Legal Opinion regarding segregation of the number of directors of Bank 1.

Mr. Z

Address….

Dear Sir,

RE:     Legal Opinion regarding segregation of the number of directors of Bank 1.

We refer to your letter No. ………….. dated August 25, 2007 on the above subject.

You require our legal opinion regarding the following issues:

1. As Bank 2 vide BRPD Circular No. 12 dated 26 April 2003 has limited the maximum number of directors of a Banking Company to 13 (thirteen), whether it is binding upon Bank 1(“the Bank”) to maintain the segregated number of directors with regard to sponsors and general public as mentioned in Article 13.2 of the Articles of Association of the Bank?

Previously according to Paragraph 2(Jha) of the Letter of Intent of Bangladesh Bank, the number of the directors of the Board of Directors of the Bank could not be more than 21 (twenty one) directors. Therefore Article 13.2 of the Articles of Association of the Bank provides that the formation of the second and subsequent Board of Directors shall be consisted of 21 Directors – 20 Directors from the Sponsors (Group A) and 1 Director from the general public (Group B).

Subsequently, Bank 2 vide BRPD Circular No. 12 dated 26 April 2003 (“the Circular”) has limited the maximum number of Directors of a Banking Company to 13 (thirteen). As the Circular was published by Bank 2under the power given to it by section 45(1) of the Bank Companies Act 1991, the Circular shall overrule any provision to the contrary contained in the Articles of Association of the Bank or the Letter of Intent of Bank 2. Therefore, at present it is no longer possible to have 21 Directors in the Board of Directors of the Bank. It should be noted that the Circular, however, does not give any direction as to how many directors have to be appointed from the general public.

It is our opinion that the Bank should try to maintain the ratio of directors in accordance with Article 13.2 of the Articles of Association of the Bank as far as possible. As it will not be possible to reduce the number of directors from Group B below 1 (one), we are of the opinion that the closest ratio to that contained in Article 13.2 of the Articles of Association is 12 Directors from the Sponsors (Group A) and 1 Director from the general public (Group B).

2. How many persons will have to be appointed from the general public as director in the coming Annual General Meeting in compliance with other applicable laws, rules and regulations?

As stated above, we are of the opinion that 1 (one) director should be appointed from the general public. We have perused the relevant laws governing this issue and could not find any restrictions restraining such appointment.

3. Whether the Bank can refrain from appointing an Independent director as requested by the Notification dated 20 February, 2006 (“the Notification”) of the Securities and Exchange Commission (“SEC”)?

According to the third paragraph of the Notification, the conditions imposed by the Notification are on ‘comply or explain’ basis. The companies listed with any stock exchange in Bangladesh should comply with these conditions or shall explain the reasons for non-compliance in accordance with Clause 5 of the Notification.

Clause 1.2 of the Notification states as follows:

“1.2 Independent Directors

All companies should encourage effective representation of independent directors on their Board so that the Board, as a group, includes core competencies considered relevant in the context of each company. For this purpose, the companies should comply with the following:

(i) At lease one tenth (1/10) of the total number of the company’s board of directors, subject to a minimum of one, should be independent directors.”

Explanation: For the purpose of this clause “independent director” means a director who does not hold any share in the company or who holds less than one percent (1%) shares of the total paid-up shares of the company, who is not connected with the company’s promoters or directors or shareholder who holds one percent (1%) or more thatn one percent (1%) shares of the total paid-up share of the company on the basis of family relationship; who does not have any other relationship, whether pecuniary or otherwise, with the company or its subsidiary/associated companies, who is not a member, director or officer of any stock exchange, and who is not a shareholder, director or officer of any member of stock exchange or an intermediary of the capital market.

(ii) The independent director(s) should be appointed by the elected directors.”

According to Clause 1.2, all companies listed with any stock exchange are encouraged to appoint at lease one tenth (1/10) of the total number of the company’s board of directors as independent directors, subject to a minimum of one, but such appointment does not appear to be mandatory. However, as the conditions imposed by the Notification are on ‘comply or explain’ basis, if the Bank does not comply with Clause 1.2, then the directors of the Bank shall have to explain the reasons to SEC for non-compliance in accordance with Clause 5 of the Notification i.e. by giving reasons in the table contained in the attached annexure.

Therefore the Bank may refrain from appointing an independent director immediately however for such non-compliance the directors will be liable to provide report to the SEC stating the reasons for such non-compliance.

4. Whether the Board of Directors can appoint the public director as the independent director?

The Board of Directors can appoint the public director as the independent director, provided the public director satisfies the conditions of being an independent director as contained in the explanation to Clause 1.2 of the Notification.

If you have any further inquiries please do not hesitate to contact us.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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