Corporate Governance

We at MorphoSys believe the essence of good Corporate Governance involves efficient cooperation between a company’s Management and Supervisory Board, respect for the shareholders’ interests, as well as openness and transparency of corporate communication. Moreover, we feel strong corporate governance is an integral part of the MorphoSys corporate value system. As such, the company believes that adherence to high Corporate Governance standards will ultimately increase shareholder value.

Statement on Corporate Governance

In the Statement on Corporate Governance under Section 289f HGB and the Group Statement on Corporate Governance pursuant to Section 315d, the Management Board and the Supervisory Board present information on the most essential components of our corporate governance. The components include the annual Declaration of Conformity pursuant to Section 161 of the Stock Corporation Act (AktG), the relevant information on corporate governance practices and other aspects of corporate governance that include, above all, a description of the working practices of the Management Board and Supervisory Board.

Declaration of Conformity with the German Corporate Governance Code of the Managament Board and Supervisory Board of MorphoSys AG

The Management Board and the Supervisory Board of MorphoSys AG declare the following pursuant to Section 161 of the German Stock Corporation Act:

  1. Since the last Declaration of Conformity on November 30, 2018, MorphoSys has complied with the recommendations of the “Government Commission on the German Corporate Governance Code” in the version from February 7, 2017, with the following exception:
  • There is no cap on the Management Board members’ remuneration, neither as a whole or with respect to the individual variable remuneration components (see Item 4.2.3 (2) sentence 6 of the Code). Based on the Supervisory Board’s existing limitations for the Management Board’s variable remuneration components and their annual allocation, the Supervisory Board does not believe that an additional cap is required.
  1. MorphoSys will continue to comply with the recommendations of the “Government Commission on the German Corporate Governance Code” in the version dated February 7, 2017, with the exceptions described under Item 1.

Planegg, November 29, 2019
MorphoSys AG

 

On behalf of the Management Board On behalf of the Supervisory Board
Dr. Jean-Paul Kress
Chief Executive Officer
Dr. Marc Cluzel
Chairman of the Supervisory Board

 

Link to German Corporate Governance Code

Archive

Relevant Information on Corporate Governance Practices

We ensure compliance with laws and rules of conduct through the Group-wide enforcement of the following documents: the Code of Conduct, the Compliance Management Handbook and other internal guidelines.

Our Code of Conduct sets out the fundamental principles and key policies and practices for business behavior. The Code is a valuable tool for our employees and executives, particularly in business, legal and ethical situations of conflict. The Code of Conduct reinforces our transparent and sound management principles and fosters the trust placed in us by the public, business partners, employees and the financial markets. Compliance with the Code of Conduct is carefully monitored. The Group-wide implementation of the Code is overseen by the Global Compliance Committee. The Code of Conduct itself is routinely reviewed and updated, provided to all new employees and can be downloaded in German or English from our website under the section Media and Investors – Corporate Governance.

The Compliance Handbook describes our Compliance Management Program (CMP) and is intended to ensure compliance with all legal regulations and prescribe high ethical standards that apply to both the management and all employees. The Management Board has overall responsibility for the CMP and is required to report regularly to the Audit Committee and the Supervisory Board. In carrying out its compliance responsibility, the Management Board has assigned the relevant tasks to various offices at MorphoSys.

The Compliance Officer monitors our existing CMP and updates it according to the decisions of the Management Board and the Global Compliance Committee. The Compliance Officer is the first point of contact for each employee for all compliance-related issues.

The Global Compliance Committee consists of representatives from different offices and meets quarterly. It supports the Compliance Officer in the implementation and monitoring of the CMP. The Global Compliance Committee is particularly responsible for the identification and discussion of all compliance-relevant issues and thus makes it possible for the Compliance Officer and the other members of the Global Compliance Committee to periodically verify our compliance status and, if necessary, update the CMP.

More information on our Compliance Management Program can be found in the Corporate Governance Report.

Composition of the Management Board and the
Supervisory Board

 

Management Board

The Management Board of MorphoSys AG consists of a Chief Executive Officer and three other members. A schedule of responsibilities currently defines the different areas of responsibility as follows:

  • Dr. Jean-Paul Kress, Chief Executive Officer and Chairman of the Management Board (since September 1, 2019): Strategy and Planning, Compliance & Quality Assurance, Internal Audit, Human Resources, Business Development & Portfolio Management, Legal, Commercial Planning and Processes, the coordination of individual areas of the Management Board, and the representative of the Management Board for communication with the Supervisory Board and the public;
  • Dr. Simon Moroney, Chief Executive Officer (until August 31, 2019): Strategy and Planning, Compliance & Quality Assurance, Internal Audit, Human Resources, Business Development & Portfolio Management, Legal, Commercial Planning, the coordination of individual areas of the Management Board, and the representative of the Management Board for communication with the Supervisory Board;
  • Jens Holstein, Chief Financial Officer: Accounting & Taxes, Controlling & Risk Management, Corporate Development & M&A, IT, Technical Operations, Procurement & Logistics, Corporate Communications & Investor Relations, and Environmental Social Governance (ESG);
  • Dr. Markus Enzelberger, Chief Scientific Officer: Development Partnerships & Technology Development, Protein Chemistry, Alliance Management, Intellectual Property and Lanthio Pharma; and
  • Dr. Malte Peters, Chief Development Officer: Preclinical Research, Project Management, Clinical Development, Clinical Operations, Drug Safety & Pharmacovigilance and Regulatory Affairs.

Biographies of the Management Board members

Supervisory Board

Our Supervisory Board consisted of six members until the Annual General Meeting 2019, which took place on May 22, 2019. The 2019 Annual General Meeting resolved to increase the number of Supervisory Board members to seven and elected Sharon Curran as the seventh member. Therefore, as of June 14, 2019, the Supervisory Board of MorphoSys consisted of seven members who oversee and advise the Management Board. In addition, Krisja Vermeylen was re-elected as a member of the Supervisory Board.

The current Supervisory Board consists of professionally qualified members who represent our shareholders. The Chair of the Supervisory Board, Dr. Marc Cluzel, coordinates the Board’s activities, chairs the Supervisory Board meetings and represents the interests of the Supervisory Board externally. All Supervisory Board members are independent, as defined in the German Corporate Governance Code and the Nasdaq Listing Rules, and have many years of experience in the biotechnology and pharmaceutical industries. The Chair of the Supervisory Board is not a former member of our Management Board. The members of the Supervisory Board and its committees are individually listed in the tables below.

 

COMPOSITION OF THE SUPERVISORY BOARD SINCE TERMINATION OF THE 2019 ANNUAL GENERAL MEETING

  Initial
Appointment
End of
Period
Audit
Committee
Remuneration and Nomination
Committee
Science
and Technology
Committee
Dr. Marc Cluzel 2012 2021   M  
Dr. Frank Morich 2015 2020   M M
Krisja Vermeylen 2017 2021 M C  
Wendy Johnson 2015 2020     M
Dr. George Golumbeski 2018 2020     C
Michael Brosnan (FE) 2018 2020 C    
Sharron Curran 2019 2021 M    

FE=Independent Financial Expert     C=Chairperson     M=Member

COMPOSITION OF THE SUPERVISORY BOARD UNTIL TERMINATION OF THE 2019 ANNUAL GENERAL MEETING

  Initial
Appointment
End of
Period
Audit
Committee
Remuneration and Nomination
Committee
Science
and Technology
Committee
Dr. Marc Cluzel 2012 2021   M  
Dr. Frank Morich 2015 2020   M M
Krisja Vermeylen 2017 2019 M C  
Wendy Johnson 2015 2020 M   M
Dr. George Golumbeski 2018 2020     C
Michael Brosnan (FE) 2018 2020 C    

FE=Independent Financial Expert     C=Chairperson     M=Member

 

WORKING PRACTICES OF THE MANAGEMENT BOARD AND SUPERVISORY BOARD

To ensure good corporate governance, a guiding principle of the cooperation between our Management Board and our Supervisory Board is the open, comprehensive and regular communication of information. The dual board system prescribed by the German Stock Corporation Act clearly differentiates between the company’s management and its supervision. The responsibility of both boards is clearly stipulated by the legislator and the boards’ bylaws and Articles of Association. The boards work closely together to make decisions and take actions for the Company’s benefit. Their stated objective is to sustainably increase the Company’s value.

