CORRECTION - Polygon request special audit of Biotest AG in connection with the Proposed Appointment of Competitor CEO to its Supervisory Board
LONDON, May 6, 2020 /PRNewswire/ --
5 May 2020
In April 2020, Biotest AG published the "Invitation to the Virtual Annual General Meeting 2020" which is due to take place on 8 May 2020. Item 6 of the agenda submitted for the approval of shareholders includes the proposed nomination to the Supervisory Board of Mr. Xiaoying (David) Gao, the current Chief Executive Officer and Executive Vice Chairman of Bio Products Laboratory Ltd. (BPL).
BPL is a UK limited company ultimately owned by the Creat Group, the majority but non-dominating shareholder of Biotest. BPL carries out the majority of its operations in the United States, a geographic market that Biotest has clearly and explicitly stated it has an intention to enter through its Biotest Next Level project. As such, Polygon believes that allowing the CEO and Board member of a competitor into the Supervisory Board of Biotest creates a clear conflict of interest. Surprisingly, Biotest's Board of Directors does not believe that such a conflict of interest exists.
On 20 April 2020, Polygon, in its capacity as a shareholder of Biotest, submitted a counter-motion to the Annual General Meeting asking for a special audit to determine the circumstances that have led the Board of Directors of Biotest to determine that Mr. Gao's appointment does not give rise to a conflict of interest. This counter-motion was formally rejected by Biotest on 24 April 2020.
For the sake of transparency to all Biotest stakeholders, Polygon attaches to this release its correspondence with Biotest related to this matter, including a letter sent today rebutting the arguments presented by Biotest on April 24.
Polygon believes that it is in the interest of all Biotest stakeholders to properly scrutinise and, where necessary, prevent potential conflicts of interest that could detrimentally impact the company and its stated strategy.
Contact: Polygon Global Partners LLP (email@example.com)
London, 5 May 2020
Counter-motion to agenda item 3 / special audit
we reply to your statement of April 24, 2020 as follows:
1. The motion is a counter-motion in accordance with sec. 126 AktG
The motion we sent on April 20, 2020 is in fact a counter-motion pursuant to sec. 126 German Stock Corporation Act (Aktiengesetz) (AktG). In the interest of a transparent opinion-forming among shareholders, case law and corporate law literature agree that no excessive demands exist with regard to the formal requirements for a counter-motion to an annual General Meeting held once a year.
Contrary to what you write in your statement, a counter-motion, particularly with regard to the agenda item "discharge", is not contained to the contradictory opposite being proposed for resolution. On this agenda item, the contradictory motion for "non-discharge" would merely be the announcement of a nay-vote on the resolution proposed by the boards.
Rather, the characteristic feature of a counter-motion is that, in addition to the mere negation of the resolution proposed by the boards, it is aimed at a resolution that differs in content. This is precisely the case with our counter-motion of April 20, 2020: It implies that the actions of the members of the Management Board should not be approved and that instead a special audit should be carried out with regard to events in connection with the management of the company.
Contrary to your highly formalistic and, incidentally, factually incorrect statement, the fact that the motion submitted is a counter-motion to the agenda item "discharge of the members of the Management Board" is evident not only from our e-mail accompanying the motion submitted, but also from the motion document itself. This states: "We propose the following counter-motions regarding item 3 of the agenda".
2. Motion also possible under the COVID-19 Act in the virtual annual General Meeting 2020
Contrary to what you said, motions on agenda items remain possible, also under the COVID-19 Act, in the virtual annual General Meeting on May 8, 2020.
In your invitation to the annual General Meeting, p. 4, you explicitly confirmed for counter-motions that they are to be treated as if they had been submitted at the annual General Meeting. Even if, for highly formal reasons, one did not want to regard the motion of April 20, 2020 for the special audit to be treated as a counter-motion, but as an ordinary motion not subject to publication pursuant to sec. 124 (4) sentence 2 AktG, you would still be required, pursuant to the commitment in your invitation to the Annual General Meeting, to treat the motion submitted as a counter-motion. Any other handling and non-admission would be contrary to shareholders' rights and the transparency requirement.
