Descriptions Sweden/Switzerland

COMPARISON OF MINORITY SHAREHOLDERS' RIGHTS UNDER SWEDISH AND SWISS LAW

Oriflame Holding AG ("OHAG") is a stock company (D: Aktiengesellschaft) incorporated under the laws of Switzerland. According to Section 3.2 of the Nasdaq Stockholm Rule book for Issuers, a company with its shares listed on the main market of Nasdaq Stockholm, but domiciled outside the EEA, shall on its website publish a general description of the main differences in minority shareholders' rights between the company's place of domicile and Sweden. As regards Sweden, the below comparison is based, unless otherwise set forth below, on the minority shareholders' rights that follow from the Swedish Companies Act (Sw. aktiebolagslagen) in respect of Swedish limited liability companies (Sw. aktiebolag) listed on the main market of Nasdaq Stockholm. Regarding Swiss law, this comparison is based, unless otherwise set forth below, on the minority shareholders' rights that follow from the Swiss Code of Obligations (D: Bundesgesetz betreffend die Ergänzung des Schweizerischen Zivilgesetzbuches (Fünfter Teil: Obligationenrecht)). The below summary shall, however, not be relied upon as an exhaustive list or a complete description of the relevant provisions and does not replace specific legal advice.

1 Minority shareholders' rights

1.1 Swedish law

Under Swedish law, the general meeting, the board of directors and the managing director of the company may not adopt any resolutions or undertake any other measures which would give an undue advantage to a shareholder or other person to the disadvantage of the company or another shareholder. In addition, under Swedish law, the general meeting, the board of directors and the managing director of the company may not undertake measures which contravene the company's object of business as stated in the articles of association or the obligation to pursue a profit.

1.2 Swiss law

Under Swiss law, the general meeting, the board of directors and the executive management of the company are bound by the principle of equal treatment of the shareholders and may not adopt any resolutions or undertake any other measures which would give an undue advantage to a shareholder to the disadvantage of the company or another shareholder. Equal treatment means that shareholders are protected against discriminatory treatment and must be treated equally under the same conditions. However, the company may deviate from this principle for cause, i.e., if such deviation is in the best interest of the company.

In addition, under Swiss law, the general meeting, the board of directors and the executive management of the company may not undertake measures which contravene the company's purpose of business as stated in the articles of association or the obligation to pursue a profit.

2 General meetings

2.1 Swedish law

Under Swedish law, an annual general meeting must be held within six months of the expiry of each financial year. At the annual general meeting, among other things, the annual accounts shall be adopted as well as guidelines for remuneration to management. Notice of an annual general meeting, and of an extraordinary general meeting convened for resolving on an amendment of the articles of association, is required to be given no earlier than six weeks and no later than four weeks before the general meeting. Notice of other extraordinary general meetings is required to be given no earlier than six weeks and no later than three weeks before the general meeting. Shareholders who want to participate in the general meeting shall be registered in the shareholders' register on the record date five week days before the general meeting and notify the company of their intention to attend the meeting no later than the day stated in the notification to the meeting. Notice of a general meeting must be given in accordance with the articles of association, which must include an advertisement in the Swedish Official Gazette (Sw. Post- och Inrikes Tidningar), and the notice must also be published on the company's website. That a notice to attend a general meeting has been given shall also be published in a daily newspaper with national coverage as specified in the articles of association. Upon the request of the company's auditor, or upon the written request of shareholders holding at least one tenth of the shares in the company, the board shall convene a general meeting. The board may also convene a general meeting at its own initiative.

At a general meeting, a shareholder may vote for the full number of shares held unless otherwise set forth in the articles of association. When, pursuant to the Swedish Companies Act or the articles of association, approval by the owners of a certain percentage of the shares is required for a particular resolution, own shares held by the company or by a subsidiary of the company (also known as treasury shares) are not to be included for the purpose of the calculation.

2.2 Swiss law

Under Swiss law, an annual general meeting must be held within six months of the expiry of each financial year. At the annual general meeting, among other things, the annual accounts drawn up by the board of directors shall be approved, the articles of association might be altered, the members of the board of directors and the auditors shall be appointed. Furthermore, resolutions regarding the appropriation of balance sheet profits, the release of the members of the board of directors from liability as well as approval of the management report shall be taken.