Management Board members have their own area of responsibility defined in the schedule of responsibilities and regularly report to their Management Board colleagues. Cooperation among Management Board members is governed by the bylaws. The Supervisory Board approves both the schedule of responsibilities and the bylaws. Management Board meetings are typically held weekly and chaired by the Chief Executive Officer. During these meetings, resolutions are passed concerning dealings and transactions that, under the bylaws, require the approval of the entire Management Board. At least half of the Management Board’s members must be present to pass a resolution. Management Board resolutions are passed by a simple majority and, in the event of a tied vote, the Chief Executive Officer’s vote decides. For material events, each Management Board or Supervisory Board member can call an extraordinary meeting of the entire Management Board. Management Board resolutions can also be passed outside of meetings by an agreement made orally, by telephone or in writing (also by e-mail). A written protocol is completed for each meeting of the full Management Board and submitted for approval to the full Management Board, as well as for the signature of the Chief Executive Officer, at the following meeting.

In addition to the regularly scheduled meetings, Management Board strategy workshops are also held for developing the future strategy and prioritizing the Group-wide strategic objectives.

The Management Board promptly and comprehensively informs the Supervisory Board in writing and at Supervisory Board meetings about planning, business development, the Group’s position, risk management and other compliance issues. Extraordinary meetings of the Supervisory Board are also called for material events. The Management Board involves the Supervisory Board in the strategy, planning and all fundamental Company issues. The Management Board’s bylaws specify that material business transactions require the approval of the Supervisory Board. Detailed information on the cooperation of the Management Board and Supervisory Board and important items of discussion during the 2019 financial year can be found in the Report of the Supervisory Board.

The Supervisory Board holds a minimum of two meetings each calendar half-year and at least four meetings each full calendar year. The Supervisory Board has supplemented the Articles of Association with rules of procedure that apply to its duties. In accordance with these rules, the Chairperson of the Supervisory Board coordinates the activities of the Supervisory Board, chairs the Supervisory Board meetings and represents the interests of the Supervisory Board externally. The Supervisory Board typically passes its resolutions in meetings, but resolutions may also be passed outside of meetings in writing (also by e-mail), by telephone or video conference.

The Supervisory Board has a quorum when at least two-thirds of its members (including either the Chairperson or Deputy Chairperson of the Supervisory Board) take part in the vote. Resolutions of the Supervisory Board are generally passed with a simple majority unless the law prescribes otherwise. In the event of a tied vote, the Chairperson of the Supervisory Board’s vote decides.

Protocols are completed for Supervisory Board meetings, and resolutions passed outside of meetings are also documented. A copy of the Supervisory Board’s protocol is made available to all Supervisory Board members. The Supervisory Board conducts an efficiency evaluation regularly in accordance with the recommendation in Item 5.6 of the Code.

COMPOSITION AND WORKING PRACTICES OF THE MANAGEMENT BOARD AND SUPERVISORY BOARD COMMITTEES

The Management Board has not formed any committees.

The Supervisory Board has three committees: the Audit Committee, the Remuneration and Nomination Committee, and the Science and Technology Committee. The members of the three committees formed by the Supervisory Board are professionally qualified.

AUDIT COMMITTEE

The main task of the Audit Committee is to support the Supervisory Board in fulfilling its supervisory duties with respect to the accuracy of the annual and consolidated financial statements, the activities of the auditor and internal control functions, such as risk management, compliance and internal auditing. The Audit Committee submits a recommendation to the Supervisory Board for the election at the Annual General Meeting of an independent auditor. Until May 22, 2019, the members of the Audit Committee were Michael Brosnan (Chair), Wendy Johnson and Krisja Vermeylen. Sharon Curran has been the seventh member of the Supervisory Board of MorphoSys since June 14, 2019, and was appointed as a member of the Audit Committee by resolution of the Supervisory Board on May 22, 2019, effective as of her entry into the Supervisory Board. Since that date, the Audit Committee has consisted of Michael Brosnan (Chair), Sharon Curran and Krisja Vermeylen. Currently, Michael Brosnan meets the prerequisite of an independent financial expert.

REMUNERATION AND NOMINATION COMMITTEE

The Remuneration and Nomination Committee is responsible for preparing and reviewing the Management Board’s compensation system annually before its final approval. When necessary, the Committee searches for suitable candidates to appoint to the Management Board and Supervisory Board and submits appointment proposals to the Supervisory Board. The Committee also prepares the contracts made with Management Board members. The members of the Remuneration and Nomination Committee are Krisja Vermeylen (Chair), Dr. Marc Cluzel and Dr. Frank Morich.

SCIENCE AND TECHNOLOGY COMMITTEE

The Science and Technology Committee advises the Supervisory Board on matters concerning proprietary drug and technology development and prepares the relevant Supervisory Board resolutions. The members of the Science and Technology Committee are Dr. George Golumbeski (Chair), Dr. Frank Morich and Wendy Johnson.

AD HOC DEAL COMMITTEE

In addition to the three existing committees, an Ad Hoc Deal Committee was set up in October 2019 to act as an additional body for the tafasitamab partnership talks, advise on agreement terms, ensure an efficient negotiation process, and facilitate the Supervisory Board’s involvement. The Ad Hoc Deal Committee dissolved automatically in January 2020 upon the signing of the global cooperation and licensing agreement with Incyte for tafasitamab. The members of this Ad Hoc Deal Committee were Dr. George Golumbeski and Wendy Johnson.

 

Corporate Governance Report

At MorphoSys, responsible, sustainable and value-oriented corporate governance is a high priority. Good corporate governance is an essential aspect of our corporate management and forms the framework for the Group’s management and supervision, which includes the Group’s organization, commercial principles and tools for its guidance and control.

The German Corporate Governance Code (“the Code”) provides a standard for the transparent monitoring and management of companies that strongly emphasizes shareholder interests. The German Federal Ministry of Justice originally published the Code in 2002; it was last amended on February 7, 2017 and published in the German Federal Gazette on April 24, 2017. On December 16, 2019, the Government Commission on the German Corporate Governance Code adopted a new version of the Code (“Code 2020”), which, however, only came into force after the end of the reporting period in 2020. Until then, the version of the Code dated February 7, 2017 continued to apply. The Code contains recommendations and suggestions with regard to the management and supervision of German companies listed on a stock exchange. It is based on domestic and internationally recognized standards for good and responsible corporate governance. The Code aims to make the German system of corporate governance transparent for investors. It contains recommendations and suggestions on corporate governance with regard to shareholders and the Annual General Meeting, the Management Board and Supervisory Board, transparency, accounting and valuation principles, and auditing.

There is no obligation to comply with the recommendations and suggestions of the Code. The German Stock Corporation Act only requires the Management Boards and Supervisory Boards of listed German companies to publish a declaration each year, (i) either confirming that the company has complied with the recommendations of the Code or (ii) listing the recommendations with which the company has not complied and the reasons for the deviation from the recommendations of the Code. In addition, a listed company must also state in its annual declaration whether it intends to comply with the recommendations or must list the recommendations with which it does not intend to comply with in the future. These declarations must be published permanently on the company’s website. If the company changes its position on certain recommendations between two annual declarations, it must disclose this fact and state the reasons for the deviation from the recommendations. If suggestions from the Code are not complied with, this does not have to be disclosed.

Many of the corporate governance principles contained in the Code have been practiced at MorphoSys for many years. Our corporate governance principles are detailed in the Statement on Corporate Governance under Sections 289f and 315d HGB. The statement also contains the annual Declaration of Conformity, relevant information on corporate governance practices and a description of the Management Board and Supervisory Board’s working practices. Additional information can be found in this Corporate Governance Report.

Communication with the Capital Markets

A key principle of corporate communication at MorphoSys is to simultaneously and fully inform institutional investors, private shareholders, financial analysts, employees and all other stakeholders of the Company’s situation through regular, transparent and timely communication. Shareholders have immediate access to the information provided to financial analysts and similar recipients and can obtain this information in both German and English. The Company is firmly committed to following a fair information policy.

Regular meetings with analysts and investors in the context of roadshows and individual meetings play a central role in investor relations at MorphoSys. Conference calls accompany publications of quarterly results and give analysts and investors an immediate opportunity to ask questions about the Company’s development. Company presentations for on-site events are made available to those interested on the Company’s website, as are visual and audio recordings of other important events. Conference call transcripts are also made promptly available.

The Company’s website www.morphosys.com serves as a central platform for current information on the Company and its development. Financial reports, analyst meetings and conference presentations, as well as press releases and ad hoc statements, are also available. The important regularly scheduled publications and events (annual reports, interim reports, annual general meetings and press and analyst conferences) are published in the Company’s financial calendar well in advance.

