DECLARATION OF CORPORATE GOVERNANCE

A correct, fair and transparent business management is not only part of the self-image and tradition of the Mühlbauer Holding AG & Co. KGaA, but is also an essential component of responsible and reliable management. as well as for a sustainable corporate compliance – the compliance with legal and ethical commitment in all corporate areas. To us, good corporate governance therefore represents a fundamental claim that covers all areas of the company and takes top priority in our daily work. In so doing, it is our primary goal to confirm the confidence placed on our management by investors, business associates, customers and the public by our daily activities and to maintain this confidence as a basis for sustained corporate development.  

In the following sections the company explains the key components of its management practices:

1. Corporate Governance report

On 26 February 2002, the Government Commission German Corporate Governance Code presented a code of conduct for the Management and Supervisory Boards of publicly listed companies (German Corporate Governance Code, hereinafter also referred to as the “Code”). Once a year, the Management and Supervisory Boards of a company that is publicly listed in Germany are legally required to declare – by means of a Declaration of Conformity – whether the current version of the Code was and is complied with or which recommendations of the Code were or are not applied. In this context, the German Corporate Governance Code is oriented solely to the conditions and circumstances of a joint stock corporation. Mühlbauer Holding AG & Co. KGaA therefore independently investigated and determined how the Code could be correspondingly applied to a partnership limited by shares.

The amendments to the German Corporate Governance Code of June 2009 were discussed in the Supervisory Board with the personally liable shareholder and management and incorporated into the company’s own Corporate Governance Code.

In December 2009 the personally liable shareholder and the Supervisory Board issued a Declaration of Conformity for 2009 and made it available to the public on the company’s homepage (www.muehlbauer.de). The declaration explains which provisions of the current German Corporate Governance Code the company observed and which recommendations of the Code were or are not applied.

Many of the target provisions of the German Corporate Governance Code are met by the legal form of Mühlbauer Holding AG & Co KGaA. However, the personally liable shareholder and the Supervisory Board have also decided that the company will not correspond with several provisions of the German Corporate Governance Code’s recommendations in the version of 6 June 2008 (“Code 2008”) since its declaration of conformity from 19 December 2008 to 17 June 2009 and subsequently the recommendations of the new version of the German Corporate Governance Code dated 18 June 2009 (“Code 2009”). In December 2009, the following Declaration of Conformity in accordance with § 161 AktG (German Stock Corporation Act) was issued and subsequently provided to shareholders on the website of Mühlbauer Holding AG & Co. KGaA at www.muehlbauer.de on a sustained basis:

Declaration of Compliance

The Personally Liable Shareholder and the Supervisory Board declare that at the Mühlbauer Holding AG & Co. KGaA (hereinafter referred to as the “Company”) in its legal form should be complied with all recommendations of the Government Commission German Corporate Governance Code in the version of June 18, 2009 (“Code 2009”) with the following exceptions:

Deductible for D&O insurance

The D&O insurance for the Supervisory Board does not include a deductible. A deductible would restrict opportunities for acquiring members for the Supervisory Board with extensive entrepreneurial experience, as  these would have to take into account liability risks, even in the event of negligent conduct. Moreover, the agreement of deductibles in the Supervisory Board area is still uncommon (Code 2009 section 3.8 paragraph 2).

 

Disclosure and explanation of the remuneration of the Management

The Chairman of the Supervisory Board will not disclose any information on the company's remuneration system and possible modifications to the Annual Sharholders' Meeting (Code 2009 section 4.2.3 paragraph 6).

 

The total remuneration of the Personally Liable Shareholder and the members of the Management Board of the Mühlbauer Aktiengesellschaft (hereinafter referred to as "Management") for the performance of their duties in the company and the subsidiary companies is disclosed as total amount in the notes to the consolidated financial statements. The disclosure is divided according to non result-based and result-based components as well as components with long-term incentive effect respectively according to the rules of the relevant international accounting principles.

