Declararation of Corporate Governance

To secure and extend the capital markets’ trust in the company, telegate considers it to be important that the management and control are responsible, transparent and focused on sustained value added.

Declaration of Compliance according to section 161 AktG:

The management and supervisory board have issued the legal declaration of compliance pursuant to section 161 of the (German) Stock Corporations Act. Their latest declaration was made permanently available to all shareholders in December 2011 under www.telegate.com, in the section “Investor Relations”.

All recommendations of the Government Commission German Corporate Governance Code, published in the official section of the electronic Federal Gazette by the Federal Ministry of Justice in the amended version of May 26, 2010, have been and will be met with the following justified exceptions:

Clause 2.3.1/2.3.3 Support of postal vote
The company neither offers postal vote nor the support provided in this respect of shareholders regarding the performance of a postal vote.
telegate AG´s Articles of Incorporation do not provide postal vote as participation and the relevant provisions of the German Corporate Governance Code are not applied accordingly.

Clause 3.8 Own risk retention in the case of D&O insurance
The D&O liability insurance of members of telegate AG´s Management Board and Supervisory Board provides for own risk retention since January 01, 2011 respectively May 01, 2011.
telegate was still bound by existing insurance contracts for the annual year 2010. In this respect, however, telegate AG concluded new insurance contracts for the members of the Management Board, which came into effect on January 01, 2011 and May 01, 2011 respectively and provide for a corresponding own risk retention. In this respect, telegate AG complies with the recommendations of clause 3.8 German Corporate Governance Code since May 01, 2011.

Clause 4.2.1 Composition of the Management Board
telegate AG´s Management Board consisted of three members until March 31, 2011 and of two members from April 01, 2011 to November 15, 2011. By deviating from clause 4.2.1 German Corporate Governance Code, the Management Board  only consisted of one member for a transitional period between November 16, 2011 and November 30, 2011. In this respect, telegate AG complies again with the recommendations of clause 4.2.1 German Corporate Governance Code since December 1, 2011.

Clause 4.2.3 Management Board’s variable compensation and period of computation compensation cap

Regarding the Management Board’s variable compensation clause 4.2.3, section 3 p. 3 of the German Corporate Governance Code recommends to exclude retroactive changes concerning performance targets set for the Management Board. telegate AG will deviate in this respect. In light of Mr. Schiavo being nominated as CEO of telegate AG by December 1, 2011 and his performance targets being agreed for the period of the annual years 2012 – 2014, the performance targets as well as the respective assessment period regarding the variable remuneration of the CFO, Ralf Gruesshaber, shall be adapted accordingly as of the accounting year 2012. Synchronisation and standardisation of the Management Board Members’ performance targets have to date been the company’s code of practise and encourage a common objective for the Management Board in middle and long term perspective.
By deviation from clause 4.2.3, section 4 GCGC, the computation of the compensation cap is adjusted to the fixed remuneration of the previous annual year before termination of the employment and computation of the variable remuneration is adjusted to the amount of the average value of the variable remuneration paid during the 3 preceding annual years. telegate AG is of the perception that this method of computation has appropriate results. It avoids a disproportional weighting of a remuneration paid in a certain annual year within the variable remuneration field. Thus, a distant effect of individual and singular circumstances, if applicable, is avoided and a broader assessment basis is established.

Clause 4.2.4/ 4.2.5 Individual disclosure of remuneration of Management Board
The total remuneration of each one of the members of the Management Board is not disclosed by name. telegate reports the remuneration of the Management Board as a total sum only.
This is due to an according resolution by the Shareholders´ Meeting from June 29, 2011, which has been passed with the necessary three-quarters majority.

Clause 5.1.2 Diversity/Composition of the Management Board
telegate AG´s Management Board consists of two members since April 01, 2011. A new Management Board position has not been created. As stated in clause 4.2.1, the Management Board only consisted of one member between November 16, 2011 and December 01, 2011. In the process of reappointing the second Management Board position, the Supervisory Board particularly considered the candidate’s professional qualification.

Clause 5.1.2./5.4.1 Age limit for members of the Management Board and the Supervisory Board and Diversity
An age limit has not been set for members of the Management Board and the Supervisory Board.
telegate upholds the opinion that the performance of a Management and Supervisory Board member is independent of age. Furthermore, we consider the definition of an age limit for Supervisory Board members to be an inappropriate restriction of the Shareholders´ right to elect the members of the Supervisory Board.

Clause 5.4.3 Proposed candidates for the chairmanship of the Supervisory Board shall be announced to the Shareholders
Election of the chairman by the Supervisory Board is the Supervisory Board’s inalienable competence and is stipulated in telegate AG´s Articles of Incorporation. Therefore, it shall remain in the Supervisory Board as well as the discussion of proposed candidates. Publication of proposed candidates before a final vote affects the Supervisory Board’s secrecy of deliberation and is suited to discredit candidates who were not elected.

