Long -term Incentive Plan
Telefonica SA
10 November 2006
Madrid, 10 November 2006
The Annual General Shareholders' Meeting of Telefonica, S.A., on 21 June 2006,
approved the implementation of a long-term incentive plan aimed at Executive
Directors and Management Personnel of Telefonica, S.A. and of other companies in
the Telefonica Group, consisting of the award to the specially selected
participants, subject to compliance with the requirements stipulated in the
plan, of a set number of shares in Telefonica, S.A. by way of variable
remuneration.
Further to granting the beneficiaries the right to participate in the first
cycle of this long-term incentive plan, Telefonica S.A. has filed with the
Spanish National Securities Market Commission the relevant Communication of
remuneration plans for Directors and Executive Officers of listed companies, in
accordance with Article 21 of Royal Decree 377/1991 of 15 March -using the
standard form created for that purpose by Circular 4/2000 of this Commission of
2 August- which communication includes as Annex I a list of the beneficiaries of
the first cycle of this plan who are Directors and Executive Officers, and as
Annex II a description of its terms and conditions.
--------------------------------------------------------------------------------
ANNEX 2 (CNMV Circular 4/2000)
COMMUNICATION OF REMUNERATION PLANS FOR DIRECTORS OR EXECUTIVE OFFICERS GRANTED
BY LISTED COMPANIES
CSR 1
Sheet CSR 1 page no ...
PERSON UNDER DUTY TO MAKE THIS COMMUNICATION
SURNAME AND FIRST NAME OF THE COMMUNICATING PARTY:
SEE ANNEX I
National Identity Document / Taxpayer Identity Number / Other
A-28015865
CONTACT ADDRESS: STREET NAME AND NUMBER / POST CODE / TOWN OR CITY / PROVINCE /
COUNTRY
GRAN VIA, 28 - 28013 MADRID
CONTACT TELEPHONE
91 584 06 07
OTHER PARTICULARS OF COMMUNICATING PARTY: Delete as applicable
Country of residence (where other than Spain)
Director...........X Executive............ X ..............................
COMPANY SETTING UP THE PLAN
COMPANY NAME
TELEFONICA, S.A.
SHARE CAPITAL
No shares: 4,921,130,397
Nominal value: 1 euro Currency: euro
REPRESENTATIVE OF THE COMMUNICATING PARTY
SURNAME AND FIRST NAME OR COMPANY NAME
SANCHEZ DE LERIN, RAMIRO (GENERAL SECRETARY)
National Identity Document /Other
02190403-K
CONTACT ADDRESS: STREET NAME AND NUMBER / POST CODE / TOWN OR CITY / PROVINCE /
COUNTRY
GRAN VIA, 28 - 28013 MADRID
CONTACT TELEPHONE
91 584 02 07
RELATIONSHIP TO THE COMMUNICATING PARTY:
TYPE OF COMMUNICATION
First communication of remuneration plan
X
Modification of remuneration plan already communicated
Liquidation of
Remuneration plan already communicated
Other reason
(1) Description:
TYPE OF REMUNERATION PLAN
State whether the remuneration plan involves the award of shares in the company
in which the communicating party holds office or of option rights over such
shares:
Yes (R)
X
Complete both the information required on this Sheet CSR1 and the additional
sheet CSR1bis
No (R)
Complete only the information
required on this Sheet CSR1
(2) TITLE AND DESCRIPTION OF THE REMUNERATION PLAN TO WHICH THIS COMMUNICATION
RELATES: (Sufficient information will in any event be given on the start or
set-up and liquidation dates of the plan, the terms and conditions for the
beneficiary of the remuneration plan being communicated to be a creditor or
final participant in the plan and the percentage of their participation in the
whole or total amount of that plan).
SEE ANNEX II
NB: If more space is required to give the appropriate information requested in
boxes (1) and (2) of this sheet CSR1, the necessary information will be given on
an attached continuation sheet.
