Galatasaray Sportif's Board Blocks QVT Initiative for Enhanced Disclosure, Corporate Governance Reform and Recovery of Inappropriate Loans

ISTANBUL, LONDON and NEW YORK, May 4 /PRNewswire/ -- QVT Fund LP ("QVT"), an approximately 7.15% shareholder of Galatasaray Sportif Sinai ve Ticari Yatirimlar A.S. ("Sportif"), today disclosed that it had sought to include in Sportif's May 3, 2010 General Assembly Meeting agenda measures intended to provide for an open and transparent disclosure of the improper loans and other actions of Sportif's Board of Directors, including violations of Sportif's Articles of Association, directives from the Capital Markets Board ("CMB") and Turkish law.  Accordingly, QVT also proposed a number of remedies to rectify the great harm caused to Sportif and its shareholders by such actions and to force Sportif to address what QVT believes to be woefully inadequate corporate governance by the Board.   The Board, however, blocked consideration of these proposals at the Meeting, demonstrating its inability to act with independence from Sportif's majority shareholder.

Specifically, QVT's proposals included the following:

• Sportif's Board should explain the purpose of and disclose the terms of the loan agreement that made available US $70 million to Galatasaray Spor ve Futbol Isletmeciligi Ticaret A.S. ("Futbol"), Sportif's majority shareholder, using certain Sportif assets as collateral, with funds apparently being used to fund the tender offer by Futbol, in violation of Sportif's Articles of Association;

• Sportif should seek the immediate repayment of all outstanding loans to Futbol and other related parties, totaling approximately TRY 362 million (approximately US $239.5 million), as directed by the CMB, and explain why Sportif loaned an additional US $20 million to Futbol on March 25, 2010, despite Futbol's previously-stated inability to repay its loans, in clear violation of the Board's fiduciary duties;

• Sportif's majority shareholder, Futbol, should abstain from voting on the proposed agenda items at the meeting due to an obvious conflict of interest arising from the fact that Sportif's Board is appointed by Futbol, and that six of the seven directors of Sportif are also directors of Futbol; and

• Sportif should file a lawsuit against its Board and Futbol for having deliberately failed to protect the interests of Sportif and its minority shareholders, for causing the issuance of unsecured loans to related parties without maturity dates in full knowledge of the recipient's inability to pay, for failing to comply with the Articles of Association, and for failing to comply with the CMB's Principle Decision, dated March 28, 2008.

"We continue to be deeply disturbed by the outrageous actions of Sportif's Board and Futbol, who appear to run Sportif as if it were a private company that exists solely for their own benefit, ignoring all responsibilities as fiduciaries for the public shareholders," said Dan Gold, Chief Executive Officer of QVT Financial LP, the investment manager of QVT.  "QVT believes that for too long, the Board has allowed Futbol to abuse its majority power at the expense of proper corporate governance.  The result is that the profits earned by Sportif are inappropriately lent and thereafter squandered on unjustifiable expenses, rather than being distributed as dividends to the public shareholders as promised.  Now, it appears that Sportif's Board has acted to conceal its inappropriate actions from shareholders by ignoring a reasonable demand for information about its activities.  QVT is continuing to pursue options to force Sportif to meet international standards of corporate governance and adhere to the commitments and representations it made to its public shareholders.  We also request that the Capital Markets Board and the international investing community join us in highlighting these egregious breaches of fiduciary duty and governance and take action to hold Sportif's Board accountable."

In a separate letter dated April 28, 2010, QVT requested copies of the loan agreements and/or other documentation related to the US $70 million loan to Sportif and the subsequent US $20 million loan from Sportif to Futbol.  Translated copies of this letter and the agenda proposal letter can be found below:

EXPLANATIONS

Our client, QVT Fund LP ("QVT"), holds approximately 7,15% of the public shares of Galatasaray Sportif Sinai ve Ticari Yatirimlar A.S. ("Sportif Co.").  Recent disclosures by Sportif Co. have raised serious concerns about continued related party transactions in potential violation of the Articles of Association, directives from the Capital Markets Board, and Turkish law.

In its February 22, 2010 Material Event Declaration, Sportif Co. first announced that, along with Galatasaray Spor Kulubu Dernegi, and Galatasaray Spor ve Futbol Isletmeciligi Ticaret A.S. ("Futbol Co."), it would be entering into a loan agreement with a bank consortium led by Denizbank A.S.  Sportif Co. also announced that its majority shareholder Futbol Co. would be filing an application with the Capital Markets Board to purchase the outstanding shares of Sportif Co. through a voluntary tender offer.

