Corporate Governance report

Active Biotech is a Swedish public limited liability company whose shares are traded on the NASDAQ OMX Stockholm, Mid Cap. In accordance with its Articles of Association, Active Biotech shall engage in research, development, production, marketing and sales of medical, chemical and biotechnology products, conduct administrative services for the Group, own and manage properties, and undertake any other operations compatible therewith. This Corporate Governance Report describes Active Biotech’s corporate governance, which includes the management and administration of the company’s business and internal control of the financial reporting. Corporate Governance in Active Biotech is based on applicable rules (primarily the Swedish Companies Act and accounting rules and regulations),
Articles of Association, NASDAQ OMX Stockholm’s rules for issuers, internal guidelines and policies and the Swedish Code of Corporate Governance.

Application of and deviations from the Code

Active Biotech applies the Swedish Code of Corporate Governance (the Code). Information about the code can be found at www.corporategovernanceboard.se. The company has deviated from item 2.4, first paragraph, second sentence of the Code during the year. The Election Committee has appointed the Chairman of the Board to be the Chairman of the Election Committee. The reason given by the Election Committee for this deviation is that it has deemed that it is natural that the person who is indirectly the largest owner of Active Biotech should also lead the work of the Election Committee.

Shareholders

At 31 December 2010, the number of shareholders in Active Biotech amounted to 8,637. For information
concerning the shareholders and the ownership structure, See page 39 of this Annual Report.
Annual General Meeting The Annual General Meeting (AGM) is Active Biotech’s supreme decision-making body. Shareholders who wish toparticipate in the Meeting must be recorded in the register of shareholders on the record date for the Meeting and notify the company of their intention to participate in the Meeting not later than 4:00 p.m. on the date stipulated in the notification. At the AGM, each share carries one vote. Each shareholder entitled to vote at the meeting may vote
for the full number of share held. Each share offers equal entitlement to dividends and any surplus of liquidity in the company. At the AGM, which is held not more than six months after the close of the fiscal year, the annual accounts for the preceding year are approved, the Board of Directors is elected, auditors are elected when necessary and other statutory matters are addressed. Between AGMs, the Board of Directors is the company’s highest decision-making body. Resolutions at the AGM held on May 6, 2010 included the authorization of the Board to, on one or more occasions and not beyond the next AGM and with or without the preferential rights of shareholders, decide on the issue of new shares and/or convertibles. The authorization may not be utilized to a greater extent that would enable a total of not more than six million shares to be issued and/or added through conversion of convertibles issued with the support of the authorization. The authorization was utilized on one occasion (January 2011). For further information, see Note 22 on page 34.

Election Committee

At the AGM on May 6, 2010, it was decided that the company’s Chairman, based on ownership at the end of September 2010, shall convene an Election Committee to prepare proposals for the 2011 AGM. According to the decision, the Election Committee shall comprise representatives of each of the three largest shareholders in the company based on the ownership structure at September 30, 2010 as well as the Chairman of the Board. The members of the Election Committee receive no remuneration for their work. The Election Committee shall perform the tasks incumbent on the Election Committee under the Code, including:
● Evaluation of the Board’s composition and work.
● Drafting of proposals to the AGM regarding election
of Board members, Chairman of the Board and the
Chairman of the Meeting.
● Drafting of proposals to the AGM concerning fees to
Board members.
The composition of the Election Committee was announced on November 3, 2010. The Election Committee was convened on one occasion ahead of the 2011 AGM and all members attended this meeting.

Board of Directors

In accordance with Active Biotech’s Articles of Association, the Board shall comprise between three and nine members with at most nine deputies. Each year, two employee representatives and two deputies are appointed prior to the AGM through decisions made by the trade-union organizations at
the company. The 2010 AGM elected the current Board, which consists of six ordinary members with no deputies. Mats Arnhög was elected Chairman of the Board. The AGM decided that remuneration of the Board’s ordinary members shall be paid in the amount of SEK 125,000 per member and year, and remuneration of the Chairman of the Board shall be paid in the amount of SEK 250,000 per year. For a more detailed presentation of the Board members, see page 44-45 of this Annual Report.

Of the current Board members elected by the AGM, all are independent in relation to the company’s owners, the company and executive management, with the exception of the Chairman of the Board Mats Arnhög and Board member Tomas Nicolin. Mats Arnhög is not independent of the shareholder MGA Holding AB, in which he is Chairman of the Board and owner. Furthermore, he is not independent of the shareholder Nordstjernan AB, in which he is a Board member. Tomas Nicolin is also not independent of Nordstjernan AB, in which he is a Board member.

The work of the Board and formal work plan

The Board works in accordance with an established formal work plan describing the minimum number of Board meetings to be held each year, routines for the preparation of the agenda and minutes of the meetings as well as the distribution of material. One section of the formal work plan regulates the division of duties in the Board and describes the responsibilities of the Board, the Chairman and the President & CEO. The Board shall principally devote itself to general and long-term issues as well as to
issues of a material nature or of otherwise substantial importance. The Chairman directs the work of the Board and represents the Board both externally and internally. The formal work plan also identifies the Board members who, in accordance with specific decisions, have been appointed as the management’s contacts in the event of a crisis. At each scheduled Board meeting, the President &
CEO and senior management shall report on operations. The report shall comprise information on project development, plans and progress in research activities, financial reporting with forecasts as well as business development.
The Board decides on issues in which the Swedish Companies Act and the Articles of Association require the Board’s decision as well as on such issues as policy matters, strategy, business decisions (such as research plans), budget, business plans and key agreements. In 2010, seven meetings were held at which minutes were taken. Important issues addressed by the Board included development of research projects, business development projects, partner strategy, financial statements and budget and financing matters. Minutes were recorded by the Board’s secretary, a role that was filled by the company’s CFO Hans Kolam during the year. The Chairman of the Board ensures that an annual
assessment of the Board’s work is conducted that provides the Board members with the opportunity to present their views on work procedures, Board material, their own efforts and the efforts of other Board members and the scope of the task. The assessment is that the Board’s collective expertise is favorably compatible with the company’s strategic visions and goals. The Board functions well and all members make a constructive contribution to the strategic discussions and the governance of the company. The dialog conducted between the Board and management was also deemed to be productive.

