The public companies in Sopharma Group adopted and continue to comply with the established in October 2007, with subsequent amendments in 2012, 2016 and 2021, National Code of Corporate Governance (NCCU), approved by the Deputy Chairman of the Financial Supervision Commission.

Good corporate governance is a set of balanced relationships between the Management bodies of the Group, its shareholders and all stakeholders — employees, business partners, creditors of the company, potential and future investors and society as a whole.

Along with the principles of recommendatory nature, public companies in Sopharma Group have established a certain set of requirements for corporate governance, compliance with which is mandatory for their management bodies, namely:

  • Protection of shareholders’ rights;
  • Ensuring fair treatment of all shareholders, regardless of the number of shares held by them;
  • Recognition of the rights of the interested parties and promotion of the cooperation between the companies and the interested parties;
  • Ensuring timely and accurate disclosure of information on all matters related to the companies, including the financial condition, results, ownership and management of the companies;
  • Supporting the strategic management of the companies, control over the activities of the management and its accountability to the company and the shareholders.

The Corporate Governance Code is applied on a "comply or explain" basis. This means that its recommendations are complied with, and whether or not there is a deviation from them, the managements of the public companies in the Group periodically disclose information on corporate governance of the nature and scope provided for in the NCGC, namely:

  • The actions of their managements are aimed at establishing the principles of good corporate governance, increasing the confidence of shareholders, investors and persons interested in the management and activities of the Group.
  • The managements of the public companies in the Group complies with Program for corporate governance, which is consistent with existing regulations, internationally recognized standards of good corporate governance and the National Corporate Governance Code.
  • The managements of these companies in the Group approves the Disclosure Policy in accordance with the legal requirements and the Articles of Association.

"Sopharma" AD participates in the establishment of the National Corporate Governance Commission.

1. MANAGEMENT OF THE PARENT COMPANY "SOPHARMA" AD — BOARD OF DIRECTORS

Functions and responsibilities

The Board of Directors of "Sopharma" AD manages the Company independently and responsibly in accordance with the established vision, goals and strategies of the Company and the interests of the shareholders. The members of the Board of Directors give a guarantee for their management in the amount of their quarterly gross remuneration.

During their term of office, the members of the Board of Directors shall be guided in their activities by the generally accepted principles of integrity, loyalty, managerial and professional competence. The Board of Directors complies with the Code of Ethics of the Company’s employees, adopted by the Board of Directors on March 26, 2007.

The management of "Sopharma" AD, represented by the Board of Directors, also:

  • monitors the results of the activities in the Parent Company and the Group and, if necessary, initiates changes in the management;
  • treats all shareholders equally, acts in their interest and with the care of a good trader;
  • strives to follow the economic, social and environmental priorities of the Company;
  • encourages the implementation and monitors the compliance of the subsidiaries with the adopted principles of sustainable development at group level, also promotes the establishment of a culture of sustainable development;
  • ensures and controls the integrated functioning of the accounting and financial reporting systems;
  • ensures and controls the construction and operation of a risk management system, incl. for internal control and internal audit;
  • is responsible for the creation and reliable functioning of the financial information system of the Parent Company and the Group;
  • gives the guidelines, approves and controls the implementation of: the business plan of the Parent Company and the Group, essential transactions and etc.;
  • reports on its activities to the General Meeting of Shareholders, preparing an annual report and submitting it for approval to the GMS.

Election and dismissal of members of the Board of Directors

The General Meeting of Shareholders elects and dismisses the members of the Board of Directors of "Sopharma" AD, in accordance with the law and the Articles of Association of the Company, observing the principles of continuity and sustainability of the work of the Board of Directors. All members meet the legal requirements for holding office.

In case of proposals for election of new members of the Board of Directors, the principles of compliance of the competence of the candidates with the nature of the activity of the Parent Company and the Group.

Structure and competence

The number of members and the structure of the Board of Directors are determined in the Articles of Association of the Company. The company is managed and represented by a Board of Directors, which consists of five individuals meeting the requirements of Article 234 of the CA and Article 116a, paragraph 2 of the Law on public offering of securities.

The composition of the Board of Directors elected by the General Meeting is structured in a way that guarantees the professionalism, impartiality and independence of the decisions and actions of its members in connection with the management of the Group.