Establishment of specific targest for the composition of the Supervisory Board

The Supervisory Board should establish specific targets for its composition and create a Supervisory Board competency and knowledge profile so that (i) the Supervisory Board in its entirety has the necessary knowledge, skills and professional experience to properly perform its duties, (ii) the Company’s international activities and potential conflicts of interest are taken into consideration, (iii) a sufficient number of independent Supervisory Board members is ensured, (iv) an age limit and a regular limit on the length of service is specified for members of the Supervisory Board, and (v) the aspect of diversity is taken into account.

With these aspects in mind and in consideration of the Company’s specific circumstances (Section 5.4.1 of the German Corporate Governance Code), the Supervisory Board defined the objectives with regard to its composition for the first time in July 2015 and reviewed and updated these objectives on July 26, 2017. In submitting its proposals for the re-election of one Supervisory Board member and the election of a new Supervisory Board member at the 2019 Annual General Meeting, the Supervisory Board has taken these objectives into account, while at the same time endeavoring to pursue the goal of fulfilling the overall profile of the Supervisory Board’s stated skills and experience, unless otherwise stated below. The Supervisory Board intends to observe the targets set by it with regard to its composition in future election proposals to the Annual General Meeting unless otherwise stated below.

The objectives set by the Supervisory Board regarding its composition were implemented as follows:

 

APPROPRIATE REPRESENTATION OF WOMEN AND DIVERSITY

The Supervisory Board strongly believes that an appropriate representation of women on the Supervisory Board should be at least 33.33%. Until May 22, 2019, the Supervisory Board had a total of six members, two of whom were women, which corresponded to representation of 33.33%. Since June 14, 2019, the Supervisory Board has had seven members, three of whom are women, which corresponds to representation of 42.86%.

The Supervisory Board also believes that having at least two non-German members or at least two members with extensive international experience provides a fair share of diversity given our international orientation. The Supervisory Board currently meets this quota, as six of the seven Supervisory Board members are non-German and all of the Supervisory Board members possess extensive international experience.

INDEPENDENCE

The Supervisory Board considers at least four independent members to be an appropriate number of independent members (Section 5.4.2 of the German Corporate Governance Code and Nasdaq Listing Rules). Members of the Supervisory Board are considered independent when they have no personal or business relationship with MorphoSys, its management, a controlling shareholder or an affiliate that can give rise to a material and more than temporary conflict of interest. All seven members of the Supervisory Board meet the criteria to be classified as independent. Therefore, the Supervisory Board currently meets the quota of four independent members.

Significant and more than temporary conflicts of interest should be avoided, especially when it involves work for major competitors. It should be noted, however, that conflicts of interest in certain cases cannot principally be excluded. Any potential conflicts of interest must be disclosed to the Chair of the Supervisory Board and remedied appropriately. There are currently no conflicts of interest.

AGE LIMIT

At the time of their appointment by the Annual General Meeting, Supervisory Board members should not be older than 75 years. The Supervisory Board may, however, decide to make an exception in specific cases. The age limit of 75 years is currently met by the Supervisory Board members.

TERM OF APPOINTMENT

At the Annual General Meeting, the Supervisory Board intends to propose an initial two-year period of office for Supervisory Board members. Supervisory Board members should also be allowed to be reappointed twice, each for an additional term of three years; however, the Supervisory Board reserves the right to resolve on exceptions in substantiated individual cases and to propose to the Annual General Meeting that a Supervisory Board member be reappointed for a fourth term of three years. Since the time of setting this target, the maximum term of appointment for all elected Supervisory Board members has been respected.

Sharon Curran was elected at the Annual General Meeting for an initial term of two years. Krisja Vermeylen was also re-elected for a two-year term of office.

Skills and Experience Profile for the Supervisory Board as a Whole

In addition to defining specific targets, the Supervisory Board should develop a profile of skills and experience for the entire Supervisory Board (Section 5.4.1 of the German Corporate Governance Code). On July 26, 2017, the Supervisory Board defined the following profile of skills and experience for the entire Supervisory Board, and the Supervisory Board intends to consider the skills and experience profile for the entire Supervisory Board in future election proposals to the Annual General Meeting:

PROFESSIONAL SKILLS AND EXPERIENCE

Supervisory Board members should possess the necessary professional skills and experience to fulfill their duties as members of the Supervisory Board of MorphoSys as an international biotechnology company. All current Supervisory Board members have the relevant experience in management positions in the pharmaceutical and biotechnology industries and, therefore, meet this requirement.

In order to promote further cooperation between members of the Supervisory Board, care should be taken in the selection of candidates to ensure that the aspect of diversity in terms of professional background, expertise, experience and personality is sufficiently taken into account.

GENERAL KNOWLEDGE

All members of the Supervisory Board should have a general knowledge of the industry in which we operate in order to make sufficient and substantial contributions to Supervisory Board meetings. All Supervisory Board members have the necessary expertise in the pharmaceutical and biotechnology industries based on their background and, therefore, meet this requirement.

PROFESSIONAL EXPERTISE

  • At least two members of the Supervisory Board must have extensive experience in drug development.
  • At least one Supervisory Board member must have expertise in the areas of accounting or auditing (Section 100 [5] AktG).
  • At least one member of the Supervisory Board must have experience in human resource issues, particularly with regard to Management Board matters.

The targets above are currently met.

SUFFICIENT AVAILABILITY OF TIME

All members of the Supervisory Board must ensure that they have sufficient time available to properly perform their Supervisory Board duties. It must, therefore, be ensured that

  • the Supervisory Board member is able to personally attend at least four ordinary Supervisory Board meetings per year, as well as the annual strategy meeting, for which a reasonable amount of preparation time is required in each case;
  • the Supervisory Board member is able to attend extraordinary meetings of the Supervisory Board if necessary to deal with specific topics;
  • the Supervisory Board member is able to attend the Annual General Meeting;
  • the Supervisory Board member has sufficient time available to review the annual and consolidated financial statements; and
  • the Supervisory Board member sets aside additional time to prepare and participate in committee meetings, depending on his/her possible membership in one or more of the current three committees of the Supervisory Board.

Womens´s quota for the Supervisory Board, Management Board and the two Management Levels below the Management Board

In July 2015, the Supervisory Board adopted a women’s quota for the Supervisory Board for an initial period of two years. The Supervisory Board reviewed this quota in July 2017 and made the following amendments at that time:

“MorphoSys AG’s Supervisory Board has a total of six members, two of whom are women. This places the current quota of 33.33% for female members on the Company’s Supervisory Board above the 30% target. The Supervisory Board confirms its decision regarding the quota for women on the Supervisory Board, which was passed in July 2015, and intends to maintain this ratio until June 30, 2022.”

The women’s quota for the Supervisory Board established in 2017 was continued to be complied with. Until May 22, 2019, the Supervisory Board had a total of six members, two of whom were women, which corresponded to a proportion of 33.33%. Since June 14, 2019, the Supervisory Board has had seven members, three of whom are women, which corresponds to a proportion of 42.86%.

In July 2015, the Supervisory Board adopted the following quota for women on the Management Board for an initial period of two years. The Supervisory Board reviewed this quota in July 2017 and updated it on that date as follows:

“The Management Board of MorphoSys AG has a total of five members, including one woman. The current proportion of women on the Company’s Management Board is therefore below 30% and amounts to 20%. With reference to the decision on the quota of women on the Management Board, which was taken in July 2015, the Supervisory Board intends to achieve a ratio of 25% in the future, namely by June 30, 2022.”

This target is currently not met. The reason is the unplanned departure of Dr. Marlies Sproll as a member of the Management Board for personal reasons as of October 31, 2017 and the appointment of Dr. Markus Enzelberger as a new member of the Management Board. Since October 31, 2017, the Management Board had thus consisted of four male members (and since the departure of Dr. Enzelberger at the end of February 2020 has consisted of three male members), and the proportion of women on the Management Board is therefore 0%.

In July 2015, the Management Board adopted the following quota for women in the first level of management below the Management Board for an initial period of two years and reviewed and updated it in July 2017 as follows:

“At the time of the decision, the first management level below the Management Board (the Senior Management Group) consisted of 22 members, nine of whom were women. The current proportion of women at this management level was 40.9%, which was above the 30% target. The Management Board confirms its July 2015 decision on the quota of women in the first level of management below the Management Board and intends to continue to maintain a minimum ratio of 30% until June 30, 2022.”

This target continues to be met.

