LEGAL OPINION
prepared for
Board of Directors of SoftwareONE Holding Ltd.
on the question of
Conflict of interest of the Board members proposed by the 29%
Shareholder Group in view of a potential public-to-private
transaction
by
Prof. Dr. Christoph B. Bühler, LL.M.
Attorney-at-law, Titular Professor for Corporate, Capital Market and Financial Market Law
at the University of Zurich
on
18 March 2024
PROF. DR. CHRISTOPH B. BÜHLER, LL.M., ATTORNEY-AT-LAW JAN BANGERT, ATTORNEY-AT-LAW
MARTIN BÖCKLI, LL.M., ATTORNEY-AT-LAW*
DR. DANIEL HÄRING, ATTORNEY-AT-LAW
ANNE-SOPHIEBURCKHARDT-BUCHS, LL.M., ATTORNEY-AT-LAW MERET MÜLLER, ATTORNEY-AT-LAW
STEPHAN BUSER, ATTORNEY-AT-LAW
PROF. DR. DR. h.c. PETER BÖCKLI, ATTORNEY-AT-LAW
ST. JAKOBS-STRASSE 41 | TEL. +41 (0)61 317 94 50 |
P.O. BOX 2348 | FAX +41 (0)61 317 94 60 |
CH-4002 BASEL | WWW.BOECKLI-BUEHLER.CH |
Members of the Basel and Swiss Bar Associations SAV and registered in the Cantonal Attorney Register of Basel.
* also admitted in New York
EXECUTIVE SUMMARY
- SoftwareONE Holding Ltd. (hereinafter "SoftwareONE") is a company active in the field of soft- ware portfolio management and software licensing. The company advises customers on the management and organization of their software licenses. The company has been listed on the SIX Swiss Exchange since October 2019. Daniel von Stockar, B. Curti Holding AG and René Gilli (hereinafter together the "29% Shareholder Group") hold a stake of 29 percent in SoftwareONE.
- On 15 June and on 20 July 2023, the American investment company Bain Capital supported by the 29% Shareholder Group (hereinafter together the "Bidder Group") made indicative, unsoli- cited and non-binding proposals of interest for the acquisiton of 100% of the company SoftwareONE. Both offers were rejected by the Board of Directors following a review. After a thorough review and on the basis of its own fair value assessment and the support of experts, including an independent fairness opinion, the Board of Directors concluded that the non- binding indication did not reflect the fundamental value of SoftwareONE. Rather, the indicative value was significantly below the fairness opinion of the independent expert and other valuation considerations. Moreover, it was not plausible that Bain Capital was willing and prepared, also in terms of financing and internal approvals to move ahead, to actually submit an offer to the shareholders anytime soon and that any offer at the proposed price level would ultimately reach a minimum acceptance threshold of two-thirds of the shares outstanding in a public offer.
- On February 5, 2024, the Board of Directors received a formal request from the 29% Share- holder Group to convene an Extraordinary General Meeting. Since then, Daniel von Stockar, who co-represents the proposal as a member of the 29% Shareholder Group, no longer participated in meetings of the Board of Directors of the company. The Board of Directors also decided that this was the best way to address the situation for reasons of conflicts of interest, equal treatment of potential competing bidders, confidentialty reasons, antitrust considerations and equal treatment of shareholders. Already a year ago, Daniel von Stockar had resigned as Chairman of the Board of Directors. Since then, however, he has remained an elected member of the SoftwareONE Board of Directors.
- The 29% Shareholder Group is requesting the complete replacement of the Board of Directors, with the exception of Daniel von Stockar, with the aim of pursuing the takeover of SoftwareONE having been considered by the Bidder Group. To ensure an appropriate corporate governance review, the Nomination and Compensation Committee has invited the new candidates proposed by the 29% Shareholder Group to interviews. Based on this, the Board of Directors has planned to submit its own recommendation to SoftwareONE shareholders for voting at the Annual
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General Meeting. However, the new candiates refused to attend such an interview. Instead, one of the proposed candidates wrote a letter to SoftwareONE on behalf of all the new candidates that they did not find a meeting with the Nomination and Compensation Committee meaningful because the 29% Shareholder Group requested their replacement and that they would therefore refrain from the interview process.
- Against this backdrop, the Board of Directors of SoftwareONE is faced with the following questions, which are to be answered in the context of this Legal Opinion:
Are members of the Board of Directors proposed by the 29% Shareholder Group subject to conflicts of interest within the meaning of corporation law or takeover law
- with regard to a possible takeover bid and
- with regard to other actions of the Board of Directors,
due to their position as "co-bidders" (Daniel von Stockar and René Gilli) or due to their nomination by the "co-bidders" or due to the announced purpose of their nomination by the "co-bidders" in favor of a "going private"?
