Re: Legal Opinion for making necessary changes to the Articles of Association of Company 1considering the terms of the Subscription Agreement signed with Aureos South Asia Fund LLC.
We refer to your letter dated October 07, 2007 on the above subject.
You require our legal opinion as to whether Company 1(“COMPANY 1”) requires to amend its Articles of Association (“AoA”) in light of the terms and conditions of the Subscription Agreement (“the Agreement”) executed between COMPANY 1, Aureos South Asia Fund LLC (“Auroes”) and 4 shareholders of COMPANY 1 (“Promoters”).
We have perused the terms and conditions of the Agreement and the AoA of COMPANY 1. We are of the opinion that the following amendments may made to the AoA of COMPANY 1 in light of the terms and conditions of the Agreement:
|3||The definition of “shares” in Article 3 of the AoA should be deleted and replaced with the following:
“‘Shares’ means ordinary shares in the capital of the Company of par value Taka 10.00 each.”
The following new definitions should be added in Article 3 of the AoA:
“Affiliate” means any person or entity, directly or indirectly controlling, controlled by or under common control with such person or entity;
“Group A shareholders” means a) Mr. X, b) Mr. Y, c) COMPANY 2, d) COMPANY 3; and e) any other private individual or entity subscribing to the shares of the Company under the terms of the Group A shareholders.
“Group B shareholders” means Aureos South Asia Fund LLC
“Group C shareholders” means the public.
“Group B Nominee Director” means the nominee director representing Group B Shareholder;
“Chief Financial Officer” means _____________ (insert definition)__________.”
|6||The following paragraph should be added after the first paragraph of Article 6:
“6A. SHAREHOLDING GROUP
“The ordinary shares in the Company shall be held by the following group of Shareholders:
i. Group A shareholders
ii. Group B shareholder
iii. Group C shareholders.”
|51||After Article 51, the following new Articles should be added:
“51A. The Group B shareholder shall be entitled to transfer, sell, give, exchange, deliver, assign or otherwise dispose of their shares in the Company to any third party after first offering such shares to the Group A shareholders and upon the Group A shareholders declining to purchase the entirety of such shares on offer at a price which is not less than that being offered by the third party. Provided however that in the event of a transfer of shares by the Group B shareholder to its Affiliate, no offer for sale/transfer of shares will be required to be made to the Group A shareholders.
51B. Except in accordance with the provisions of Article 51C below, the Group A shareholders shall not transfer sell, give, exchange, pledge, encumber, deliver, assign, mortgage, hypothecate or otherwise dispose of any of their shares whether now owned or hereafter acquired by them and the Company shall not acknowledge or register any such transfer, sale, gift, exchange, pledge, encumber, delivery, assignment, mortgage, hypothecation or any other disposal of such shares.
51C. Where any other third party makes a bona fide offer (“Third Party Offer”) to purchase, in whole or in part, the shares of the Group A shareholders:
a) The Group A shareholders shall within ten (10) working days give written notice of such offer to the Group B shareholders including the purchase price or other consideration offered per share, the purchase date and any other material terms or conditions under which the Third Party Offer is made;
b) The Group A shareholders shall not accept the Third Party Offer without the prior written approval of the Group B shareholders.
c) The Group B shareholders shall within ten (10) working days of receipt to a written notice under sub-article (a), inform the Group A shareholders and the Company in writing (“Co-Sale Notice”) the Group B shareholder’s intention to sell any ordinary shares pursuant to Article 51C (d) below.
d) The Group B shareholders shall have the right to sell, at the same price and on the same terms as the Group A shareholders, that number of shares equal to the number of shares the third party proposes to buy multiplied by the following fraction:
The number of ordinary shares owned by the Group B shareholder
The total number of issued and paid-up ordinary shares of the Company”
Please note that, according to the above Article 51B (which has been drafted in accordance with the Agreement), the Group A shareholders shall not be entitled to transfer, sell, give, exchange, pledge, encumber, deliver, assign, mortgage, hypothecate or otherwise dispose of any of their shares, except in accordance with the provisions of Article 51C. However, Article 51C only provides provisions for selling the shares of Group A shareholders, the Article does not provide any provisions for pledging, encumbering, mortgaging, hypothecating the shares of Group A shareholders. If COMPANY 1 wants to allow the Group A shareholders to pledge, encumber, mortgage, hypothecate their shares then appropriate provisions has to be inserted in the Articles of Association.