In July 2015, the Management Board adopted a women’s quota for the second level of management below the Management Board initially for a period of two years and reviewed and updated the quota in July 2017 as follows: “The second management level below the Company’s Management Board (i.e. the group of managers excluding the Senior Management Group) at the time of the decision consisted of 40 members, 14 of whom were women. This placed the quota of women in the second management level below the Company’s Management Board at 35% at the time of the resolution, which was above the 30% target. The Management Board confirms its July 2012 decision on the quota of women in the second level of management below the Management Board and intends to maintain a quota of at least 30% until June 30, 2022.”

This target continues to be met.

Diversity Concept

Diversity is firmly anchored in our corporate culture and that of our Group companies. All dimensions of diversity enjoy equal importance, be it age, gender, educational background and occupation, origin and religion, or sexual orientation and identity. Our Management Board and Supervisory Board see it as their task to further increase and beneficially utilize the various aspects of diversity, over and above setting targets for the proportion of women on the Management Board, Supervisory Board and in management positions.

We have not pursued our own diversity concept with regard to the composition of the Management Board and Supervisory Board until now. Nevertheless, the internal structuring and further development of an open and integrative corporate culture play a key role in the daily work of the Management Board and the Supervisory Board. The skills and experience profile for the Supervisory Board as a whole also takes the aspect of diversity into account.

 

Remuneration Report

The Remuneration Report presents the principles, structure and amount of Management Board and Supervisory Board remuneration. The report complies with the legal provisions and gives consideration to the recommendations of the German Corporate Governance Code.

Management Board Remuneration

The Management Board’s remuneration system is intended to provide an incentive for performance-oriented and sustainable corporate management. Therefore, the aggregate remuneration of the Management Board members consists of different components: fixed components, an annual cash bonus based on the achievement of corporate targets (Short-Term Incentive – STI), a variable remuneration component with long-term incentives (Long-Term Incentive – LTI) and other remuneration components. Variable remuneration components with long-term incentives consist of performance shares and stock options granted within the scope of performance share plans and stock options plans. In prior years, convertible bonds were also granted to members of the Management Board within the scope of a convertible bond program from the year 2013. Management Board members also receive fringe benefits in the form of non-cash benefits, mainly the use of a company car and the payment of insurance premiums.

All remuneration packages are reviewed annually for their scope and appropriateness by the Remuneration and Nomination Committee and compared to the results of an annual Management Board remuneration analysis. The amount of compensation paid to Management Board members highly depends on their individual areas of responsibility, the Company’s economic situation and success and its business prospects versus its competition. All decisions concerning adjustments to remuneration packages are made by the entire Supervisory Board. The total remuneration package and the Management Board’s index-linked pension scheme were comprehensively reviewed in 2019 and adjusted by the Supervisory Board.

OVERVIEW

In the 2019 financial year, the total benefits granted to the members of the Management Board (bearing in mind that Dr. Simon Moroney left as Chair of Management Board at the end of August 31, 2019, and Dr. Jean-Paul Kress became the new Chair of the Management Board as of September 1, 2019) in accordance with the provisions of the German Corporate Governance Code amounted to € 11,308,876 (2018: € 6,904,508). Of the total compensation granted for 2019, € 7,311,463 was cash compensation and € 3,997,413, or 35%, was personnel expenses from share-based variable compensation with long-term incentive (performance shares and stock options).

The total amount of benefits paid to the Management Board in financial year 2019 was € 14,128,615 (2018: € 7,505,917). In addition to cash compensation of € 4,104,582 (2018: € 3,189,972) paid in the financial year, this amount includes, above all, the relevant value of the transfer of treasury shares from a performance-based share plan under German tax law in the amount of € 1,941,794 (2018: € 626,606). As convertible bonds were also exercised in 2019 and 2018, the total amount for 2019 also included benefits from the exercise of convertible bonds in the amount of € 8,082,239 (2018: € 2,205,535).

As of April 15, 2019, a total of 19,815 treasury shares from the 2015 Performance Share Plan for the Management Board vested as a result of the expiration of the vesting period for this LTI plan. The beneficiaries had the option to call these shares within a six-month period ending on October 14, 2019. This call period was extended in the summer to December 31, 2019. All transactions by members of the Management Board in connection with the trading of MorphoSys shares were reported as required by law and published in the Corporate Governance Report and on the Company’s website.

In accordance with the requirements of Item 4.2.5 (3) of the Code, the information required by the Code on the remuneration of the individual members of the Management Board is presented in detail below.

Please note that the following tables in the Corporate Governance Report differ from the presentation of the remuneration of the Management Board in the Notes to the Consolidated Financial Statements (Note 7.4). This is due to the different presentation requirements under the German Corporate Governance Code and IFRS.

FIXED REMUNERATION AND FRINGE BENEFITS

The non-performance-related remuneration of the Management Board consists of fixed remuneration and additional fringe benefits, which mainly include the use of company cars and health subsidies or reimbursement of costs related to health, social security and occupational disability insurance. The new CEO Dr. Jean-Paul Kress, who assumed office as of September 1, 2019, received a one-time relocation allowance and reimbursement of costs for tax advice and remuneration advice in connection with the conclusion of his service contract. In addition, he receives an ongoing expense allowance for tax advice and maintaining two households. The Chief Financial Officer, Jens Holstein, also receives an expense allowance for maintaining two households.

PENSION EXPENSES

The Company also provides payments to Management Board members equal to a maximum of 10% of the member’s fixed annual salary and, in some cases, plus any payable taxes. This compensation is intended for the members’ individual retirement plans. Additionally, all Management Board members participate in a pension plan in the form of a provident fund, which was introduced in cooperation with Allianz Pensions-Management e.V. The pension obligations of the provident fund will be met by Allianz Pensions-Management e.V. These pension obligations are not pension benefit plans.

PERFORMANCE-BASED COMPENSATION (SHORT-TERM INCENTIVE – STI)

Members of the Management Board each receive performance-based compensation in the form of an annual bonus payment of up to 70% of the gross fixed salary with the full achievement of the member’s targets. These bonus payments are dependent on the achievement of corporate targets specified by the Supervisory Board at the start of each financial year. They are typically based on targets such as the Company’s performance and the progress of the partnered pipeline and the Company’s proprietary pipeline. At the start of the year, the Supervisory Board assesses the degree to which corporate goals were achieved in the prior year and uses this information to determine the bonus. The bonus may not exceed 125% of the target amount (corresponding to 87.5% of the gross fixed salary). Performance-based compensation may be reduced to zero when targets are not achieved. The bonus for the 2019 financial year will be paid in February 2020.

LONG-TERM INCENTIVE COMPENSATION (LONG-TERM INCENTIVE - LTI)

In 2011, MorphoSys introduced a long-term incentive compensation plan (Performance Share Plan) for the Management Board and members of the Senior Management Group. The Performance Share Plan is based on the allocation of performance shares linked to the achievement of predefined performance targets over a four-year period. Depending on the degree of target achievement (as described in more detail below), the award of performance shares is met by transferring treasury shares of the Company.
The Supervisory Board decides each year on the number of performance shares to be granted to the Management Board. On April 1, 2019, the members of the Management Board (at that time consisting of Dr. Simon Moroney, Jens Holstein, Dr. Malte Peters, and Dr. Markus Enzelberger) were granted a total of 9,347 shares; each member of the Management Board was entitled to a specific number of shares. For further details, please refer to Note 7.3.6 and the explanations on stock repurchases in the Corporate Governance Report.

At the time of allocation of shares for a given year, long-term performance targets are set by the Supervisory Board. For the 2019 Performance Share Plan, the objectives were defined as the absolute performance of the MorphoSys share price and the relative performance of the MorphoSys share price compared to a benchmark index; the benchmark index is comprised equally of the Nasdaq Biotechnology Index and the TecDAX. The absolute and relative share price performance is measured for each of the four assessment periods (one year each) by comparing the average share price of the last 30 trading days before the start of the assessment period in question (April 1) with the average share price of the last 30 trading days before the end of the assessment period. Participants in the performance share plan earn an entitlement to shares each year, which is valued on the basis of the absolute share price development as well as the relative share price development, i.e. a comparison of the MorphoSys share price development with the benchmark index. Depending on the absolute and relative share price performance during an assessment period, certain (absolute and relative) tiered levels of target achievement between 10% and 300% can be achieved. Exceeding the target achievement level by 300% does not grant entitlement to additional shares during the relevant assessment period (upper limit). At the end of the four-year term, an overall target achievement level should be calculated based on the absolute and relative degrees of target achievement achieved in each period. The average absolute and relative degrees of target achievement are weighted at 50%. Overall target achievement is capped at 200%.