- Based on the legal analysis, the Undersigned has come the following conclusions:
- According to prevailing doctrine and practice, a conflict of interest exists from the perspective of a member of the Board of Directors if a member of the Board of Directors has to make a decision in which the interests of the company conflict with his own interests or other interests assigned to him, so that acting impartially in the interests of the company is jeopardized or at least appears to be so. The conflict then consists of a member of the Board of Directors becoming the "servant of two masters" and having to decide which interests should be given greater weight. Essentially, the assumption of a legally relevant conflict presupposes a clash of interests between the interests of the company and a special interest of a certain intensity. In certain individual cases, a conflict of interest can only arise situationally or be of a permanent nature. According to Art. 717a para. 2 CO, the Board of Directors must take measures necessary to safeguard the interests of the company in order to deal with situational conflicts of interest, such as adopting two resolutions, walkout of the person concerned, ordering a fairness opinion, forming a committee or approval by the General Meeting. However, if there is a permanent conflict of interest, the aforementioned measures are fundamentally unsuitable for resolving the conflict. In this case, the member affected by the conflict of interest may ultimately not (or no longer) be a member of the Board of Directors.
- If a potential public takeover bid is on the table, the previously largely aligned interests of the company's stakeholders may suddenly come into conflict with one another or become a legally
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relevant conflict of interest as described above: In the present case, the success of a potential takeover bid and thus the answer to the question of whether the control over SoftwareONE as the target company should be transferred to other hands depends on the majority or often 2/3 decision of the shareholders who are the addressees of a takeover bid. As a rule, the bidder, here Bain Capital (or the Co-Bidders respectively), attempts to influence this decision through targeted strategies and measures in order to be able to acquire the shares at the lowest possible takeover price, without the individual shareholder under pressure to decide being able to protect himself against this behavior of the bidder. Part of this strategy was to lock the 29% Shareholder Group in by the co-bidder agreement, thereby making it less likely that third party investors would engage in the costs of preparing a competing bid. Due to the lack of information vis- à-vis the offeror, the shareholders run the risk of selling their shares too cheaply by accepting the offer. However, in contrast to the other public shareholders, the 29% Shareholder Group have a different interest in this case, which largely coincides with that of the bidder, especially since they have agreed with the bidder as potential Co-Bidders in the present case: they would have the right to remain invested and therefore benefit from a low offer value and future value creation, whereas the public shareholders would not benefit from these and other advantages should the company be taken private.
- Due to the motion of the 29% Shareholder Group to convene a General Meeting and to replace the entire Board of Directors of SoftwareONE, with the exception of Daniel von Stockar, a member of their own ranks, and their justification that the change is necessary in order to implement the public-to-private transaction they are considering, all members of the Board of Directors proposed for election by the 29% Shareholder Group are presumably in a conflict of interest under takeover law with regard to a potential takeover offer. This conflict is most obvious in the case of Daniel von Stockar, who not only belongs to the 29% Shareholder Group who had agreed with Bain Capital on the non-binding takeover offers, but who is also to be re- elected by the 29% Shareholder Group as the only existing member of the Board of Directors. From a takeover law perspective, a conflict of interest can also clearly be assumed in relation to René Gilli, as he is also a member of the 29% Shareholder Group. There is also a certain appear- ance of a conflict of interest with regard to Dr. Till Spillmann, as he and his law firm, where he was a partner, apparently had a business relationship with the bidder Bain Capital until recently. However, the other members of the Board of Directors proposed for election by the 29% Shareholder Group, Dr. Annabella Bassler, Jörg Riboni and Andrea Sieber, would also presumably be in a conflict of interest under takeover law - should they actually be elected - simply because they are proposed for election to the Board of Directors of the target company by the 29% Shareholder Group acting in concert with the Bidder (Art. 32 para. 2 lit. c Takeover Ordinance,
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TOO) and, according to the 29% Shareholder Group's own official justification in their motion to the Board of Directors to convene an Extraordinary General Meeting on 4 February 2024, are apparently to take over this position with the "mission" of helping the planned public-to-private transaction to achieve a breakthrough:
«The Founding Shareholders fundamentally disagree with the Board of Director's conclusion of the strategic review and are of the opinion that the contemplated public-to-private transaction should have been pursued and presented to the shareholders. […]»
