Unilever 2007 Annual Report Download - page 42

40 Unilever Annual Report and Accounts 2007
Report of the Directors continued
Corporate governance continued
The Equalisation Agreement provides that if one company had
losses, or was unable to pay its preference dividends, the loss or
shortfall would be made up 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 Dutch tax and exchange
control laws applicable at that time.
Under the Equalisation Agreement, 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 (that is to
say, substantially larger or smaller in its own currency than the
dividend it paid in the previous year); or
• 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 were to go into liquidation, NV and PLC would
each use any funds available for shareholders to pay the prior
claims of their own preference shareholders. Then they would
use any surplus to pay each other’s preference shareholders, if
necessary. After these claims had been met, they would pay out
any equalisation or dividend reserve to their own shareholders
before pooling the remaining surplus. This would be distributed
to the ordinary shareholders of both companies on an equal basis.
If one company were to go into liquidation, we would apply the
same principles as if both had gone into liquidation
simultaneously.
Shareholders who together hold shares representing at least 5%
of the total voting rights of PLC, or 100 shareholders who hold
on average £100 each in nominal value of PLC capital, can
require PLC to propose a resolution at a General Meeting.
PLC shareholders holding in aggregate 10% of the issued PLC
ordinary shares are able to convene a General Meeting of PLC.
Required majorities
Resolutions are usually adopted at NV and PLC shareholder
meetings by an absolute majority of votes cast, unless there are
other requirements under the applicable laws or NV’s or PLC’s
Articles of Association. For example, there are special
requirements for resolutions relating to the alteration of the
Articles of Association, the liquidation of NV or PLC and the
alteration of the Equalisation Agreement (see below).
A proposal to alter the Articles of Association of NV can only
be made by the Board. A proposal to alter the Memorandum and
Articles of Association of PLC can be made either by the Board or
by shareholders in the manner permitted under the UK
Companies Acts. Proposals to alter the provisions in the Articles of
Association of NV and PLC respectively relating to the unity of
management require the prior approval of meetings of the
holders of the NV special shares and the PLC deferred stock. The
Articles of Association of NV and the Memorandum and Articles
of Association of PLC can be found on our website.
Right to hold shares
Unilever places no limitations on the right to hold NV and PLC
shares.
Foundation Agreements
Equalisation Agreement
The Equalisation Agreement makes the economic position of the
shareholders of NV and PLC, as far as possible, the same as if they
held shares in a single company. The Agreement regulates the
mutual rights of the shareholders of NV and PLC. Under the
Equalisation Agreement, NV and PLC must adopt the same
financial periods and accounting policies. Dividends are paid in
accordance with a formula relating to the nominal values of NV’s
and PLC’s issued share capital.
Since the AGMs in 2006 which agreed to split the NV ordinary
shares and to consolidate the PLC ordinary shares, each NV
ordinary share represents the same underlying economic interest
in the Unilever Group as each PLC ordinary share.
We pay ordinary dividends for NV and PLC 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 one PLC share 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.