The final number of performance shares allocated to the Performance Share Plan participants is determined at the completion of the program, which spans four years. This calculation incorporates the number of shares initially granted (“grants”) multiplied with the total level of target achievement, as well as a “company factor” that is determined at the Supervisory Board’s discretion. This company factor is a number between zero and two that is set by the Supervisory Board based on the Company’s situation. The company factor’s predefined default value is one (1).
In 2017, MorphoSys also introduced a stock option plan as a further instrument of long-term incentive compensation based on the resolution of the Annual General Meeting on June 2, 2016 (Agenda Item 9). As of April 1, 2019, the Management Board (at that time consisting of Dr. Simon Moroney, Jens Holstein, Dr. Malte Peters and Dr. Markus Enzelberger) were granted a total of 31,395 stock options; each member of the Management Board received a specific number of stock options, each of which entitles the Management Board member to receive up to two MorphoSys shares. On October 1, 2019, the new CEO Dr. Jean-Paul Kress (CEO since September 1, 2019) was granted stock options valued at € 1,500,000.00 and an additional one-time, sign-on stock option package worth € 500,000.00 for a total of 57,078 stock options. For further details, please refer to Note 7.1 and the explanations on stock repurchases in the Corporate Governance Report.

In accordance with the resolution of the Annual General Meeting on June 2, 2016 (Agenda Item 9), the stock option plan’s performance targets include the absolute price performance of MorphoSys shares and the relative price performance of MorphoSys shares compared to a benchmark index. The benchmark index consists of equal parts of the Nasdaq Biotechnology Index and the TecDAX. Each performance target has a 50% weighting in the achievement of the overall target.

To determine the degree of target achievement for each performance target, the four-year vesting period (until the first stock options can be exercised) is subdivided into four equal periods of one year each. An arithmetic mean is calculated based on the degree of target achievement in each of the four years. This, in turn, determines the final percentage of target achievement for each performance target. The final percentage of target achievement for each of the two performance targets are then added together and divided by two; the result being the overall level of target achievement.

For the performance target of absolute price performance, a comparison is made between the average stock price of MorphoSys shares for the preceding 30 trading days before the beginning and end of each year in the four-year period. If the MorphoSys share price increases, the degree of target achievement can reach up to 200% calculated on a straight-line basis for that particular year. Any further positive share price development of MorphoSys shares will not lead to any further increase in the performance target (cap).

For the performance target of relative price performance, the development of MorphoSys’ share price measured by the average of the closing prices for the preceding 30 trading days before the beginning and end of each year in the four-year period is compared with the development of the benchmark index, measured by the average of the closing prices of the respective benchmark index during the last 30 trading days before the beginning and end of each year in the four-year period. Within the benchmark index, the Nasdaq Biotech Index and the TecDAX are each weighted at 50% so that the percentage price developments of each index for the respective annual period are added and divided by two. If MorphoSys shares outperform the benchmark index, the degree of target achievement calculated on a straight-line basis for the relevant period can reach up to 200%. Any further positive share price development of MorphoSys shares versus the benchmark index will not lead to any further increase in the performance target (cap).

Stock options can only be exercised when the four-year (minimum) vesting period prescribed by law has expired and the specified minimum value for the degree of target achievement of a performance target has been exceeded. The ultimate number of exercisable stock options is calculated by multiplying the number of initially granted stock options (“grants”) by the total level of target achievement and rounding up to the nearest whole number. The resulting ultimate number of stock options is limited to 200% of the initially granted number of stock options. The stock options are settled in the form of Company shares, with each stock option entitling the holder to one share for the final number of stock options.

When the stock options are exercised, the exercise price must be paid for each underlying share. The exercise price corresponds to the average closing auction price of MorphoSys shares in the 30 trading days prior to the day on which the stock options were issued.

The terms of the stock option plan provide further details on the granting and settlement of stock options, the issue of Company shares from Conditional Capital 2016-III and the administration of the stock option plan. For more information, please refer to the corresponding resolution of the Annual General Meeting on June 2, 2016 (Agenda Item 9).

MISCELLANEOUS

No loans or similar benefits were granted during the reporting year to any member of the Management Board. The members of the Management Board also did not receive any benefits from third parties during the reporting year that were either promised or granted based on their position as members of the Management Board.

PAYMENTS UPON TERMINATION OF MANAGEMENT CONTRACTS/CHANGE OF CONTROL

In the event of the premature termination of a Management Board member’s service contract, payments, including fringe benefits, are capped at 200% of the annual gross fixed salary and the annual bonus (severance cap), and no more than the remaining term of the service contract is remunerated. If the service contract is terminated for good cause for which the Management Board member is responsible, the member will not be entitled to any payments. The severance cap should be calculated on the basis of the total compensation for the previous full financial year and, if applicable, as well as on the expected total compensation for the current financial year.

If the service contract of a member of the Management Board ends by death, his or her spouse or life partner is entitled to the fixed monthly salary for the month of death and the following twelve months. In the event of a change of control, the members of the Management Board may terminate their service contracts for cause and demand payment of the fixed salary and annual bonus still outstanding up to the end of the service contract, but at least 200% of the annual gross fixed salary and annual bonus. Furthermore, in such a case, all stock options and performance shares granted vest immediately and may be exercised after the statutory vesting periods or blackout periods have expired. The following cases are considered to be changes of control: (i) MorphoSys transfers all or substantially all of its corporate assets to a non-affiliated company, (ii) MorphoSys merges with a non-affiliated company, (iii) MorphoSys AG as a controlled company becomes a party to an agreement pursuant to Section 291 of the German Stock Corporation Act (AktG) or MorphoSys is integrated in accordance with Section 319 of the German Stock Corporation Act (AktG), or (iv) a shareholder or third party directly or indirectly holds 30% or more of the voting rights of MorphoSys, or at least 30% of the voting rights are attributed to the shareholder or third party.

Non-compete clauses have also been agreed with the members of the Management Board for the period following their departure. In return, MorphoSys AG is required to make compensation payments for six months after termination of the service contract. The compensation payment amounts to 100% of the fixed salary for the duration of the non-compete clause.

CHANGE IN THE COMPOSITION OF THE MANAGEMENT BOARD

The following changes in the composition of the Management Board occurred in the 2019 reporting year: The (former) Chairman of the Management Board of the Company, Dr. Simon Moroney, resigned as member of the Management Board and Chief Executive Officer of the Company at the end of August 31, 2019. By resolution of the Supervisory Board on June 24, 2019, Dr. Jean-Paul Kress was appointed as the new Chief Executive Officer for a term of three years, from September 1, 2019 to August 31, 2022. In November 2019, Dr. Markus Enzelberger announced his resignation as a member of the Management Board and the Chief Scientific Officer, effective February 29, 2020.

AGE LIMIT

Members of the Management Board should not be older than 67 years at the time of their appointment. The Supervisory Board may, however, decide to make an exception to this rule in individual cases. The Management Board is currently complying with the age limit of 67 years.

VOTE ON THE REMUNERATION SYSTEM FOR THE MANAGEMENT BOARD (“SAY ON PAY”)

The current remuneration system for the members of the Management Board is unchanged from the remuneration system approved by the Annual General Meeting on May 19, 2011, with a majority of over 91%.

On January 1, 2020, the Act for the Implementation of the Second Shareholders’ Rights Directive (ARUG II) came into force. According to the new regulations, the shareholders must resolve on a compensation system for the Management Board to be submitted by the Supervisory Board for the first time at the 2021 Annual General Meeting. MorphoSys is therefore deliberately refraining from presenting a compensation system for the Management Board at its upcoming Annual General Meeting in 2020. The Supervisory Board intends to use the year 2020 to develop a remuneration system for the Management Board.

Supervisory Board Remuneration

The remuneration of Supervisory Board members is governed by our Articles of Association and a corresponding Annual General Meeting resolution on Supervisory Board remuneration. The 2019 Annual General Meeting resolved to increase the annual basic remuneration of the Supervisory Board members. It was also resolved that participation by telephone or video in a Supervisory Board or committee meeting held by telephone or video conference should not result in a 50% reduction in the attendance fee. Participation in physical meetings in which a member of the Supervisory Board takes part by telephone or video shall continue to lead to a 50% reduction in the attendance fee. In the 2019 financial year, Supervisory Board members received fixed compensation, attendance fees and expense allowances for their participation in Supervisory Board and committee meetings. Each Supervisory Board member received annual fixed compensation (€ 98,210 for chairpersons, € 58,926 for vice chairpersons and € 39,284 for all other members) for their membership of the Supervisory Board. The chair receives € 4,000 for each Supervisory Board meeting chaired and the other members receive € 2,000 for each Supervisory Board meeting attended. For committee work, the committee chair receives € 12,000 and other committee members each receive € 6,000. Committee members also receive € 1,200 for their participation in a committee meeting. Supervisory Board members residing outside of Europe who personally take part in a Supervisory Board or committee meeting are entitled to a flat expense allowance of € 2,000 (plus any sales tax due) for additional travel time in addition to attendance fees and reimbursed expenses.

