Unilever 2007 Annual Report Download - page 43

Unilever Annual Report and Accounts 2007 41
Report of the Directors continued
Corporate governance continued
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.
The subscription price for one new NV share would have to be
the same, at the prevailing exchange rate, as the price for one
new PLC share. Neither company can issue or reduce capital
without the consent of the other.
The Articles of Association of NV establish that any payment
under the Equalisation Agreement will be credited or debited to
the income statement for the financial year in question.
Under Article 2 of the Articles of Association of NV and Clause 3
of the Memorandum of Association of PLC, each company is
required to carry out the Equalisation Agreement with the other.
Both documents state that the Agreement cannot be changed or
terminated without the approval of shareholders. For NV, the
General Meeting can decide to alter or terminate the Equalisation
Agreement at the proposal of the Board. The necessary approval
of the General Meeting is then that at least one half of the total
issued ordinary capital must be represented at an ordinary
shareholders’ meeting, where the majority must vote in favour;
and (if they would be disadvantaged or the agreement is to be
terminated), at least two-thirds of the total issued preference
share capital must be represented at a preference shareholders’
meeting, where at least three-quarters of them must vote in
favour. For PLC, the necessary approval must be given by the
holders of a majority of all issued shares voting at a General
Meeting and the holders of the ordinary shares, by a simple
majority voting at a General Meeting where the majority of the
ordinary shares in issue are represented.
In addition, Article 3 of the PLC Articles of Association states that
PLC’s Board must carry out the Equalisation Agreement and that
the other provisions of the Articles of Association are subject to it.
We are advised by counsel that these provisions oblige our Boards
to carry out the Equalisation Agreement, unless it is amended or
terminated with the required approval of the shareholders of
both companies. If the Boards fail to enforce the Agreement,
shareholders can compel them to do so under Dutch and United
Kingdom law.
A copy of the Equalisation Agreement can be found on our
website at www.unilever.com/investorcentre/corpgovernance
The Deed of Mutual Covenants
The Deed of Mutual Covenants provides that NV and PLC and
their respective subsidiary companies shall co-operate in every
way for the purpose of maintaining a common operating policy.
They shall exchange all relevant information about their respective
businesses – the intention being to create and maintain a
common operating platform for the Unilever Group throughout
the world. The Deed illustrates some of the information which
makes up this common platform, such as the mutual exchange
and free use of know-how, patents, trade marks and all other
commercially valuable information. The Deed contains provisions
which allow the Directors of NV and PLC to take any actions to
ensure that the dividend-generating capacity of each of NV and
PLC is aligned with the economic interests of their respective
shareholders. These provisions also allow assets to be transferred
between NV and PLC and their associated companies (as defined
in the Deed) to ensure that assets are allocated in the most
efficient manner. These arrangements are designed to create a
balance between the two parent companies and the funds
generated by them, for the benefit of their respective sets
of shareholders.
The Agreement for Mutual Guarantees of Borrowing
Under the Agreement for Mutual Guarantees of Borrowing
between NV and PLC, each company will, if asked by the other,
guarantee the borrowings of the other. The two companies
can also agree jointly to guarantee the borrowings of their
subsidiaries. These arrangements are used, as a matter of financial
policy, for certain significant public borrowings. They enable
lenders to rely on our combined financial strength.
Share capital matters
Combined earnings per share
We calculate earnings per share on a combined basis. The
calculation is based on the average amount of NV’s and PLC’s
ordinary share capital in issue during the year.
In our combined earnings per share calculation, we assume that
both companies will be able to pay their dividends out of their
part of our profits. This has always been the case in the past,
but if we did have to make a payment from one to the other
it could result in additional taxes, and reduce our combined
earnings per share.
Further information about the calculation of earnings per share,
including the calculation on a diluted basis, can be found in note
7 on page 85.
Share capital
NV’s issued share capital on 31 December 2007 was made up of:
• €274 356 432 split into 1 714 727 700 ordinary shares of
€0.16 each;
• €1 028 568 split into 2 400 ordinary shares numbered 1 to
2 400, known as special shares; and
• €113 599 014 split into several classes (4%, 6% and 7%) of
cumulative preference shares (‘financing preference shares’).
The total number of voting rights attached to NV's outstanding
shares is shown hereunder:
Total number of votes % of issued capital
1 714 727 700 ordinary shares 1 714 727 700(a) 70.53
2 400 special shares 6 428 550 0.26
750 000 4% cumulative
preference shares 200 906 250 8.26
161 060 6% cumulative
preference shares 431 409 276 17.75
29 000 7% cumulative
preference shares 77 678 312 3.20
(a) Of which 81 337 992 shares were held in treasury and
40 958 255 shares were held in connection with share-based
payments as at 31 December 2007.