In its March 12, 2010 Material Event Declaration, Sportif Co. announced that a $70 million loan agreement had been signed and that "the loan would be used in portions as share purchase is performed in the voluntary tender offer period."  In addition, Sportif Co. disclosed that "to secure the said loan capital and the interest thereof, undertakings such as the royalty of Turk Telekom Arena, a part of the revenues of Turk Telekom and Avea t-shirt advertisements and Turkcell Superlig's live broadcast revenues, a second degree mortgage in the Riva territory and surety have been established and the shares to be purchased in the voluntary tender offer has been pledged."  

It appears from this disclosure that certain Sportif Co. assets—the arena royalty, the advertising revenues, and the broadcast revenues—have been offered as collateral for this loan.  The use of any Sportif Co. assets as collateral would be a violation of paragraph 2 of subparagraph 8(a) of Article 4 of the Articles of Association of Sportif Co.  Under that provision, Sportif Co. shall not assign, guarantee, establish pledge and rights in rem on the assets and rights owned by Sportif Co. to secure the debts of Sportif Co.'s shareholders holding at least 51% of its shares, namely Futbol Co.  

The Capital Markets Board was evidently also concerned that Sportif Co. may have violated its Articles of Association.  In a letter dated March 19, 2010, the Capital Markets Board reminded Sportif Co. to comply with its Articles of Association, including in connection with financing of the tender offer.  It also directed Sportif Co. to explain what actions it planned to take to comply with the Capital Markets Board's Principle Decision, dated March 28, 2008, regarding repayment of related party loans.

In response to this letter from the Capital Markets Board, Sportif Co. filed a Material Event Declaration, dated March 23, 2010, in which it stated "Since the tender was not financed by our Company, there has been no act that violates our Company's Articles of Association."  Not only does this statement contradict the March 12, 2010 disclosure that the proceeds of the loan entered into by Sportif Co. would be used to finance the voluntary tender offer, it also contradicts the disclosures in Sportif Co.'s recently-filed financial statements.  See Financial Statements of June 1, 2009 – February 28, 2010, at p. 41.  In its financial statements, Sportif Co. reveals that, on March 25, 2010, it borrowed US$ 20,460,000 under the loan agreement, and transferred these funds to Futbol Co.  It is impossible to reconcile this transfer of funds to Futbol Co. with the statement in the March 23 disclosure that Sportif Co. did not finance the tender.  

Furthermore, in response to the Capital Markets Board's requirement that it disclose its plans regarding collecting of the related party loans, Sportif Co. revealed in its March 23, 2010 disclosure that it has no intention of seeking repayment of the loans to Futbol Co.  Yet, two days later, on March 25, 2010, Sportif Co. apparently transferred an additional $20 million to Futbol Co.  QVT believes that it is grossly irresponsible and a violation of the board of directors' duties to have loaned or transferred additional funds to Futbol Co. knowing that Futbol Co. had no ability to repay these amounts.

In light of these seemingly contradictory disclosures and potential violations of the Articles of Association, QVT requests that you provide QVT with a copy of the loan agreement with Denizbank and a copy of the loan agreement or other documentation evidencing the transfer of $20 million to Futbol Co. on March 25, 2010.  

Pursuant to Article 363 of the Turkish Commercial Code, QVT requests these materials within three (3) business days of your receipt of this notification with a view to exercising its right to acquire information and examine the documents of Sportif Co.

Respectfully,

Counsel to Drawer

Ismail G. Esin

EXPLANATIONS

By a decision of April 13, 2010, the Board of Directors of Galatasaray Sportif Sinai ve Ticari Yatirimlar A.S. ("Sportif" or the "Company") announced that the ordinary general assembly meeting for the financial term of June 1, 2008 – May 31, 2009 will take place on May 3, 2010.

Our client, QVT Fund LP ("QVT"), holds approximately 7,15% of Sportif's public shares. It is thus a minority shareholder within the meaning of the Turkish Commercial Code. We therefore demand as per Article 366 thereof titled "Right to request the insertion of an item into the agenda of a General Assembly" that the items submitted below be inserted into the agenda of the annual general meeting.

Recent disclosures by Sportif have raised serious concerns about continued related party transactions in potential violation of the Articles of Association, directives from the Capital Markets Board, and Turkish law.  The following proposals aim to raise these concerns to all shareholders at the upcoming annual general meeting and to take any corporate action, as needed, to alleviate these concerns.

1. "Discussion and vote that the majority shareholder abstain from voting on the proposed agenda items due to its conflict of interest."