 

No disclosure of other information than compulsory according to the law, the explanation of the remuneration system as well as the explanation of information on the nature of the fringe benefits provided by the company in a remuneration report will be given (Code 2009 section 4.2.4 and 4.2.5).

 

The remuneration system is the result of confidental discussions within the Supervisory Board as well as between the Supervisory Board and the Management. The publication of details in excess of the legally required ones would increase the risk of a targeted solicitation of executives, as details of the remuneration structure would subsequently also be transparent to competition.

 

Sideline activities that are not legally compulsory subject to approval can be taken partly on the members of the Management even without approval of the Supervisory Board. The interests of the corporation and the expectations towards responsible decisions of the Management are preserved sufficiently by the legally compulsory regulations and other contractual obligations of the Management (Codex 2009 section 4.3.5).

 

Formation of Supervisory Board committees

No committees will be formed for as long as the Supervisory Board of Mühlbauer Holding AG & Co. KGaA only consists of 3 members (Code 2009 section 5.2 clause 2, 5.3.1 clause 1 and 2, 5.3.2 clause 1, 5.3.3).

 

Composition and remuneration paid to members of the Supervisory Board

There is no age limit for members of the Supervisory Board, as in the company’s jugedment, the age of a person is not an indication whether the person is able to observe a mandate adequately or not (Code 2009 section 5.4.1 clause 2).

 

Concerning the composition of the Supervisory Board  the professional counseling and monitoring of the Management is in the center. Members of the Supervisory Board may also be suitable, even if they do not satisfy the criteria for independence in the sense of section 5.4.2 clause 1 in the German Corporate Governance Code (Code 2009 section 5.4.2).

 

As far as the Annual General Meeting elects the present representative of the Personally Liable Shareholder or a Management Board member of the Mühlbauer Aktiengesellschaft in the Supervisory Board of the company, it will be decided about their change in the chairmanship of the Supervisory Board as the case arises. No reason will be given to the General Meeting for such an intention. The Personally Liable Shareholder and the Supervisory Board consider that in some cases it may prove beneficial that former Management Board members transfer to the chairmanship of the Supervisory Board. As the internal knowledge of former Management Board members about the company increases the efficiency of Supervisory Board monitoring, the Personally Liable Shareholder and the Supervisory Board do not see any need for justifying separately a possible transfer at the Annual General Meeting (Codex 2009 section 5.4.4).  

 

The remuneration paid to members of the Supervisory Board is set forth in the Articles of Association of Mühlbauer Holding AG & Co. KGaA. The Articles of Association do only include a fixed payment to members of the Supervisory Board. The introduction of a variable remuneration schemes is not intended as the company does not believe that such a component would generate additional incentive (Code 2009 section 5.4.6 paragraph 2 clause 1).

 

Financial statement

The Personally Liable Shareholder is responsible for drawing up the half-year and quarterly reports in accordance with the respective legal provisions. They are drawn up within a tight schedule. For this reason no discussions about the half-year and any quarterly financial reports are made between the Personally Liable Shareholder and the Supervisory Board prior to the publications (Code 2009 section 7.1.2 clause 2).

 

In accordance with the Declaration of Conformity from December 19, 2008, the Personally Liable Shareholder and the Supervisory Board declare that at the Mühlbauer Holding AG & Co. KgaA in its legal form was complied with the recommendations of the German Corporate Governance Code  – in the version of June 06, 2008 (Code 2008) – until August 05, 2009, and subsequently with the recommendations of the German Corporate Governance Code in the version of June 06, 2009 (Code 2009), except in the respects set out below:

 

Deductible for D&O insurance

For board members and/or the Supervisory Board, the D&O insurance did not include a deductible. A deductible would have restricted opportunities for acquiring members for the Supervisory Board with extensive entrepreneurial experience, as  these would have taken into account liability risks, even in the event of negligent conduct. Moreover, the agreement of deductibles in the Supervisory Board area was still uncommon (Code 2008 and Code 2009 section 3.8 paragraph 2).