The Board of Directors shall ensure a proper distribution of tasks and responsibilities among its members. The main functions of the members of the Board of Directors and the number of independent members is enshrined in the Articles of Association of the Company. The main function of the independent directors is to control the actions of the executive management and to participate effectively in the work of the Company in accordance with the interests and rights of shareholders. There is one independent member of the Board of Directors of "Sopharma" AD.

The competencies, rights and obligations of the members of the Board of Directors follow the requirements of the law, the Articles of Association and the standards of good professional and managerial practice.

The members of the Board of Directors of "Sopharma" AD have appropriate knowledge and experience, which is required by their position. After their election, the new members of the Board of Directors should be familiar with the main legal and financial issues related to the activities of the Group. The company stimulates the raising of the qualification of the members of the Board of Directors.

The members of the Board of Directors have the necessary time to perform their tasks and duties. The Articles of Association of the Company do not specify the number of companies in which the members of the Board of Directors may hold managerial positions, in order not to limit their activities.

The election of the members of the Board of Directors of the Parent Company is done through a transparent procedure, which provides, among other things, timely and sufficient information about the personal and professional qualities of the candidates for members. The number of consecutive terms of office of the members of the Board of Directors ensures the effective operation of the Parent Company and compliance with legal requirements. According to the Articles of Association of the Parent Company, the members of the Board of Directors may be re-elected without restriction.

Remuneration of the members of the Board of Directors

The Management of all public companies of the Group have prepared and implements a Remuneration Policy, which is adopted by the General Meeting of Shareholders. The Remuneration Policy has been developed in accordance with Ordinance № 48 of March 20 2013 of the Financial Supervision Commission and the Law on public offering of securities. The amount and structure of the remunerations are determined by the General Meeting.

In accordance with the legal requirements and good practice for corporate governance, the amount and structure of remuneration take into account:

  • The obligations and the contribution of each member of management bodies in the activity and the results of the respective company. The members of the management bodies receive a permanent remuneration in the form of an amount determined by the General Meeting of Shareholders, paid under the terms and conditions of the management contracts concluded between them and the Company.
  • The possibility for selection and retention of qualified and loyal members of the management bodies.
  • The need for compliance of the interests of the members of the management bodies, the long-term interests and the sustainable development of the companies. The remunerations of the members are formed on the basis of the results of the company’s activity and is in accordance with the business strategy, goals, values and long-term interests of the Group.
  • The executive member of the Board of Directors receives a permanent remuneration in the form of an amount determined by the General Meeting of Shareholders, paid under the terms and conditions of the management contract concluded between him and the Company.
  • The remunerations and bonuses of the members of the management bodies and of the Executive Director of the Company must be determined by the General Meeting of Shareholders. According to the Articles of Association of the Parent Company, in case of a positive financial result /profit/ and by decision of the General Meeting, the Executive Director is entitled to receive a one-time remuneration of up to one percent of the net profit of the Company.
  • The remunerations and bonuses of the members of the management bodies and of the Executive Director of the Company must be determined by the General Meeting of Shareholders.
  • The remuneration of the independent directors is only permanent without additional incentives and reflects their participation in meetings, as well as the implementation of their tasks to control the actions of the executive management and to participate effectively in the work of the company.

So far, the executive member has not been granted shares, stock options or other financial instruments.

By qualified majority, the management bodies may decide to determine the range of employees, among which an amount of up to 2% of the value of the Parent Company’s profit for each financial year shall be distributed as a bonus. The same is possible only in the presence of a decision of Shareholders to determine the specific amount of the bonus on the General Meeting, which adopts the relevant audited annual financial statements and if there is a positive financial result /profit/.

The disclosure of information about the remuneration of the members of the Board of Directors is in accordance with the legal norms and the Articles of Association of the public companies in the Group and the Parent Company.

Shareholders have easy access to the adopted company policy for determining the remuneration and bonuses of the members of the Board, as well as to information on the annual remuneration and additional incentives received by them. Information on the remuneration of the members of the Board of Directors is presented in the annual financial report, in the Report on the implementation of the Remuneration Policy of the Board of Directors and is published on the websites of the companies.

Conflict of interests

The members of the management bodies shall endeavor to avoid and prevent any actual or potential conflict of interest.

The procedures for avoiding and disclosing conflicts of interest are regulated in the Articles of Association of the companies, internal document and rules.

The members of the management bodies have an obligation to immediately disclose conflicts of interest and to provide the shareholders with access to information on transactions between the companies and its subsidiaries and members of management bodies or related persons.

Every potential conflict should be disclosed to management bodies.

