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

The Management Board and Supervisory Board of 4SC AG issued their most recent Declaration of Compliance in accordance with Section 161 AktG on 28 January 2020. At that time, the recommendations of the German Corporate Governance Code as amended on 7 February 2017 were still applicable. On 16 December 2019, the Government Commission on the German Corporate Governance Code adopted a new Code, which entered into force on 20 March 2020. The following declaration refers to the German Corporate Governance Code as amended on 7 February 2017 insofar as it relates to the past and to the German Corporate Governance Code as amended on 16 December 2019 insofar as it relates to the present or future.

l. 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 on 28 January 2020 4SC AG has complied with the recommendations of the German Corporate Governance Code as amended on 7 February 2017 (“2017 Code”), with the exceptions stated below:

  1. D&O insurance for Supervisory Board members (item 3.8 (3) of the 2017 Code)

The Company’s current D&O insurance policy contains the statutory deductible for the members of its Management Board. No deductible was agreed for the insured Supervisory Board members, as this has not been considered a useful measure to enhance the sense of responsibility shown by the Supervisory Board members.

The Government Commission has taken on board the widespread criticism of the recommendation to also agree a deductible in the D&O insurance policies for Supervisory Board members and has eliminated it. This deviation will therefore no longer apply with the 2019 Code having entered into force.

  1. Composition of the Management Board of several persons (item 4.2.1 sentence 1 of the 2017 Code)

Since 1 January 2017, the Management Board of the Company has been comprised of one person only. The current direction of the Company allows efficient management with one sole member. Furthermore, the Management Board is supported by an extended senior management team which meets regularly. Both the Supervisory Board and the Management Board believe that appointing additional Management Board members is not necessary at this point in time.

The recommendation that the Management Board should consist of several persons has not been included in the 2019 Code. This deviation will therefore no longer apply with the 2019 Code having entered into force.

  1. Cap for Management Board remuneration and relevant comparison parameters (item 4.2.3 (2) sentence 6 and 7 of the 2017 Code)

The director’s contract of the sole Management Board member specifies caps both for the overall Management Board remuneration stipulated in the contract and for individual bonus provisions. Based on a resolution of the Company’s General Meeting taken on 17 June 2016, stock options were granted to the sole Management Board member. These 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. This plan has been specially tailored to the Company. The Company deliberately refrained from adopting the cap recommended in the 2017 Code and from referring the stock options to reference parameters (e.g. share indices). The recommendations on Management Board remuneration were amended and in some ways tightened in the 2019 Code.

  1. Nomination committee of the Supervisory Board (item 5.3.3 of the 2017 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 with the full Supervisory Board.

  1. Regular limit of length of membership for the Supervisory Board (item 5.4.1 (2) of the 2017 Code)

The Supervisory Board does not believe that establishing a regular limit of length of membership for the Supervisory Board is expedient because effective monitoring of the Management Board depends in principle and foremost on the qualification of each individual Supervisory Board member. However, given that the Supervisory Board members’ term of office is limited, experienced, long-serving Supervisory Board members lose neither their independence nor their access to fresh ideas. The Supervisory Board has therefore refrained from specifying such a regular limit since it is in the Company’s best interest not to generally restrict selecting suitable candidates or retaining current Supervisory Board members.

The recommendation to establish a regular limit of length of membership for the Supervisory Board has not been included in the 2019 Code. This deviation will therefore no longer apply with the 2019 Code having entered into force.

 

ll. In accordance with Section 161 AktG, the Management Board and Supervisory Board of 4SC AG state that 4SC AG has complied and will continue to comply with the recommendations of the German Corporate Governance Code as amended on 16 December 2019 (“2019 Code”), with the exceptions stated below:

  1. Nomination committee of the Supervisory Board (D.5 of the 2019 Code):

The Supervisory Board has decided against establishing a Nomination Committee for the reasons laid out above in section I.4.

  1. Remuneration of the Management Board (section G.I of the 2019 Code)

Section G.I of the 2019 Code contains a number of new recommendations on Management Board members’ remuneration. The current Management Board remuneration system and the director’s contract of the Company’s sole Management Board member, Jason Loveridge, Ph.D., which is an updated legacy contract that will remain in force until the end of 2022, are currently not fully compliant with the recommendations of the 2019 Code.

  • The current director’s contract does 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 the newly included recommendation G.10 of the 2019 Code).
  • The possibility of taking into account extraordinary developments to an appropriate extent and of retaining or reclaiming variable remuneration in justified cases is not provided for in the current director’s contract (deviation from the newly included recommendation G.11 of the 2019 Code).
  • The current contract of the sole Management Board member specifies caps both for the overall Management Board remuneration stipulated in the contract and for individual bonus provisions (severance cap) in case the contract is terminated early. Stock options were issued to Jason Loveridge, Ph.D., in 2016 and most recently in 2018 under the Company’s Employee Stock Option Plan (ESOP), in which all employees and the Management Board participate. 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. This means that in this respect the Company currently does not comply with recommendation G.13 of the 2019 Code.

The Supervisory Board will submit to the 2021 General Meeting a remuneration system for the members of the Management Board that complies with the recommendations of the 2019 Code and applies to all director’s contracts entered into or extended after the 2021 Annual General Meeting.

 

Planegg-Martinsried, 3 February 2021

 

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.

Declaration of Compliance 2021 download
Declaration of Compliance 2020 download
Declaration of Compliance 2019 download
Declaration of Compliance 2018 download
Declaration of Compliance 2017 download
Declaration of Compliance 2016 download
Declaration of Compliance 2015 download
Declaration of Compliance 2014 download
Declaration of Compliance 2013 download
Declaration of Compliance 2012 download
Declaration of Compliance 2011 download
Declaration of Compliance 2010 download
Declaration of Compliance 2009 download
Declaration of Compliance 2008 download
Declaration of Compliance 2007 download
Declaration of Compliance 2006 download

 

 

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