This appendix considers the conversion of Depository Receipts into shares and the issuance of preference shares to a protective foundation as options for simplifying the governance of SAAT. You will find an elaboration of the decision-making requirements, the practical implementation and also what this would mean for the bank’s protection.
Termination of the administration requires a unanimous resolution of the board of SAAT and the approval of Triodos Bank and the Meeting of Depository Receipt Holders. In particular, it is the implementation of such resolution that encounters practical and principled objections. The consequences of termination of the administration are rather complex. From a legal point of view there is no such thing as a 'conversion' of the Depository Receipts into shares. SAAT must transfer the shares to the Depository Receipt Holders against reversion of the Depository Receipts (Article 11 Terms of Administration).
This means that each share must be transferred, in a legal sense, to the relevant Depository Receipt Holders. This can be done by private deed, so a notarial deed is not required. Each Depository Receipt Holder must therefore actively cooperate in the transfer of the shares to achieve a complete termination of the administration. Depository Receipt Holders are in principle not obliged to cooperate. Given the level of participation in the MTF, it seems unlikely that all Depository Receipt Holders would cooperate in a transfer of shares. A further complicating factor here is that some of the Depository Receipts are listed on Captin's MTF. This means that the listed Depository Receipts must first be transferred to the participating Depository Receipt Holders before the administration can be terminated and the shares transferred. This step also requires the active cooperation of all individual Depository Receipt Holders. Finally, it should be mentioned that termination of the administration is complicated by the fact that fractions of Depositary Receipts have also been issued, where only one Depositary Receipt gives entitlement to one share.
It seems inevitable that, in practice, only part of the shares will be transferred against reversion of Depositary Receipts. SAAT considers this highly undesirable. In SAAT's opinion, termination of the administration only make sense if it happens in its entirety, which means that no Depositary Receipts will be outstanding thereafter. If this is not the case, it is difficult to speak of a simplification of governance.
SAAT's main task is to protect Triodos Bank in hostile situations. Termination of the administration would bring an end to this core task. For this reason, termination of the administration cannot take place without establishing of a new protection measure. With this in mind, we assessed alternative safeguards.
The most obvious (and feasible) protective measure would be to issue preference shares to a so-called ‘prefstichting’, a protective foundation with a call option. This foundation will receive a call option on newly issued preference shares which give entitlement to 50% of the voting rights in the general meeting of Triodos Bank. In contractually definable ''hostile'' situations, the foundation can exercise this call option. The conditions under which the call option can be exercised can be similar to the situations in Section 2:118a (2) of the Civil Code, or more extensive or more limited.
In any case, establishing a protective foundation requires an amendment to the articles of association of Triodos Bank's and the granting of a call option to the foundation. Resolutions to this effect require the cooperation of Triodos Bank's executive board and supervisory board. An amendment to the articles of association also requires a shareholder resolution passed with a majority of three-fourths of the votes cast, in a meeting where at least three-fourths of the issued capital is represented (it is possible to call a second meeting where the requirement of represented capital does not apply). The general meeting must also agree to grant the call option to the foundation.
Moreover, a financing arrangement will have to be put in place beforehand (as the protective foundation will have to pay for the preference shares). This is complex in a general sense. In theory, this could be arranged with a loan from Triodos Bank or another bank. In the first case, a loan would be subject to the prior approval of Triodos Bank's general meeting, which resolution must be taken with at least 95% of the votes cast.
Apart from the complexity of establishing a protective foundation, SAAT questions its effectiveness in protecting Triodos Bank. Termination of the administration would remove Triodos Bank's most important and strongest protection measure. It is crucial that an alternative protection measure ensures the same level and certainty of protection. A complicating factor in this context is that the nature of Triodos Bank means that a protective foundation can only exercise its call option after a declaration of no objection has been obtained from the European Central Bank. This can lead to onerous timing issues if a hostile situation occurs which requires immediate action. SAAT considers this an important reason for opposing issuing preference shares to a protective foundation.
A permanent protective measure by means of issuing priority shares to an independent foundation is also not considered desirable by SAAT at this time. This would give the meeting of holders of priority shares the authority to adopt certain resolutions, which would further restrict the rights of current Depository Receipt Holders. The decision-making requirements for setting up a protective measure via priority shares would be similar to those of the protective foundation with a call option.
Against this background, SAAT considers that the benefits of termination of the administration (and the creation of a new protection measure) do not outweigh the disadvantages. Moreover, SAAT understands that the costs of terminating the administration would be significant. Termination of the administration means that an expensive and lengthy process will have to be put in place. SAAT doubts that the termination of the administration solves a specific problem in the current governance. While SAAT in general favours a basic structure, this is not an end in itself, especially when the complexity and uncertainties of the alternative are as great as termination of the administration. Finally, SAAT takes into consideration that the current structure offers sufficient options to simplify certain parts, while maintaining the protection of Triodos Bank and within which structure Depository Receipt Holders can also exercise voting rights in the general meeting.