Furthermore, the Ordinance against Excessive Compensation (D: Verordnung gegen übermässige Vergütungen bei börsenkotierten Aktiengesellschaften) provides that the annual general meeting must separately resolve on the aggregate remuneration of all members of the board of directors as well as of all members of the executive management of the company.

Swiss law provides for a notice of meeting no less than 20 days prior to the date of the general meeting, not counting the date of dispatch and the date of the meeting, in the manner set forth in the articles of association. As per OHAG's articles of association, the notice is to be published in the company's official instrument for publication, which in OHAG's case is the Swiss Commercial Gazette, as well as made available on the company's website. As per OHAG's articles of association, shareholders may also be informed by ordinary mail and as long as the company's shares are listed on a Swedish stock exchange, the company may publish an announcement in a daily Swedish newspaper with the information that the notice has been issued. The notice convening the meeting must include the agenda items and the motions of the board of directors and the shareholders who have requested that a general meeting be called or an item be placed on the agenda.

Upon request of the company's auditor, or upon written request of shareholders holding at least one tenth of the outstanding shares or representing shares with a nominal value of 1 million Swiss francs in the company, the board shall convene an extraordinary general meeting. The board may also convene an extraordinary general meeting at its own initiative. Shareholders holding at least one tenth of the outstanding shares or which together represent shares with a nominal value of 1 million Swiss francs may demand that an item be placed on the agenda.

Shareholders who intend to participate in the general meeting shall be registered in the shareholders' register on the record date determined according to the articles of association or, if the articles of association are silent on the issue, by the board exercising reasonable discretion.

3 Appointment and removal of directors of the board

3.1 Swedish law

The company's board of directors is ultimately responsible for the organization and the management of the company's affairs. The members of the board of directors are elected by the general meeting, except any members appointed by the trade unions. Members of the board are typically appointed for a period up until the end of the next annual general meeting. In respect of elections, the person who receives the most votes shall be deemed to have been elected and, formally, a vote is made for each of the nominated directors.

3.2 Swiss law

The company's board of directors is ultimately responsible for the organization and the management of the company's affairs. All members of the board of directors are elected by the general meeting by an absolute majority of the voting rights represented. The Ordinance against Excessive Compensation provides that members of the board of listed companies may not be appointed for a period longer than until the end of the next annual general meeting. Furthermore, a separate vote must be taken for each of the nominated members of the board.

With respect to the right to be represented on the board, Swiss law provides that if there is more than one class of shares, the articles of association shall provide that each class of shareholder may be represented by at least one representative to the board of directors.

4 Pre-emption rights in relation to share issues

4.1 Swedish law

Under Swedish law, shareholders must approve of each issue of shares, or, as the case may be, authorize the board of directors to resolve on such an issue. Generally, existing shareholders have pre-emptive rights to subscribe for new shares, convertibles and warrants to subscribe for new shares (Sw. teckningsoptioner), pro rata to their current shareholdings. Resolutions concerning issues of new shares, warrants or convertibles, where the existing shareholders shall have pre-emption rights, are normally adopted by simple majority (unless the articles of association need to be amended to allow for the issue). The same applies to resolutions concerning an issue in kind.

A resolution approving or authorizing an issue with a deviation from the pre-emptive rights for existing shareholders requires a majority of two thirds of the votes cast and of the shares represented at the general meeting and also that there are valid reasons for such a deviation. If the shareholders are not to be given pre-emption rights and the issue is directed to directors of the board, the managing director, employees of the company, or close relatives to the aforementioned categories, the resolution approving the issue is subject to additional restrictions, requiring a majority of at least nine tenths of the votes cast and of the shares represented at the general meeting and such resolutions may not be adopted by the board through the exercise of an authorization from the general meeting.

4.2 Swiss law

Under Swiss law, a company's share capital may be increased by a shareholders' resolution and a subsequent resolution by the board of directors amending the articles of association. The according general meetings and board meetings must be held in the presence of a notary public and the resolutions are to be recorded in a notarized deed.

