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Cytos Biotechnology AG: Absence of an obligation to make an offer: Opinion of the Board of Cytos Biotechnology Ltd regarding the request of Kuros Biosurgery Ltd, dated 25 November 2015


The Board of Directors of Cytos Biotechnology Ltd ("Cytos") comments the application of Kuros Biosurgery Ltd ("Kuros"), dated 25 November 2015 on behalf of its majority shareholders, concerning the absence of an obligation to make an offer to the shareholders of Kuros (together with Kuros the "Applicants") in accordance with Art. 32 SESTA ("Request"), as follows:


  1. BACKGROUND

    Cytos Biotechnology Ltd is a public company domiciled in Schlieren. Its share capital amounts to CHF 3'240'458.28 and is divided into 108'015'276 registered shares with a nominal value of CHF 0.03 each ("Cytos shares"). The Cytos shares are traded on the main segment of the SIX Swiss Exchange (SIX: CYTN ).

    Cytos is a biopharmaceutical company focused on the development of targeted immunotherapies. Due to adverse results of a clinical trial, Cytos had to reduce its operations to four employees and the share price of around CHF 2.80 in April 2014 dropped to currently slightly below CHF 0.50. Cytos has considered several potential strategic options for its future. In recent months, the Board of Directors and the management of Cytos therefore checked all other strategic scenarios, such as reverse mergers, acquisitions, sales of assets and - as a last resort - a liquidation. The Board and management have, in this context, contacted numerous companies in- and outside Switzerland.

    Kuros Biosurgery Ltd is a privately held corporation, operating in the field of research and development of products for wound and bone healing. The company is headquartered in Zurich and has a subsidiary in Germany. Kuros is currently held by several investors including Banque Pictet, the Eckenstein-Geigy-foundation, Venture Incubator, LifeCare Partners, Omega Funds, Mirabaud, LSP and various minority shareholders. Kuros currently has five employees.

    Cytos and Kuros intend to merge. The proposed merger of Cytos and Kuros aims at building an enterprise with good growth potential. This potential is founded first on the products for wound and bone healing developed by Kuros, which are expected to have a significant turnover after the scheduled launch and second, in relation to the activities in the field of immunotherapy, Cytos has granted several licenses, which may result in further payments by the contractual partners depending on the success.


  2. PROPOSED TRANSACTION

    Cytos and Kuros are planning a reverse merger, by which at least 90% and preferably 100% of the Kuros-shares are to be exchanged for Cytos-shares. For the implementation of the proposed merger, Cytos is proposing a capital increase. The newly issued Cytos- shares will be subscribed by the shareholders of Kuros and paid for by contribution of the



    Kuros-shares held by them. Thus Kuros will become a subsidiary of Cytos. The latter will be renamed Kuros Biosciences AG.

    Prior to the proposed merger, Kuros plans to conduct an equity financing round. Kuros is planning to execute a financing round with LSP V Coöperative UA (LSP) by issuing 1'603'375 series A preferred shares shortly before the signing of the planned transaction, following which LSP is expected to hold around 12% of the equity and participation capital of Kuros. Kuros Biosciences AG should have sufficient resources to ensure the operational processing for at least 24 months without additional revenue.

    The ratio according to which the Kuros shares are to be exchanged for Cytos shares will apply identically to all share class (Kuros series A preferred shares, Kuros registered shares or Kuros participation certificates). According to the terms of the proposed merger, after completion, the current shareholders of Cytos will hold between 20% and 21 % and the current shareholders of Kuros between 79% and 80% of the shares of Kuros Biosciences AG (assuming the exchange of 100 % of Kuros shares). In addition, it is intended to replace the existing employee-options for Kuros shares with options for Cytos shares on the date of the completion of the merger.

    Both companies have carried out a due diligence of the respective partners, which - among other things - forms the basis for the agreement on the transaction and the recommendation of the proposed transaction to its respective shareholders. The transaction is expected to be executed by the end of December; prior to closing certain conditions must be met, including the formal consent of the existing shareholders of Cytos.

    The proposed merger is expected to have no impact on the employees of Kuros. Two employees of Cytos will leave the company and two other employees of Cytos will remain active for the company in significantly reduced functions. The current directors John Berriman (Vice-President), Joseph Anderson and Kurt Conrad Hans of Emster III will leave the Board of Directors of Cytos at the date of completion of the merger.


  3. OPINION AND REASONING BY THE BOARD OF DIRECTORS

    The Board of Directors of Cytos supports the request for the following reasons:

    The aim of Art. 32 SESTA is to protect the position of minority shareholders in the event of the take-over of control of a company by a new main shareholder. According to Art. 32 SESTA, a person must make a public takeover offer if such person acquires equity securities directly, indirectly or in concert with third parties and as a result exceeds the threshold of 33 1/3% of the voting rights of a target company. Thus, the minority shareholders are given the opportunity to sell their equity securities at a fair price in the event of a change of control.