Clause 5.4.6 Remuneration of Supervisory Board Members
Chairmanship of committees of the Supervisory Board is currently not taken into account with regard to the remuneration of the members of the Supervisory Board (subsection 1) and a performance-related remuneration is not provided (subsection 2). telegate reports on the remuneration of its Supervisory Board as a whole in the notes to its financial statements. telegate does not provide an individualized breakdown (subsection 3).

The chairmanship of committees of the Supervisory Board is currently not taken into account with regard to the remuneration of the members of the Supervisory Board, because this is not provided by telegate AG´s Articles of Incorporation. However, the commitment within the several committees is being taken into consideration regarding the remuneration.
In addition to a fixed remuneration, the Code recommends performance-oriented remuneration for Supervisory Board members. In our opinion, telegate should not create a performance-oriented incentive system for the members of the Supervisory Board. The existing remuneration system is better suited to ensure the independence of the Supervisory Board for the effective performance of its supervision and monitoring duties.

Furthermore, the Code recommends reporting the remuneration paid to the Supervisory Board members on an individual basis. In its remuneration report, telegate lists the total remuneration for the Supervisory Board as well as the work undertaken as committee activity as a total sum. Remuneration is not reported on an individual basis, as we believe that this is of no relevance to the capital markets.

telegate AG complied with the recommendations by the German Corporate Governance Code as amended on May 26, 2010 since delivery of the previous Declaration of Compliance in December 2010 with the restrictions mentioned to clause 2.3.1/2.3.3,  3.8, 4.2.1, 4.2.3, 4.2.4/4.2.5, 5.1.2, 5.4.1, 5.4.3 and clause 5.4.6.

All proposals of the German Corporate Governance Code continue to be implemented, with the following exception: telegate does not offer the opportunity to follow the shareholders’ meeting via electronic communications media, such as the Internet, as the company considers the additional organizational and financial expense for this not to be justified.

Information on governance practices:

Supervisory board
Consultation and control of the management board are the main tasks of the supervisory board. The supervisory board of telegate AG currently consists of 12 members. 6 members were elected by the shareholders at the shareholders´ meeting and 6 by the employees.
In the event of a tie of a vote, the vote of the chairman of the supervisory board counts double, because the supervisory board consists of an even number of members.
Management board
The management board – as governing body of the corporation – manages the company´s business and is bound to the interest and the corporate policy of the company within the scope of the corporate law provisions. It reports to the supervisory board on all important questions regarding business development, corporate strategy and potential risks on a regular basis, promptly and comprehensively.

Shareholders and Shareholders’ Meeting

Our shareholders are kept regularly informed of significant dates through the annual report, the quarterly reports and the company’s website. telegate provides news on the group several times during the year by means of an electronic newsletter (in German and English), which is available for subscription to all shareholders and interested readers. Shareholders have the opportunity to exercise their vote in person, or by proxy, at the annual shareholders’ meeting.

Active, open and transparent communication

In order to guarantee maximum transparency, the claim of telegate’s business communication is to provide all stakeholders with the same information at the same time. To ensure this, telegate makes detailed documentation and information available on the company’s website, such as financial dates and reports, details on the shareholders’ meeting, presentations, ad-hoc and press releases.

Details on director’s dealings required under section 15a of the (German) Securities Trading Act are also made available on the Internet in the “Investor Relations” section. However, in this reporting period no director’s dealings occurred.

There was no ownership of shares and/or derivative financial instruments that are subject to notification according to item 6.6 of the German Corporate Governance Code. The notes to the annual financial statement provide supplementary information on company organs and the relations to related parties.

Responsible opportunity and risk management

A responsible corporate governance system requires a functioning risk management system. The management board has implemented a multistage, integrated planning and controlling system. The supervisory board is integrated into the risk management process through quarterly reports and the reports made to the supervisory board meetings. Further details are provided in the management report.

Annual audit

For fiscal year 2011 Ernst & Young GmbH Wirtschaftspruefungsgesellschaft, once again acted as auditor. It was agreed that the chairman of the audit committee is to be informed without delay of all findings and occurrences established during the course of the audit, which are of material importance for the tasks and duties of the supervisory board, unless these are immediately corrected. Furthermore, the auditor is to inform the supervisory board and/or make a note in the audit report of any facts established in the course of the audit that could imply a false statement in the declaration of compliance issued by the management board and supervisory board under section 161 of the (German) Stock Corporation Act.

Procedure of management board and supervisory board

The management board and supervisory board cooperate closely for the benefit of the company. Using the means of an extensive reporting system the management board provides the supervisory board with regular, thorough, and timely information regarding all key questions of strategy, planning, business performance, the financial and profit situation, as well as corporate opportunities and risks that are of relevance to the company. Deviations from the scheduled plans and objectives were explained in detail and by outlining the reason thereof. Business transactions of material significance are subject to approval by the supervisory board in accordance with the articles of incorporation.

There were no consultancy, other services or work contracts between the members of the supervisory board and the company during the period under review. Management board and supervisory board members had no conflicts of interest.