Corporate Governance

Conformity with new recommendations and suggestions in 2011

No amendments to the German Corporate Governance Code have been resolved on since publication of the new version dated May 26, 2010. The German Corporate Governance Code in the version dated May 26, 2010 therefore remains valid. RATIONAL AG largely complies with the recommendations and suggestions set out in the Code. This has resulted in the submission of the declaration of conformity of February 2012, which is published in the 2011 Annual Report and under Investor Relations on the RATIONAL website ( www.rational-online.com).

Section 3.8 of the German Corporate Governance Code recommends that, if a D&O insurance policy is taken out for a member of the Management Board or Supervisory Board, a deductible of at least 10% and up to at least 1.5 times the member's fixed annual compensation must be agreed. For D&O insurance policies taken out for its Executive Board, RATIONAL has been following this recommendation since 2010. With effect from 2011, the deductible of 10% of the loss up to 1.5 times the fixed annual compensation also applies to D&O insurance policies for RATIONAL's Supervisory Board members.

Shareholders and General Meeting of Shareholders

700 shareholders, representatives of the press and guests attended the General Meeting of Shareholders in Augsburg on May 11, 2011. An imputed 87.75% of the share capital was represented. All resolutions on the agenda were approved by the General Meeting of Shareholders with a large majority.

Cooperation between Executive Board and Supervisory Board

A detailed account of the cooperation between Executive Board and Supervisory Board is provided in the Report of the Supervisory Board and in the Declaration of Corporate Governance on RATIONAL’s website.

Executive Board

No conflicts of interest occurred in the past fiscal year. The members of the Executive Board, Dr. Günter Blaschke (Chief Executive Officer), Peter Wiedemann (Chief Technical Officer), Erich Baumgärtner (Chief Financial Officer) and Reinhard Banasch (Chief Sales Officer) do not perform any Supervisory Board duties in other listed companies.

Supervisory Board

The Supervisory Board of RATIONAL AG continues to comprise three members. Mr. Roland Poczka stepped down from his position as member of the Supervisory Board with effect from August 31, 2011 in accordance with section 8 (5) of RATIONAL AG's articles of association. Dr. Hans Maerz took his place with effect from September 1, 2011. Dr. Maerz is an auditor and tax consultant. He was delegated by the shareholders Mr. Siegfried Meister and Mr. Walter Kurtz in accordance with their right of delegation as set down in the Articles of Association until the next regular Supervisory Board elections by the General Meeting of Shareholders in 2014.

Article 8 of the articles of association grants Mr. Meister and Mr. Kurtz a joint right of delegation. In the event that a Supervisory Board member steps down prematurely, Mr. Meister and Mr. Kurtz have the joint right to delegate a member to the Supervisory Board in place of the Supervisory Board member who has stepped down, as long as they remain shareholders of RATIONAL AG.

Supervisory Board members are proposed for election exclusively on the basis of their special skills and qualifications; for this reason, other attributes such as gender or national identity have been and will be of no consequence for this decision.

Because it comprises so few members, the Supervisory Board has not formed any committees. Details of the focus of the Supervisory Board’s activities and advice in the year under review are given in the Report by the Supervisory Board. According to its own assessment, the Supervisory Board has a sufficient number of independent members who have the necessary knowledge, skills, and experience to discharge their duties. No conflicts of interest occurred in the past fiscal year.

Compensation of management bodies

The total compensation of the Executive Board for fiscal year 2011 amounted to 3,746 thousand euros, including a performance-based salary component of 1,969 thousand euros. The variable components of the compensation are based on the Group’s earnings performance, among other factors. Thus both positive and any negative developments are taken into account. The compensation system for members of the Executive Board was not changed in the year under review.

Compensation paid to the Supervisory Board for its monitoring and advisory work amounts to 572 thousand euros for 2011. The payments for the members of the Supervisory Board consist of fixed and performance-related components.

Payments to the individual members of the Supervisory Board were as follows:

Stock option scheme

On February 3, 2000, RATIONAL AG launched a stock option scheme for members of the Executive Board for a maximum of 200,000 individual shares in the Company. The stock options are subject to waiting periods and time limits for exercising the rights, which are decided on by the Supervisory Board. The exercise of option rights is linked to a specified increase in the value of the Company measured against the SMAX Performance Index (replaced as of January 1, 2004 by the SDAX Performance Index). In 2000 and 2004, tranches totalling 69,000 no-par value shares were issued which, on expiry of the relevant waiting periods and time limits for exercising the rights, were likewise settled in cash.

Transparency

In the year under review, RATIONAL AG published a total of five ad-hoc notifications pursuant to section 15 of the Wertpapierhandelsgesetz (WpHG, German Securities Trading Act) to keep all shareholders directly informed of the latest business developments.

The following notifications on voting rights thresholds were received by RATIONAL AG in the year under review and published immediately:

Voting rights threshold announcements under section 26 (1) of the WpHG.

The following notifications on directors’ dealings under section 15a of the WpHG were forwarded to RATIONAL AG in the year under review.

All ad-hoc notifications and mandatory publications of the year under review are published on the Company’s website in both German and English.