This applies all the more so because on page 4 of your invitation to the annual General Meeting you systematically distinguish between requests for additions to the agenda that require separate announcement on the one hand and motions on published agenda items that do not require separate announcement (sec. 124 (4) sentence 2 AktG) on the other. Since an ordinary motion that does not require publication falls into the latter category, as does a counter motion, both types of motion must be treated equally from the point of view of systematic and reasonable interpretation.
3. Reference of the special audit motion to the discharge period given
Contrary to what you represent, the proposed resolution on the discharge of the members of the Management Board announced under agenda item 3 does not relate solely to the past calendar year of 2019. It is trite law that the discharge also represents a resolution on a declaration of confidence for the present and the future. Since the events in connection with the submission of the declaration of conformity in March 2020 are inseparably connected with the annual financial statements for the financial year of 2019, which were also prepared and adopted in March 2020, they are covered by this year's resolution on the discharge. It would be highly artificial to postpone these matters to the following financial year.
4. Insufficient and factually incorrect answers
In your statement of April 24, 2020, you dealt with the points to be examined in the special audit inadequately. For example, you do not state when and how the meeting of the members of the Management Board was convened to adopt a resolution, nor who, for example, initiated the circulation procedure for resolutions in the Supervisory Board. It must be investigated whether the resolution was actually passed as you have stated. Your "voluntary" answers to the questions cannot replace an independent special audit.
This is already evident from the fact that you indicate in your statement that Bio Products Laboratory Ltd. (BPL) led by Mr Gao, is not a major competitor of the company. Your reasoning that this should result from the fact that the Company, unlike BPL, is not active in the USA, is misleading. It is rather true that the Company is making considerable efforts to expand its presence in the USA.
This is proved by statements made by the Company in the current annual report of 2019, where on page 9, the report states: "Biotest is also aiming to double its production capacity and obtain approval for the American market as part of the [Biotest Next Level] project".
Also in recent investor calls, the Company has confirmed that it is aiming to accelerate the development of igG Next Generation, which is a product to be sold in the USA, and that it is actively looking for partners to distribute its existing product range in the USA. Specifically, on the Q3 2019 results call held on November 14, 2019, Dr. Ramroth, Chairman of the Management Board, CEO & CFO, stated the following:
- "You may recall that we always said that we are looking for partners, helping us on the one hand side, to the security products in the future in the United States and/or also helping us to develop such products like IgG Next Generation or IgM Concentrate. And discussions are ongoing."
- "You may have seen that the FDA had issued some kind of warning letter for the United States. And therefore, we have got even more incentivized to accelerate our development of IgG Next Generation, which is designed, also to be sold in the United States."
- "Two Phase III studies are ongoing. One in Primary Immune Deficiency (PID) for Europe and the United States."
- "Currently, we are coordinating with the FDA in United States as well as in the European Medicines Agency and the German Paul-Ehrlich-Institute, the design of the Phase III study. We have got green light from all 3 agencies to really come up with the same design as we had it with our Phase IIb study. In a few years, community-acquired pneumonia, that will be the indication where we have the Trimodulin studied in. And currently, we are preparing this Phase III study together with the pediatric development plan."
- "To answer your question, yes, as I said, we are in discussions with partners about partnering our products, either with regard to distributing them in the United States or in some kind of co-development."
Against this background, it is obvious that BPL is a major competitor of the Company. It is therefore unclear how the Management Board and Supervisory Board of the Company were able to adopt their respective declarations of conformity regarding the German Corporate Governance Code (Deutscher Corporate Governance Kodex) pursuant to sec. 161 AktG. It is imperative that the Company's shareholders be afforded the opportunity to vote on a special audit to investigate the circumstances surrounding these declarations.
