NYSE-Declaration

American Depositary Shares representing our Ordinary shares and our Preference shares are listed on the New York Stock Exchange (“NYSE”). However, because we are a “foreign private issuer,” as defined in the rules of the Securities and Exchange Commission, we are exempt from the governance rules set forth in Section 303A of the NYSE’s Listed Companies Manual, except for the obligation to maintain an audit committee in accordance with Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and the obligation to notify the NYSE if any of our executive officers becomes aware of any material non-compliance with any applicable provisions of Section 303A. Instead, the NYSE requires that we disclose the significant ways in which our corporate practices differ from those applicable to U.S. domestic companies under NYSE listing standards. This NYSE-Declaration is our declaration on German Corporate Governance Practices required by the regulations issued by the New York Stock Exchange.

As a German company Fresenius Medical Care AG & Co. KGaA (“FMC-AG & Co. KGaA") follows German Corporate Governance practices. German corporate governance practices generally derive from the provisions of the German Stock Corporate Act (“AktG”) including capital market related laws, the German Codetermination Act (“MitBestG”) and the German Corporate Governance Code which was adopted in 2002 and revised periodically thereafter by the German government commission, most recently in June 2007. Our Articles of Association also include provisions affecting our corporate governance. German standards differ from the corporate governance listing standards applicable to U.S. domestic companies which have been adopted by the NYSE. A brief, general summary of the principal differences follows, together with, as appropriate, a comparison to U.S. principles or practices.

A KGaA is a mixed form of entity under German corporate law, which has elements of both a partnership and a corporation. Like a stock corporation, the share capital of a KGaA is held by its shareholders. The KGaA and the stock corporation are the only legal forms provided by German law for entities whose shares trade on the stock exchange. A KGaA is similar to a limited partnership because there are two groups of owners, the general partner on the one hand, and the KGaA shareholders on the other hand. The general partner of FMC-AG & Co. KGaA is Fresenius Medical Care Management AG (“Management AG”), a wholly-owned subsidiary of Fresenius SE.

A KGaA’s corporate bodies are its general partner, its supervisory board and the general meeting of shareholders. A KGaA may have one or more general partners who conduct the business of the KGaA. However, unlike a stock corporation, in which the supervisory board appoints the management board, the supervisory board of a KGaA has no influence on appointment of the managing body – the general partner. Likewise, the removal of the general partner from office is subject to very strict conditions, including the necessity of a court decision. The general partner(s) may, but are not required to, purchase shares of the KGaA. The general partner(s) are personally liable for the liabilities of the KGaA in relations with third parties subject, in the case of corporate general partners, to applicable limits on liability of corporations generally.

The supervisory board of a KGaA is similar in certain respects to the supervisory board of a stock corporation. Like the supervisory board of a stock corporation, the supervisory board of a KGaA is under an obligation to oversee the management of the business of the company by the general partner. The supervisory board is elected by the KGaA shareholders at the general meeting. Shares in the KGaA held by the general partner or its affiliated companies are not entitled to vote for the election of the supervisory board members of the KGaA. Therefore, Fresenius SE is precluded from voting its shares for the election of FMC-AG & Co. KGaA’s supervisory board.

KGaA shareholders exercise influence in the general meeting through their voting rights but, in contrast to a stock corporation, the general partner of a KGaA has a veto right with regard to material resolutions. The members of the supervisory board of a KGaA are elected by the general meeting as in a stock corporation. However, since the supervisory board of a KGaA has less power than the supervisory board of a stock corporation, the indirect influence exercised by the KGaA shareholders on the KGaA via the supervisory board is also less significant than in a stock corporation. For example, the supervisory board is not usually entitled to issue rules of procedure for management or to specify business management measures that require the supervisory board’s consent. The status of the general partner or partners in a KGaA is stronger than that of the shareholders based on: (i) the management powers of the general partners, (ii) the existing veto rights regarding material resolutions adopted by the general meeting and (iii) the independence of the general partner from the influence of the KGaA shareholders as a collective body. Because Fresenius SE is the sole shareholder of Management AG, the general partner, Fresenius SE has the sole power to elect the supervisory board of Management AG and, through its designees on the Management AG supervisory board, to elect the members of the management board of Management AG, who act on behalf of the general partner in the conduct of the company’s business and in relations with third parties.