The shareholding of the Executive Board stands at well below 1% of the share capital. The total direct and indirect shareholding of the Supervisory Board stands at 70.79% according to the latest voting rights notifications.

Accounting and auditing

On May 11, 2011, the General Meeting of Shareholders appointed PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft, Munich, as auditors of the financial statements and the consolidated financial statements for fiscal year 2011. The audit engagement was awarded by the Supervisory Board. Prior to the proposal being distributed to the General Meeting of Shareholders, the Supervisory Board obtained a declaration from the auditors on their personal and business relationships with the Company. This gave no rise to any objections. The Supervisory Board agreed with the auditors that the Chairman of the Supervisory Board would be notified immediately about disqualification and reasons for bias during the audit.

The auditors are additionally required to report separately on any major weaknesses detected during the audit in the accounting-related internal control and risk management system.

Dependent company report

The Executive Board issued a dependent company report pursuant to section 312 of the Aktiengesetz (AktG, German Stock Corporation Act). The auditors raised no objections to the dependent company report following the audit. Likewise, the Supervisory Board declared after examining the dependent company report that there are no objections to the declaration by the Executive Board at the end of the dependent company report.

Declaration of Compliance of RATIONAL Aktiengesellschaft

Pursuant to section 161 of the Aktiengesetz (AktG, German Stock Corporation Act), the Executive Board and the Supervisory Board of RATIONAL Aktiengesellschaft, Landsberg am Lech, declare as follows:

RATIONAL Aktiengesellschaft complied with the recommendations of the German Corporate Governance Code as amended on May 26, 2010 from the time it submitted its last declaration of compliance in February 2011 with the following exceptions, and intends to comply with the recommendations of the Code in the future, with the following exceptions:

Numbers 4.2.4 and 4.2.5 of the Code:

Number 4.2.4: "The total compensation of each one of the members of the Management Board is to be disclosed by name, divided into fixed and variable compensation components. The same applies to promises of benefits that are granted to a Management Board member in case of premature or statutory termination of the function of a Management Board member or that have been changed during the financial year. Disclosure may be dispensed with if the General Meeting has passed a resolution to this effect by three-quarters majority.”
Number 4.2.5: “Disclosure shall be made in a compensation report which as part of the Corporate Governance Report describes the compensation system for Management Board members in a generally understandable manner."

On May 11, 2011, the General Meeting of Shareholders of RATIONAL Aktiengesellschaft has decided to dispense with the publication of individualised figures for Executive Board compensation in accordance with section 286 (5) of the Handelsgesetzbuch (HGB, German Commercial Code). This resolution of the General Meeting was taken for five years. The other provisions of numbers 4.2.4 and 4.2.5 RATIONAL Aktiengesellschaft complies with in full, and also intends to do this in future.

Number 5.1.2 sentence 2 of the Code:

"When appointing the Management Board, the Supervisory Board shall also respect diversity and, in particular, aim for an appropriate consideration of women."

The Supervisory Board and Executive Board expressly welcome all efforts to counter discrimination on the basis of gender or any other form of discrimination and to promote diversity in an adequate manner. When appointing Executive Board members, the Supervisory Board focuses exclusively on special skills and qualifications; for this reason, other attributes such as gender or national identity have not been and will not be of any consequence for this decision.

Number 5.3 of the Code:

“Formation of committees”

The Supervisory Board of RATIONAL Aktiengesellschaft has not formed any committees. Forming committees of the Supervisory Board, such as an audit committee, is not appropriate for RATIONAL Aktiengesellschaft because the Supervisory Board consists of only three members. For this reason, there is no intention to form any Supervisory Board committees in the future.

Number 5.4.1 (2) and (3) of the Code:

Number 5.4.1 (2): "The Supervisory Board shall specify concrete objectives regarding its composition which, whilst considering the specifics of the enterprise, take into account the international activities of the enterprise, potential conflicts of interest, an age limit to be specified for the members of the Supervisory Board and diversity. These concrete objectives shall, in particular, stipulate an appropriate degree of female representation.

Number 5.4.1. (3): "Recommendations by the Supervisory Board to the competent election bodies shall take these objectives into account. The concrete objectives of the Supervisory Board and the status of the implementation shall be published in the Corporate Governance Report."

The composition of the Supervisory Board of RATIONAL Aktiengesellschaft must be guided by the Company’s interests and has to guarantee that the Executive Board is effectively monitored and advised. The candidates for election to the Supervisory Board will therefore be selected exclusively on the basis of knowledge, skills and experience. Other attributes such as gender or national identity have not been and will not be of any consequence. Accordingly, the Supervisory Board of RATIONAL Aktiengesellschaft will not set any concrete objectives for the composition of the Supervisory Board in accordance with number 5.4.1 (2) of the Code and will not report on this in the Corporate Governance Report.

No age limit has been set for members of the Supervisory Board. Nominations to the General Meeting of Shareholders are based exclusively on the knowledge, skills and experience of the candidates in question. The intention is to continue to abide by this policy in future in order to safeguard experience and skills for the benefit of the Company.

Landsberg, February 2012
RATIONAL Aktiengesellschaft

The Supervisory Board
The Executive Board

Declarations of Previous Years