I.    Declaration by the Board of Management and the Supervisory Board of Medigene AG pursuant to § 161 of the German Stock Corporation Act (AktG)

Section 161 (I) (1) of the German Stock Corporation Act (AktG) requires the Executive and the Supervisory Boards of a listed stock corporation to declare annually that the recommendations of the "Government Commission on the German Corporate Governance Code" published by the Federal Ministry of Justice in the official section of the electronic Federal Gazette have been and are complied with, and which recommendations have not been or are not being applied, and for what reason. The public has to be given permanent access to this declaration on the company's website, pursuant to section 161 (II) of the German Stock Corporation Act.

In addition to the presentation of the applicable German Stock Corporation Act, the German Corporate Governance Code (”Code”) also includes recommendations from which a company may deviate. However, any deviation has to be disclosed and accounted for annually.

For the period starting December 11, 2010, the declaration on hand refers to the Code as amended on May 26, 2010 and published in the electronic Federal Gazette on July 2, 2010.

The Executive and Supervisory Boards declare compliance with the Code since the issue of the preceding declaration of compliance on December 10, 2010, with the following exceptions, and declare their intention to comply in the future as follows:

1.  Absentee voting

In its next Annual General Meeting, the company will refrain from making use of the alternative of absentee voting granted by the Articles of Incorporation (point 2.3.3 (II) of the Code).

Both the Executive and Supervisory Boards of Medigene AG believe that the existing voting methods are adequate and provide sufficient options for the shareholders to vote on the respective items of the agenda.

2. Deductible in the case of D&O insurances

The D&O insurance (so-called directors’ and officers’ liability insurance) taken out by Medigene AG for its Supervisory Board members does not provide for any deductible (compare point 3.8 (III) of the Code). 

Medigene AG does not intend to agree a general deductible for its Supervisory Board members with its D&O insurance carrier. Since July 1, 2010, the legal obligation to adapt D&O insurance contracts pursuant to section 93 (II) (3) of the German Stock Corporation Act (AktG) in conjunction with section 23 (I) (1) of the Introductory Act to the German Stock Corporation Act (EGAktG) is applicable only to Executive Board members. In section 116 (I) of the German Stock Corporation Act, the legislator did not require any deductible for Supervisory Board members, but expressly excluded the Supervisory Board instead. The Executive and Supervisory Board of Medigene AG believe that the nature of the position as a Supervisory Board member, which is also emphasized by the different remuneration, calls for a distinction between D&O insurances for Executive and Supervisory Board members. Both the Executive and Supervisory Boards also believe that the motivation and sense of responsibility applied by the members of the Supervisory Board of Medigene AG in the fulfillment of their duties are fully guaranteed without any general deductible as recommended under the Code.

3. Age limits for Executive and Supervisory Board members

The German Corporate Governance Code recommends in points 5.1.2 (II) and 5.4.1 that age limits be set for Executive Board and Supervisory Board members. There is no age limit for the Executive and Supervisory Board members of Medigene AG, and there is no intention to introduce such age limits in the future.

Both the Executive and Supervisory Boards consider such age limits to be an inappropriate restriction not only on the shareholders’ right to elect the Supervisory Board members, but also on the Supervisory Board’ selection of qualified Executive Board members. The Supervisory and Executive Boards are well-balanced in their age structures, even without a mandatory age limit.

4. Constitution of a nomination committee

The German Corporate Governance Code recommends in point 5.3.3 that the Supervisory Board constitute a nomination committee made up exclusively of shareholder representatives. Such a nomination committee has not hitherto been constituted by Medigene AG's Supervisory Board and is not under consideration for the future.

The members of the Executive and Supervisory Boards believe that in view of the overall size of the Supervisory Board, it is neither necessary nor advisable to constitute such a committee, and that the Supervisory Board is able to perform this task on its own without sacrificing its efficiency. 

5. Consideration of committee work in the compensation of Supervisory Board members

The German Corporate Governance Code recommends in point 5.4.6 (I) that membership in Supervisory Board committees be taken into consideration in the remuneration of Supervisory Board members. Any membership in committees of the Supervisory Board is not taken into account when fixing the remuneration of Medigene’s Supervisory Board members, nor is this planned for the future.

Both the Executive and Supervisory Boards believe that the Supervisory Board members show a high degree of commitment in their committee work without any such arrangement.

6. Performance-based compensation of the Supervisory Board members

The German Corporate Governance Code recommends in point 5.4.6 (II) that the members of the Supervisory Board receive performance-based remuneration in addition to their fixed remuneration. Medigene AG's Supervisory Board members have up to now received no performance-based remuneration, and this is also not planned for the future.

The Executive and Supervisory Boards believe that the Supervisory Board's activities are efficient and geared toward maximum corporate success at all times, regardless of whether or not remuneration is performance-related.