Supervisory Board members are also reimbursed for travel expenses and value-added taxes (VAT) on their compensation.

In the 2019 financial year, Supervisory Board members received a total of € 633,597 (2018: € 525,428) excluding the reimbursement of travel expenses. This amount consists of fixed compensation and attendance fees for participating in Supervisory Board and committee meetings.

We did not grant any loans to Supervisory Board members.

The table below details the Supervisory Board’s remuneration.

SHAREHOLDINGS OF MANAGEMENT BOARD AND SUPERVISORY BOARD MEMBERS

The members of the Management Board and the Supervisory Board hold more than 1% of the shares issued by the Company. All shares, performance shares, stock options and convertible bonds held by each member of the Management Board and the Supervisory Board are listed below.

For a detailed description of the stock option schemes and convertible bonds programs for the employees of MorphoSys Group, we refer to the latest financial reports.

MANAGERS’ TRANSACTIONS

The members of the Management Board and the Supervisory Board of MorphoSys AG, as well as persons closely associated with them, are required to disclose trading in MorphoSys shares in accordance with the requirements set forth in the relevant legal provisions (Article 19 [1a] of the Market Abuse Regulation [MAR]).
During the reporting year, MorphoSys received notifications pursuant to Article 19 (1a) MAR, which are shown in the table below.

Avoiding Conflicts of interest

The members of the Management Board and the Supervisory Board are obligated to refrain from actions that could lead to conflicts of interest with their responsibilities at MorphoSys AG. Such transactions or secondary activities of the Management Board must be disclosed to the Supervisory Board without delay and require the Supervisory Board’s approval. The Supervisory Board in turn must inform the Annual General Meeting of any conflicts of interest that arise and disclose how they were dealt with. No conflict of interest arose in the Supervisory Board in the 2019 financial year.

Share repurchases

By resolution of the Annual General Meeting on May 23, 2014, MorphoSys was authorized, in accordance with Section 71 (1) no. 8 of the German Stock Corporation Act (AktG), to repurchase treasury shares in an amount of up to 10% of the existing share capital up to and including April 30, 2019. This authorization could be exercised in whole or in part, once or several times, for the purposes specified in the authorization resolution by the Company or by a third party on behalf of the Company. It was at the discretion of the Management Board whether to carry out the repurchases over the stock exchange, by means of a public offer or by public tender for the submission of such an offer.

MorphoSys did not repurchase any of its own shares in the reporting year under the authorization granted in 2014.

information technology

The implementation of SAP Business ByDesign as an integrated ERP system was successfully completed on schedule at MorphoSys AG on January 1, 2019. At the same time, we integrated SAP Concur, a travel and expense management solution, to replace our existing systems for managing absences and business travel. SAP Business ByDesign and SAP Concur were successfully rolled out at MorphoSys US Inc. in August 2019.

We also launched various projects to map future business processes with SAP Business ByDesign and to introduce additional systems with special functionalities for our commercial supply chain.

IT security and compliance continued to be key topics in the area of information technology during the past year. External security experts checked the technical security controls to detect potential weaknesses. Within the scope of special on-site training and phishing simulations, employees learned about their joint responsibility and essential contribution to IT security in our company.

Our internal Computer Emergency Response Team (CERT) has not detected any serious security incidents during the reporting year.

Finally, various platforms in the area of Endpoint Detection & Respond (EDR), Cloud Access Security Broker (CASB) and Mobile Threat Defense (MTD) were evaluated in order to optimize our cyber defense measures and expand our commercial capacity. The integration of these new IT security tools started at the end of 2019.

INFORMATION ON THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM WITH REGARD TO THE ACCOUNTING PROCESS UNDER SECTION 289 (4) AND SECTION 315 (4) HGB

In the 2019 financial year, we completed a routine update of the documentation for our existing internal control and risk management system, which helps us maintain adequate internal control over financial reporting and ensures the availability of key controls to report financial figures as precisely and accurately as possible. We also expanded this system based on the SOX regulations (Sarbanes-Oxley Act of 2002, Section 404). COSO (Committee of Sponsoring Organizations of the Treadway Commission) defines the corresponding COSO framework (“Internal Control – Integrated Framework”). We use this framework, which is the most commonly used framework for the internal control of financial reporting.

System constraints make it impossible to give absolute assurance that internal controls will always prevent or completely detect all misrepresentations made in the context of financial reporting. Internal controls can only provide reasonable assurance that financial reporting is reliable and verify that the financial statements were prepared in accordance with the applicable IFRS standards endorsed by the European Union (EU) for external purposes.

The consolidated financial statements are subjected to numerous preparation, review and control processes so that they can be reported promptly to the market and to shareholders. To accomplish this, our executives have a coordinated plan for which all internal and external resources are made available. We also use a strict principle of double checking to ensure the accuracy of the key financial ratios reported and the underlying execution of all accounting processes. Numerous rules and guidelines are also followed to ensure the strict separation of the planning, posting and execution of financial transactions. This functional separation of processes is ensured by all of our operating IT systems we use through an appropriate assignment of rights. External service providers regularly review the implementation of and compliance with these guidelines and the efficiency of the accounting processes.

Predicting future events is not the task of our internal control and risk management system. Our risk management system does, however, ensure that business risks are detected and assessed early. The risks identified are eliminated or at least brought to an acceptable level using appropriate corrective measures. Special attention is given to risks that could jeopardize the Company.

The Management Board ensures that risks are always dealt with responsibly and keeps the Supervisory Board informed of all existing risks and their development. Detailed information on our risks and opportunities can be found in the section “Risk and Opportunity Report.”

ACCOUNTING AND EXTERNAL AUDIT

We prepare our annual financial statements in accordance with the provisions of the German Commercial Code (HGB) and the Stock Corporation Act (AktG).

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) and in compliance with the recommendations of the International Financial Reporting Standards Interpretations Committee (IFRS IC). We have applied all standards and interpretations that were in force on December 31, 2019 and adopted by the EU into European law. As of December 31, 2019, there were no standards or interpretations with an impact on our consolidated financial statements as of December 31, 2019 and 2018 that had entered into force but had not yet been adopted into European law. Therefore, our consolidated financial statements comply with both the IFRS published by the International Accounting Standards Board (IASB) and the IFRS adopted by the EU. In addition, our consolidated financial statements take into account the supplementary provisions of German commercial law that are to be applied in accordance with Section 315e (1) of the German Commercial Code (HGB).

For the election of our auditor, the Audit Committee of the Supervisory Board submits a nomination proposal to the Supervisory Board. At the 2019 Annual General Meeting, PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft was appointed as auditor for the 2019 financial year. As proof of its independence, the auditor submitted an Independence Declaration to the Supervisory Board. The lead auditor of these consolidated financial statements was Stefano Mulas, who has audited the consolidated financial statements since 2018.

PricewaterhouseCoopers GmbH has been our auditor since the 2011 financial year. Information on audit-related fees and all other fees provided by PricewaterhouseCoopers GmbH to us during the 2019 financial year can be found in Note 6.1.

COMPLIANCE MANAGEMENT PROGRAM

The basic mechanisms of our Compliance Management Program (CMP) are described in the section entitled “Sustainable Corporate Governance.”

The identification and assessment of compliance risks are an important part of the CMP and are incorporated into the CMP’s overall strategic development. Our major compliance-relevant risk areas are evaluated according to a systematic approach, taking into account our current business strategy and priorities. During the reporting year, we conducted a compliance risk analysis that included anti-bribery and corruption risks. Risk mitigation measures were introduced for the areas of action identified. Under the CMP, employees are given the opportunity to report suspected violations of the law within the MorphoSys Group in a protected manner. In addition to the annual compliance risk analysis, compliance monitoring was carried out for the first time in the reporting year. In order to prevent compliance violations, employees received periodic training on pertinent compliance topics.