Swiss law provides for three different types of capital increases:

  • Ordinary capital increase: The general meeting may resolve with a majority of the voting rights represented at the general meeting on an ordinary capital increase which is to be executed by the board of directors within three months.
  • Authorized capital increase: By amending the articles of association with a resolution requiring two thirds of the votes and the absolute majority of the nominal value of the shares represented at the general meeting, the general meeting can authorize the board of directors to issue new shares at its discretion and thereby increase the share capital within a period of up to two years. Such authorized capital may not exceed one-half of the existing share capital.
  • Conditional capital increase: With two thirds of the votes and the absolute majority of the nominal value of the shares represented at the general meeting, the general meeting may increase the share capital, subject to conditions, by issuing (or authorizing the board of directors to issue) rights to acquire new shares, e.g., options or conversion rights. Such rights may be issued to employees of the company or in connection with capital market transactions such as the issuance of convertible bonds, bonds with stock options or similar instruments. Such conditional capital may not exceed one-half of the existing share capital.

Furthermore, a qualified majority of two thirds of the votes and the absolute majority of the nominal value of the shares represented at the general meeting is required for the introduction of shares with preferential voting rights, any restriction on the transferability of registered shares as well as waivers and restrictions of shareholders' pre-emptive rights as well as capital increase funded by equity capital, against contributions in kind or to fund acquisitions in kind and the granting of special privileges.

The shareholders have pre-emptive rights to subscribe for new shares (D: Bezugsrecht), convertibles and warrants to subscribe for new shares (D: Vorwegzeichnungsrecht) pro rata to their current shareholding. As mentioned, said right may only be limited or waived by a resolution of a qualified majority of two thirds of the votes and the absolute majority of the nominal value of the shares represented at the general meeting and only if the company has a valid reason to do so and an according provision is included in the articles of association. Financing new acquisitions or supporting employee stock option plans are examples of valid reasons.

5 Mandatory redemption of shares

5.1 Swedish law

The Swedish Companies Act provides that if a shareholder owns more than 90 percent of the shares of a Swedish limited liability company, the majority shareholder is entitled to acquire the remaining outstanding shares through a compulsory acquisition procedure (so called squeeze-out) and the minority shareholders have a corresponding right to have their shares redeemed by the majority shareholder (this applies also to warrants and convertibles held by the minority). Unless the majority shareholder and the minority shareholders agree on the price to be paid for the minority shares, an arbitration tribunal will determine a fair price payable in cash.

5.2 Swiss law

The Swiss Code of Obligations does not provide for a mandatory redemption right. Rather, it is in principle not permissible to withdraw shares held by a shareholder once they are fully paid in. However, the Swiss Merger Act (D: Bundesgesetz über Fusion, Spaltung, Umwandlung und Vermögensübertragung) provides mechanics for a compulsory squeeze-out of minority shareholders, meaning that the merging companies can provide in a merger agreement, that only a cash or other compensation (e.g. shares in the parent company of the surviving company) will be paid (instead of shares in the surviving company). The merger resolution requires the approval of at least 90 percent of the voting rights in the acquired company.

6 Requirements for a special audit

6.1 Swedish law

The Swedish Companies Act provides minority shareholders, holding at least one tenth of all shares in the company or one third of the shares represented at the general meeting, with a right to resolve to request that the Swedish Companies Registration Office (Sw. Bolagsverket) appoints a minority auditor that shall participate in the audit together with the company's auditor (Sw. minoritetsrevisor). Such owners may also request the appointment of a special examiner (Sw. särskild granskare) for examination of certain past events or circumstances.

6.2 Swiss law

Every shareholder may propose to the general meeting to initiate a special audit to investigate specific facts provided: (i) such audit is necessary for that shareholder to exercise its rights; and (ii) the shareholder has already exercised its right to obtain information and to consult the books and accounts of the company at annual or extraordinary general meetings.
If the general meeting refuses to appoint a special auditor, one or several shareholders representing at least 10 percent of the share capital or shares with an aggregate par value of at least 2 million Swiss francs may request a judge to appoint a special auditor within three months from the resolution of the general meeting refusing the special audit. The judge will appoint a special auditor if the applicants are able to make a prima facie case that the company's organs have violated the law or the articles of association and thereby harmed the company or the shareholders.