    The merger does not lead to change of control in Cytos or Kuros Biosciences AG. Due to the existing shareholder structure of Kuros or Cytos as of today, it is clear that following the merger, no shareholder will exceed the relevant threshold of 33 1/3 % of the voting rights and thus is not committed to submit an offer in accordance with Art. 32 SESTA.



    According to the request, with the closing of the transaction, the existing shareholders' agreements between shareholders of Kuros will be cancelled and the shareholders will not conclude any new agreements with respect to Cytos or Kuros Biosciences AG which could be qualified as acting in concert or as an organized group pursuant to Art. 32 para. 1 SESTA and Art. 31 in conjunction with Art. 10 para. 1 SESTO-FINMA.

    In summary, the proposed transaction has no negative consequences to the shareholders of Cytos besides the reduction of their relative voting power by about 4/5 as the Kuros- shareholders will come up to the shareholders of Cytos or Kuros Biosciences AG. In view of its economic situation and long-term business prospects, for Cytos the combination is essential and enables the continuance of its existence in the long term together with the Kuros group.

    The Board of Directors therefore unanimously supports the request and proposes that it should be approved.


  4. INTENTIONS OF SHAREHOLDERS WITH A STAKE OF OVER 3%

    At the time of this opinion, to the knowledge of Cytos, the following shareholders are holding more than 3 % of the voting rights of Cytos:

    • Pegasus Global Opportunity Fund Ltd., British Virgin Islands (9.94 %),

    • Abingworth Bioventures V L.P., London, und Abingworth Bioequities Master Fund Limited, Cayman Islands (4.02 %) und

    • HERCULIS Partners "Aries" Fund, Vaduz, und Dynatrend Fund, Vaduz (3.06 %).

      The Board of Directors does not know the intentions of the shareholders of Cytos with a stake of over 3%.


  5. CONFLICT OF INTEREST

    The Board of Directors of Cytos for the business-year 2015 consists of the following members: Christian Itin (President), John Berriman (Vice President), Joseph Anderson and Kurt Conrad Hans von Emster III. Since it is forseen that Christian Itin remains Chairman of Kuros Biosciences AG, he abstained from voting regarding the merger with Kuros. The other Board members have entered no agreements with the Applicants and are in no particular contractual, familial or de facto relationship that would constitute a conflict of interest and are completely independent in the exertion of their function. All current members of the management of Cytos will retire from the management at the time of the merger; two members of the management will leave the company completely, the member of the management Harry Welten will leave the management and will become a member of the Board of Directors, the member of the management Christian Itin will leave the management but will remain Chairman of the Board of Directors.



  6. DECREE OF THE SWISS TAKEOVER BOARD

    In the decree dated 10 December 2015 the Takeover Board ruled that no obligation to offer by the applicants exists. The text of the dispositive reads as follows (the complete version of the decree may be found at www.takeover.ch):

    The Takeover Board rules:

    1. It is declared that the planned transaction does not trigger any obligation to offer by either of the following parties: Kuros Biosurgery Holding AG, Banque Pictet & Cie SA, Eckenstein-Geigy-Stiftung, Venture Incubator AG, Omega Fund IV L.P., LSP V Coöperatieve U.A., Jeffrey Hubbell, Didier Cowling and NexMed Holding AG.

    2. The request regarding a restriction of the right of inspection of files by possibly qualified shareholders with party rights is rejected.

    3. Cytos AG published the statement of its board of directors and the dispositive of the present decree with notion of the right of objection pursuant to Art. 6 to 6b Takeover Ordinance.

    4. This decree will be published on the website of the Takeover Board on the day of the issuance of the statement by the board of directors of Cytos AG.

    5. The fee of CHF 20'000 at the expenses of the applicants has to be held under joint and several liability.


    6. RIGHT TO OBJECTION (ART. 58 TAKEOVER ORDINANCE, SR 954.195.1)
    7. A qualified shareholder (Art. 56 Takeover Ordinance) who holds at least 3 % of the voting rights of the target company - be it exercisable or not - and who has yet to participate in the proceedings may file an objection against the decree abovementioned in Nr. 6.

      The objection has to be filed with the Takeover Board (Selnaustrasse 30, Postfach, CH- 8021 Zürich, counsel@takeover.ch, Telefax: +41 58 499 22 91) within five trading days of the publication of the decision's dispositive part of the statement abovementioned in Nr. 6 in the newspapers.

      The calculation of the time limit starts on the first trading day after publication. The objection must contain a formal request and a summary of the legal grounds, as well as proof of the holding in accordance with Art. 56 Takeover Ordinance.


      Schlieren, 17 December 2015 The Board of Directors of Cytos Biotechnology AG

    Cytos Biotechnology AG issued this content on 2015-12-17 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 2015-12-17 08:11:14 UTC

    Original Document: http://www.cytos.com/uploads/news/id294/Cytos Directors'Statement EN.pdf