 

Disclosure and explanation of the remuneration of the Management

For extraordinary, unforeseeable developments, a possibility of limitation (cap) of stock option plans did not exist. The company did not consider a necessity of a cap, as the distribution of stock options was scheduled to be effected on an individual basis and at the most in small tranches. (Code 2008 section 4.2.3 paragraph 3 clause 4).

 

The Chairman of the Supervisory Board did not disclose any information on the company's remuneration system and possible modifications to the Annual Sharholders' Meeting (Code 2008 and Code 2009 section 4.2.3 paragraph 6).

 

The total remuneration of the Personally Liable Shareholder and the members of the Management Board of the Mühlbauer Aktiengesellschaft (hereinafter referred to as "Management") for the performance of their duties in the company and the subsidiary companies was disclosed as total amount in the notes to the consolidated financial statements. The disclosure was divided according to non result-based and result-based components as well as components with long-term incentive effect respectively according to the rules of the relevant international accounting principles.

 

No disclosure of other information than compulsory according to the law, the explanation of the remuneration system as well as the explanation of information on the nature of the fringe benefits provided by the company in a remuneration report was given (Code 2008 section 4.2.5 paragraph 1 and Code 2009 section 4.2.5  paragraph 1).

 

Disclosure and explanation beyond the Management's remuneration elements, information on the value of stock options (when applicable), the annual contribution to the pension provisions as well as the basic principles of the stock option plan resolved by the Annual General Meeting, the concrete design of stock option plans, the essence of benefits in case of the termination of a member's activitiy in the Management as well as information on fringe benefits provided by the company in a remuneration report was not given (Code 2008 section 4.2.5 paragraph 2 and 3 and code 2009 section 4.2.5 paragraph 2).

 

The remuneration system was the result of confidential discussions within the Supervisory Board as well as conversations between the Supervisory Board and the Management. The publication of details in excess of legally required ones would have increased the risk of a targeted solicitation of executives, as details of the remuneration structure would subsequently also be transparent to competition.

 

Sideline activities that are not legally compulsory subject to approval could be taken partly on the members of the Management even without approval of the Supervisory Board. The interests of the corporation and the expectations toward responsible decisions of the Management are preserved sufficiently by the legally compulsory regulations and other contractual obligations of the Management  (Codex 2008 and Codex 2009 section 4.3.5).

 

Formation of Supervisory Board committees

No Supervisory Board committees were formed as the Supervisory Board only consists of 3 members (Code 2008 and Code 2009 section 5.2 clause 2, 5.3.1 clause 1, 5.3.2 clause 1 and 2, 5.3.3).

 

Composition and remuneration paid to members of the Supervisory Board

 No age-limit for members of the Supervisory Board was set, as in company’s jugedment the age of a person is not an indication whether the person is able to observe a mandate adequately or not (Code 2008 and Code 2009 section 5.4.1 clause 2).

 

Members of the Supervisory Board could also be qualified for counseling and monitoring the Management, even if they did not meet the criteria for independence in the sense of section 5.4.2 clause 1 of the German Corporate Governance Code (Code 2008 and Code 2009 section 5.4.2).

 

The change of the representative of the Personally Liable Shareholder or a Management Board member of the Mühlbauer Aktiengesellschaft to the chairmanship of the Supervisory Board could be individually decided without giving reasons to the Annual General Meeting (Code 2008 section 5.4.4).

 

In case the Annual General Meeting had elected the present representative of the Personally Liable Shareholder or a Management Board meber of the Mühlbauer Aktiengesellschaft in the Supervisory Board of the company, their change in the chairmanship of the Supervisory Board would have been decided as the case arises. A reason to the Annual General Meeting would not have given (Code 2009 section 5.4.4).

 

According to the opinion of the Personally Liable Shareholder and the Supervisory Board it can be beneficial in some cases that former Management Board members transfer to the chairmanship of the Supervisory Board. As the internal knowledge of former Management Board members about the company increases the efficiency of Supervisory Board monitoring, the Personally Liable Shareholder and the Supervisory Board did not see any need for justifying separately a possible transfer at the Annual General Meeting.