7 Public takeovers and other similar transactions

7.1 Swedish law

The Swedish Takeover Act (Sw. lagen om uppköpserbjudanden på aktiemarknaden), the Swedish Financial Instruments Trading Act (Sw. lagen om handel med finansiella instrument) and the Takeover Rules issued by Nasdaq Stockholm will as a general rule govern a public offer by an offeror for all shares in a company listed on the main market of Nasdaq Stockholm, including in relation to the shares of OHAG. The Swedish Financial Supervisory Authority (Sw. Finansinspektionen) supervises compliance with the Takeover Act, and the Swedish Securities Council (Sw. Aktiemarknadsnämnden) may grant exemptions in respect of certain provisions of the Takeover Act. The Swedish Securities Council is also charged with the task of interpreting the Takeover Rules and may also grant exemptions. Further, an offeror must undertake towards Nasdaq Stockholm to comply with the Takeover Rules and the Swedish Securities Council's rulings concerning the interpretation and application of the Takeover Rules and to submit to any sanctions imposed by Nasdaq Stockholm upon breach thereof. Such undertaking must be made before announcement of the offer. OHAG also has a contractual obligation under the Nasdaq Stockholm listing rules to act in accordance with the Takeover Rules.

The Takeover Rules contain detailed provisions on the takeover process and the rules are based, inter alia, on certain principles derived from the Takeover Directive. These principles stipulate, among others, that all holders of the same class of securities in a target company must receive equal treatment; if a person has acquired control of a company, other holders of securities must be protected (see also the description of the mandatory bid rules below); that holders of securities in a target company must be given sufficient time and information to reach a soundly-based decision about the offer; and that the board of the target company must take into account the interests of the company as a whole and may not deprive holders of securities of an opportunity to make a decision on the offer.
Under the Swedish Takeover Act, if a person with less than 30 percent of the votes for all shares in a Swedish company acquires shares so that its shareholding reaches or exceeds 30 percent of the votes in the company, such shareholder must make a public offer for all outstanding shares of the company (a so-called mandatory bid). Pursuant to the Takeover Rules issued by Nasdaq Stockholm, a mandatory bid can be made conditional only on regulatory approvals, and the consideration in a mandatory bid must be cash or include an all-cash alternative. Furthermore, where, based on information originating from a party who intends to make a public offer in respect of the shares in a Swedish company, the board of directors or the managing director has reason to believe that such a bid is imminent or where such a bid has been made, the board of the company is prohibited from taking measures, without the approval of shareholders, which would impair the conditions for making or implementing the offer (so-called defense measures or frustrating action). The prohibition does not prevent the board from seeking alternative offers. The mandatory bid rule and the prohibition on defense measures under the Swedish Takeover Act are, however, only applicable to Swedish companies, i.e. not to OHAG.

From a minority shareholder perspective, similar interests worthy of protection are relevant irrespective of whether the takeover of a target/transferor company is carried out in the form of a takeover procedure or e.g. through a statutory merger procedure. Therefore the Takeover Rules provide that, in most respects, the Rules apply mutatis mutandis to mergers and similar procedures and that certain provisions of the Swedish Companies Act regarding voting at general meetings apply mutatis mutandis notwithstanding that such provisions are not directly applicable, e.g. due to the fact that the merger provisions of the Swedish Companies Act are not applicable to Swiss companies such as OHAG (see also the section about mergers below).

7.2 Swiss law

The Swiss Federal Act on Stock Exchanges and Securities Trading ("SESTA") (D: Bundesgesetz über die Börsen und den Effektenhandel) provides that the provisions governing public takeovers apply to public offers for investments in target companies either domiciled in Switzerland whose equity securities are in whole or in part listed in Switzerland or not domiciled in Switzerland whose equity securities are in whole or in part mainly listed in Switzerland.

The SESTA provides that after the launch of a public offer (or its pre-announcement), the implementation of defense measures is only permissible within certain limits, which preclude the board of directors of a target company from undertaking actions which have a significant impact on the target company's assets or liabilities. As per the SESTA, certain measures, such as submission of statutory defense measures to vote at the shareholders' meeting, announcement of a planned share buyback, search for a white knight, involving the offeror in a litigation, or taking public relations measures remain permissible but are required to be reported to the takeover board ("TOB") prior to being set in motion.