The statutory provisions governing a partnership, including a KGaA, provide in principle that the consent of the KGaA shareholders at a general meeting is required for transactions that are not in the ordinary course of business. However, as permitted by statute, the articles of association of FMC-AG & Co. KGaA permit such decisions to be made by Management AG as general partner without the consent of the FMC-AG & Co. KGaA shareholders. This negation of the statutory restrictions on the authority of Management AG as general partner is intended to replicate governance arrangements in Fresenius Medical Care AG ("FMC-AG"), our prior corporate form, by retaining for the management board of the general partner the level of operating flexibility that existed prior to the transformation. Prior to the transformation of legal form, the shareholders of FMC-AG did not have any such veto right regarding determinations of its management board. This does not affect the general meeting’s right of approval with regard to measures of unusual significance, such as a sale of a substantial part of a company’s assets, as developed in German Federal Supreme Court decisions.

The relationship between the supervisory board and management board of Management AG is substantially similar to the governance provisions at FMC-AG prior to the transformation. In particular, under the articles of association of Management AG, the same transactions are subject to the consent of the supervisory board of Management AG as previously required the consent of the supervisory board of FMC-AG. These transactions include, among others:

  • The acquisition, disposal and encumbrance of real property if the value or the amount to be secured exceeds a specified threshold (€5 million);
  • The acquisition, formation, disposal or encumbrance of an equity participation in other enterprises if the value of the transaction exceeds a specified threshold (€5 million, in case of dialysis clinics, €10 million);
  • The adoption of new or the abandonment of existing lines of business or establishments;
  • Conclusion, amendment and termination of affiliation agreements; and
  • Certain inter-company legal transactions.

Certain matters requiring a resolution at the FMC-AG & Co. KGaA general meeting will also require the consent of the general partner, such as amendments to the articles of association, consent to inter-company agreements, dissolution of FMC-AG & Co. KGaA, mergers, a change in the legal form of FMC-AG & Co. KGaA and other fundamental changes. Fresenius SE, through the general partner, therefore has a veto right on these matters. Annual financial statements are subject to approval by both the KGaA shareholders and the general partner.

Under certain conditions supervisory boards of large German stock corporations will include both shareholder representatives and a certain percentage of labor representatives. Depending on the company’s total number of employees, up to one half of the supervisory board members are being elected by the company’s employees. In these cases traditionally the chairman is a representative of the shareholders. In case of a tie vote, the supervisory board chairman may cast the decisive tie-breaking vote.

In recent history, there has been a trend towards selecting shareholder representatives for supervisory boards from a wider spectrum of candidates, including representatives from non-German companies, in an effort to introduce a broader range of experiences and expertise and a larger degree of independence. German law also has several rules applicable to supervisory board members which are designed to ensure a certain degree of independence of the board’s members. In addition to prohibiting members of the management board from serving on the supervisory board, German law requires members of the supervisory board to act in the best interest of the company. They do not have to follow direction or instruction from third parties. Any service, consulting or similar agreements between the company and any of its supervisory board members must be approved by the supervisory board.

In addition to these German legal requirements applicable to the composition of s corporation’s supervisory board, we have entered into a pooling agreement for the benefit of the holders (other than Fresenius SE) of our ordinary shares, including ordinary shares evidenced by American Depositary Shares (“ADSs”) and the holders of our preference shares, including preference shares evidenced by ADSs, that requires that at least one-third (but no less than two) of the members of the general partner’s supervisory board be independent directors. For purposes of the pooling agreement, an “independent director” is a director with no substantial business or professional relationship with FMC-AG & Co. KGaA, Fresenius SE, the general partner, or any affiliate of any of them.

