Over the last year, the Capital Markets Board (the "CMB") has issued several communiques in order to implement the secondary legislation of the Capital Markets Law (the "CML")1. One of the important pieces of legislation is the Communiqué on the Common Principles Regarding Material Transactions and Exit Rights (the "Communiqué")2. The Communiqué defines what material transactions are and the materiality criteria applied to these transactions. It also explains the rules on how corporate resolutions on such material transactions must be taken. Furthermore, the exercise of exit rights is covered in detail by the Communiqué. This bulletin will only focus on the material transactions and materiality criteria and we will elaborate on the exit rights in our bulletin in April.

I. What are Material Transactions?

The CML lists several examples of material transactions as follows:

  1. Merger, spin-off, conversion or dissolution of the company;
  2. Lease out or transfer of all or significant part of company's assets or establishment of rights in rem over all or significant portion of company's assets;
  3. A change in the scope of company's activity wholly or significantly;
  4. Establishment of privileges or change of the scope or content of current privileges;
  5. Delisting.

This list is non-exhaustive and the CMB is authorized to other actions as material. Through the Communiqué, the CMB further considers the acquisition or lease of the material assets of related parties and certain types of unconventional capital increase methods as material transactions. The Communiqué also provides additional discretion to the CMB. For instance, subject to certain conditions, the CMB may qualify a transaction that could significantly change the company's operations and/or business as a material transaction.

II. Materiality Criteria

The Communiqué sets forth the "materiality criteria" for certain material transactions and considers such transactions as material transactions if such criteria are met.

For instance, not all transfers of all or a significant part of company's assets are considered as material transactions. For these kinds of transactions, the materiality criteria are formulized based on a series of variables and comparisons such as the book value of the assets vs. the total value of the assets or the value of the transaction vs. the enterprise value.

Materiality is also defined for related party transactions. Any transaction resulting in the acquisition or lease of a material asset of related parties is considered as a material transaction if the ratio of the transaction cost to the total assets3 is more than 50%. Such related party transactions are also considered as a material transaction if the ratio of the transaction cost to the enterprise value4 is more than 50%.

III. Shareholders' Approval

Pursuant to the CML, shareholder approval is required for material transactions. Unless there is a higher decision quorum set in the company's articles of association, a decision regarding a material transaction can be taken by the affirmative votes of two thirds of the attendees without seeking a meeting quorum. However, in the event the attendees' votes represent at least half of the capital of the company, the decision must be taken by a majority of votes unless a higher quorum is set in the company's articles of association. Any provision in the articles of association decreasing these quora requirements is void.

If a material transaction results in any direct personal gain or benefit to the ultimate controlling shareholders or the companies controlled by such shareholders, then those shareholders are prohibited from voting at the general assembly meeting where the transaction is to be approved. However the Communiqué does not consider the following as a personal benefit: (i) merger, spin-off, conversion or dissolution of the company, (ii) change of the scope of company's activity completely or significantly and (iii) delisting of the company.

Footnotes

1 Law No. 6362, published in the Official Gazette dated 30 December 2012 and numbered 28513.

2 Published in the Official Gazette dated 24 December 2013 and numbered 28861.

3 Based on the latest disclosed financial statements.

4 Calculated based on the adjusted average of the weighted average daily prices for six months prior to the board meeting.

© Kolcuoğlu Demirkan Attorneys at Law, 2014

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