Disclosures required
Telefonica SA
17 March 2008
DISCLOSURES REQUIRED UNDER ARTICLE 116.BIS OF THE SPANISH SECURITIES MARKET LAW
In accordance with section 116.bis of 'Ley 24/1988, de 28 de julio, del Mercado
de Valores' (Spanish Securities Markets Act), the Board of Directors of
Telefonica, S.A. has approved, in its meeting held on 27 February 2008, to make
available to Shareholders this Report regarding the matters that have been
included, pursuant to the aforementioned provision, in the Management Reports
that accompany the Annual Accounts of Telefonica, S.A. and its Consolidated
Group of Companies with respect to Fiscal Year 2007:
a. Capital structure.
At December 31, 2007, the share capital of Telefonica, S.A. was
4,773,496,485 euros, represented by 4,773,496,485 fully paid ordinary shares
of a single series, par value of 1 euro each, all recorded under the
book-entry system and traded on the Spanish electronic trading system
('Continuous Markets') where they form part of the Ibex 35 index), on the
four Spanish stock exchanges (Madrid, Barcelona, Valencia and Bilbao) and
listed on the New York, London, Paris, Frankfurt, Tokyo, Buenos Aires, Sao
Paulo and Lima Stock Exchanges. In October 2007, Telefonica, S.A. began
taking steps to delist its shares from the Paris and Frankfurt stock
exchanges. This will take place in the first quarter of 2008.
At the time of writing, Telefonica, S.A. has no securities in issue that are
convertible into Telefonica, S.A. shares.
b. Restrictions on the transfer of securities.
Nothing in the Company bylaws imposes any restriction or limitation on the
free transfer of Telefonica, S.A. shares.
c. Major shareholdings.
The table below lists shareholders who, at December 31, 2007, to the best of
the Company's knowledge, had significant direct or indirect shareholdings in
the Company as defined in Royal Decree 1362/2007 implementing the Spanish
Securities Markets Law 24/1998 as it relates to the need for transparent
information on issuers whose securities are listed for trading in an
official secondary market or other regulated market of the European Union':
Total Direct shareholding Indirect shareholding
% Shares % Shares % Shares
BBVA (1) 6.258 298,717,001 6.257 298,699,855 0.000 17,146
la Caixa (2) 5.483 261,746,565 0.002 102,233 5.481 261,644,332
(1) Based on the information contained in Banco Bilbao Vizcaya
Argentaria, S.A.'s Annual Report on Corporate Governance at December 31,
2007.
(2) Based on information provided by Caja de Ahorros y Pensiones de
Barcelona, 'la Caixa' as at December 31, 2007 for the 2007 Annual Report
on Corporate Governance. The 5.481% indirect shareholding in Telefonica,
S.A. Telefonica Group's is owned by Criteria CaixaCorp, S.A.
d. Restrictions on voting rights.
According to Article 21 of the Company's bylaws no shareholder can exercise
votes in respect of more than 10 per cent of the total shares with voting
rights outstanding at any time, irrespective of the number of shares they
may own. This restriction on the maximum number of votes that each
shareholder can cast refers solely to shares owned by the shareholder
concerned and cast on their own behalf. It does not include additional votes
cast on behalf of other shareholders who may have appointed them as proxy,
who are themselves likewise restricted by the 10 per cent voting ceiling.
The 10 per cent limit described above also applies to the number of votes
that can be cast either jointly or separately by two or more legal entity
shareholders belonging to the same corporate group and to the number of
votes that may be cast altogether by an individual or legal entity
shareholder and any entity or entities that they directly or indirectly
control and which are also shareholders.
e. Shareholder pacts.
Telefonica, S.A. has received no communication notifying the existence of
shareholder pacts that affect the exercise of voting rights at Shareholders'
Meetings or that impose restrictions or conditions on the free transfer of
Telefonica, S.A. shares.
f. Rules governing the appointment and replacement of Directors and the
amendment of the Company's bylaws.
Appointment, reappointment and ratification.
