Item 1.01 Entry into a Material Definitive Agreement.
The information provided in the Introductory Note of this Current Report on Form 8-K is incorporated by reference into this Item 1.01.
In connection with the Transactions, at the Closing, Liberty Global, LG Europe, Telefónica, O2 Holdings and the U.K. Joint Venture entered into the Shareholders Agreement (“Shareholders Agreement”) pursuant to which the parties thereto agreed to certain rights, covenants and obligations, including those summarized below.
The Shareholders Agreement contains customary provisions for the governance of a 50:50 joint venture, including with respect to decision making, access to information, dividend policy, restrictions on transfer of interests in the U.K. Joint Venture and exit arrangements, and covenants restricting the shareholders from competing with the U.K. Joint Venture.
The Shareholders Agreement provided that the initial board of directors of the U.K. Joint Venture is comprised of eight (8) directors, with four (4) directors designated by each of Liberty Global and Telefónica. Certain decisions, referred to as “Reserved Matters,” require the approval of both Liberty Global and Telefónica, either directly or through their designees to the board of directors, including, among others, changes in the constituent documents, capital stock, certain executive management matters, or branding of the U.K. Joint Venture; certain material transactions, including acquisitions and dispositions over a certain threshold; the adoption of any new business plan or amendment to any current business plan (including with respect to the budget) of the U.K. Joint Venture; and certain other material business, investing and financing decisions of the U.K. Joint Venture. The Chairman of the board of directors will alternate every two (2) years as between a director designated by Liberty Global and a director designated by Telefónica, and the initial Chairman of the board of directors of the U.K. Joint Venture will be a director designated by Liberty Global.
Pursuant to the Shareholders Agreement, the U.K. Joint Venture is required to make regular cash distributions to the shareholders on a pro rata basis equal to the unrestricted cash held by the U.K. Joint Venture (subject to the U.K. Joint Venture maintaining a minimum amount of cash and complying with the targeted net debt to EBITDA leverage ratio and the terms of its financing arrangements).
The Shareholders Agreement further provides that each of Liberty Global or Telefónica will have the right to initiate an initial public offering of the U.K. Joint Venture after the third (3rd) anniversary of the Closing, with the opportunity for the other shareholder to sell shares in the initial public offering on a pro rata basis. The parties have agreed to general restrictions on transfers of interests in the U.K. Joint Venture until the third anniversary of the Closing, subject to certain limited exceptions. After the fifth anniversary of the Closing, each shareholder will be able to initiate a sale of the U.K. Joint Venture to a third party in accordance with certain drag-along sale procedures, subject to a right of first offer in favor of the other shareholder. In certain enumerated events of default of a shareholder, including the insolvency of Liberty Global or Telefónica or transfers of shares of the U.K. Joint Venture in breach of the Shareholders Agreement, the other party will have a right to purchase the shares of the other shareholder of the U.K. Joint Venture on the terms set forth in the Shareholders Agreement. The Shareholders Agreement contains customary covenants regarding cooperation, information sharing, restrictions on the partners from competing with the U.K. Joint Venture and restrictions on soliciting employees of the U.K. Joint Venture.
The foregoing description of the Shareholders Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the Shareholders Agreement, a copy of which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.