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 state that since its most recent Declaration of Compliance issued on 3 February 2021 4SC AG has complied with the recommendations of the “Government Commission on the German Corporate Governance Code” as amended on 16 December 2019 (“Code”) as published by the Federal Ministry of Justice in the official section of the Federal Gazette (Bundesanzeiger) and will continue to do so in the future, with the exceptions stated below:

 

1.         Nomination committee of the Supervisory Board (section D.5 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 with the full Supervisory Board.

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

Section G.I of the Code contains a number of new recommendations on Management Board members’ remuneration. 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, is currently not fully compliant with the recommendations of the 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 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 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 Code.

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

 

Planegg-Martinsried, 1 February 2022

 

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

Update of the Declaration of Compliance of the Management Board and the Supervisory Board pursuant to Section 161 of the German Stock Corporation Act (AktG) dated 1 February 2022

The Management Board and the Supervisory Board of 4SC AG last issued a declaration of compliance with the recommendations of the “Government Commission on the German Corporate Governance Code” in the version dated 16 December 2019 (“Code”) published by the Federal Ministry of Justice in the official section of the Federal Gazette (Bundesanzeiger) in accordance with section 161 of the German Stock Corporation Act (AktG) on 1 February 2022. This declaration is updated as follows:

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 of the company and its Management Board. According to the definition of the Code, a member of the Supervisory Board is independent of the company and its Management Board if he or she has no personal or business relationship with the company or its Management Board that may cause a substantial – and not merely temporary – conflict of interest. The Code cites membership of the Supervisory Board for more than 12 years as a significant indication that independence is in question.

The Supervisory Board proposes to the Annual General Meeting of the company on 19 May 2022 that the Supervisory Board, which is composed solely of shareholder representatives, be reduced to five members and that five of the current Supervisory Board members be re-elected. Of the candidates proposed for re-election, three have been on the Supervisory Board for more than 12 years in the event of re-election, and a further candidate would also have been on the Supervisory Board for more than 12 years in the event of the proposed re-election for around three years, so that more than half of the shareholder representatives would meet the criteria of excessive length of service. 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 accompany the company over a long period of time, as this promotes the absolutely necessary deep understanding of the company, its business and the specific opportunities and risks. For this reason, we declare a deviation from this recommendation as a precaution. The other criteria of lack of independence from the company and the Management Board do not apply to any of the current Supervisory Board members or those proposed for re-election.

Independence of the Chair of the Supervisory Board, the Chair of the Audit Committee and the Human Resources Committee (C.10 and D.4 of the Code)

According to the recommendation in Section C.10 of the Code, the Chair of the Supervisory Board and the Chair of the Personnel Committee dealing with Management Board compensation should be independent of the Company and the Management Board. In addition, the Chair of the Audit Committee should also be independent of the controlling shareholder. In the event of the election of the candidates proposed to the Annual General Meeting on 19 May 2022, Dr. Doppler will again stand for election as Chair of the Supervisory Board and Human Resources Committee. The criteria of long length of membership does not constitute a reason for lack of independence, as explained above; however, as a precautionary measure, a deviation from these recommendations is declared.

According to the recommendations in C.10 and D.4 of the Code, the chair of the Audit Committee should be independent of the company and the Management Board and also independent of the controlling shareholder. In the event of his re-election by the Annual General Meeting, Mr. Jeggle intends to stand for the chair of the Audit Committee. The fact that he has been a member of the Supervisory Board for more than 12 years does not call into question his independence from the Management Board and the company for the reasons stated above. As a precaution, however, a deviation from this recommendation is declared. In our opinion, Mr. Jeggle is also independent of the controlling shareholder. Helmut Jeggle has not held any management positions within the Santo Group since April 2021. As managing director of Salvia GmbH, which he founded in 2014, he acts as an entrepreneurial venture capital investor while also continuing to manage investments of the (indirect) owners of Athos KG, which currently indirectly holds 69.98% of the voting rights in 4SC AG. Against the background of the unclear prerequisites of the concept of independence from a controlling shareholder, a deviation from the corresponding recommendations is declared as a precautionary measure. The Supervisory Board is convinced that the exercise of the office as Chair of the Audit Committee by Mr. Jeggle is in the interest of the company and all its shareholders, as Mr. Jeggle is ideally suited to chair the Audit Committee.

Otherwise, the Declaration of Compliance of 1 February 2022 with the deviations declared therein remains unchanged.

 

Planegg-Martinsried, 5 April 2022

 

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.

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