12th Jul 2005 07:00
Telefonica SA11 July 2005 Telefonica S.A. and Terra Networks, S.A., as provided in article 82 of theSpanish Stock Market Act (Ley del Mercado de Valores), hereby report thefollowing SIGNIFICANT EVENT I. Rules and Procedure for the Exchange of Shares of Terra Networks, S.A. forShares of Telefonica, S.A. Pursuant to the provisions of the Plan of Merger by Absorption of TerraNetworks, S.A. (Terra Networks) by Telefonica, S.A. (Telefonica) and inaccordance with the resolutions passed at the Annual General Shareholders'Meetings of both companies held on June 2, 2005 and May 31, 2005, respectively,publication is hereby made of the rules and procedures for the exchange ofshares of Terra Networks for shares of Telefonica. 1. Treasury Shares to be Delivered by Telefonica In order to satisfy the merger exchange, Telefonica will deliver shares oftreasury stock to the shareholders of Terra Networks pursuant to the exchangeratio fixed in the Merger Plan of two (2) shares of Telefonica, each having apar value of one (€1) Euro, for every nine (9) shares of Terra Networks, eachhaving a par value of two (€2) Euros, with no supplemental cash compensation.Telefonica will not issue new shares for such purpose, for which reason therewill be no increase in its capital stock as a result of the merger. By application of the provisions of Section 249 of the Spanish Corporations Act(Ley de Sociedades Anonimas), shares of Terra Networks that are held by TerraNetworks, Telefonica or other persons acting in their own name but on behalf ofthese companies will not participate in the exchange, and will be cancelled andvoided. Given that there are 443,205,426 shares of Terra Networks affected bythese provisions and that the entirety of its capital stock is represented by574,941,513 shares, the number of shares of Terra Networks that will be involvedin the exchange is 131,736,087 shares, each having a par value of two (€2)Euros. Based on the foregoing, Telefonica will deliver a total of 29,274,686treasury shares, each having a par value of one (€1) Euro, to satisfy the mergerexchange pursuant to the exchange ratio mentioned above. Given that the Telefonica shares to be used for the exchange are alreadyexisting, and of the same class and series as the other currently outstandingTelefonica shares, they shall give their holders the right, after deliverythereof, to participate in corporate earnings as from January 1, 2005 on thesame terms as the other outstanding shares. Pursuant to the provisions of the Merger Plan and the resolutions adopted forsuch purpose at the Annual General Shareholders' Meetings of Telefonica andTerra Networks, the exchange and delivery of Telefonica shares shall beperformed automatically in the manner set forth below. 2. Procedure for the Exchange 2.1 Award of Shares of Telefonica Those holders of Terra Networks shares that are entitled thereto in accordancewith the book-entry records of Sociedad de Gestion de los Sistemas de Registro,Compensacion y Liquidacion de Valores, S.A. (Securities Registration, Clearing,and Liquidation Systems Management Company, Inc.) (IBERCLEAR) and entitiesparticipating therein on the date of registration of the Merger Deed with theCommercial Registry of Madrid shall have the right to receive Telefonica sharesin accordance with the exchange ratio established for the merger. It is expected that the Merger Deed will be recorded with the CommercialRegistry of Madrid on July 16, 2005, and that Friday, July 15, 2005 (the "Reference Date"), will therefore be the last day of trading for shares of TerraNetworks, which shares will be cancelled as a result of the merger. 2.2 Agent Entity The entities participating in the merger have named Banco Bilbao VizcayaArgentaria, S.A. (the "Exchange Agent") as the entity in charge of all agencyduties relating to the exchange, through which ownership of the Terra Networksshares must be substantiated in accordance with the relevant operative rules andthrough which the procedures, if any, appropriate for the best execution of theexchange must be handled. 2.3 Procedure for the Acquisition of Odd-Lots Pursuant to the provisions of the Merger Plan, shareholders holding shares thatrepresent a fraction of the number of Terra Networks shares set as the exchangeratio may acquire or transfer shares in order to exchange them in accordancewith such exchange ratio. Each shareholder must individually make timelydecisions for such purpose to either purchase or sell Terra Networks shares inthe market in order to reach the number of Terra Networks shares that are amultiple of nine (9). Without prejudice to the foregoing, and pursuant to the provisions of the MergerPlan, the companies participating in the merger have agreed to establish amechanism designed to facilitate the exchange with those Terra Networksshareholders who are holders of a number of shares that is not a multiple ofnine (9). The basic terms and conditions of such mechanism are as follows: (a) Taking into account that the exchange ratio for the merger isequivalent, in unitary terms, to the delivery of one Telefonica share for every4.5 shares of Terra Networks, at the close of the last session for trading inTerra Networks stock on the Reference Date, each shareholder of Terra Networkswho, by application of such unitary exchange ratio of one Telefonica share forevery 4.5 Terra Networks shares, is entitled to receive a whole number ofTelefonica shares, and who has an excess fraction or odd-lot of less than 4.5Terra Networks shares, may transfer such fraction or odd-lot to the ExchangeAgent, which