual payment of € 15,000.00.

For the members of the Supervisory boards, the company has taken out D&O (directors & officers) insurance cover. No deductible was arranged for Supervisory Board members.

The Compensation Report, which forms part of the company’s Group Management Report, provides precise information about the compensation of the Supervisory Board members. This report is presented in the notes to the consolidated financial statements.

Commitment to promote participation by women in management positions pursuant to Section 76 (4) and Section 111 (5) of the German Stock Corporation Act (AktG)

At its meeting on 23 September 2016, the Supervisory Board of BRAIN AG passed a resolution that the Supervisory Board should include one woman, corresponding to a 17 % ratio. The deadline for implementation was set at 30 June 2017. This objective was implemented on 9 March 2017 when Dr. Anna C. Eichhorn was elected to the Supervisory Board of BRAIN AG. The retention of this goal was confirmed at the meeting on 28 September 2017 for the period until 30 June 2022. As a consequence of the court replacement of Supervisory Board members after the end of the financial year at the company’s request in accordance with Section 104 (2) Clause 1 AktG, the proportion of women on the Supervisory Board increased to 33% with the appointment of Prof. Dr. Treffenfeldt, and the company plans to propose Dr. Eichhorn and Prof. Dr. Treffenfeldt for election or re-election at the Annual General Meeting on 10 March 2021. Also on 28 September 2017, the Supervisory Board passed a resolution to leave the ratio of women for the Management Board of BRAIN AG unchanged at 0 % until 30 June 2022.

The Management Board is composed exclusively of men at present. For the first management level below the Management Board, the Management Board of BRAIN AG passed a resolution to set a 14 % target for participation by women and determined that this goal should be implemented by 30 June 2017. This target was reached with a level of 14 % on 30 June 2017.

As a consequence, the Management Board of BRAIN AG has set the target for the proportion of women at the first management level below the Management Board at 14 %, with a deadline for implementation by the end of 30 September 2020. With the end of the implementation period mentioned above, the proportion of women at the first management level was reached.

Considering the management matrix structure established within the company, especially including command and reporting lines between Management Board and subordinated levels, as well as taking into consideration the company’s size, only one management level exists below the Management Board in the meaning of Section 76 (4) AktG.

Shareholders and AGM

The shareholders exercise their co-management and controlling rights at the Shareholders’ General Meeting (the Annual General Meeting/AGM), which is chaired by the Supervisory Board Chair pursuant to the company’s bylaws. Each share in BRAIN AG grants one vote. Shareholders can exercise their voting rights at the AGM itself, or have it exercised by a proxy of their choosing or by a company proxy. The Management Board is authorized to ensure that shareholders that do not attend the AGM can also participate in the AGM and exercise their rights wholly or partly by way of electronic communications (online participation), or to issue their votes without participating in the meeting by way of written or electronic communications (postal option). The Management Board is also authorized to set the specific arrangements relating to the scope and procedure for online participation and postal voting. These are to be announced in the convening document for the AGM. All shareholders are entitled to participate in the AGM, to speak on the respective agenda items, and to request information about the company’s affairs, where such information is required in order to arrive at an objective assessment of an agenda item.

The fourth public Ordinary AGM of BRAIN AG was held on 5 March 2020 in Zwingenberg. The invitation for the AGM was published in good time in the German Federal Gazette (Bundesanzeiger) pursuant to statutory regulations, including the agenda with the proposed resolutions of the management and of the Supervisory Board as well as the terms for participating in the AGM and the exercising of voting rights, among other matters. All reports and documents required by law were available on the website of BRAIN AG from the date when the AGM was convened. Directly following the AGM, BRAIN AG published the attendance and voting results on its website. Five out of six items on the agenda were submitted to the vote at the AGM. Four of the five proposed resolutions were accepted given an attendance of the share capital of BRAIN AG of 70.03 %.

Financial accounting and auditing

The unaudited quarterly financial statements as of 31 December 2019 (3M) and 30 June 2020 (9M) as well as the unaudited half-year financial report (6M) as of 31 March 2020 and the consolidated financial statements for the financial year ending 30 September 2020 were prepared in accordance with Section 315e (1) of the German Commercial Code (HGB) and International Financial Reporting Standards (IFRS). The separate financial statements of BRAIN AG for the 2019/20 financial year were prepared in accordance with the regulations of the German Commercial Code (HGB), and the German Stock Corporation Act (AktG).

Zwingenberg, December 2020

Management Board and Supervisory Board

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