Martinsried, December 9, 2011

For the Executive Board                    For the Supervisory Board

Dr. Frank Mathias                        Prof. Dr. Ernst-Ludwig Winnacker

 

II.    Function of the Executive Board and Supervisory Board

Function of the Executive Board

The Executive Board in its entirety and each individual Board member engage in Company business with the due care and diligence of proper and conscientious management in accordance with the law, the Articles of Incorporation and the Executive Board bylaws. The Executive Board assumes responsibility for the management of the Company. In doing so, it is obliged to act in the Company’s best interest and is committed to sustainably enhancing enterprise value. In managing the Company, the Executive Board bears in mind the interests of the Company’s shareholders, employees and other stakeholders. Currently, Medigene AG’s Executive Board is composed of two members. They cooperate closely and keep each other informed about important measures taken and processes in their departments. The Executive Board passes resolutions during sessions which take place at regular intervals, usually once a month.

The Executive Board bylaws lay down the processes and approaches that form the basis of the Executive Board’s work. The bylaws also include regulations for business transactions which require the Supervisory Board’s consent, the Company’s organizational chart and basic behavior policy guidelines.

The Executive Board works closely with the Supervisory Board. It keeps the Supervisory Board informed regularly, promptly and comprehensively about all issues relevant to the Company.

Function of the Supervisory Board

It is the duty of Medigene AG’s Supervisory Board to appoint the Executive Board members, to advise them regularly and to monitor and support the management and the achievement of Medigene AG’s long-term goals. The Supervisory Board of Medigene AG is composed of six members, pursuant to section 10 (I) (1) of the Articles of Incorporation and to sections 95, 96 (I) and 101 (I) of the German Stock Corporation Act (AktG). The term of office of the Supervisory Board ceases at the end of the Annual General Meeting in 2013, which decides on the Supervisory Boards discharge for the 2012 fiscal year.
In fiscal year 2011, Klaus Kühn was elected to the Supervisory Board by the Annual General Meeting on August 4, 2011. Klaus Kühn has filled the post that became vacant when Sebastian Freitag resigned.

To exercise its duties, the Supervisory Board has constituted three committees:

Compensation Committee
The duties of the Compensation Committee include matters related to the employment of Executive Board members. The Committee’s main tasks are the preparation of the Executive Board members’ employment contracts and to present proposals for their remuneration. It is the entire Supervisory Board’s responsibility to decide on these issues. Prof. Dr. Ernst-Ludwig Winnacker (chairman), Dr. Pol Bamelis and Prof. Dr. Norbert Riedel are the members of the Compensation Committee.

Audit Committee

The Audit Committee members deal with issues relating to accounting and risk management, the required independence of the auditor, the issuing of the audit mandate to the auditor, determination of audit priorities and agreement of the audit fee. The Audit Committee was comprised of Dr. Pol Bamelis, Dr. Thomas Werner and Dr. Mathias Boehringer as its chairman (until September 15, 2011). On August 4, 2011, the Annual General Meeting elected a further financial expert to the Supervisory Board in Klaus Kühn. In its meeting on September 15, 2011, the Supervisory Board elected Klaus Kühn to the Audit Committee and appointed him as chairman of the committee. Dr. Bamelis left the committee at the same time.

SEDA Committee

The SEDA Committee is a decision-making body which deals with all decisions relevant to the Supervisory Board arising in connection with the Standby Equity Distribution Agreement (SEDA) entered into with the company YA Global Investments L.P. for subscribing to new Medigene AG shares. These decisions include, in particular, Supervisory Board approval on the issuance of new shares, definition of share rights, the conditions of share issuance and exclusion of subscription rights. Separate decisions must be taken for each individual tranche. In addition, the SEDA Committee is responsible for amendments to the Articles of Incorporation which each issuance of shares under the SEDA program entails. The SEDA Committee was comprised of Prof. Dr. Ernst-Ludwig Winnacker, Dr. Mathias Boehringer and Dr. Pol Bamelis. In view of the expiry of the agreement with YA Global Investments at the end of 2011, the SEDA Committee was dissolved with effect from December 31, 2011.

 

III.     Key corporate governance practices

Medigene attaches major importance to compliance with legislation and in-house guidelines. For this purpose, a Compliance Officer has been appointed to concentrate on a number of central points, such as securities law and the statutory prohibition of insider trading. Medigene has developed its own insider policy to complement the latter. Furthermore, Medigene has committed to the Code of Conduct of the German Association for the Voluntary Self-Regulation of the Pharmaceutical Industry (Verband Freiwillige Selbstkontrolle für die Arzneimittelindustrie e.V. The association monitors appropriate cooperation of pharmaceutical companies with physicians, pharmacists and other healthcare professionals as well as patient self-help organizations and imposes sanctions in the event of a breach of rules. In combination with the above-mentioned principles, this forms the basis of corporate actions at Medigene AG.