Since OHAG's shares are neither in whole nor in part listed on an exchange in Switzerland, public takeover offers to purchase or exchange equity securities are not subject to the SESTA. Likewise, the provisions of the SESTA governing defensive measures in case of public offers do not apply. However, independently from whether or not the SESTA is applicable, the principle of equal treatment of the shareholders must be observed. Defense measures adopted by the board of directors or the shareholders' meeting that would constitute an obvious violation of Swiss corporate law are not permissible and the board of the target company must take into account the interests of the company as a whole and thereby meet its general duty of care and loyalty. Furthermore, the Ordinance against Excessive Compensation prohibits severance payments (golden parachutes), long term contracts with members or the board of directors and payment in advance, which might hence not be used as defense measures.

8 Statutory mergers

8.1 Swedish law

The Swedish Companies Act requires the board of directors of the merging Swedish companies to adopt a merger plan before a merger can be approved by shareholders. The Swedish Companies Act further provides that, as a general rule, the merger plan must be approved by a majority of two thirds of the votes cast and the shares represented at the general meeting of the transferor company. Owners of at least five percent of the shares of the transferee company are entitled to demand that the plan shall also be submitted to the general meeting of the transferee company. If there are different classes of shares issued in the company, the above mentioned majority rules apply within each class of shares represented at the general meeting. In connection with a statutory merger, the merger consideration to the shareholders of the transferor company may be composed of shares in the transferee company or cash, However, more than half of the total value of the consideration must be composed of share consideration.

Where a public company is merged into a private company, the approval of the merger plan requires the vote of all the shareholders represented at the general meeting (in the transferor company) holding at least nine tenths of all the shares. The same applies if the transferor company is a public company with its shares listed on a regulated market or a corresponding market outside the EEA and the merger consideration consists of shares which will not be listed on a regulated market at the time of the transfer of the consideration. In connection with a resolution to approve the merger plan for a transferorcompany, shares held by the transferee company or by a company within the same group as the transferee company shall not be counted.

8.2 Swiss law

Under the Swiss Merger Act, mergers require a resolution of the general meeting approved by a qualified majority of at least two thirds of the votes and the absolute majority of the nominal value of the shares represented at the general meeting.1 In principle, the rights of minority shareholders have to be maintained in the merger and the minority shareholders have to retain an adequate stake in the merged entity. The Swiss Merger Act however provides that consideration other than shares in the surviving company may be granted to minority shareholders. The merging companies may even provide in the merger agreement that the minority shareholders have to accept a mere cash settlement which, however, requires the approval by at least 90 percent of the voting rights in the acquired company (squeeze-out merger). Shareholders who consider that their rights have not been adequately maintained or compensated in a merger, may request a court to set an adequate monetary compensation for their shares. This request has to be filed within two months of the merger resolution. A judgment would be effective for all partners of the legal entity involved if they are in the same legal position as the plaintiff. The action for examining whether the participation and membership rights have been protected shall not hinder the legal effect of the merger resolution. If the provisions of the Swiss Merger Act have been violated, the shareholders of the legal entities involved who did not vote in favor of the merger resolution, may challenge the resolution within two months after the publication of the relevant notice in the Swiss Official Gazette of Commerce. If a deficiency can be remedied, the court shall set a deadline for the legal entities involved to do so. If a deficiency is not remedied within this deadline or cannot be remedied at all, the court shall suspend the resolution and order the necessary measures. Finally, all persons involved in a merger shall be responsible to the legal entities, individual shareholders as well as the creditors for any damage they cause by intentional or negligent violation of their duties. Besides this, the minority shareholders do not have a cause of action to challenge the merger itself.

1 The Swiss Merger Act provides for easements in the merger procedure provided that either the acquiring company holds all shares with voting rights in the transferring company or all shares with voting rights of the companies involved are controlled by a person or group of persons. Provided that the acquiring company holds at least 90 percent of the shares with voting rights in the transferring company, easements are possible under certain conditions.

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