Surname and first name of the person signing this communication:
/s/Ramiro Sanchez de Lerin November 10th, 2006
DATE AND SIGNATURE TO THIS COMMUNICATION
ANNEX 2 (CNMV Circular 4/2000)
COMMUNICATION OF REMUNERATION PLANS FOR DIRECTORS OR EXECUTIVE OFFICERS GRANTED
BY LISTED COMPANIES
CSR 1bis
ADDITIONAL INFORMATION ON A REMUNERATION PLAN WHICH INVOLVES THE AWARD OF SHARES
IN THE COMPANY IN WHICH THE COMMUNICATING PARTY HOLDS OFFICE OR OF OPTION RIGHTS
OVER SUCH SHARES:
NATURE, TYPE AND CLASS OF SECURITIES - SHARES OR SHARE OPTIONS - TO BE AWARDED
BY THE COMPANY TO THE PLAN BENEFICIARY
Shares in the Company: X
Voting X
Non-voting
(1) Description (class/type of shares or nature / Type of other securities and
transfer provisions established for the securities to be awarded)
SEE ANNEX II
OTHER securities exercise of which gives access or is connected to shares in the
Company
Option
Warrant
Exchangeable/convertible securities
Other
FINANCIAL TERMS, IF ANY, STIPULATED FOR RECEIPT OF THE SHARES OR SHARE OPTIONS
Price payable by the beneficiary under the remuneration plan for the shares or
share options to be received:
Determined X (R) Amount: FREE OF CHARGE
To be determined (R) (2) Description:
Estimated market price (at the date hereof) of the shares or share options to be
received by the beneficiary of the remuneration plan:
Determined X (R) Amount: 12.83 euros
SEE ANNEX II
To be determined (R) (3) Description:
Time-limit for award of the shares or share options to the beneficiary of the
remuneration plan
Certain X
(4) Description of time-limit: Within 90 days from 1 July 2009
Conditional
(5) Description of time-limit:
(6) Description of any guarantees issued and financing granted by the Company,
if any, to the beneficiary of the remuneration plan on award of shares or share
options:
NOT APPLICABLE
NUMBER OF SHARES OR SHARE OPTIONS TO BE AWARDED OR ALREADY AWARDED BY THE
COMPANY TO THE PLAN BENEFICIARY
Where the number is determined
Indicate as applicable
Where the number is to be determined
Type of security
Number
% of Capital
To be awarded
Awarded
Type of security
Estimated max. no with information available at the date hereof
% of Capital
Estimated min. no from information available at the date hereof
% of Capital
SEE ANNEX I
NB: If more space is required to give the appropriate information requested in
boxes (1) to (6) of this sheet CSR1bis, the necessary information will be given
on an attached continuation sheet, identifying that additional information with
the Description numbers from (1) to (6) .
Surname and first name of the person signing this communication:
/s/Ramiro Sanchez de Lerin November 10th, 2006
DATE AND SIGNATURE TO THIS COMMUNICATION
--------------------------------------------------------------------------------
ANNEX I
Communication of remuneration plans for
Directors or Executive Officers granted by listed companies (CNMV Circular 4/
2000 )
LIST OF DIRECTORS AND EXECUTIVE OFFICERS WHO ARE BENEFICIARIES OF THE PLAN
I.- Executive Directors.
First name and surname Position in the Company Maximum number of shares allotted Percentage of share
Cesar Alierta Izuel Executive Chairman 129,183 shares 0.0026 %
Jose Maria Alvarez-Pallete Lopez General Manager Telefonica Latinoamerica
62,354 shares 0.0013 %
Peter Erskine General Manager Telefonica O2 Europa
181,762 shares 0.0037 %
Julio Linares Lopez General Manager
Coordination, Business Development and Synergies
65,472 shares 0.0013 %
Antonio Viana-Baptista General Manager Telefonica Espana
62,354 shares 0.0013 %
II.- Executive Officers.
First name and surname Position in the Company Maximum number of shares allotted Percentage of
share capital
Luis Abril Perez General Manager
Technical Secretariat to the Chairman's Office 38,036 shares 0.0008 %
Santiago Fernandez Valbuena General Manager Finance and Corporate Development
62,354 shares 0.0013 %
Calixto Rios Perez General Manager Internal Auditing 19,244 shares 0.0004 %
Ramiro Sanchez de Lerin Garcia-Ovies
General Manager Legal and Board Secretariat 37,412 shares 0.0008 %
--------------------------------------------------------------------------------
ANNEX II
Communication of remuneration plans for Directors or Executive Officers
granted by listed companies (CNMV Circular 4/2000 )
DESCRIPTION OF THE PLAN
1. Description of the Plan: The Long-term Incentive Plan (hereinafter, the
'Plan') under this communication was approved by the General Shareholders'
Meeting of Telefonica, S.A. at its meeting held on June 21, 2006. The Plan
consists of awarding to beneficiaries selected for this purpose, subject to
satisfying the requirements set out in the Plan, a given number of shares in
Telefonica, S.A. (hereinafter, the 'Shares') as variable remuneration.