In conjunction with the General Data Protection Regulation of the EU (Regulation [EU] 2016/679 – “GDPR”) which came into effect on May 25, 2018, we implemented various procedures since 2018 to safeguard compliance with the GDPR.

Internal audit Department

Our Internal Audit Department is an essential element of the Corporate Governance structure. The Internal Audit Department assists us in accomplishing our objectives by prescribing a systematic approach to evaluating and improving the effectiveness of our risk management, internal control and other corporate governance processes. The accounting and consulting firm KPMG was appointed as co-sourcing partner for the internal auditing process in 2019.

The Internal Audit Department executes a risk-based audit plan that includes the requirements and recommendations of the Management Board, as well as those of the Supervisory Board’s Audit Committee.

Our Internal Audit Department reports regularly to the Management Board. The Head of Internal Audit and the Chief Executive Officer both report to the Supervisory Board’s Audit Committee twice a year or on an ad hoc basis when necessary.

Four audits were conducted successfully in the course of 2019. Some areas requiring action were identified and corrective action plans were agreed. The Internal Audit Department has scheduled three audits for the year 2020.

Disclosures under Section 289a (1), Section 315a (1) HGB and Explanatory Report of the Management Board under Section 176 (1) Sentence 1 AktG

COMPOSITION OF COMMON STOCK

On December 31, 2019, the Company’s common stock amounted to € 31,957,958.00 and was divided into 31,957,958 no-par-value bearer shares. With the exception of the 225,800 treasury shares held by the Company, these bearer shares possess voting rights, whereby each share grants one vote at the Annual General Meeting. The Company’s share capital recorded in the commercial register as of December 31, 2019, amounted to € 31,839,572.00 and was divided into 31,839,572 no-par-value bearer shares. This amount of share capital does not yet reflect the increase in share capital and the number of shares resulting from the exercise of 118,386 conversion rights from convertible bonds in 2019. On January 20, 2020, the Supervisory Board of the Company resolved to amend the wording of the Articles of Association to reflect the higher share capital of € 31,957,958.00 and filed for its entry into the commercial register.

RESTRICTIONS AFFECTING VOTING RIGHTS AND THE TRANSFER OF SHARES

Our Management Board is not aware of any restrictions that may affect voting rights, the transfer of shares or any restrictions that may emerge from agreements between shareholders.

Voting rights restrictions may also arise from the provisions of the German Stock Corporation Act (AktG), such as those under Section 136 AktG, or the provisions for treasury stock under Section 71b AktG

SHAREHOLDINGS IN COMMON STOCK EXCEEDING 10% OF VOTING RIGHTS

We are not aware of nor have we been notified of any direct or indirect interests in the Company’s common stock that exceed 10% of the voting rights.

SHARES WITH SPECIAL RIGHTS CONFERRING POWERS OF CONTROL

Shares with special rights conferring powers of control do not exist.

CONTROL OVER VOTING RIGHTS WITH REGARD TO EMPLOYEE OWNERSHIP OF CAPITAL

Employees who hold shares in the Company exercise their voting rights directly in accordance with the statutory provisions and the Articles of Association as do other shareholders.

APPOINTMENT AND DISMISSAL OF MANAGEMENT BOARD MEMBERS AND AMENDMENTS TO THE ARTICLES OF ASSOCIATION

The number of Management Board members, their appointment and dismissal and the nomination of the Chief Executive Officer are determined by the Supervisory Board in accordance with Section 6 of the Articles of Association and Section 84 AktG. Our Management Board currently consists of the Chief Executive Officer and three other members. Management Board members may be appointed for a maximum term of five years. Reappointments or extensions in the term of office are allowed for a maximum term of five years in each case. The Supervisory Board may revoke the appointment of a Management Board member or the nomination of a Chief Executive Officer for good cause as defined under Section 84 (3) AktG. If a required member of the Management Board is absent, one will be appointed by the court in cases of urgency under Section 85 AktG.

As a rule, the Articles of Association can only be amended by a resolution of the Annual General Meeting in accordance with Section 179 (1) sentence 1 AktG. Under Section 179 (2) sentence 2 AktG in conjunction with Section 20 of the Articles of Association, our Annual General Meeting resolves amendments to the Articles of Association generally through a simple majority of the votes cast and a simple majority of the common stock represented. If the law stipulates a higher mandatory majority of votes or capital, this shall be applied. Amendments to the Articles of Association that only affect their wording can be resolved by the Supervisory Board in accordance with Section 179 (1) sentence 2 AktG in conjunction with Section 12 (3) of the Articles of Association.

POWER OF THE MANAGEMENT BOARD TO ISSUE SHARES

The Management Board’s power to issue shares is granted under Section 5 (5) through (6h) of the Company’s Articles of Association and the statutory provisions. The Supervisory Board is authorized to amend the wording of the Articles of Association in accordance with the scope of the capital increase from conditional or authorized capital.

1. Authorized Capital
In the event of an approved capital increase, the Management Board is authorized with the Supervisory Board’s consent to determine the further details of the capital increase and its implementation.

a) Pursuant to Section 5 (5) of the Articles of Association, the Management Board is authorized with the Supervisory Board’s consent to increase the Company’s common stock on one or more occasions by up to € 11,768,314.00 for cash contributions and/or contributions in kind by issuing up to 11,768,314 new, no-par-value bearer shares until and including the date of April 30, 2023 (Authorized Capital 2018-I).

Shareholders are principally entitled to subscription rights in the case of a capital increase. One or more credit institutions may also subscribe to the shares with the obligation to offer the shares to shareholders for subscription. With the Supervisory Board’s consent, the Management Board is, however, authorized to exclude shareholder subscription rights
aa) in the case of a capital increase for cash contribution, to the extent necessary to avoid fractional shares; or
bb) in the case of a capital increase for contribution in kind; or
cc) in the case of a capital increase for cash contribution when the new shares are placed on a domestic and/or foreign stock exchange in the context of a public offering.

The total shares to be issued via a capital increase against contribution in cash and/or in kind, excluding subscription rights and based on the authorizations mentioned above, shall not exceed 20% of the common stock. The calculation used is based on either the effective date of the authorizations or the exercise of the authorizations, whichever amount is lower. The 20% limit mentioned above shall take into account (i) treasury shares sold excluding subscription rights after the effective date of these authorizations (unless they service the entitlements of members of the Management Board and/or employees under employee participation programs), (ii) shares that are issued from other authorized capital existing on the effective date of these authorizations and excluding subscription rights during the effective period of these authorizations, and (iii) shares to be issued during the effective period of these authorizations to service convertible bonds and/or bonds with warrants whose basis for authorization exists on the effective date of these authorizations provided that the convertible bonds and/or bonds with warrants have been issued with the exclusion of the subscription rights of shareholders (unless they service the entitlements of members of the Management Board and/or employees under employee participation programs).

b) Pursuant to Section 5 (6) of the Articles of Association, the Management Board is authorized with the Supervisory Board’s consent to increase the common stock of the Company against contribution in cash once or several times by a total of up to € 2,915,977.00 until and including April 30, 2022 by issuing up to 2,915,977 new no-par-value bearer shares (Authorized Capital 2017-I).

Shareholders are principally entitled to subscription rights in the case of a capital increase. One or more credit institutions may also subscribe to the shares with the obligation to offer the shares to shareholders for subscription. The Management Board is, however, authorized to exclude shareholder subscription rights with the Supervisory Board’s consent
aa) to the extent necessary to avoid fractional shares; or
bb) when the issue price of the new shares is not significantly below the market price of shares of the same class already listed and the total number of shares issued against contribution in cash, excluding subscription rights, during the term of this authorization does not exceed 10% of the common stock on the date this authorization takes effect or at the time it is exercised, in accordance with or in the respective application of Section 186 (3) sentence 4 AktG.