Telefonica, S.A.'s bylaws state that the Board of Directors shall have
between five and twenty Directors who are appointed by shareholders at the
Shareholders' Meeting. The Board of Directors may, in accordance with the
Spanish Corporation Law and the Company bylaws, provisionally co-opt
Directors to fill any vacant seats.
The appointment of Directors to Telefonica, S.A. is as a general rule
submitted for approval to the Shareholders' Meeting. Only in certain
circumstances, when seats fall vacant after the conclusion of the General
Meeting is it therefore necessary to co-opt Directors onto the board in
accordance with the Spanish Corporation Law. Any such co-opted appointment
is then ratified at the next Shareholders' Meeting.
Also, in all cases, proposals to appoint Directors must follow the
procedures set out in the Company's Board of Directors' Rules and be
preceded by the appropriate favorable report by the Appointments,
Compensation and Good Governance Committee and in the case of independent
Directors, by the corresponding proposal by the committee.
Therefore, in exercise of the powers delegated to it, the Appointments,
Compensation and Good Governance Committee must report, based on criteria of
objectivity and the best interests of the company, on proposals to appoint,
re-appoint or remove Company Directors, taking into account the skills,
knowledge and experience required of candidates to fill the vacancies.
As a result, in accordance with its Rules, the Board of Directors,
exercising the rights to co-opt and propose appointments to the
Shareholders' Meeting, shall ensure that external or non-executive Directors
are in an ample majority over the executive Directors. Similarly, it shall
ensure that independent Directors make up at least one third of the total
Board members.
In all circumstances, where a Director is proposed to the Shareholders'
Meeting for reappointment or ratification, the report of the Appointments,
Compensation and Good Governance Committee, or in the case of independent
Directors the proposal of this committee, shall include an assessment of the
Director's past work and diligence in discharge of their duties during their
period in office.
Also, both the Board of Directors and the Appointments, Compensation and
Good Governance Committee shall ensure, in fulfilling their respective
duties, that all those proposed for appointment as Directors should be
persons of acknowledged solvency, competence and experience who are willing
to devote the time and effort necessary to the discharge of their functions,
with particular attention paid to the selection of independent Directors.
Directors are appointed for a period of five years, renewable for one or
more subsequent five-year periods.
As with appointments, proposals for the reappointment of Directors must be
preceded by the corresponding report by the Appointments, Compensation and
Good Governance Committee, and in the case of independent Directors by the
corresponding proposal by the committee.
Termination of appointment or removal.
Directors' appointments shall end at the expiry of the period for which they
were appointed or when shareholders at the General Shareholders' Meeting so
decide in exercise of their powers under the law.
Also, in accordance with Article 12 of the Board Rules, Directors must
submit their resignation to the Board of Directors and formalize their
resignation in the following circumstances:
i. If they leave the executive post by virtue of which they sat on the
Board or when the reasons for which they were appointed cease to
apply.
ii. If their circumstances become incompatible with their continued
service on the Board or prohibit them from serving on the Board for
one of the reasons specified under Spanish law.
iii. If they are severely reprimanded by the Appointments, Compensation
and Good Governance Committee for failure to fulfill any of their
duties as Director.
iv. If their continued presence on the Board could affect the credit or
reputation of the Company in the markets or otherwise threaten the
Company's interests.
The Board of Directors shall not propose the termination of the appointment
of any independent Director before the expiry of their statutory term,
except in the event of just cause, recognized by the Board on the basis of a
prior report submitted by the Appointments, Compensation and Good Governance
Committee. Just cause shall be specifically understood to include cases
where the Director has failed to fulfill their duties as Board member.
The Board may also propose the termination of the appointments of
independent Directors in the case of takeover bids, mergers or other similar
corporate transactions that represent a change in the structure of the
Company's capital.
Amendments to the Company bylaws.
The procedure for amending the bylaws is governed by Article 144 of the
Spanish Corporation Law and requires any change to be approved by
shareholders at the Shareholders' Meeting with the majorities stated in
Article 103 of the same law. In accordance with the above, Article 14 of
Telefonica, S.A.'s bylaws states that the power to amend Company's bylaws
lies with shareholders acting at a General Shareholders' Meeting.
g. Powers of Directors and, specifically, powers to issue or buy back shares.