will also act as the odd-lot agent (hereinafter, the "Odd-LotCounterpart Entity"), all with the understanding that for the calculation of theodd-lot corresponding to each shareholder position, all of the Terra Networksshares forming such position will be calculated. Likewise, a Terra Networksshareholder who is the owner of less than 4.5 Terra Networks shares may transfersuch shares to the odd-lot acquirer. It shall be deemed that each shareholderof Terra Networks accepts the odd-lot acquisition system herein provided for,without having to remit instructions to the relevant IBERCLEAR-participant,which shall inform the shareholder of the results of the transaction once it hasbeen concluded. (b) Given the agreed exchange ratio, it is hereby noted for the recordthat, regardless of the number of shares comprising each shareholder's position,the only circumstances under which the acquisition of odd-lots may take placeare the following: Number of Terra shares Corresponding Telefonica Odd-lot shares of Terra subject shares by virtue of the to the odd-lot acquisition exchange system 1 0 1 2 0 2 3 0 3 4 0 4 5 1 0.5 6 1 1.5 7 1 2.5 8 1 3.5 9 2 0 Therefore, in any shareholder position, an odd-lot will range between a minimumof 0.5 Terra Networks shares and a maximum of 4 Terra Networks shares. (c) The acquisition price of the odd-lots will be determined based on thearithmetic mean of the average weighted prices of Terra Networks shares on theAutomated Quotation System (Sistema de Interconexion Bursatil) (ContinuousMarket) for the last three trading sessions for Terra Networks stock on theSpanish stock exchanges (which is expected to be the 13th, 14th and 15th days ofJuly, 2005). If the odd-lot in question is one share of Terra Networks, itsacquisition price shall be the arithmetic mean of the average weighted prices ofTerra Networks shares for the last three trading sessions for Terra Networks;similarly, if the odd-lot in question is other than one share, its acquisitionprice shall be calculated based on the same criterion set forth herein, but in aproportion corresponding to the specific amount of the odd-lot. (d) The Odd-Lot Counterpart Entity, acting on its own behalf, will acquirethe odd-lot shares remaining in the positions existing at the close of thetrading session for Terra Networks corresponding to the Reference Date. Theshares or fractions of shares of Terra Networks acquired by the Odd-LotCounterpart Entity shall be exchanged for the corresponding number of Telefonicashares set forth in the Merger Plan. 2.4 Performance of the Exchange It is expected that, upon completion of the trading session corresponding to theReference Date, and after the acquisition of Odd-Lots by the Odd-Lot CounterpartEntity, the exchange of Terra Networks shares for Telefonica shares will becarried out after the registration of the merger with the Commercial Registry ofMadrid (expected to occur on July 16, 2005). The exchange will be carried outthrough entities participating in IBERCLEAR that are depositaries of TerraNetworks shares, in accordance with the procedures established for thebook-entry system, pursuant to the provisions of Royal Decree 116/1992, ofFebruary 14 and, to the extent applicable, the provisions of Section 59 of theSpanish Corporations Act. It is expected that on Monday, July 18, 2005, the beneficiaries of the exchangewill have possession of the Telefonica shares delivered in the exchange, afterthe performance by IBERCLEAR of settlements that are customary in these types oftransactions. II. Rules and Procedure for the Exchange of American Depositary Shares (ADSs) As a result of the merger, and in accordance with the statements in the F-4registration form declared effective by the United States Securities andExchange Commission on April 22, 2005, the holders of Terra Networks ADSs willreceive two (2) ADSs of Telefonica for every twenty-seven (27) ADSs of TerraNetworks that they hold (or one (1) full Telefonica ADSs for every thirteenpoint five (13.5) Terra ADSs surrendered). The entities participating in the merger have named Citibank, N.A. ("Citibank")as the entity in charge of all agency duties relating to the exchange in theUnited States, through which ownership of the Terra Networks ADSs must besubstantiated and through which the procedures, if any, appropriate for the bestexecution of the exchange must be handled. Furthermore, the holders of Terra Networks ADSs who are the holders of a numberof ADSs that is not a multiple of twenty-seven (27) or thirteen point five(13.5) will receive the corresponding cash payment ("Cash-in-Lieu Payment")through Citibank . As stated above, it is expected that, insofar as the Merger Deed is registeredwith the Commercial Registry of Madrid on July 16, 2005, the last day of listingof the Terra Networks ADSs on the United States Nasdaq National Market will beFriday, July 15, 2005. In accordance with the above, it is also expected that beginning on Monday, July18, 2005, holders of Terra Networks ADSs that are beneficiaries of the exchangewill have possession of the Telefonica ADSs delivered in the exchange, after theperformance of settlements that are customary in these types of transactions.Finally, a request for deregistering the securities issued by Terra Networkswill be filed with the Securities and Exchange Commission, after which theobligations to provide information to this entity under the Securities ExchangeAct of 1934 shall cease. Madrid, July 11th, 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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