 

No full (or partial) performance-oriented remuneration was paid to members of the Supervisory Board. The Articles of Association did only include a fixed payment to the Supervisory Board. The introduction of a variable remuneration schemes was not intended as the company does not believe that such a component would generate additional incentive (Code 2008 and Code 2009 section 5.4.6 paragraph 2 clause 1).

 

Financial statement

The Personally Liable Shareholder was responsible for drawing up the half-year and quarterly reports in accordance with the respective legal provisions. They were drawn up within a tight schedule. For this reason no discussions about the half-year and any quarterly financial reports were made between the Personally Liable Shareholder and the Supervisory Board prior to the publications (Code 2008 cand Code 2009 section 7.1.2 clause 2).

 

Roding, 23 December 2009

 

 

the                                                                                             the

Personally Liable Shareholder                                           Supervisory Board

Risk management

Good corporate governance also includes the company’s responsible handling of risks. Mühlbauer Holding AG & Co. KGaA has implemented a risk management system that regularly identifies and monitors risks throughout the group. The risk management system of the Mühlbauer Group is continually monitored with regard to its efficiency and adapted to changing framework conditions. Details on risk management are depicted in the risk report, in the context of which the company also reports on the accounting-related internal control and risk management system passed by way of the German Accounting Law Modernization Act.

Transparency

Uniform, comprehensive and timely information plays a major role at Mühlbauer Holding AG & Co. KGaA. Mühlbauer informs capital market participants and the interested public of business and new developments on a regular basis and, where applicable, with immediate effect. The Annual Report, the interim reports and the semi-annual financial statements are published within the set periods. Press releases and – insofar legally required – ad-hoc messages provide information on current events and new developments. All capital market-related information can be viewed on the internet under Investor Relations. A detailed list of all published capital market-related information is contained in the “Annual document” that is published for each past financial year, pursuant to § 10 WpPG.

Share transactions

In accordance with § 15a WpHG individuals with management responsibility and people closely associated with these must disclose the purchase or disposal of Mühlbauer shares. Mühlbauer Holding AG & Co. KGaA publishes the disclosures in respect of such transactions on the homepage of Mühlbauer Holding AG & Co. KGaA.

ShareholdingsAs at 31 December 2009, the personally liable shareholder held 3,296,852 shares via his sole participation in SECURA Vermögensverwaltungs GmbH. This shareholding represents 52.50% of the shares issued by Mühlbauer Holding AG & Co. KGaA. The Supervisory Board held 165 shares (which corresponds to 0.00%) and the management of Mühlbauer Aktiengesellschaft held 316,478 shares (which corresponds to 5.00%). Neither the personally liable shareholder, the Supervisory Board, nor the management of Mühlbauer Aktiengesellschaft held options or any other derivatives as at 31 December 2009.

Accounting and audit of the financial statements

Mühlbauer Holding AG & Co. KGaA draws up its consolidated financial statements and the consolidated interim statements in accordance with the International Financial Reporting Standards (IFRS). The Consolidated Financial Report for 2009 was established by the personally liable shareholder and audited by KPMG AG Wirtschaftsprüfungsgesellschaft – the auditor appointed by the 2009 Annual General Meeting – and the Supervisory Board.

Before presenting the recommendation for the appointment of the external auditor, the Supervisory Board obtained a statement from the external auditor explaining to what extent relationships existed between the external auditor, his corporate bodies, the audit manager of the company or its corporate bodies. There were no doubts as to the independence of the external auditor. In addition, the Supervisory Board came to an agreement with the external auditor, in accordance with Figure 7.2.3 of the German Corporate Governance Code, that the external auditor was to immediately report all events and findings made in the course of the audit, that were relevant to the responsibilities of the Supervisory Board. The Supervisory Board also determined that the auditor was to inform the Supervisory Board or make a note in the audit report if he detected any deviations to the declaration in respect of the Code, provided by the personally liable shareholder and the Supervisory Board.