Powers of Directors.
The Chairman of the Company, as Executive Chairman, is delegated all powers
by the Board of Directors except where such delegation is prohibited by Law,
by the Company bylaws or by the Regulations of the Board of Directors, whose
Article 5.4 establishes the powers reserved to the Board of Directors.
Specifically, the Board of Directors reserves the powers, inter alia, to:
(i) approve the general policies and strategies of the Company; (ii)
evaluate the performance of the Board of Directors, its committees and the
Chairman; (iii) appoint senior executives, as well as the remuneration of
directors and senior executives; and (iv) decide strategic investments.
Meanwhile, the Chief Executive Officer has been delegated all the Board's
powers to conduct the business and act as the senior executive for all areas
of the Company's business, except where such delegation is prohibited by
law, by the Company bylaws, or by the Regulations of the Board of Directors
in its article 5.4.
In addition, the other executive Directors are delegated the usual powers of
representation and administration appropriate to the nature and needs of
their roles.
Powers to issue shares.
At the Ordinary Shareholders' Meeting of Telefonica, S.A. on June 21, 2006,
the Board of Directors was authorized under Article 153.1.b) of the Spanish
Corporation Law, to increase the Company's capital by up to 2,460 million
euros, equivalent to half the Company's subscribed and paid share capital at
that date, one or several times within a maximum of five years of that date.
The Board of Directors has not exercised these delegated powers to date.
Also, at the General Shareholders' Meeting of Telefonica, S.A. on May 10,
2007, the Board of Directors was authorized under Articles 153.1.b) and
159.2 of the Spanish Corporation Law to issue bonds exchangeable for or
convertible into shares in the Company, this power being exercisable one or
several times within a maximum of five years of that date. The Board of
Directors has not exercised this power to date.
Powers to buy back shares.
At the Ordinary Shareholders' Meeting of Telefonica, S.A. on May 10, 2007,
the Board of Directors was authorized, in accordance with Articles 75 ff of
the Spanish Corporation Law, to buy back its own shares either directly or
via companies belonging to the Group. This authorization was granted for 18
months from that date and includes the specific limitation that at no point
may the nominal value of treasury shares acquired, added to the those
already held by Telefonica, S.A. and those held by any of the subsidiaries
that it controls, exceed five per cent of the share capital at the time of
acquisition.
h. Significant agreements outstanding that would come into force, be amended or
expire in the event of a change of control following a takeover.
The Company has no significant agreements outstanding that would come into
force, be amended or expire in the event of a change of control following a
takeover.
i. Agreements between the Company and its directors, managers or employees that
provide for compensation in the event of resignation or unfair dismissal or
if the employment relationship should be terminated because of a takeover
bid.
In general, the contracts of executive directors and some managers of the
steering committee include a clause giving them the right to receive the
economic compensation indicated below in the event that their employment
relationship is ended for reasons attributable to the Company and/or due to
objective reasons such as a change of ownership. However, if the employment
relationship is terminated for a breach attributable to the executive
director and director, the director will not be entitled to any compensation
whatsoever. That notwithstanding, in certain cases the termination benefit
to be received by the executive director o director, according to their
contract, does not meet these general criteria, but rather are based on
other circumstances of a personal or professional nature or on when the
contract was signed. The agreed economic compensation for the termination of
the employment relationship, where applicable, consists of three years of
salary plus another year based on length of service at the Company. The
annual salary on which the indemnity is based is the director's last fixed
salary and the average amount of the last two variable payments received by
contract.
Meanwhile, contracts that tie employees to the Company under a common
employment relationship due to include indemnity clauses for the termination
of their employment. In these cases, the employee is entitled to any
indemnity set forth in prevailing labor legislation. This notwithstanding,
contracts of some Company employees, depending on their level and seniority,
as well as their personal or professional circumstances or when they signed
their contracts, establish their right to receive compensation in the same
cases as in he preceding paragraph, generally consisting of a year and a
half of salary. The annual salary on which the indemnity is based is the
last fixed salary and the average amount of the last two variable payments
received by contract.
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