Unilever 2009 Annual Report Download - page 60

Unilever Annual Report and Accounts 2009 57
Under Article 2 and 3 of the NV and PLC Articles of Association
respectively, 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.
The Equalisation Agreement can be found on our website at
www.unilever.com/investorrelations/corp_governance
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 also
jointly 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.
sterling and US dollar amounts using exchange rates issued by the
European Central Bank two days before the announcement of the
dividend. The new method for determining dividend payments
was used for the 2009 interim dividends of NV and PLC. This
amendment has enabled us to change to a simpler and more
transparent dividend practice for the Unilever Group, resulting in
more frequent payments to shareholders, and better alignment
with the cash flow generation of the business.
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 event of an
unreasonable increase or decrease in dividend pay-out of one
of the companies due to currency fluctuations and in the event
that either the UK or Dutch government imposes restrictions on
dividend pay-outs. In either of these rare cases, NV and PLC could
pay different amounts of dividend if the Boards thought it
appropriate.
If both companies were to go into liquidation, NV and PLC would
each use any funds legally available 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.
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.