Remuneration of Supervisory Board members

The remuneration of the members of the Supervisory Board is laid down in the Articles of Association of Mühlbauer Holding AG & Co. KGaA and exclusively provides for fixed remuneration. In the year under review, the members of the Supervisory Board received the following remuneration:

1) Amounts are derived from the position held within the respective corporate body at Mühlbauer Holding AG & Co. KGaA and Mühlbauer Aktiengesellschaft

Dr. Thomas Zwissler, Chairman of the Supervisory Board, is also an attorney and partner of the law firm Zirngibl Langwieser Rechtsanwälte Partnerschaft. The firm occasionally provides legal consultation to the Mühlbauer Group. The fees for such services amounted to TEUR 63 (PY: TEUR 36) in the year under review.

2. Relevant information on management practices

Company’s own Code

Above and beyond legal requirements, Mühlbauer Holding AG & Co. KGaA passed its own Corporate Governance Code, which underpins the importance of a value-oriented and transparent management for the Mühlbauer Group, taking into consideration the individual situation of the company as a partnership limited by shares. The personally liable shareholder and the Supervisory Board have agreed to the company’s own Corporate Governance Code, which is largely based on the version dated 18 June 2009. Additionally, all members of the Management Board of Mühlbauer Aktiengesellschaft voluntarily and individually declared their compliance with the provisions set out in the Code.

Code of conduct

In order to guarantee uniform exemplary action and conduct in respect of a sustainable Corporate Compliance, a code of conduct was developed in the year under review that is based on the company’s corporate culture, which has developed over decades. The code of conduct, which is published on the internet, defines firm principles and rules that are to be followed by all employees of the Mühlbauer Group. The code of conduct is to assist employees in responding to ethical and legal challenges in their daily work and to provide an orientation in conflicts. It also contains rules on how to handle complaints or notices regarding violations of the guidelines. In the interest of all employees and the company, violations are investigated and the causes thereof removed.

3. Mode of operation and composition of the personally liable shareholder and the Supervisory Board

Representation of the company by the personally liable shareholder

Due to the legal form of Mühlbauer Holding AG & Co. KGaA, the company is not represented by a Management Board but solely by the personally liable shareholder. He is also responsible for the management of Mühlbauer Holding AG & Co. KGaA. The personally liable shareholder is not subject to the personnel competence of the Supervisory Board and can therefore not be dismissed. In accordance with the Articles of Association of the company, the right of approval, which shareholders of a limited partnership are entitled to in respect of extraordinary transactions, is excluded. The Articles of Association, however, contain a catalog of transactions – also exceeding ordinary business proceedings – that require the approval of the Supervisory Board and enable it to influence material legal transactions and activities of the personally liable shareholder. Several resolutions of the Annual General Meeting require the approval of the personally liable shareholder; these include amendments to the Articles of Association and the approval of the annual financial statements.

Consultation and monitoring by the Supervisory Board

The key function of the Supervisory Board is the regular provision of consultation to and monitoring of management. It is also involved in decisions that are of fundamental importance to the company. In contrast to the Supervisory Board of a joint stock corporation, the Supervisory Board of Mühlbauer is not qualified to appoint or dismiss the personally liable shareholder. With regard to the composition of the personally liable shareholder’s management, the Supervisory Board holds a right of cooperation to the extent that it must be informed prior to the appointment or dismissal of members to the Management Board of the general partner and must be provided an opportunity to comment. In its meetings, the Supervisory Board passes resolutions with a majority of votes cast. The Supervisory Board of Mühlbauer Holding AG & Co. KGaA consists of three members. In the 2008 financial year, two members were appointed by the shareholders of the Annual General Meeting and one member was appointed by the owner of share no. 1, by exercising its right of appointment laid down in § 11 para. 1 of the Articles of Association. The term of the Supervisory Board members is generally five years. The responsibilities of the Supervisory Board are regulated by law and the Articles of Association. Supervisory Board committees are not formed with regard to the total number of Supervisory Board members.