The total number of shares to be issued via capital increases against contribution in cash, excluding subscription rights and based on the authorizations mentioned above, shall not exceed 20% of the common stock when calculated based on the authorizations’ effective date or exercise, whichever amount is lower. This 20% limit shall take into account (i) treasury shares sold with the exclusion of subscription rights after the effective date of these authorizations (unless they service the entitlements of members of the Management Board and/or employees under employee participation programs); (ii) shares to be issued with the exclusion of subscription rights during the effective period of these authorizations from other authorized capital existing on the effective date of these authorizations or to be resolved by the same Annual General Meeting resolving these authorizations; and (iii) shares to be issued during the effective period of these authorizations to service bonds with conversion or warrant rights, whose authorization basis exists on the effective date of these authorizations, to the extent the bonds with conversion or warrant rights were issued with the exclusion of shareholders’ subscription rights (unless they service the entitlements of members of the Management Board and/or employees under employee participation programs).

c) Pursuant to Article 5 (6h) of the Articles of Association, the Management Board is authorized with the consent of the Supervisory Board to increase the share capital of the Company on one or more occasions by a total of up to € 159,197.00 by issuing up to 159,197 new no-par-value bearer shares for cash contributions and/or contributions in kind until and including April 30, 2024 (Authorized Capital 2019-I). The subscription right of shareholders is excluded. The Authorized Capital 2019-I serves the delivery of shares of the Company to service Restricted Stock Units (RSUs) granted under the Company’s Restricted Stock Unit Program (RSUP) exclusively to executives and employees (including directors and officers) of MorphoSys US Inc. against contribution of the payment entitlements that arose under the respective RSUs. The issue price of the new shares must be at least € 1.00 and may be paid in cash and/or in kind and especially by contributing claims against the Company under the RSUP. The Management Board is authorized with the consent of the Supervisory Board to determine the further details of the capital increase and its implementation; this also includes determining the entitlement of the new shares to dividends, which, in deviation from Section 60 (2) of the German Stock Corporation Act (AktG), may also be determined for a financial year that has already ended.

2. Conditional Capital
a) Pursuant to Section 5 (6b) of the Articles of Association, the Company’s common stock is conditionally increased by up to € 5,307,536.00, divided into a maximum of 5,307,536 no-par-value bearer shares (Conditional Capital 2016-I). The conditional capital increase serves solely as a means to grant new shares to the holders of conversion or warrant rights, which will be issued by the company or companies in which the Company has a direct or indirect majority interest according to the authorizing resolution of the Annual General Meeting on June 2, 2016, under Agenda Item 7 letter a). The shares will be issued at the respective conversion or exercise price to be determined in accordance with the resolution above. The conditional capital increase will only be carried out to the extent that the holders of conversion or warrant rights exercise these rights or fulfill conversion obligations under such bonds. The shares will be entitled to dividends as of the beginning of the previous financial year, provided they were issued before the start of the Company’s Annual General Meeting, or as of the beginning of the financial year in which they were issued.

b) Pursuant to Section 5 (6e) of the Articles of Association, the Company’s common stock is conditionally increased by up to € 156,448.00 through the issue of up to 156,448 new no-par-value bearer shares of the Company (Conditional Capital 2008-III). The conditional capital increase will only be executed to the extent that holders of the convertible bonds exercise their conversion rights for conversion into ordinary shares of the Company. The new shares participate in the Company’s profits from the beginning of the financial year, for which there has been no resolution on the appropriation of accumulated income at the time of issuance.

On January 17, 2019, our Supervisory Board resolved to adjust the conditional capital to reflect the issuance of new shares in 2018 based on the exercise of 32,537 convertible bonds. This results in a reduction of the Conditional Capital 2008-III from € 188,985 to € 156,448, which was entered in the commercial register on February 2, 2019.

c) Pursuant to Section 5 (6g) of the Articles of Association, the Company’s common stock is conditionally increased by up to € 995,162.00 through the issue of up to 995,162 new no-par-value bearer shares of the Company (Conditional Capital 2016-III). The conditional capital serves to meet the obligations of subscription rights that have been issued and exercised based on the authorization resolved by the Annual General Meeting of June 2, 2016 under Agenda Item 9 letter a). The conditional capital increase will only be executed to the extent that holders of subscription rights exercise their right to subscribe to shares of the Company. The shares will be issued at the exercise price set in each case as the issue amount in accordance with Agenda Item 9 letter a) subparagraph (8) of the Annual General Meeting’s resolution dated June 2, 2016; Section 9 (1) AktG remains unaffected. The new shares are entitled to dividends for the first time for the financial year for which there has been no resolution by the Annual General Meeting on the appropriation of accumulated income.

POWER OF MANAGEMENT BOARD TO REPURCHASE SHARES

The Management Board’s power to repurchase the Company’s own shares is based on Section 71 AktG and by the authorization of the Annual General Meeting of May 23, 2014 that expired on April 30, 2019.

The Company was until and including the date of April 30, 2019 authorized to repurchase its own shares in an amount of up to 10% of the common stock existing at the time of the resolution (or possibly a lower amount of common stock at the time of exercising this authorization) for any purpose permitted under the statutory limits. The repurchase was allowed to take place at the Management Board’s discretion on either the stock exchange, through a public offer or public invitation to submit a bid. The authorization could not be used for the purpose of trading in the Company’s own shares. The intended use of treasury stock acquired under this authorization may be found under Agenda Item 9 of the Annual General Meeting of May 23, 2014. These shares may be used as follows:
1. The shares may be redeemed without the redemption or its execution requiring a further resolution of the Annual General Meeting.
2. The shares may be sold other than on the stock exchange or shareholder offer if the shares are sold for cash at a price that is not significantly below the market price of the Company’s shares of the same class at the time of the sale.
3. The shares may be sold for contribution in kind, particularly in conjunction with company mergers, acquisitions of companies, parts of companies or interests in companies.
4. The shares may be used to fulfill subscription or conversion rights resulting from the exercise of options and/or conversion rights or conversion obligations for Company shares.
5. The shares may be offered or transferred to employees of the Company and those of affiliated companies, members of the Company’s management and those of affiliated companies and/or used to meet commitments or obligations to purchase Company shares that were or will be granted to employees of the Company or those of affiliated companies, members of the Company’s management or managers of affiliated companies. The shares may also be used to fulfill obligations or rights to purchase Company shares that will be agreed with the Company’s employees, members of the senior management and affiliates in the context of employee participation programs.

If shares are used for the purposes mentioned above, shareholder subscription rights are excluded, other than in the case of share redemptions.

MATERIAL AGREEMENTS MADE BY THE COMPANY THAT FALL UNDER THE CONDITION OF A CHANGE OF CONTROL AFTER A TAKEOVER BID

The Company has not entered into any material agreements that are subject to a change of control following a takeover bid.

COMPENSATION AGREEMENTS CONCLUDED BY THE COMPANY WITH MANAGEMENT BOARD MEMBERS AND EMPLOYEES IN THE EVENT OF A TAKEOVER BID

In accordance with the service contracts in force during the reporting period, the members of the Management Board may terminate their service contracts following a change of control and demand the fixed salary and annual bonus still outstanding until the end of the regular term of the service contract, but at least 200% of the annual gross fixed salary and annual bonus. Furthermore, in case of a termination due to a change of control, all granted stock options, performance shares and other comparable direct or indirect interests in MorphoSys with compensation character will vest immediately and may be exercised after the statutory vesting periods and blackout periods have expired.

Following a change of control, some members of the Senior Management Group may terminate their employment contracts and demand a severance payment in the amount of one annual gross fixed salary and the full contractual bonus for the calendar year in which the termination is affected. A target achievement rate of 100% is applied. In such a case, all stock options and performance shares granted will vest immediately and may be exercised after the statutory vesting periods and blackout periods have expired. The following cases are considered as a change of control: (i) MorphoSys transfers all or substantially all of its corporate assets to a non-affiliated company, (ii) MorphoSys merges with a non-affiliated company, (iii) MorphoSys AG as a controlled company becomes a party to an agreement pursuant to Section 291 of the German Stock Corporation Act (AktG) or MorphoSys is integrated in accordance with Section 319 of the German Stock Corporation Act (AktG), or (iv) a shareholder or third party directly or indirectly holds 30% or more of the voting rights of MorphoSys, or at least 30% of the voting rights are attributed to the shareholder or third party.

 

Managers' Transactions (formerly known as "Directors' Dealings")

Pursuant to Art. 19 para. 5 subparagraph 1, sentence 1 of the European Market Abuse Regulation (“MAR”) the Members of the Management and Supervisory Boards of MorphoSys AG, as well as persons closely associated with them , are legally bound to report trading in MorphoSys stock to the German Federal Financial Supervisory Authority (BaFin). Every transaction conducted on their own account relating to the shares or debt instruments of MorphoSys or to derivatives or other financial instruments linked thereto must be reported.

All transactions have to be published unless the total value of these tradings executed by such person within one calendar year does not exceed EUR 5,000.

Notes:
Participants in the MorphoSys stock option and/or convertible bonds programs who choose to “exercise and sell” receive the difference between the so-called exercise price (price determined at the time of issuing the options) and the Xetra closing price of the MorphoSys stock on the day of exercise, as a taxable income.

Managers' Transactions

Published Transactions