Corporate Governance at Biotest

Joint report by the Supervisory Board and the Board of Management of Biotest AG pursuant to Section 3.10 of the German Corporate Governance Code

Corporate governance principles

The staff and management at Biotest work together towards the goal of achieving a sustained increase in the value of the Company to the benefit of shareholders, of utilising strategic opportunities and of minimising risk. A responsible management with a focus on the long term and its efficient control are as a matter of course an integral part of our corporate culture. The key cornerstones are a consistent orientation towards the interest of the shareholders, the trustworthy cooperation of the Board of Management and the Supervisory Board, an efficient risk management, a transparent and appropriate compensation system as well as comprehensive and up-to-date financial communications.

We base the concrete formation and further development of our basic principles of responsible management on the German Corporate Governance Code as most recently amended on 21 May 2003. After adjustments in financial year 2004, we have implemented all the recommendations of the Code without exception.

Compliance in financial year 2004

During financial year 2004, there was one deviation from the Declaration of Compliance applicable for the period: we did not publish the third quarterly report within a period of 45 days, but after 53 days. The reason for this was that Biotest would not have attained sufficient attention with investors and analysts on the planned date of publication because of a large event by Deutsche Börse that was taking place at the same time. We complied with all other commitments. There were no conflicts of interest during the reporting period.

Amendments to the Articles of Association

Emoluments for the Supervisory Board were adapted to meet the requirements of the Code by resolution of two amendments to the Articles of Association at the Annual General Meeting on 8 July 2004. Accordingly, Supervisory Board members now also receive performance-related compensation; in addition, compensation will take into account chairmanship and membership in the committees of the Supervisory Board. Via an additional amendment to the Articles of Association, it was stipulated that in the event of an equal division of votes within the Audit Committee, the committee chairman has the decisive vote. This is in compliance with a suggestion of the Government Code that the Chairman of the Supervisory Board should not be Chairman of the Audit Committee.
At the Annual General Meeting, 70.91% of ordinary shares and 29.85% of preference shares were represented. All items on the agenda, including the creation of authorised capital and the authorisation to issue profit-sharing rights, were passed by an overwhelming majority. All necessary reports and supporting documents were also made available beforehand via the Internet page. The Chairman of the Supervisory Board informed the Annual General Meeting about the fundamentals of the compensation system.

Efficiency review by the Supervisory Board

In financial year 2004, the Supervisory Board of Biotest AG conducted a review of the efficiency of its activities for the first time. To ascertain opportunities for improvement, an external auditor conducted interviews with all members of the Supervisory Board and with all members of the Board of Management. The results were presented at the Supervisory Board meeting on 1 July 2004. Because very efficient corporate controls are already in place, only selective measures are necessary with regard to future cooperation between the boards. An efficiency review should be conducted at least every two years.

Compliance with all Code recommendations from now on

Biotest AG will comply with all recommendations of the German Corporate Governance Code from now on. In the notes of this annual report, we disclose for the first time the different compensation components for the members of the Board of Managing Directors and the Supervisory Board on an individualised basis. Compensation paid to members of the Supervisory Board by the Company for advisory services will all be shown there on an individualised basis. In addition, we have expedited the process of preparing the Consolidated Financial Statements so that we now comply with the required deadline of 90 days after the end of the financial year. Following the amendments of the Articles of Association, the rest of the deviations listed in our previous Declaration of Compliance also no longer apply. In addition, Biotest is implementing the suggestions of the Code for the most part. However, we do not broadcast the Annual General Meeting via the internet for reasons of cost.

The complete Declaration of Compliance issued on 18 March 2005 can be viewed on our website along with this Corporate Governance report, the Compensation report as well as the full text of the German Corporate Governance Code.

Compensation of the Board of Management and Supervisory Board

Joint report by the Supervisory Board and the Board of Management of Biotest AG pursuant to Section 4.2.3 of the German Corporate Governance Code

Compensation of the Board of Management

The compensation of the Board of Management is specified by the Supervisory Board. It is composed of a fixed compensation, a bonus and a component with long-term incentive effect and risk elements. Added to this is non-cash compensation for a company car and for retirement benefits, among others. All compensation components are appropriate both individually and as a whole.

The annual fixed salary is based on the economic position and future prospects of Biotest as well as on the level of compensation paid in a comparable environment. The variable compensation component is based to 70 % on operating profit (EBIT) and the attainment of individual targets in the previous financial year. The individual targets are agreed annually between the members of the Board of Management and the Presiding Committee. After the end of the financial year, the Presiding Committee sets the level for the performance-related component.

The virtual stock option plan of Biotest AG has expired as of year-end 2004 and is supposed to be replaced in financial year 2005 by a stock option plan which is currently still in the planning stage. The Supervisory Board will agree to a cap for extraordinary, unforeseen developments. The value of the virtual stock option plan amounted to zero as of the balance sheet date.

Compensation of the Supervisory Board

The compensation of the Supervisory Board is stipulated in the Articles of Association. The members each receive an annual fixed compensation of € 15,000 as well as a variable compensation payment in the amount of € 500 for every € million that exceeds EBIT with a minimum amount of € 13 million. This minimum amount increases by 10 % beginning in financial year 2005 up to and including financial year 2007.

The Chairman of the Supervisory Board receives double that amount and his Deputy one and a half times that amount. For work in a Supervisory Board Committee, members will receive an additional € 3,000 and the chairman € 5,000.

In addition, Biotest reimburses the members for VAT payable on Supervisory Board emoluments.

The compensation paid to the members of the Board of Management and the Supervisory Board is shown on an individualised basis and divided into the respective compensation components in the notes.