Unilever 2003 Annual Report Download - page 155

Control of Unilever
Share capital
NV’s issued share capital on 31 December 2003 was made up of:
• €291 503 709 split into 571 575 900 ordinary shares of
€0.51 each
• €1 089 072 split into 2 400 ordinary shares numbered 1 to
2 400, known as special shares
• €130 854 115 split into several classes of cumulative
preference shares.
PLC’s issued share capital on 31 December 2003 was made up of:
• £40 760 420 split into 2 911 458 580 ordinary shares of 1.4p
each
• £100 000 of deferred stock.
For NV share capital, the euro amounts quoted in this document
are representations in euros on the basis of Article 67c of Book 2
of the Civil Code in the Netherlands, rounded to two decimal
places, of underlying amounts in Dutch guilders, which have not
been converted into euros in NV’s Articles of Association or in the
Equalisation Agreement. Until conversion formally takes place by
amendment of the Articles of Association, the entitlements to
dividends and voting rights are based on the underlying Dutch
guilder amounts.
Unity of management
In order to ensure unity of management, NV and PLC have the
same directors. We achieve this through our nomination
procedure. Only the holders of NV’s special shares can nominate
candidates for election to the NV Board, and only the holders of
PLC’s deferred stock can nominate candidates for election to the
PLC Board. The current Directors, who have agreed to act on the
recommendations of the Nomination Committee, can ensure that
both NV and PLC shareholders are presented with the same
candidates for election as directors, because the joint holders of
both the special shares and the deferred stock are NV Elma and
United Holdings Limited, which are subsidiaries of NV and PLC.
NV and PLC both act as directors of NV Elma and of
United Holdings Limited. The Chairmen of NV and PLC
are additional directors of United Holdings Limited. The Joint
Secretaries are directed to ensure that the nomination rights are
only exercised so as to ensure the implementation of the
recommendations of the Nomination Committee, after
acceptance by the Boards.
The interests of shareholders are protected because all the
Directors submit themselves for election every year and
shareholders can remove each or all of them by a simple majority
vote. Thus, as a practical matter, the Boards cannot perpetuate
themselves contrary to the will of the shareholders.
Equalisation Agreement
To ensure that NV and PLC operate for all practical purposes as a
single company, we have an Equalisation Agreement.
Under the Equalisation Agreement NV and PLC adopt the same
financial periods and accounting policies. Neither company can
issue or reduce capital without the consent of the other. If one
company had losses, or was unable to pay its preference
dividends, we would make up the loss or shortfall out of:
• the current profits of the other company (after it has paid its
own preference shareholders);
• then its own free reserves; and
• then the free reserves of the other company.
If either company could not pay its ordinary dividends, we would
follow the same procedure, except that the current profits of the
other company would only be used after it had paid its own
ordinary shareholders and if the Directors thought it appropriate.
So far NV and PLC have always been able to pay their own
dividends, so we have never had to follow this procedure.
If we did, the payment from one company to the other
would be subject to any United Kingdom and Netherlands
tax and exchange control laws applicable at that time.
The Equalisation Agreement also makes the position of the
shareholders of both companies, as far as possible, the same as
if they held shares in a single company. To make this possible we
compare the ordinary share capital of the two companies in units:
a unit made up of €5.445 nominal of NV’s ordinary capital carries
the same weight as a unit made up of £1 nominal of PLC’s
ordinary capital. For every unit (€5.445) you have of NV you have
the same rights and benefits as the owner of a unit (£1) of PLC.
NV’s ordinary shares currently each have a nominal value of
€0.51, and PLC’s share capital is divided into ordinary shares
of 1.4p each. This means that a €5.445 unit of NV is made
up of 10.7 NV ordinary shares of €0.51 each and a £1 unit
of PLC is made up of 71.4 PLC ordinary shares of 1.4p each.
Consequently, one NV ordinary share equates to 6.67 ordinary
shares of PLC.
When we pay ordinary dividends we use this formula. On the
same day NV and PLC allocate funds for the dividend from their
parts of our current profits and free reserves. We pay the same
amount on each NV share as on 6.67 PLC shares calculated at the
relevant exchange rate. For interim dividends this exchange rate is
the average rate for the quarter before we declare the dividend.
For final dividends it is the average rate for the year. In arriving at
the equalised amount we include any tax payable by the company
in respect of the dividend, but calculate it before any tax
deductible by the company from the dividend.
In principle, issues of bonus shares and rights offerings can
only be made in ordinary shares. Again we would ensure that
shareholders of NV and PLC received shares in equal proportions,
using the ratio of €5.445 NV nominal share capital to £1 PLC
nominal share capital. The subscription price for one new NV
share would have to be the same, at the prevailing exchange rate,
as the price for 6.67 new PLC shares.
Under the Equalisation Agreement (as amended in 1981) the
two companies are permitted to pay different dividends in the
following exceptional circumstances:
• if the average annual sterling/euro exchange rate changed
so substantially from one year to the next that to pay equal
dividends at the current exchange rates, either NV or PLC
152 Unilever Annual Report & Accounts and Form 20-F 2003