A potential conflict of interest exists when the company intends to enter into a transaction with a legal entity in which a member of the management body or related persons have a financial interest.

Art. 114 of the LPOS describes in detail the hypotheses under which the persons who manage and represent a public company, including the persons — representatives of a legal entity that is a member of the management body of the public company, without being expressly authorized by the general meeting of the public company, cannot undertake certain transactions. Article 114 of the Law on public offering of securities and subsequent, provide an opportunity for shareholders to review and approve in advance transactions involving interested parties and related parties in order to avoid conflicts of interest and violate the rights of shareholders.

Committees

The work of the management body is supported by committees, as the management body determines the need for their establishment in accordance with the specifics of the company.

In accordance with the requirements of the current legislation and on the basis of the criteria determined by it, the management body proposes to the General Meeting of Shareholders of the company to elect an audit committee that meets the legal requirements and specific needs of the company.

Committees are set up on the basis of a written structure, scope of tasks, functioning and reporting procedures.

The Audit Committee of "Sopharma" AD consists of three people, with a 3-year term determined by the GMS. The members of the Audit Committee meet the requirements of the Independent Financial Audit Act.

2. INDEPENDENT FINANCIAL AUDIT AND INTERNAL CONTROL

The Audit Committee of "Sopharma" AD and its members, in their capacity as persons in charge of general management, provide supervision of internal audit activities and monitor the overall relationship with the external auditor, including the nature of non-audit services provided by the Group’s auditor.

The management of "Sopharma" AD, assisted by the Audit Committee, motivates in writing before the General Meeting its proposal for selection of an auditor, guided by the established requirements for professionalism.

The management of the companies in the Group ensures compliance with the applicable law regarding the independent financial audit.

A rotation principle is applied in the proposals and selection of an external auditor. The auditors are selected by the GMS for each financial year.

The companies of Sopharma Group have a system in place for internal control, which includes identifying the risks associated with the activities of the Company and supporting their effective management. It also ensures the effective functioning of reporting and disclosure systems.

3. PROTECTION OF SHAREHOLDERS ’RIGHTS

The management of the public companies in Sopharma Group guarantees equal treatment of all shareholders, including minority and foreign shareholders and protects their rights, as well as facilitates their exercise within the limits allowed by applicable law and in accordance with the Articles of Association of the companies. The managements provide information to all shareholders about their rights, financial results of the company and corporate events through an information disclosure system and the company’s website.

General meeting of the shareholders

Information on the rules according to which general meetings of shareholders are convened and held, including voting procedures, is available to all shareholders. The corporate managements of the public companies in Sopharma Group provide sufficient and timely information on the date and place of the General Meeting, as well as complete information on the issues to be considered and resolved at the meeting.

During the General Meeting, the management of the respective public company of the Group ensures the right of all shareholders to express their opinion and ask questions.

  • Shareholders with voting rights have the opportunity to exercise their voting rights at the General Meeting of the public company in person or through representatives, as well as by correspondence or electronically. The procedure for the participation of the shareholders in the General Meeting is announced in the Invitation.
  • The management maintains a database of contacts of its shareholders holding 5 or more than 5% of the company’s capital, which allows sending direct messages to them or to a specific person.
  • The management exercises effective control by creating the necessary organization for the voting of the authorized persons in accordance with the instructions of the shareholders or in the ways permitted by law.
  • The management organizes and conducts regular and extraordinary General Meetings of the company’s shareholders in accordance with statutory procedures that ensure equal treatment of all shareholders, including minority and foreign, and the right of each shareholder to express its views on the agenda of the General Meeting.
  • The management determine the procedures for holding the General Meeting of Shareholders in a manner that does not complicate or increase the cost of voting unnecessarily.
  • The management takes actions to encourage the participation of shareholders in the General Meeting of Shareholders, incl. by providing the opportunity for remote presence through technical means (including the Internet) in cases where this is possible and necessary, and does not contradict the NCCU.
  • The managements of the public companies in Sopharma Group believe that the prerequisites for sufficient transparency in relations with investors, financial media and capital market analysts have been created.
  • The processes and procedures for holding General meetings of Shareholders guarantee equal treatment of all shareholders, including minority and foreign shareholders, and protect their interests.

All members of the Managements try to attend the General Meetings of the shareholders of the Company.

