As a long-time shareholder of Cynata, I am writing to you to raise my concerns regarding the performance and recent conduct of our board which I do not personally believe is operating in our best interests. I believe we have one of the best technologies for the commercial production of stem cells in the world, so I am therefore asking you to vote with me at the next Annual General Meeting.
My concerns
1. Our management team has failed to produce the results that it has been promising for the last 2 years. It has been promising the “year of the deal” yet all it has done is dilute our holdings with 3 major capital raisings and produced NO deals.
2. The management team is not communicating with shareholders any details about:
• How many of the 650-odd global MSC trials has Cynata approached about its Cymerus technology?
• How many large pharmacy firms has Cynata presented to in the last 2 years?
• What is the current state of play with the MOU with Cellularity?
• How many large financial institutions have approached Cynata after one of its many company presentations at events like the recent Rodman & Renshaw Investor Conference?
• Providing a detailed update on the Licencing Model we are told we are pursuing.
When I asked the board about these issues, their response was, and I quote:
"The Company will comply with its obligations under the Listing Rules and Corporations Act in relation to its notice of annual general meeting. We don’t intend to respond to any of the other points raised in your email, except to note that we respect your rights as shareholder and re-confirm the assurance in our previous correspondence that each director is absolutely confident that they are discharging their duties in the best interests of shareholders. "
3. The last straw, for me and many other small shareholders who I have spoken to, was the personal financing provided by the Company for two directors’ loans so that those directors, (one of whom is the CEO) could exercise their options and receive approximately 5% of the company, in total some 5,000,000 shares.
• This was done by calling an extraordinary General Meeting within just months of these 5-year options expiring. These loans enabled them to purchase, for $0.40, a share that had been trading at over $1 since March this year and at the time of the issuing of the resolution were trading around $1.20.
• These directors had 5 years to organise their own financing to exercise these options. What financial institution would possibly balk at loaning funds to purchase $1.20 for only 40 cents? No, they preferred to use Cynata as their own personal banker at the expense of us, the shareholders.
• The terms of these loans are heavily skewed in favour of the directors receiving them. For instance:
- It is an unsecured loan. If the directors were to seek these loans outside the company, the lender would require that the loan be secured against something.
- The interest rate of the loan (ie 5.2%) is significantly lower than the rate the directors would receive from anywhere else.
- Interest is paid annually and in arrears. I cannot think of a financial institution that would accept annual interest in arrears without any principal repayments throughout the term of a significant unsecured loan.
• I do not for one moment bemoan the directors having these shares. In fact, I have been eagerly waiting for a long time for them to get some serious skin in the game so that they think more like owners of the company rather than employees. My issue is how they have financed it and their attitude of entitlement to use company funds for their own personal gain.
After receiving notice about the extraordinary General Meeting, myself and several small shareholders ran a short campaign, conducted mainly through the CYP forum on HotCopper (hotcopper.com.au). As a result, we were able to muster nearly 22% for the NO vote to these company issued loans to two of its directors. I believe if we conducted this campaign in a more coordinated way, and with more time, we would have gained far in excess of the 25% we were hoping for, and needed, for the NO vote to be successful.
Since this meeting, there has been no comment from the board on the disquiet of many of its smaller shareholders and it appears to me that the board holds its small shareholder’s interests in contempt, and of no importance.
The future of Cynata
From my perspective, and the perspective of other likeminded independent small shareholders who I have spoken to, it appears that our board and management team are sitting back and waiting for a takeover bid from FujiFilm rather than actively promoting our Cymerus technology themselves.
Several Japanese news sources have recently reported that Fujifilm would be utilising Cymerus technology in its ongoing development of several of its stem cell treatment developments it is undertaking. This seems to have been made without any consultation with Cynata, as I would have expected such news to be announced to the ASX by Cynata. At the time of this correspondence, shareholders have had no communication from the board or the management team about this.
It appears that the management team is not in control of the Company’s own destiny as it is allowing Fujifilm to be calling the shots in regards to the next steps with Cynata and its Cymerus technology.
Any takeover bid will most likely be for double what we are currently trading at (my guess $2.50 to $3). On the face of it, a good deal and I think something this board would most likely recommend to its shareholders. In fact though, at this price we are being sold down the river! If they had been actively promoting Cynata, exploring global MSC trials, talking to financial institutions, investigating Licencing Models, etc, we should already be well above the current share price. The board are simply not putting the work in.
A sell-out to Fujifilm will make a small fortune for most of the board and the management team. It would also short change what many shareholders of Cynata have been yearning for for over three years.
Please vote with me at the next AGM
Through this correspondence I want to encourage you to vote in the upcoming AGM.
In particular there are two resolutions I hope for you to vote NO on.
Resolution 1: the adoption of the Remuneration Report – vote NO
With 25% of the voting shareholders (Noting the Directors can’t vote on this) this is the best avenue to express our displeasure with the board. Such a vote would achieve a “First Strike” and likely draw worthwhile media attention.
By demonstrating that 25% of the voting shareholders are displeased with the board and its management, I hope that the current culture will change without the need to remove some or all the board in the future.
Resolution 2: the Re-election of Dr Stewart Washer as a Director – Abstain from voting
It is not my intension to remove any Directors, just to make them all aware we are not happy with their recent performance and that we expect them to improve.
Resolution 3: the approval of an additional 10% Placement Facility – vote NO
My major concern here is that from the recent extraordinary General meeting, (just 6 weeks ago) to approve loans to the Directors, the existing placement facility was topped up so that the company NOW already has the ability to place 15% of the company’s shares to any third party. This was the third resolution of that meeting.
Now, at this up-coming AGM, we are being asked to provide the Company with an additional 10% Placement Facility.
My concern is WHY does the Company need a 25% Placement Facility? This is not normal practice, and if used, has the potential to further dilute our share value significantly. Do they really need 25% at their disposal? And what for? I believe 25% is far too high.
This is a special resolution and only requires 25% of the voting shareholders to get this rejected. Unlike Resolution 1, the Directors can vote on this, so it will require a greater number of shareholders to vote for this to be defeated.
So please vote NO, to this resolution, no matter how small your holdings.
Beyond this AGM and an End Game
I have previously advised the board and its management team that I would be conducting this campaign.
In that correspondence I advised I would be looking for likeminded independent shareholders to join me and make it clear our intention to hold ground on several fronts. These being the following and I quote:
“ • No further dilution of the current shareholders. • Any future equity raising’s will be done via a renounceable rights issue entitlement to ALL shareholders; and • Rejection of any takeover offer that is less than $7.50; and • No future company loans offered to directors to provide personal finance. ”
I hope you agree and are willing to join me.
If we succeed, I hope the board and the management have the maturity and self-belief to change our course, not accept a lowball takeover, and aim to become a great Australian company. A company that has a Licencing Program with many large international Pharmaceutical companies, which are mass producing the stem cell cures of many diseases and medical conditions that currently inflict this world. All this being done on our Cymerus technology.
Finally, I am happy to discuss this further with you if you wish.
(20min delay)