«The founding shareholders therefore request […] the removal of the current Chair as well as all current members of the Board, with the exception of Daniel von Stockar, who did not participate in the Board discussions since the launch of the recent approach for a going-private transaction. […] The Founding Shareholders believe that the right conditions for SoftwareONE's next phase of growth are best provided in a private context, and that a going-private transaction with the right partner is in the best interest of SoftwareONE and all stakeholders. […]»
10 The principles of takeover law also provide indications for the assessment under corporate law as to when a legally relevant conflict of interest exists in a planned transaction. In contrast to takeover law, however, corporate law does not provide a list of presumptions of typical conflicts of interest, but requires a case-by-case assessment of the qualification of a conflict of interest. It is required that the members of the Board of Directors are also pursuing a special interest in relation to the takeover in question that is contrary to the long-term interests of the company. With its motion to vote out the existing members of the Board of Directors (with the exception of Daniel von Stockar himself) and to elect the new members of the Board of Directors proposed by them, the 29% Shareholder Group is, according to its own statements, aiming to help the intended public-to-private transaction achieve a breakthrough. The proposed members of the Board of Directors are thus implicitly and unequivocally instructed to pursue the special interests of the 29% Shareholder Group on the Board of Directors. However, as members of the Board of Directors, they are also obliged to safeguard the interests of the Company and all stakeholders in the medium and long-term growth of business and earnings of SoftwareONE in good faith. The members of the Board of Directors proposed by the 29% Shareholder Group are therefore "servants of two masters": Due to their dual role as "representatives" of the opposing special interest of the 29% Shareholder Group and as members of the Board of Directors of Software- ONE committed to the interests of the company, which includes the interests of all stakeholders (including those of the other public shareholders), the members proposed by the 29% Share- holder Group for election to the Board of Directors are also in a legally relevant conflict of
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interest from a corporate law perspective with regard to the assessment and decisions of a public-to-private transaction.
11 Finally, the members proposed by the 29% Shareholder Group for election to the Board of Directors - if elected - would probably also find themselves in a permanent or structural conflict of interest, due to the pressure generated by the 29% Shareholder Group and the asso- ciated latent de facto obligation to pursue the going private-strategy of the 29% Shareholder Group, also with regard to almost all other conceivable strategic decisions in the core compe- tence area of the Board of Directors that are directly or indirectly related to this "mission". They would practically have to constantly disclose their conflict, and the conventional measures for conflict management would not be effective in this constellation. Since in this situation all members of the Board of Directors would permanently find themselves in a legally relevant conflict of interest in practically all decisions, the company would basically no longer be able to make decisions or function at all. According to the relevant Federal Supreme Court rulings and prevailing doctrine, this situation could even result in a organizational deficiency within the meaning of Art. 731b CO, which could then only be resolved by the court appointment of a custodian at the request of a shareholder.
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Overview of Contents | |||
E XE CUT IVE S U M MA R Y | 2 | ||
PART 1: BASIS OF THE OPINION | 10 | ||
I. | The Mandate | 10 | |
II. | Background Facts | 10 | |
III. | Underlying Documents | 19 | |
IV. | About the Undersigned | 19 | |
V. | References | 20 | |
VI. | Qualifications | 23 | |
VII. | Copyright | 23 | |
VIII. | Confidentiality | 23 | |
P A RT 2: LEG A L CONS ID E RA T ION S | 24 | ||
I. | Preliminary remarks | 24 | |
II. | Concept of conflict of interest | 24 | |
A. Definition of conflict of interest | 24 | ||
B. Conflict of interest with relevance for the Board of Directors | 25 | ||
C. Differentiation according to the intensity of conflicts of interest | 26 | ||
D. Permanent and situational conflicts of interest | 27 | ||
E. Measures to manage the conflict of interest | 28 | ||
F. | Legal Consequences of a damage to the company due to a conflict of interest | ||
that was not properly managed | 32 |
- Conflict of interest of the board members proposed by the 29% Shareholder Group
with regard to a possible takeover bid | 33 | ||
A. | Interests of the parties involved in the context of a possible takeover bid | 33 | |
1. | Interests of the shareholders of SoftwareONE | 33 | |
2. | Interests of the Board of Directors of SoftwareONE | 34 |
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3. | Interest of Bain Capital or the Co-Bidders respectively | 35 |
- Conflict of interest of the proposed board members in the takeover
context with regard to a takeover bid under takeover law | 36 | |
1. | Preliminary remarks | 36 |