Remuneration and Audit Committee

The company does not have separate committees for remuneration and audit matters. Instead, these matters are dealt with by the Board in its entirety. Salaries, remuneration, terms and conditions of employment and so forth, for the Board, President & CEO and company management are
detailed in Note 5. Organization and internal control In accordance with the Companies Act and the Code, the Board of Directors is responsible for the company’s internal control. Active Biotech’s work on internal control is designed to provide a reasonable assurance that the company’s goals are achieved in terms of an appropriate and efficient operation, reliable financial reporting and compliance with applicable legislation and regulations. Active Biotech’s business is primarily operated at one site and is therefore deemed to be of limited complexity. In turn, this means that the organization is uncomplicated and it is easy to gain an overview of its structure. The internal control as regards
financial reporting is based on how the operation is managed and how the organization is built up. Authorizations and responsibilities are documented, such as the division of work between the Board and the President, and instructions for attestation rights and accounting and reporting instructions.
The above also helps to minimize the risk for irregularities and inappropriate benefiting of another party at the expense of the company. The risks identified by Active Biotech regarding the financial reporting are presented on a monthly/ quarterly basis by the finance function to the President & CEO, who in turn reports to the Board. Active Biotech has no internal audit function. The Board has determined that no special circumstances or other conditions exist that motivate the introduction of such a function.

Financial reporting

In accordance with NASDAQ OMX Stockholm rules for issuers and Active Biotech’s Investor Relations policy, which has been approved by the Board, the company regularly presents information on its financial position. The information presented comprises quarterly interim reports, year-end reports and annual reports, as well as press releases in conjunction with important events. The company management meets analysts, investors and the media on a regular basis throughout the year. All information distributed via press releases is also available on the company’s website, in addition to other information that is deemed to be valuable. The Board of Active Biotech ensures the quality of financial reporting by ensuring that the company has an appropriate organization combined with procedures and instructions for its work on financial reporting. Each month, the Board is presented with a report regarding such aspects as the company’s earnings and financial position, including
comments relating to its development. The Board reviews interim reports and annual reports prior to publication.

Auditors

The company shall have at least one and at most two auditors and at most two deputy auditors. At the AGM on May 7, 2009, KPMG AB was elected as the company’s auditor for the period extending until the end of the AGM held in 2013. Authorized auditor David Olow is auditor-in-charge. Information concerning auditors’ fees is presented in Note 4 on page 20. The interim report for the third quarter of
2010 was the subject of review by the auditors.

Policies

Information policy

With the aim of determining principles for the company’s communication, the Board has established an information policy. This summarizes overriding goals and responsibilities for the external publication of Active Biotech’s information. The goal when providing information to the stock market is to achieve a correct valuation of the company’s share that reflects the company’s underlying values, growth and
earnings capacity in as stable a manner as possible. An unconditional requirement is that the information to the stock market complies with NASDAQ OMX Stockholm’s issuer rules and regulations and applicable legislation and ordinances. The required competence shall exist in the company’s Board, management and among those responsible for operations, and the company shall have an organization
that ensures the rapid and correct dissemination of stock market information.

Environmental policy

Within Active Biotech, environmental and safety work is important and the company has therefore established an environmental policy. Responsibility is decentralized in the various departments in the Group so that each manager and employee is responsible for fulfilling objectives relating to both the internal and external environment, as well as safety. This applies to all areas from proprietary research to contract manufacturing of candidate drugs and production. In addition, Active Biotech attaches great importance to ensuring that external partners have their own environmental and safety
requirements that conform to the company’s values.

Responsible treatment of laboratory animals

Despite a rapid advance in non-animal based models for medical research, no alternative can yet entirely replace the complex system represented by a living organism. Accordingly, the responsible treatment of laboratory animals in scientific research is ethically justified. Active Biotech endeavors to replace, reduce and refine the use of laboratory animals to the greatest possible degree. When no alternative exists, testing shall be properly planned and shall take ethical requirements into consideration in the implementation phase. Pain, suffering and stress shall be minimized – and preferably eliminated. All who work with laboratory animals are trained and skilled in the area. Animals are treated with care and the greatest possible degree of consideration is given to their health and well-being in a careful balance
between ethical and scientific requirements. Furthermore, animal keeping and management is conducted in a manner that maximizes well-being and prevents the spread of infection. All work involving animals complies with the applicable strict local procedures and national and international
legislation. Legislation and other ethical considerations with respect to the care and well-being of laboratory animals are carefully monitored and continuously reviewed to harmonize laboratory animal operations in the company.

Auditor’s statement on the Corporate Governance
Report

To the Annual General Meeting of Active Biotech AB (Publ) Corp. Reg. No. 556223-9227
The Board of Directors is responsible for the 2010 Corporate Governance Report on pages 41-43 and for ensuring that it has been prepared in accordance with the Annual Accounts Act. As a basis for our opinion that the Corporate Governance Report has been prepared and is consistent with the other
parts of the annual accounts and the consolidated accounts, we have read the Corporate Governance Report and assessed its statutory content based on our knowledge of the company. In our opinion, a Corporate Governance Report has been prepared and its statutory content is consistent with the other parts of the annual accounts and the consolidated accounts.

Malmö, April 1, 2011
KPMG AB
David Olow
Authorized Public Accountant