Galatasaray Spor ve Futbol Isletmeciligi Ticaret A.S. ("Futbol") has owned over 67% of the outstanding shares of Sportif and, since March 24, 2010, Futbol owns over 77% of the outstanding shares.  All seven of the directors of Sportif are appointed by Futbol and six of seven directors of Sportif are also directors of Futbol.  As a result, the members of the Board of Directors of Sportif and the members of the Board of Directors of Futbol are essentially the same persons.  Moreover, the management of Sportif is under the absolute control of Futbol.  It is clear that the directors of Sportif have acted and intend to act solely in the interests of Futbol, and not in the interests of Sportif and all of its shareholders.  

Futbol's stranglehold on Sportif's Board of Directors and management prevents them from acting in the best interests of the Company.  The only method of assuring that decisions of the Company involving related parties are made fairly and transparently and in the interests of the Company itself, and not its majority shareholder, is to eliminate the obvious conflict of interest.  

QVT demands that the agenda include a proposal that Futbol be prohibited from voting on the proposed agenda items at the annual general meeting due to its conflict of interest.  

2. "Discussion and vote that, in the event that Futbol does not abstain from voting on the proposed agenda items, the tally of voting on these items reflected in the minutes indicate whether the shares voted were made by interested or disinterested shareholders."

As explained above, Futbol is an interested party and as a result, should not be permitted to vote on these proposed agenda items.  If Futbol nonetheless votes its shares at the meeting, it is in the interest of fairness and transparency that the tally of votes for and against each proposal in the minutes of the meeting reflect whether the shareholder was interested or disinterested in the proposal.  Even if the conflict of interest cannot be eliminated, it should at least be exposed to the light of day.  The results of the voting are necessary for the public, the Capital Markets Board, and the courts to fully understand the harm to the Company caused by the majority shareholder and the distorting effect of its voting.  

QVT demands that the agenda include a proposal that the tally of votes for and against each proposal reflect whether the shareholder was interested or disinterested in the proposal.    

3.  "Discussion of the terms and the business purpose of the loan agreement with Denizbank announced in the February 22, 2010 and March 12, 2010 material event declarations and discussion of the terms and the business purpose of the transfer of $20 million to Futbol on March 25, 2010."

In its February 22, 2010 Material Event Declaration, Sportif first announced that, along with Futbol and Galatasaray Spor Kulubu Dernegi ("Club"), it would be entering into a loan agreement with a bank consortium led by Denizbank A.S.  Sportif also announced that its majority shareholder, Futbol, would be filing an application with the Capital Markets Board to purchase the outstanding shares of Sportif through a voluntary tender offer.

In its March 12, 2010 Material Event Declaration, Sportif announced that a $70 million loan agreement had been signed and that "the loan would be used in portions as share purchase is performed in the voluntary tender offer period."  In addition, Sportif disclosed that "to secure the said loan capital and the interest thereof, undertakings such as the royalty of Turk Telekom Arena, a part of the revenues of Turk Telekom and Avea t-shirt advertisements and Turkcell Superlig's live broadcast revenues, a second degree mortgage in the Riva territory and surety have been established and the shares to be purchased in the voluntary tender offer has been pledged."  

It appears from this disclosure that certain Sportif assets—the arena royalty, the advertising revenues, and the broadcast revenues—have been offered as collateral for this loan.  The use of any Sportif assets as collateral would be a violation of paragraph 2 of subparagraph 8(a) of Article 4 of the Articles of Association of Sportif.  Under that provision, Sportif shall not assign, guarantee, establish a pledge and rights in rem on the assets and rights owned by Sportif to secure the debts of Sportif's shareholders holding at least 51% of its shares, namely Futbol.  

The Capital Markets Board was evidently also concerned that Sportif may have violated its Articles of Association.  In a letter dated March 19, 2010, the Capital Markets Board reminded Sportif to comply with its Articles of Association, including in connection with financing of the tender offer.  It also directed Sportif to explain what actions it planned to take to comply with the Capital Markets Board's Principle Decision, dated March 28, 2008, regarding repayment of related party loans.

In response to this letter from the Capital Markets Board, Sportif filed a Material Event Declaration, dated March 23, 2010, in which it stated "Since the tender was not financed by our Company, there has been no act that violates our Company's Articles of Association."  Not only does this statement contradict the March 12, 2010 disclosure that the proceeds of the loan entered into by Sportif would be used to finance the voluntary tender offer, it also contradicts the disclosures in Sportif's recently-filed financial statements.  See Financial Statements of June 1, 2009 – February 28, 2010, at p. 41.  In its financial statements, Sportif reveals that, on March 25, 2010, it borrowed US$ 20,460,000 under the loan agreement, and transferred these funds to Futbol.  It is impossible to reconcile this transfer of funds to Futbol with the statement in the March 23 disclosure that Sportif did not finance the tender.  