2. Beneficiaries of the Plan: The Plan is intended for those persons with the
status of Executive Director, Senior Executive or Management Personnel of
Telefonica and of other Telefonica subsidiaries (as defined below) and are
selected for inclusion (hereinafter, the 'Beneficiaries').
The approximate number of Beneficiaries in the Plan in its first Cycle is
1,900, including five Executive Directors and four Executive Officers (as
defined in Royal Decree 377/1991 of 15 March on the disclosure of
significant shareholdings in listed companies and of the acquisition by
these companies of their own shares).
Participation by a Beneficiary in one of the Cycles of the Plan does not
imply the participation or any right of that Beneficiary to participate in
the other Cycles of the Plan.
3. Corporate scope of the Plan: The Plan has been conceived to cover all
Executive Directors, Senior Executives and the rest of the Management
Personnel specifically selected for inclusion who are rendering their
services to Telefonica, understood to mean the corporate group composed of
Telefonica, S.A. and those of its subsidiaries Spain and abroad which form
part of its group within the meaning of Article 4 of the Spanish Stock
Market Act 24/1988 of 28 July (Ley del Mercado de Valores) as at 1 July 2006
(hereinafter, all these companies will be collectively referred to as
'Telefonica' or the 'Telefonica Group').
4. Structure and operation of the Plan: On joining the Plan the Beneficiaries
acknowledge: (i) that their participation in the Plan is voluntary; (ii)
that the award of Shares under the Plan is an extraordinary benefit and is
not part of the contractual terms of their relationship nor salary, and does
not give rise to acquired or vested rights on the part of the Beneficiaries;
and (iii) that the right to receive Shares expires on termination of the
employment or commercial relationship, as applicable, between the
Beneficiary and Telefonica Group, and in the case of a Change of Control,
with the specific provisions indicated in the terms and conditions of the
Plan.
5. Duration of the Plan: The Plan is initially intended to have a total duration
of seven years. It is divided into five cycles, each lasting three years
(each referred to hereinafter individually as a 'Cycle'), each starting on 1
July ('Start Date') and ending on 30 June of the third year following the
Start Date ('End Date'). At the beginning of each Cycle the number of Shares
which, subject to the stipulated maximum, will be awarded to the Plan
Beneficiaries according to the degree of fulfilment of the stipulated
objectives will be determined. The Shares will be transferred, where
applicable, on expiry of the End Date of each Cycle.
The Cycles are independent of each other, with the first Cycle beginning on
1 July 2006 (with transfer of Shares, if applicable, as from 1 July 2009),
and the fifth Cycle on 1 July 2010 (with transfer of Shares, if applicable,
as from 1 July 2013).
6. Determination of the maximum number of Shares allotted to each Cycle: The
total number of Shares to be awarded to the Beneficiaries pursuant to the
Plan at the end of each Cycle, if the stipulated conditions for award are
fulfilled, will be determined annually at the start of each Cycle
(hereinafter, the 'Shares Allotted').
The number of Shares Allotted to each Cycle will be determined taking into
account the weighted average trading price of Telefonica, S.A. shares in the
thirty trading days prior to the Start Date of the corresponding Cycle of
the Plan (hereinafter, the 'Reference Value'). By way of exception, for the
first Cycle, 2006-2009, the reference will be the arithmetic mean of the
weighted average trading prices of Telefonica, S.A. shares in the thirty
trading days prior to 11 May 2006. The Reference Value for the first Cycle
has thus been calculated at 12.83 euros.
The total shares to be awarded under the Plan at the end of each Cycle shall
in no event represent more than 0.20% of the Telefonica, S.A. share capital
at 1 July 2006. Therefore, the maximum number of Shares to be awarded to the
1,900 Beneficiaries under the Plan in its first Cycle is 9,638,146 shares,
which represent approximately 0.1959 % of the share capital of Telefonica
S.A. at 1 July 2006.
7. Requirements and terms for the award of Shares:
Total Shareholder Return (TSR)
The specific number of Shares Allotted that will be awarded to each
Beneficiary at the end of each Cycle will be conditional upon and determined
by the (relative weighted) Total Shareholder Return (hereinafter, as defined
below, the 'TSR') on Telefonica, S.A. shares (based on the Reference Value),
during the period of duration of each Cycle, in relation to the TSRs
obtained by the shares of the companies ('the Companies'), within the
telecommunications sector, which are included in the FTSE Global Telecoms
Index (hereinafter, the 'Comparison Group').