Statement of Biotest AG regarding the request of the shareholders Polygon European Equity Opportunity Master Fund and Blackwell Partners LLC – Series A
On April 20, 2020 Biotest AG (the "Company") received a special audit request from the shareholders Polygon European Equity Opportunity Master Fund and Blackwell Partners LLC – Series A (the "Polygon Shareholders") (see below). This special audit request relates to circumstances in connection with the drafting and resolution of the declaration of conformity dated March 16, 2020.
This special audit request was sent to the Company as an attachment to an e-mail. In this e-mail, the representative of the Polygon Shareholders referred to the submitted motion as a "counter-motion" to the agenda item 3 "Resolution on the discharge of the members of the Management Board for the financial year of 2019". The e-mail did not contain any further comments regarding the content of the "counter motion".
The Company is of the opinion that the special audit request of the Polygon Shareholders is technically not a counter-motion with respect to item 3 of the virtual annual General Meeting 2020 within the meaning of sec. 126 German Stock Corporation Act (Aktiengesetz, AktG) and therefore, is not subject to publication.
Nevertheless, the Company considers it important to maintain an open and transparent dialogue with all shareholders. Therefore, the Company hereby publishes the submitted motion even without the existence of a legal obligation and will comment on it in the following.
Motion is not a counter-motion pursuant to sec. 126 AktG
A counter-motion pursuant to sec. 126 AktG exists if a shareholder wishes to bring about a contrary or substantively different resolution with respect to an announced subject matter of resolution or opposes the passing of the resolution as such. According to its literal meaning, a counter-motion must be directed against the proposed resolution of the Management Board and Supervisory Board and contradict it in terms of content.
Only the e-mail sent on behalf of the Polygon Shareholders mentions the transmission of a "counter-motion" with respect to agenda item 3 "Resolution on the discharge of the members of the Management Board for the financial year of 2019". In the attached document itself, however, a request is made for a special audit to be carried out and a special auditor to be appointed. The filing of a "counter-motion" is not mentioned.
The special audit request submitted by the Polygon Shareholders is not a counter-motion with respect to agenda item 3 of the annual General Meeting 2020. The special audit request does not make any substantively contradictory reference to the proposed resolution "Resolution on the discharge of the members of the Management Board for the financial year of 2019". Rather, it proposes a resolution subject that is qualitatively different from item 3. It is true that a counter-motion does not necessarily have to be in the form of a formulated opposing proposal for a resolution. However, it has to be clearly expressed that the shareholder wishes to bring about a resolution that contradicts the published resolution proposal.
Therefore, it is not a counter-motion pursuant to sec. 126 AktG.
No special audit request possible in the virtual annual General Meeting 2020 due to legal constraints
This year, the Company's annual General Meeting will take place as a virtual annual General Meeting without physical presence pursuant to sec. 1 (2) of the Act on Measures in Corporate, Cooperative, Association, Foundation and Home Ownership Law to combat the effects of the COVID-19-Pandemic ("COVID 10 [sic] Act"). For this reason, special conditions apply to the participation in the virtual General Meeting and to the exercise of the shareholder rights to speak, make proposals and vote.
Sec. 1 (2) of the COVID-19 Act grants the shareholders the opportunity to ask questions by way of electronic communication, which must be transmitted to the Company prior to the virtual annual General Meeting. In addition to this right to ask questions, the shareholders in the virtual annual General Meeting 2020 are not entitled to a comprehensive shareholder rights of information, making resolution proposals and speaking at the annual General Meeting. A request for a special audit pursuant to sec. 142 (1) AktG in conjunction with sec. 124 (4) sentence 2 AktG, which is made in relation to an agenda item, must be made in the annual General Meeting. This year, this it is not possible because of the restricted shareholder rights regarding information, making proposals for resolutions and speaking.
Such special audit request would also be inadmissible
Even if the special audit request could be submitted in the virtual annual General Meeting 2020, it would still be inadmissible. A request for a special audit may be made with reference to the proposed resolution "Discharge of the members of the Management Board " pursuant to sec. 124 (4) sentence 2 AktG if the subject matter of the special audit relates to a matter within the period of discharge. This is not the case with the special audit request of the Polygon Shareholders. The events relating to the declaration of conformity brought forward to substantiate the special audit request took place in 2020, so that the necessary reference to the discharge period - the financial year 2019 - does not exist.