|98||Please replace the Article as follows:
“At any General Meeting when a resolution is put to the vote of the meeting, the Chairman of the meeting shall demand a poll.”
|99||Please replace the first line of the Article as follows:
“A poll shall be taken in such manner and at such time…”
|100||Please delete the word “whether on a show of hands or” in the first line of the Article.|
|Addition of a new Article 105 A||After Article 105, the following new Article 105A should be added:
“105A. The following decisions shall have to be made in the General Meeting of the Company with the written concurrence of the Group B Nominee Director:
i) issue shares of any class or increase the Company’s authorised capital;
ii) issue any securities or options which would entitle the holder to subscribe for any shares in the Company;
iii) change the par value of or the rights attached to any shares of the Company;
iv) issue bonus shares;
v) any action which might result in a dilution of the interest owned by Group B shareholder in the Company;
vi) modification, change or termination of existing management contracts;
vii) approval of the annual budget;
viii) incurrence of development or capital expenditure outside the budget or incurrence of any indebtedness outside the budget or creation of any charges in relation to such borrowing;
ix) appointment or replacement of the Chief Financial Officer of the Company;
x) enter into any joint ventures, new management contracts or creation of subsidiaries or enter into new businesses;
xi) commencement of litigation;
xii) transfer, assign or in any other manner licence any of the intellectual properties of the Company;
xiii) Apply for a listing in a Stock Exchange or decide on the details for a listing or an Initial Public Offering (“IPO”);
xiv) Appointment or removal of Directors;
xv) Purchase or sale of any properties (or any interest therein), equipment or materials from or to contract for services to be provided by or to enter into any other transaction with any of its Directors, officers or shareholders or any person affiliated with any of the foregoing; and
xvi) Dispose of any of its immovable properties ”
|106||Article 106 should be deleted and replaced with the following:
“106. Upon a poll every member entitled to vote and present in person or proxy shall have one (1) vote for every share held by him.”
|116||Article 116 of the AoA should be deleted and replaced with the following:
“116. Unless otherwise determined by the Company in the General Meeting, the number of its Directors shall not exceed 9 (nine) and shall not be not be less than 5 (five), including the Group B Nominee Director.”
|Addition of a new Article 117(e)||After Article 117(d), the following should be added:
“e) Group – B Nominee Director – Nominee of Aureos South Asia Fund LLC.”
|121||Article 121 of the AoA should be deleted and replaced with the following:
“121. The Board of Directors, with consensus of the Group B Nominee Director, shall determine the remuneration, including all salary, fees, percentages, and taxable allowances, other allowances, pension contributions and benefits of any kind, if any, to be paid to the Directors .”
|142||Please add the following at the end of the Article:
“Notwithstanding the foregoing, the determination of remuneration shall be subject to Article 105A.”
|150||In the 5th and 6th line of Article 150 of the AoA, the words “dividend may be paid from the balance of net profit available” should be deleted and replaced with the following:
“not less that 50% of the net profits shall be distributed as dividends among the shareholders after payment of dividends to the holders of the preference shares of the Company, subject to the approval of the Board. ”
|Addition of a new Article 184 (1A)||After Article 184 (1) of the AoA, the following sub-article (1A) should be added:
“(1A) Secondly, in or towards paying the Group – B Ordinary Shareholders in the following manner:
|184 (2)||Article 184 (2) of the AoA should be deleted and replaced with the following:
“(2) The remainder of such assets shall, subject to any rights or restrictions for the time being attached to any particular shares, be divided among the holders of the remaining Ordinary Shares (Group A shareholders and Group C shareholders) rateably in proportion to the amount paid up on such shares”
Please note that, according to Section 7.2.1 of the Agreement, the Investor Nominee Director shall not be required to hold qualification shares. We have not changed the Articles of COMPANY 1 reflecting this provision, because according to the Companies Act 1994 this is not permitted. According to Section 97 of the Companies Act 1994, it shall be the duty of every director to hold qualification number of shares as specified in the Articles of Association within sixty days of his appointment. The Act makes no difference between a normal director and a nominee director. Therefore, the Nominee Director has to hold the qualification number of shares
If you have any further query, please do not hesitate to contact the undersigned.
For: “The Lawyers & Jurists”