Maschinenfabrik Berthold Hermle AGMaschinenfabrik Berthold Hermle AG

Code Section 161 of the German Stock Corporation Act (AktG)

Code Section 161 of the German Stock Corporation Act (AktG) (2020 -)

02.12.2020

DECLARATION OF COMPLIANCE PURSUANT TO SECTION 161 OF THE GERMAN STOCK CORPORATION ACT (AKTG) OF MASCHINENFABRIK BERTHOLD HERMLE AG ON THE RECOMMENDATIONS OF THE GOVERNMENT COMMISSION ON THE GERMAN CORPORATE GOVERNANCE CODE

The Management Board and the Supervisory Board declare that apart from various individual points the recommendations of the Government Commission on the German Corporate Governance Code as amended on 16 December 2019, which came into force on 20 March 2020 (GCGC 2020), are not complied with. This is justified in that Maschinenfabrik Berthold Hermle AG conducts its operations in accordance with the principles of open information policy that it has put in place to date, which were implemented as part of the rules of procedure of the Management Board and the Supervisory Board. The legal requirements, including the Act Implementing the Second Shareholders’ Rights Directive (ARUG II), which came into force on 1 January 2020, are fully complied with.

The Management Board and the Supervisory Board hold the view there are various reasons for not implementing recommendations of the GCGC 2020 that extend beyond this.

The recommendations under B. regarding the appointment of members to the Management Board are largely not complied with. In view of the successful decades of practice in the appointment of Management Board members and the continuity in the Management Board, the previous framework conditions for the appointment of board members shall essentially be retained and no further restrictions shall be deliberately imposed.

The recommendations under C. on composition, under D. on working methods, under E. on conflicts of interest and under F. on transparency and external reporting of the Supervisory Board are largely not complied with, as the applicable legal regulations together with the rules of procedure of the Management Board and the Supervisory Board are judged to be fully sufficient for the topics dealt with there. Furthermore, we believe that the Code recommendations under C. to F. are geared towards international major DAX-listed Groups but not, however, to an SME with a limited number of ordinary shareholders who, in part, are represented personally in the supervisory committees - also due to a right of delegation under the articles of association.

Finally, the recommendations on the remuneration of the Management Board and the Supervisory Board under G. (GCGC 2020) are essentially not complied with. In addition to the principles for the remuneration of board members according to Section 87 of the German Stock Corporation Act (AktG), the legislator has standardised for us as a listed company in Section 87 (a) of the German Stock Corporation Act (AktG) a remuneration system with complex individual requirements, in Section 162 of the German Stock Corporation Act (AktG) the obligation to prepare a remuneration report and in Section 120 (a) of the German Stock Corporation Act (AktG) the requirement to obtain a vote at
the AGM on the remuneration system and the remuneration report. We will fully comply with all of these legal requirements within the time frame set by the legislator, but we also consider these requirements by the legislator to be absolutely sufficient to ensure appropriate remuneration for the Management Board and the Supervisory Board and also transparency in this regard. In addition, in the past Maschinenfabrik Berthold Hermle AG had variable remuneration based on the company's results, but no share-based remuneration for the board members, and from today's perspective such share-based remuneration is not planned for the future.

Overall, in view of the relative lower market capitalisation of the company, the shareholder structure, the very lean and therefore efficient company organisation to date as well as the additional costs associated with full implementation, Maschinenfabrik Berthold Hermle AG has decided in favour of a merely very limited implementation of the GCGC.

However, Maschinenfabrik Berthold Hermle AG complies with various individual regulations of
the GCGC 2020, which are listed below:

Recommendation A.1    Observance of diversity when filling management positions

Recommendation A.2    Compliance Management System with disclosure of the principles

Recommendation B.1    Observance of diversity in the composition of the Management Board

Recommendation B.4    Reappointment of the Management Board before the end of one year prior to the end of the term of appointment only in the case of special circumstances

Recommendation C.4   Multiple mandates of Supervisory Board members

Recommendation C.11 Supervisory Board mandates for former Management Board members

Recommendation C.12 Position of Supervisory Board members towards competitors

Recommendation D.6   Consultation of the Chair of the Supervisory Board with the Management Board on issues of strategy, business development, risk situation, risk management and compliance of the company

Recommendation D.8   Information on Supervisory Board meetings in the report of the Supervisory Board

Recommendation D.9   Agreement on immediate notification of the Supervisory Board by the auditor in the event of significant findings and occurrences

Recommendation D.10 Agreement on the provision of information to the Supervisory Board by the auditor in the event that incorrect declarations regarding the Code are identified

Recommendation E.3 Secondary activities of Management Board members

Recommendation F.3 Publication of quarterly reports or information during the year on significant changes in the business outlook and the risk situation

Recommendation F.5   Publication of the declaration of compliance on the website for five years

Recommendations G.12-G.14 Benefits in the event of termination of contracts of Management Board members

Recommendation G.15 Offsetting the remuneration for intra-group Supervisory Board mandates in the Management Board remuneration

Recommendation G.16 Decision of the Supervisory Board on the offsetting of remuneration for Supervisory Board mandates outside the group in the Management Board remuneration

Recommendation C.18 Fixed remuneration of Supervisory Board members

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