Materials of the General Meeting of Shareholders

The materials related to the General Meeting of Shareholders are available to the shareholders from the day of announcing the invitation to convene it in the Commercial Register. They are submitted to the Financial Supervision Commission and are published on the company’s website, as well as in the relevant media, at least 30 days before the date of the General Meeting and upon request are provided free of charge to shareholders.

The texts in the written materials related to the agenda of the General Meeting are specific and clear and do not mislead the shareholders. All proposals regarding major corporate events are presented as separate items on the agenda of the General Meeting, incl. the profit distribution proposal.

The public companies of Sopharma Group maintain on their websites a special section on the rights of shareholders and their participation in the General Meeting of Shareholders.

The managements of these companies assists the shareholders entitled under the current legislation to include additional issues and to propose decisions on issues already included in the agenda of the General Meeting.

The managements of the public companies in the Group guarantee the right of the shareholders to be informed about the decisions taken by the General Meeting of Shareholders.

The minutes of the General meetings of shareholders are published within the statutory period, subject to the requirements for maximum publicity and transparency of information provided, its simultaneous publication, using sufficiently accessible platforms for information disclosure, including its own website. All materials from the held general meetings of the shareholders shall be kept accessible to the shareholders and all interested parties for a period determined in the LPOS.

In 2021 the public companies of Sopharma Group held General Meetings of Shareholders as follows: "Sopharma" AD held two GMS, "Sopharma Trading" AD held three GMS, "Momina Krepost" AD held one GMS, "Sopharma Buildings" REIT held one GMS, "Sopharma Imoti" REIT held one GMS and "Doverie Obedinen Holding" AD held two GMS.

The Board of Directors considers that preconditions have been created for sufficient transparency in the relations with investors, financial media and capital market analysts.

Equal treatment of shareholders of one class

All shareholders in one class are treated equally.

All shares within one class give equal rights to shareholders of the same class.

The management of the public companies in Sopharma Group guarantee the provision of sufficient information to investors regarding the rights granted by all shares of each class before their acquisition.

Consultations between shareholders on fundamental shareholder rights

Within the limits allowed by the current legislation and in accordance with the provisions of the Articles of Association of the respective companies, the managements of the public companies in Sopharma Group do not prevent the shareholders from consulting each other on issues related to their basic shareholder rights allows the commission of abuses.

Shareholder transactions with controlling rights and abusive transactions

The managements of the public companies in Sopharma Group do not allow the implementation of transactions with shareholders with controlling rights, which violate the rights and/or legitimate interests of other shareholders, including under the terms of negotiations with itself.

Remuneration policy

The management bodies of the public companies in the Group prepare an Report on the implementation of the remuneration policy of the members of the Board of Directors in 2021. The report reveals the way in which the Remuneration Policy is implemented, paying special attention to avoiding the creation of incentives for excessive risk-taking, conflict of interest or other behavior leading to adverse consequences. The amount and structure of the remunerations are determined by the General Meeting of the company.

4. DISCLOSURE OF INFORMATION

The managements of the public companies in the Group approve the Policy for disclosure of information in accordance with the legal requirements and the Articles of Association.

In accordance with the adopted information disclosure policy, managements establish and maintain a disclosure system.

The information disclosure policy guarantees equality of the addressees of the information (shareholders, stakeholders, investment community) and does not allow misuse of inside information and manipulation of the market of financial instruments.

The managements of the public companies in Sopharma Group also:

  • ensure that the disclosure system provides complete, timely, accurate and comprehensible information that allows for objective and informed decisions and assessments;
  • promptly disclose the capital structure of the companies and agreements that lead to the exercise of control in accordance with its rules for disclosure of information;
  • within the limits of the current legislation and in accordance with the provisions of the Articles of Association of the companies ensure that the rules and procedures under which the acquisition of corporate control and extraordinary transactions such as mergers and sale of significant assets are clearly and timely disclosed;
  • approve and control the observance of internal rules for preparation of the annual and interim reports and the procedure for disclosure of information;
  • have adopted a Disclosure Policy, which ensure the timely disclosure of any material periodic and incidental information about the companies, their managements, their corporate managements, their operational activities, their shareholder structure;
  • disclose non-financial information on an annual basis in accordance with national law and applicable European law. The non-financial statement is part of the annual report, which includes information on how and to what extent the company’s activities can be classified as environmentally sustainable, such as: what part of its turnover is due to products and services related to economic activities which qualify as environmentally sustainable; what part of its capital expenditure, where applicable, and what part of its operating costs are related to assets or processes related to economic activities that qualify as environmentally sustainable.