Unsubstantiated allegations regarding the drafting and resolution of the declaration of conformity
Furthermore, the allegations of the Polygon Shareholders are unfounded. In response to the questions submitted as part of the special audit request, we comment as follows, however without acknowledging any legal obligation to do so:
Re 1. a) aa):
At its meeting on March 2, 2020, the Company's Management Board resolved on the declaration of conformity and subsequently transmitted it to the members of the Supervisory Board by e-mail.
Re 1. a) bb):
In an e-mail dated 11 March 2020, the members of the Supervisory Board were asked to adopt a resolution on the declaration of conformity by circular letter. At the same time, the declaration of conformity was sent to the members of the Supervisory Board. The background to this request was that the auditors intended to certify the annual financial statements of the Company as of March 18, 2020. The prerequisite for this is a declaration of conformity adopted by the Management Board and the Supervisory Board. On the same day, the members of the Supervisory Board approved the resolution on the declaration of conformity by circular letter.
On March 16, 2020, the chairman of the Supervisory Board formally adopted the resolution on the declaration of conformity by circulation by minute-taking.
Re 1. a) cc):
The draft of the declaration of conformity was drawn up by the Management Board of the Company. On March 2, 2020, it was forwarded to the members of the Supervisory Board.
Re 1. a) dd):
When the resolution on the declaration of conformity was adopted, the members of the Supervisory Board were aware that, under both the existing version and the new version of the German Corporate Governance Code (Deutscher Corporate Governance Kodex) (the "Code") , which had not yet entered into force at that time, Supervisory Board members should not exercise directorships or similar positions or advisory tasks for major competitors of the Company However, only those companies that actually compete with the Company on their markets and that have practically identical fields of activity in their core areas are to be regarded as major competitors. Potential competition is not sufficient according to the objectives of the Code.
Mr. Xiaoying (David) Gao was Chief Executive Officer and Vice Chairman of Bio Products Laboratory Ltd. ("BPL"), in which Tiancheng International Investments Limited has an indirect controlling interest, and which indirectly holds a material participation in Biotest AG as a shareholder.
However, his activity at BPL does not meet the requirements for a board position with a major competitor. Whilst it is to be concerned that group companies may also be competitors within the meaning of the Code, such competitors would have to be regarded as material in order to trigger the explanation requirement. The materiality criterion does not apply to BPL. BPL sells its plasma protein preparations almost exclusively in the United States of America. The Company however, is not represented in this market. The only product that BPL sells in Germany, Biotest's main market, is not manufactured by the Company at all.
Dreieich, April 24, 2020
The Management Board
Landsteiner Straße 5
London, 20 April 2020
Dear Members of the Management Board,
by way of publication in the electronic German Federal Gazette (Bundesanzeiger) dated 8 April 2020 you have convened the company's annual General Meeting as a virtual meeting to be held on 8 May 2020.
The proposed resolution under item 3 of the agenda provides for the discharge of the members of the Management Board, the proposed resolution under item 6 for the election of i.a. Mr. Xiaoying (David) Gao as member of the Supervisory Board.
Funds managed by Polygon Global Partners LLP currently hold 858,424 ordinary shares and 1,728,351 preference shares of the company. This equals a total of 2,586,775 of the shares of the company, i.e. 6.54 % of the share capital.
As evidence of the shareholding we have attached a deposit certificate of UBS dated 20 April 2020.
We propose the following counter-motions regarding item 3 of the agenda:
1. Special Audit
a) A special audit shall be carried out to investigate the circumstances concerning the company's declaration of conformity dated 16 March 2020 regarding the German Corporate Governance Code (Deutscher Corporate Governance Kodex) (Code) pursuant to sect. 161 German Stock Corporation Act (Aktiengesetz, AktG).
