Declaration of Compliance
According to section 161 of the German Stock Corporation Act (Aktiengesetz), the Management Board and the Supervisory Board of all listed German stock corporations are obliged to annually disclose their compliance with the recommendations of the German Corporate Governance Code ("Code") and to give details of any deviations from these recommendations.
The Management Board and the Supervisory Board of ADVA Optical Networking SE ("ADVA Optical Networking") last issued an annual declaration of compliance with regard to the Code on 17 November 2015.
The Management Board and the Supervisory Board of ADVA Optical Networking declare that, except for the deviations listed below, ADVA Optical Networking has complied, and will continue to comply, with all recommendations of the German Corporate Governance Code as amended on May 5, 2015:
Deductible for D&O Insurance
ADVA Optical Networking has taken out a D&O (directors' and officers' liability insurance) policy for the members of the Management Board and the Supervisory Board. This policy contains a deductible for members of the Management Board, but not for members of the Supervisory Board (see section 3.8 paragraph 3 of the Code). The Company does not believe that such a deductible enhances the motivation and the accountability of the members of the Supervisory Board in carrying out their duties.
Management Board Compensation
The value of stock options issued to members of the Management Board as part of their compensation is only related to the share price, not to demanding, relevant comparison parameters (see section 4.2.3 paragraph 2 of the Code). In ADVA Optical Networking's opinion, basing share-based variable compensation on such comparison parameters may result in reduced transparency.
The Supervisory Board of ADVA Optical Networking took note of the requirements of section 4.2.3 paragraph 2 of the Code in taking its decision on the annual bonus. The maximum amount of compensation for the members of the Management Board was capped, both overall and for its variable compensation components (annual bonus, long term bonus, newly issued options). Only some older stock option agreements do not provide for a cap on a maximum amount, since amendments of existing agreements cannot be enforced unilaterally by ADVA Optical Networking and would contravene the principle of being bound by agreements (pacta sunt servanda).
Within the context of the implementation of the requirements regarding the variable compensation components, the Supervisory Board resolved on a general cap for the compensation component annual bonus, and no additional caps for the four individual targets relevant for the annual bonus since this decreases the complexity of the arrangement significantly and prevents the danger of unfair results. Since it is not yet clear whether compliance with the recommendation of section 4.2.3 paragraph 2 sentence 6 of the Code also requires caps for individual targets of an annual bonus, as a matter of precaution a deviation this recommendation shall be declared.
The Company's Supervisory Board handles any issues of compliance directly and has not delegated this task to a committee (see section 5.3.2 of the Code). It is ADVA Optical Networking's view that due to the importance of compliance matters, all members of the Supervisory Board should be involved in handling respective issues.
Moreover, ADVA Optical Networking specifies an age limit for the members of the Management Board, but not for the members of the Supervisory Board (see section 5.4.1 paragraph 2, 1st sentence of the Code). In ADVA Optical Networking's opinion, suitability to serve as a member of the Supervisory Board should not depend on the candidate's age.
The concrete objectives defined by the Supervisory Board of ADVA Optical Networking regarding its composition do not take into account a regular limit of length of membership for the members of the Supervisory Board (see section 5.4.1 paragraph 2, 1st sentence of the Code). The Company shall be allowed to retain the expertise of members experienced with the company. In addition, a longer length of membership does not inevitably lead to conflicts of interest or interferences of the independence.
Finally, the remuneration of the Supervisory Board (see section 5.4.6 of the Code) does not consider in all cases the chairmanship and the membership in committees. In ADVA Optical Networking's view, only chairmanship in the Audit Committee drives such significantly higher workload that an additional remuneration is appropriate.
Martinsried/Munich, November 15, 2016
Chief Executive Officer
Chairman of the Supervisory Board