Management Board & Supervisory Board Declaration of Compliance in accordance with Section 161 German Stock Corporation Act (AktG)

In accordance with Section 161 AktG, the Management Board and Supervisory Board of 4SC AG state that since its most recent Declaration of Compliance issued in November 2022, 4SC AG has complied with and continues to comply with the recommendations of the German Corporate Governance Code as amended on 28 April 2022 (“Code”) with the exceptions stated below:

1.       Independence of more than half of the Supervisory Board members (C.7 of the Code)

According to recommendation C.7 of the Code, more than half of the shareholder representatives on the Supervisory Board should be independent from the Company and its Management Board. The Code cites membership of the Supervisory Board for more than 12 years as a significant indication that independence is in question. Three of the five current Supervisory Board members have been members of the Supervisory Board for more than 12 years, which is why a deviation from C.7 of the Code is declared as a precautionary measure. The Management Board and Supervisory Board are convinced that long membership of the Supervisory Board does not necessarily lead to a “substantial – and not merely temporary – conflict of interest”, which is precisely what matters for the assessment of independence. On the contrary, we consider it desirable that Supervisory Board members work with the Company over a long period of time, as this promotes the required deep understanding of the Company, its business and the specific opportunities and risks.

2.       Independence of the Chair of the Supervisory Board, the Chair of the Audit Committee and the Human Resources Committee (C.10 of the Code)

The Chair of the Supervisory Board, the Chair of the committee dealing with Management Board remuneration – at 4SC this is the Human Resources Committee – and the Chair of the Audit Committee shall be independent of the Company and the Management Board according to recommendation C.10 of the Code. Clemens Doppler, Ph.D., the Chair of the Supervisory Board who is also the Chair of the Human Resources Committee, and Mr. Jeggle, the Chair of the Audit Committee, each have been members of the Supervisory Board for more than 12 years. The criteria of length of membership does not constitute a reason for assuming a lack of independence, as explained above; however, as a precautionary measure, a deviation from these recommendations is declared.

C.10 of the Code also recommends that the Chair of the Audit Committee be independent from the controlling shareholder. Mr. Jeggle held management positions at the Santo Group until April 2021. As managing director of Salvia GmbH, which he founded in 2014, he acts as an entrepreneurial venture capital investor and manages investments of the (indirect) owners of Athos KG, which currently indirectly holds 70.3% of the voting rights in 4SC AG. In the opinion of the Supervisory Board, these circumstances, which are disclosed here in the interests of maximum transparency, do not contradict Mr. Jeggle’s independence from the controlling shareholder.

3.       Nomination Committee of the Supervisory Board (D.4 of the Code):

The Supervisory Board has decided against establishing a Nomination Committee. The Supervisory Board of 4SC AG believes that setting up such a Nomination Committee would not render the Supervisory Board’s work more efficient. This is why this function remains the responsibility of the full Supervisory Board.

4.       Remuneration of the Management Board (section G.I of the Code)

The old contract of Management Board member Jason Loveridge, Ph.D., which expired on 31 December 2022, deviated in some points from the recommendations of the Code on Management Board remuneration, as it was a legacy contract when the corresponding recommendations came into force. The deviations were as follows: G.10 of the Code (no obligation to invest granted variable remuneration amounts predominantly in 4SC shares and no provision that granted long-term variable amounts can only be accessed after 4 years), G.11 of the Code (no possibility to take account of extraordinary developments and no withholding or grant-back clauses) and G.13 of the Code (no severance payment cap in the event of early termination with regard to the Stock options issued in 2016 and 2018).

The current director’s contracts with the company’s Management Board members Jason Loveridge, Ph.D., and Kathleen Masch-Wiest, which have been in place since 1 January 2023 and both run until the end of 2024, also do not fully comply with the Code’s recommendations on Management Board remuneration in view of the Company’s specific situation:

• The Company is focusing most of its resources on its only remaining product, Resminostat (Kinselby), and, after achieving positive results in the RESMAIN trial, on the commercialization of this asset. Due to this special situation with its relatively short-term focus, the Supervisory Board is of the opinion that an “appropriate peer group of other third-party entities” within the meaning of recommendation G.3 of the Code does not exist (deviation from recommendation G.3 of the Code).
• Given the Company’s specific situation, the director’s contracts do not provide for any long-term variable remuneration components, since the Company’s sole focus is on achieving the aforementioned short-term targets and there are currently no further “long-term targets” as presupposed in recommendation G.6 of the Code, (deviation from recommendation G.6 of the Code).
• In view of the Company’s special situation, the director’s contracts do not provide for an obligation to invest granted variable remuneration amounts predominantly in shares of the Company or for such amounts to be granted predominantly as share-based remuneration, nor does it provide for the Management Board member to have access to granted long-term variable remuneration amounts only after a period of four years (deviation from recommendation G.10 of the Code).
• The director’s contracts specify caps both for the overall Management Board remuneration stipulated in the contracts and for individual bonus provisions (severance cap) in case the contracts are terminated early. Under the Company’s Employee Stock Option Program (ESOP), for which all employees and the Management Board are eligible, stock options were issued to Jason Loveridge, Ph.D., and Kathleen Masch-Wiest (in each case most recently in 2018). These stock options can only be exercised in the event of clearly defined, significant share price increases. If the options can be exercised, the beneficiaries of the stock option plan would, however, profit from the shares’ appreciation potential, which theoretically is unlimited (deviation from recommendation G.13 of the Code).

Planegg-Martinsried, 7. December 2023

Jason Loveridge, Ph.D. – For the Management Board | Clemens Doppler, Ph.D. – For the Supervisory Board

Download Declarations of Compliance

These documents are English translations of the original German documents. The German document is the official and controlling version, and this English translation in no event modifies, interprets or limits the official German version.