The special audit shall, in particular, investigate the following questions:
aa) When did the Management Board resolve on the declaration of conformity? When and how were the Management Board members invited to adopt this resolution?
bb) When did the Supervisory Board resolve on the declaration of conformity? When and how were the Supervisory Board members invited to adopt this resolution?
cc) Who drafted the declaration of conformity and when? When was this draft submitted to the members of the Management Board and the Supervisory Board?
dd) When adopting their respective resolutions on the declaration of conformity, were the members of the Management Board and the Supervisory Board aware of the fact that, according to the new Code, Supervisory Board members shall not be members of governing bodies of, or exercise advisory functions at, significant competitors of the company?
b) Special auditor
Dr. Erik Ehmann, ATG Rechtsanwaltsgesellschaft Steuerberatungsgesellschaft GmbH, Bahnhofstraße 57, 87435 Kempten, is appointed as special auditor.
According to lit. C.12 of the Code, Supervisory Board members shall not be members of governing bodies of, or exercise advisory functions at, significant competitors of the company, and shall not hold any personal relationships with a significant competitor.
This recommendation applies since the Code entered into force on 20 March 2020. Therefore, the company could not have proposed Mr. David Gao, being the CEO of Bio Product Laboratory Ltd., to be elected as member of the Supervisory Board of Biotest AG without declaring a deviation from lit. C.12 of the Code and providing a plausible explanation for this deviation.
This problem was apparently "solved" by signing the declaration of conformity with a date (16 March 2020) at which still the old Code, which did not contain a respective recommendation, was still in force.
However, it can be assumed that the corporate bodies of the company in fact only resolved on the published declaration of conformity on or after 20 March 2020. Anything else would be unrealistic:
The company's auditor signed the annual and consolidated financial statements for the fiscal year 2019 only on 20 March 2020. The Supervisory Board and its audit committee consulted on the financial statements and adopted the necessary resolutions in this context in their meetings on 24 March 2020, 30 March 2020 and 31 March 2020, respectively. The declaration on corporate governance which was included in the financial statements was also signed only on 20 March 2020. It also includes or rather refers to the declaration of conformity pursuant to sect. 161 AktG.
It would be completely unrealistic to assume that the Management Board as well as the Supervisory Board would have adopted an isolated resolution as early as 16 March 2020 on the declaration of conformity on the basis of a Code which was about to expire. It is much more likely that the corporate bodies only dealt with the declaration of conformity together with the financial statements. This exactly would be in line with the course of action as established in the years before: The Supervisory Board always resolved on all the mentioned documents, including the declaration of conformity, in one instance (e.g. on 7 March 2019 or on 13 March 2018). Apparently, this year the company recognized too late that at the end of March 2020 they had to resolve on the declaration of conformity on the basis of a new Code with numerous changes or they deliberately chose their course of action in order to avoid extended transparency. In any case they apparently tried to "solve" the problem by back-dating the declaration of conformity.
This impression is confirmed by the report of the Supervisory Board dated 23 March 2020. It refers to meetings of its audit committee and the plenum on 24, 30 und 31 March 2020, respectively. It remains unclear how the Supervisory Board could report on these meetings one week in advance. Apparently, a back-dating has happened here, too.
If the special audit confirms our assumptions the members of the Management Board and the Supervisory Board have breached their statutory duties.
For that matter, the reference in the invitation to the virtual General Meeting on 8 May 2020 to lit. C.13 of the new Code is irrelevant. Whereas lit. C.13 concerns material shareholdings in the company, the subject matter of lit. C.12 is the protection of the company against undue influence of a competitor.
The company has committed another infringement of the law by stating explicitly in the invitation that Mr. Gao has "no" memberships in other statutory supervisory boards or in comparable domestic and foreign supervisory bodies of commercial enterprises. However, Mr. Gao is in fact Vice Chairman of the Administrative Board of Bio Products Laboratory Ltd. and thus member of a foreign supervisory body of a commercial enterprise.
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SOURCE Polygon Global Partners LLP