In light of these seemingly contradictory disclosures and potential violations of the Articles of Association, QVT demands that the agenda include a proposal that the Company's Board of Directors explain to the annual general assembly the terms and purpose of the loan agreement with Denizbank and the terms and purpose the loan or other agreement transferring $20 million to Futbol on March 25, 2010.  

4. "Discussion and vote on requiring that Sportif seek immediate repayment of all outstanding loans to Futbol, the Club, and other related parties, and take all other necessary actions to collect the receivables."

According to the Company's most recent financial statements, outstanding receivables from related parties total TRY 361,807,220, as follows:

The Principle Decision of the Capital Markets Board dated March 28, 2008 required repayment of related party loans by March 28, 2010.  The Company reaffirmed this commitment in the Protocol on Removing the Debt, signed on August 12, 2009, between the Company and Futbol and the Club (the "Protocol").

However, in its March 23, 2010 Material Event Disclosure, the Company revealed that it had no intention of seeking repayment of the loans to Futbol due to Futbol's inability to repay.  In addition, the Company disclosed that the Club is planning to repay its outstanding loans at some indefinite time in the future.    

Despite knowing of Futbol's inability to pay, on March 25, 2010, Sportif transferred an additional $20 million (approximately TRY 31,300,000) to Futbol.  QVT believes that it is grossly irresponsible and a violation of the Board of Directors' duties to have loaned or transferred additional funds to Futbol knowing that Futbol had no ability to repay these amounts.

Notwithstanding the Capital Markets Board's Principle Decision and the Protocol, no loans have been repaid to date.  Moreover, continued non-compliance with the Capital Markets Board's Principle Decision exposes the Company and its directors to enforcement actions by the Capital Markets Board and other authorities.

For the protection of shareholders and to prevent the further erosion of shareholder value, QVT demands that the agenda include a proposal that Sportif demand that all related party loans be repaid immediately and take all necessary actions collect the receivables.

5. "Discussion and vote on filing a lawsuit against the members of the Board of Directors of Sportif for having deliberately failed to protect the interests of the company, for having provided the unsecured loans to related parties without maturity dates, for failing to comply with the Articles of Association, and for failing to comply with the Capital Markets Board's Principle Decision, dated March 28, 2008."

As explained above, the continued failure to seek repayment of the related party loans, the pledging of assets for the benefit of a majority shareholder in violation of the Articles of Association, the transferring of additional funds to Futbol knowing that it had no ability to repay, and the non-compliance with the Capital Markets Board's Principle Decision raises serious concerns about the ability of the Board of Directors to protect the interests of the Company and its shareholders.

QVT demands that the agenda include a proposal that the Company seek redress before the Capital Markets Board and in the courts against the members of the Board of Directors for their breaches of fiduciary duty to the Company.  The members of the Board of Directors also should be held personally liable for the losses to the Company from the failure to repay the related party loans.  

6. "Discussion and vote on filing a lawsuit against the majority shareholder, Futbol, for having deliberately abused its majority power to the detriment of the Company, for having deliberately made Sportif provide it unsecured loans without maturity dates, for using the Company's assets to finance its offer for the shares in the voluntary tender offer, for causing the directors and management to fail to comply with the Articles of Association, and causing the Company to fail to comply with the Capital Markets Board's Principle Decision, dated March 28, 2008."

As explained above, Futbol is the majority shareholder of Sportif and has the exclusive power to appoint and control the actions of the directors of Sportif.  Futbol has abused its majority power over Sportif to transfer Sportif funds and assets to itself to the detriment of the Company and its minority shareholders.

The only method of assuring that future decisions of the Company involving related parties are made fairly and transparently and in the interest of the Company itself, and not its majority shareholder, is to require interested shareholders to refrain from voting.  The Company should request a court to take away Futbol's right to vote its shares because it has demonstrated its inability to vote its shares responsibly.  

QVT demands that the agenda include a proposal that the Company seek redress before the Capital Markets Board and in the courts against Futbol for its abuse of its majority power, by removing its right to vote or otherwise, and for its failure to repay its outstanding loans.  

Regards,

Counsel to Drawer

Ismail G. Esin

UNOFFICIAL TRANSLATION

SOURCE QVT Fund LP