The listing standards of the NYSE require that independent directors of a U.S. domestic listed company meet in regularly scheduled sessions without management. U.S. listed companies also must adopt corporate governance guidelines that address, director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, director orientation and continuing education, management succession, and an annual performance evaluation of the board. Several of these concepts are addressed (but not mandated) by the German Corporate Governance Code. While the Code’s governance rules applicable to German corporations are not legally binding, companies failing to comply with the Code’s recommendations must disclose publicly how their practices differ from those recommended by the Code. Some of the Code’s recommendations address the independence and qualifications of supervisory board members. Specifically, the Corporate Governance Code recommends that the supervisory board should take into account potential conflicts of interest when nominating candidates for election to the supervisory board. Similarly, if a material conflict of interest arises during the term of a member of the supervisory board, the Corporate Governance Code recommends that the term of that member be terminated. The Corporate Governance Code further recommends that at any given time not more than two former members of the management board should serve on the supervisory board. For nominations for the election of members of the Supervisory Board, care shall be taken that the Supervisory Board, at all times, is composed of members who have the required knowledge, abilities and expert experience to properly complete their tasks. The Corporate Governance Code furthermore includes the suggestion for the supervisory board members to meet without any representatives of the management board attending, whenever necessary. Deviations hereof are, however, not required to be disclosed publicly.

As noted in the introduction to this discussion, as a company listed on the NYSE, we are required to maintain an audit committee in accordance with Rule 10A-3 under the Securities Exchange Act of 1934. The NYSE’s listing standards applicable to U.S. domestic listed companies require that such companies also maintain a nominating committee and a compensation committee, each consisting solely of directors who are “independent” as defined in the NYSE’s governance rules. We are not required to maintain such committees. Fresenius SE has the sole power to elect the supervisory board of our general partner (subject to the requirements of our pooling agreement discussed above) and the general partner’s supervisory board appoints the members of the general partner’s management board.

In contrast to U.S. practice, with one exception, German corporate law does not mandate the creation of specific supervisory board committees. In certain cases, German corporations are required to establish what is called a mediation committee with a charter to resolve any disputes among the members of the supervisory board that may arise in connection with the appointment or dismissal of members of the management board. The Corporate Governance Code recommends, however, that the supervisory board establish an audit committee which would handle the formal engagement of the company’s independent auditors once they have been approved by the general meeting of shareholders. The audit committee would also address issues of accounting, risk management and auditor independence. Our audit committee functions in each of these areas. In practice, most supervisory boards have also constituted other committees to facilitate the work of the supervisory board. For example, a presidential committee is frequently constituted to deal with executive compensation and nomination issues as well as service agreements with members of the supervisory board. At the present time, these functions are carried out by our supervisory board, as a whole. We have, however, established, together with Fresenius SE and our general partner, Management AG, two additional committees. These committees are:
  • A joint committee (the “Joint Committee”) (gemeinsamer Ausschuss) of the supervisory boards of Management AG and FMC-AG & Co. KGaA consisting of two members designated by each supervisory board to advise and decide on certain extraordinary management measures, including
  • transactions between us and Fresenius SE with a value in excess of 0.25% of our consolidated revenue, and
  • acquisitions and sales of significant participations and parts of our business, the spin-off of significant parts of our business, initial public offerings of significant subsidiaries and similar matters.
  • An Audit and Corporate Governance Committee within the Supervisory Board of FMC-AG & Co. KGaA consisting of at least three (3) but no more than 5 (five) members, each of whom shall be persons with no significant business, professional or personal connection with FMC-AG & Co. KGaA or any of our affiliates, apart from membership on our supervisory board or the supervisory board of Management AG or Fresenius SE. The Audit and Corporate Governance Committee is responsible for reviewing the report of our general partner on relations with related parties and for reporting to the overall supervisory board regarding the contents of the report.
Updated: July 17, 2008
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