In this regard, the TSR is considered to be the yardstick for determining
the value generated in the medium and long term in the Telefonica Group, as
it measures the return on investment to the shareholder. The TSR is defined
for each Cycle as the sum of the increase in the Telefonica, S.A. and the
Companies share price plus the dividends and other similar sums received by
the shareholder during the Cycle in question, taking into account the
reinvestment in shares of such dividends and other similar sums.
For each Cycle of the Plan there will be taken into account the Companies
included in the said index at the Start Date of each Cycle, not including
those belonging to the Telefonica Group, and the same composition will
remain unchanged for the entire duration of each Cycle.
If publication of the said index is discontinued during the term of the Plan
or undergoes substantial changes in its composition, the Telefonica, S.A.
Board of Directors will, from time to time, adopt the appropriate measures
with the aim of continuing to compile and establish of the corresponding
index, solely for purposes of the Plan, using homogenous and equivalent
criteria to those on which the Plan is based.
Terms for the award of Shares
The number of Shares to be awarded to each Beneficiary on expiry of each
Cycle (the 'Shares to be Awarded') will be determined by applying a
coefficient to the number of Shares Allotted for each Cycle, and will be
duly notified to the beneficiary.
Shares to be awarded = Coefficient * Shares Allotted
The said coefficient will be calculated on the basis of the TSR achieved by
Telefonica, S.A. shares in each Cycle as compared with the TSR of each of
the Companies in the Comparison Group, taking into account for this
comparative ranking the stock market capitalisation of those Companies at
the start of the Cycle. The coefficient will be calculated according to the
following procedure:
• The coefficient will be 1.0 if the position of the TSR on
Telefonica, S.A. shares is at the same level or above the TSR of
Companies accounting for 75% of the stock market capitalisation of
the Comparison Group.
• The coefficient will be 0.3 if the position of the TSR on
Telefonica S.A. shares is at the same level as the TSR of Companies
accounting for 50% of the stock market capitalisation of the
Comparison Group, and the coefficient will be zero if the TSR on
Telefonica, S.A. shares falls below that level.
• If the TSR on Telefonica, S.A. shares is between the TSR of
Companies accounting for more than 50% but less than 75% of the
stock market capitalisation of the Comparison Group , the
coefficient will be calculated by linear interpolation.
In accordance with the above rules, the date on which the number of shares
to be awarded to the Beneficiary for each Cycle is to be determined (30 June
or the last day of the cycle) will be called the Vesting Date.
For the Beneficiary to have the right to receive the percentage of Shares
Allotted to which he or she would be entitled at the end of each Cycle the
Beneficiary must until the End Date of that Cycle have worked on an
interrupted basis for Telefonica as employee, or have entered into a
non-competition undertaking with a duration equal to or longer than the
relevant Cycle, in the event of early retirement or discontinuation under
redundancy proceedings, where those proceedings are applicable under the
prevailing laws and regulations.
Date of transfer of the Shares: At the end of each Cycle of the Plan the Shares
will be transferred within 90 days following the Vesting Date. Transfer will be
carried out by an accounting transfer of the Shares to the Beneficiary in the
relevant register of book-entries.
Origin of the Shares: The Shares in Telefonica, S.A. to be awarded to the
participants may be (a) Telefonica, S.A. shares held in treasury that are
acquired or have been acquired by Telefonica, S.A. itself as well as by any
companies in its group, subject to compliance with the legal requirements for
such purpose; or (b) newly-issued shares resulting from capital increases
carried out from time to time for that purpose.
Tax and employment issues: The tax treatment of the award of Shares will depend
exclusively on the tax regime applicable to the Beneficiary in question from
time to time, and Telefonica shall have no obligation or liability in this
respect beyond those which it incurs by law. In this regard, the Beneficiaries
acknowledge and accept that Telefonica will have full freedom to decide at all
times the arrangements for such interim tax payments as may be required by law
and for all other the tax obligations arising as a result of the award of Shares
envisaged in the Plan, including, without limitation, the possibility of sale by
Telefonica of the requisite Shares on behalf of the Beneficiary, debiting the
cost of the interim tax payment from the Beneficiary's salary, etc...
Awards of Shares under the Plan are extraordinary benefits, do not form part
of the contractual terms of their relationship nor salary and do not give
rise to acquired or vested rights on the part of the Beneficiaries.
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