2. Conflicts of interest to be disclosed in the report of the Board
of Directors | 36 |
3. Constellations of presumed conflicts of interest pursuant to
Art. 32 para. 2 TOO | 37 |
4. Assessment of conflicts of interest of the proposed members of the Board of Directors in relation to a takeover bid by Bain Capital
or the Co-Bidders | 38 |
- Contractual agreements or other connections with the bidder
or Co-Bidders | 38 | |
b) | Election at the request of the bidder | 39 |
c) | Re-election | 40 |
d) | Executive body or employee of the bidder | 40 |
e) | Instructions of the bidder | 41 |
5. Result on the question of the conflict of interest of the proposed board
members in relation to a potential takeover bid from the perspective of | |
takeover law | 42 |
- Conflict of interest of the proposed board members in the takeover context
under corporate law | 43 |
1. Relevance of the principles of takeover law on conflicts of interest
also for the assessment under corporation law | 43 |
2. Conflict between the long-term interests of the company and the
special short term interests of the 29% Shareholder Group | 43 | |
a) | Preliminary remark | 43 |
b) | Relevant corporate interest | 44 |
c) | Corporate interest of SoftwareONE | 45 |
d) | Special interest of the 29% Shareholder Group | 49 |
- Interests of the members of the Board of Directors proposed for
election by the 29% Shareholder Group | 50 |
3. Result on the question of the conflict of interest of board members
proposed by the 29% Shareholder Group in the takeover context from | |
the perspective of company law | 52 |
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IV. Conflict of interest of the board members proposed by the 29% Shareholder Group | ||
with regard to other actions of the board of directors | 52 | |
A. | Preliminary remarks | 52 |
B. | Generally no application of the principles of takeover law | 53 |
- Conflict of interest of the proposed Board members due to their "mission"
of going private also in relation to other actions of the Board | 53 |
1. Personal or business connections between the 29% Shareholder Group
and the new members of the Board of Directors proposed for election .... 53
2. No conflict of interest relevant under corporation law solely due to the
election proposal of the 29% Shareholder Group | 54 | |
3. | Assessment based on the specific circumstances of the present | |
constellation: "mission" to implement the going-private strategy | 54 |
4. Permanent conflict of interest of the proposed Board members due to their commitment to the going-private strategy of the 29% Shareholder Group also with regard to other strategic decisions of the Board
of Directors | 57 |
5. Organizational deficiency in the legal sense due to a conflict of interest
in all strategic matters | 60 |
6. Result on the question of the conflict of interest of the proposed Board
members with regard to further actions of the Board of Directors | 61 |
PART 3: CONCLUSIONS | 62 |
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PART 1: BASIS OF THE OPINION
- The Mandate
12 On 15 February 2024, Dr. Dieter Gericke, Partner of Homburger AG, has contacted the Under- signed and informed him that there would be a request to elaborate a Legal Opinion on behalf of SoftewareOne Holding Ltd. (hereinafter "SoftwareONE") in connection with the motion of the shareholders Daniel von Stockar, B. Curti Holding AG and René Gilli (hereinafter the "29% Share- holder Group") for the election of new members of the Board of Directors proposed by them at an extraordinary general meeting of shareholders. The Undersigned has proposed the terms of the engagement in an engagement letter on 25 February 2024, and the engagement has been approved on 29 February 2024. The Legal Opinion was delivered as agreed on 18 March 2024.
13 The legal questions to be answered are as follows:
Are members of the Board of Directors proposed by the 29% Shareholder Group subject to conflicts of interest within the meaning of corporation law or takeover law
- with regard to a possible takeover bid and
- with regard to other actions of the Board of Directors,
due to their position as "co-bidders" (Daniel von Stockar and René Gilli) or due to their nomination by the "co-bidders" or due to the announced purpose of their nomination by the "co-bidders" in favor of a "going private"?
- Background Facts
- SoftwareONE is a company active in the field of software portfolio management and software licensing. The company advises customers on the management and organization of their soft- ware licenses. The company has been listed on the SIX Swiss Exchange since October 2019.
- On 15 June and on 20 July 2023, the American investment company Bain Capital supported by the 29% Shareholder Group (hereinafter together the "Bidder Group") made indicative, unsoli- cited and non-binding proposals for the acquisiton of 100% of the company SoftwareONE. Both proposals were rejected by the Board of Directors following a review. After a thorough review and on the basis of its own fair value assessment and the support of experts, including an inde- pendent fairness opinion, the Board of Directors concluded that the non-binding indication did not reflect the fundamental value of SoftwareONE. Rather, the indicative value was significantly below the fairness opinion of the independent expert and the Board of Directors' own valu-
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SoftwareONE Holding AG published this content on 18 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 March 2024 06:18:01 UTC.