As part of the disclosure system, Sopharma Group maintain a website with approved content, scope and periodicity of the disclosed information. The Group`s website is: www.sopharmagroup.com.

The information disclosed through the Group`s website includes:

  • basic commercial and corporate information identifying the Group;
  • up-to-date information on the shareholder structure;
  • the rules and the adopted policies related to the activities and functioning of the Group;
  • information on the structure and composition of the management and control bodies of the Parent Company, as well as basic information on their members, including information on their committees;
  • financial statements for the last 10 years;
  • the materials for the forthcoming general meetings of the shareholders of "Sopharma" AD, as well as additional ones, received by law;
  • information on the decisions taken by the general meetings of shareholders for at least the last three years, incl. information on the dividends distributed by the Group for this period;
  • information for auditors;
  • information about upcoming events;
  • information on issued shares and other financial instruments;
  • important information related to the activities of the Group;
  • information on the rights of shareholders, incl. sufficient information on the right of shareholders to request the inclusion of issues and to propose decisions on issues already included in the agenda of the General Meeting under Article 223a of the Commerce Act;
  • contact information with the Investor Relations Director of "Sopharma" AD.

The Group also maintains foreign language versions of the corporate website with similar content in the following languages: English, Russian and Polish.

The Group periodically discloses information about corporate governance. Disclosure of corporate governance information is in accordance with the "comply or explain" principle.

The managements of the public companies in Sopharma Group ensure the disclosure of any material periodic and incidental information about the Group, through channels that provide equal and timely access to relevant information by users.

In 2021 the public companies in the Group disclose the publicly regulated information by providing it to the Financial Supervision Commission and to the public. Regulated information is disclosed to the public in a way that ensures it reaches the widest possible range of people at the same time, and in a way that does not discriminate against them. This is done through the X3NEWS information system, the Investor.bg information system, as well as on the Warsaw Stock Exchange, including through the Polish Information Agency (PAP).

5. STAKEHOLDERS. SUSTAINABLE DEVELOPMENT

Sustainable development is the achievement of a balance between social and environmental principles, such as socially justified and environmentally friendly economic development. It aims to meet the needs of the current generation without compromising the ability of future generations to meet their own needs.

The Corporate Managements are committed to establishing specific actions and policies regarding the sustainable development of the companies, including the disclosure of information related to climate and social aspects of their activities.

The Managements ensure effective interaction with stakeholders. This category includes certain groups of persons who are directly affected by the Group and who in turn can influence its activities, incl. suppliers, customers, employees, creditors, public pressure groups and other employees. The companies of the Group identify the stakeholders in relation to its activities based on their degree and areas of influence, role and attitude to its sustainable development.

In its Disclosure Policy, the managements comply with legal requirements and the principles of transparency, accountability and business ethics.

The managements of the companies guarantee sufficient information to all interested parties about their legally established rights.

In accordance with this policy, the management of the companies in the Group develop specific rules for taking into account the interests of stakeholders, which rules ensure their involvement in resolving certain issues requiring their position. These rules guarantee the balance between the development of the companies in the Group and the economic, social and environmentally friendly development of the environment in which it operates.

Corporate managements of the companies in Sopharma Group maintain effective relationships with stakeholders. Periodically, in accordance with the legal norms and the good international practice for disclosure of non-financial information, the Group informs about economic, social and environmental issues concerning the interested parties, such as: fight against corruption; work with employees, suppliers and customers; the social responsibility of the Group; environmental protection and human rights violations.

The managements of the companies in the Sopharma Group guarantee the right for timely and regular access to relevant, sufficient and reliable information about the Group when the interested parties participate in the corporate governance process.

6. INSTITUTIONAL INVESTORS, FINANCIAL INSTRUMENTS MARKETS AND OTHER INTERMEDIARIES

The corporate managements of the public companies in the Sopharma Group ensure effective interaction of the companies with their shareholders — institutional investors, as well as with the regulated markets of financial instruments and investment intermediaries on these markets.

Managements of the companies use the services of investment intermediaries whose recommendations or actions are based on market information and principles. The same applies accordingly to the operators of markets on which financial instruments issued by the Company are traded.

"Sopharma" AD encourages the involvement of investment intermediaries and institutional investors in defining corporate governance policies and practices of the Parent Company.

The company is listed on the Bulgarian and Warsaw Stock Exchanges, as market operators disclose and document the criteria and procedures for recognizing the requirements for listing on the main market.