Unilever 2004 Annual Report Download - page 63

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.
Equalisation Agreement
The Equalisation Agreement provides that 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 this more
appropriate, than, for example, using its own free reserves.
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.
Under the Equalisation Agreement 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 approximately
10.7 NV ordinary shares of €0.51 each and a £1 unit of PLC is
made up of approximately 71.4 PLC ordinary shares of 1.4p each.
Consequently, one NV ordinary share equates to about 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
would have to pay a dividend that was unreasonable
(ie. substantially larger or smaller in its own currency than
the dividend it paid in the previous year);
• the governments of the Netherlands or the United Kingdom
could in some circumstances place restrictions on the
proportion of a company’s profits which can be paid out as
dividends; this could mean that in order to pay equal dividends
one company would have to pay out an amount which would
breach the limitations in place at the time, or that the other
company would have to pay a smaller dividend.
In either of these rare cases, NV and PLC could pay different
amounts of dividend if the Boards thought it appropriate. The
company paying less than the equalised dividend would put the
difference between the dividends into a reserve: an equalisation
reserve in the case of exchange rate fluctuations, or a dividend
reserve in the case of a government restriction. The reserves
would be paid out to its shareholders when it became possible or
reasonable to do so, which would ensure that the shareholders of
both companies would ultimately be treated the same.
If both companies go into liquidation, NV and PLC will each use
any funds available for shareholders to pay the prior claims of
their own preference shareholders. Then they will use any surplus
to pay each other’s preference shareholders, if necessary. After
these claims have been met, they will pay out any equalisation
or dividend reserve to their own shareholders before pooling the
remaining surplus. This will be distributed to the ordinary
shareholders of both companies, once again on the basis that the
owner of €5.445 nominal NV ordinary share capital will get the
same as the owner of £1 nominal PLC ordinary share capital.
If one company goes into liquidation, we will apply the same
principles as if both had gone into liquidation simultaneously.
The Articles of Association of NV establish that any payment
under the Equalisation Agreement will be credited or debited to
the profit and loss account for the financial year in question.
Leverhulme Trust
The first Viscount Leverhulme was the founder of the company
which became PLC. When he died in 1925, he left in his will a
large number of PLC shares in various trusts. The High Court of
Justice in England varied these trusts in 1983, and established two
independent charitable trusts:
• the Leverhulme Trust, which awards grants for research and
education; and
• the Leverhulme Trade Charities Trust, for the benefit of
members of trades which the first Viscount considered to have
particular associations with the business.
The major assets of both these trusts are PLC ordinary shares.
60 Unilever Annual Report and Accounts 2004
Corporate governance
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