Corporate Governance

Principles of corporate governance at Formycon AG

Corporate Management and supervision

As a German stock corporation (Aktiengesellschaft), Formycon is subject to German corporate law, a basic principle of which is the dual board system, under which board functions are separated between the Executive Board (Vorstand), who may not also be members of the Supervisory Board, and the Supervisory Board (Aufsichtsrat), who may not also be members of the Executive Board. In the case of Formycon, the Executive Board and Supervisory Board are each comprised of three members. These two statutory bodies work together closely and collegially so that the Executive Board can manage the Company, and the Supervisory Board can supervise and guide, in compliance with applicable German laws and regulations as well as the Company’s governing Articles of Incorporation (Satzung), towards its aim of growing the long-term value of the Company for its shareholders.

Executive Board

The Executive Board of Formycon consists of three senior managers who define the Company’s objectives and strategy, and who carry out the Company’s business, with the aim of creating sustainable value for shareholders. The Executive Board, representing the interests of the Company, acts on its own responsibility. It decides upon the Company’s strategic direction, ratifies this with the Supervisory Board, and then proceeds with the implementation of the strategy, regularly reporting to the Supervisory Board as this is carried out over time. The Executive Board is also responsible for ensuring that appropriate risk management and risk controlling are in place, as well as for compliance with applicable law and regulation and the Company’s own policies, including not only Formycon AG but also its subsidiaries. The Executive Board, through its rules of order (Geschäftsordnung), assigns specific areas of responsibility to individual board members.

Supervisory Board

The Supervisory Board of Formycon is, in accordance with the Company’s Articles of Incorporation, comprised of three members. The Supervisory Board is responsible for appointing the Executive Board and for overseeing, and advising upon, its management of the Company. Further information on the work of the Supervisory Board during the past fiscal year may be found in the Report of the Supervisory Board, which is reproduced in the 2018 Annual Report.

Independence of board members

Should any potential conflicts of interest arise, these are avoided from the outset in that the relevant member of the Supervisory Board or Executive Board must disclose such potential conflict of interest to the other board members, refrain from participation in any discussion of the relevant issue, and abstain from any related voting. Members of the Executive Board may only enter into outside employment with the approval of the Supervisory Board. Presently, no member of the Executive Board held any outside board memberships at any exchange-listed company, or at any other company with comparable statutory requirements, outside of the group.

Shareholder meetings

The shareholders of Formycon may exercise their rights at the Company’s Annual General Meeting (Hauptversammlung), which is conducted by the Chairman of the Supervisory Board in accordance with the Company’s Articles of Incorporation. Decisions of the Annual General Meeting are, as provided by German corporate law, legally binding for both the Company and its shareholders. Shareholders may exercise their voting rights through personal attendance at the Annual General Meeting, or through exercise by a proxy representative of their choice, or by providing voting instructions to a proxy representative appointed by the Company, who must follow these instructions. Each share is entitled to one vote. Each shareholder is entitled to attend the Annual General Meeting, to speak upon the agenda item under current discussion, and to request relevant information about Formycon and its business.

The invitation to each Annual General Meeting, any documents relevant to the agenda, and any reports and information required for voting on shareholder resolutions are published in advance by Formycon in accordance with applicable German law.

Financial control and risk management

Of fundamental importance to the proper and professional management of Formycon are the Company’s systems and procedures to manage opportunities and risks as these arise. These help to identify risks at an early stage, to evaluate these, and to respond to them as necessary with appropriate measures. The Executive Board regularly reports to the Supervisory Board on the key risks and risk trends which it has identified.

Formycon strives to continuously improve its risk management systems and to adapt them to changing conditions. Details of these risk management systems are presented in the “Report on opportunities and risks” section of the group management report, included in the Company’s Annual Report and subject to review by the Company’s appointed auditor.

In addition, Formycon maintains a list of designated insiders as required by article 18 of the Market Abuse Regulation. The relevant persons have been informed of their disclosure obligations under article 17 et seq. of the Market Abuse Regulation as well as the sanctions provided under articles 30 and 31 of the Regulation.

Compliance organization

Compliance, not only with legal requirements but also with the Group’s internal policies, is a basic and essential foundation for Formycon and for its sustained business success. The Company’s compliance function is designed to ensure the lawful and proper conduct – in terms of both affirmative requirements and negative prohibitions – of the Company, of its governing bodies and of its employees. The objective of the compliance function is to protect management and staff by ensuring that breaches of law or regulation do not occur, and to assist management and staff in correctly and properly applying laws, regulations and corporate policies.

Formycon attaches particular importance to its group-wide compliance function, under which all managers and employees are subject to the Company’s compliance policies. The compliance function is itself subject to a continuous optimization process.

The coordination and implementation of the Company’s compliance policies are the responsibility of the Compliance Officer, who reports directly to the Executive Board. Formycon endeavors to constantly improve its compliance structures so that compliance, and the risks relating thereto, continue to be adequately and effectively addressed as the business and regulatory environments change and as the Company evolves.

Code of Conduct

Formycon has, on the basis of common values ​​and principles of ethical behavior, committed itself to a set of clear principles which it has enshrined in a Code of Conduct adopted by resolution of the Executive Board. This Code of Conduct forms the guiding framework for the actions of Formycon in the business arena and in the community, while also setting expected standards for managers and staff, across the following themes:

• Compliance with law and regulation
• Protection of company property
• Observance of third-party rights
• Fairness in competition
• Appearance and communication in public
• Avoidance of conflicts of interest
• Fairness in securities trading
• Workplace health and safety
• Reporting obligations
• Data privacy and Information security
• Equal Treatment and non-discrimination

Formycon does not tolerate any violations of law, regulation or company Policy.

Transparency in communications

In our dialogue with the capital market, we aim to provide all target groups equally with comprehensive, timely information on the Group’s business and financial performance and on its corporate governance practices, and to make the best possible quality of valuation-relevant information available to all of our stakeholders.

Through our corporate website www.formycon.com, we provide Formycon announcements and other important information regarding recent events to our shareholders and other interested parties, including all press releases and Ad Hoc announcements, in both German and English. Our corporate website also includes our annual reports, half-year reports and our Articles of Incorporation (in German only).

Official announcements of Formycon are, in accordance with the Articles of Association, published in the Federal Gazette (Bundesanzeiger).

Preparation and audit of financial statements

Formycon prepares its consolidated financial statements and interim reports in accordance with the legal requirements of the German Commercial Code (HGB). The annual financial statements of Formycon AG and the consolidated financial statements of Formycon group are audited by the Company’s appointed auditor and approved by the Supervisory Board.

On the recommendation of the Supervisory Board, the Annual General Meeting of December 10, 2020 voted to appoint PanTax Audit GmbH Wirtschaftsprüfungsgesellschaft, Munich, as the auditor for the 2020 financial year. The auditor reports promptly to the Supervisory Board on any material findings which may arise during its Audit.

Directors and officers (D&O) liability insurance

The company maintains a D&O liability insurance policy for the members of its Executive Board and Supervisory Board as well as other senior managers. The cost is borne by the Company.