Strategic alliance with Telstra - Summary of Corporate Governance Arrangements
Hong Kong, June 18, 2001
This statement is intended to explain the legal corporate governance arrangements in the three business ventures that make up its strategic alliance with Telstra Corporation Limited ("Telstra"). These business ventures are Reach (the global Internet Protocol backbone joint venture), Internet Data Centres ("IDC") and the Regional Wireless Company ("RWC"). The Reach and IDC ventures are 50-50 ventures and their corporate governance arrangements are comparable with each other. The RWC venture is a 60-40 venture (Telstra-PCCW) and the corporate governance arrangements reflect this difference.
This summary is intended to supplement and, to the extent necessary, clarify prior summary descriptions of these arrangements released by PCCW. A more detailed description of these arrangements, however, is included in PCCW's circular to shareholders dated December 22, 2000 (the "Circular"), which can be found in pdf format on PCCW's website at www.pccw.com under Investors and Announcements. This summary is qualified in its entirety by that description.
Reach
The Reach venture is 50% owned by Telstra and 50% by PCCW. Key legal elements of Reach (as applicable prior to any initial public offering by Reach) include:
1. The board of directors of Reach is equally divided so long as each party is at least a 35% shareholder. The right to appoint the chairman and deputy chairman will rotate every two years so long as each party is a 35% shareholder, with Telstra initially having the right to appoint the chairman. The chairman does not have a casting vote.
2. Specified significant actions of the board of directors of Reach require a majority vote that includes the affirmative vote of at least one director appointed by each 35% shareholder. These actions include a material change to the scope of business, a decision to approve or materially revise an approved business plan, certain related party agreements, including related party indebtedness other than in accordance with an approved business plan, the offering of securities of Reach other than in accordance with an approved business plan, the listing of Reach's shares on any stock exchange, the incurrence of certain indebtedness other than in accordance with an approved business plan and certain asset acquisitions or dispositions, In any case, any resolution of the board of directors requires a majority vote in a context where, as noted, the board of directors is equally divided so long as each party is at least a 35% shareholder.
3. There are a number of actions that require the approval of both shareholders, including the conferring of certain equity rights to lenders, the reduction or return of capital, the decision to voluntarily liquidate, a change to Reach's constitutional documents, certain mergers or amalgamations, certain calls for additional equity capital, and the offering of new shares of Reach other than to Telstra or PCCW.
RWC
The RWC venture is 60% owned by Telstra and 40% by PCCW. Key legal elements of RWC (as applicable prior to any initial public offering by RWC) include:
1. Although the Board is equally divided so long as each party is at least a 35% shareholder, Telstra will have the right to appoint the chairman, and PCCW the deputy chairman. The chairman has a casting vote.
2. Most actions of the board of directors of RWC relating to operational matters can be approved by a simple majority vote. Consequently, in light of the casting vote of the chairman, Telstra has the legal power, should it choose to exercise it, to outvote PCCW and cause RWC to take most actions relating to operational matters in the ordinary course of RWC's business.
3. While a resolution to approve a proposed business plan for RWC or materially change the business plan initially requires the approval of directors appointed by both 35% shareholders, a resolution to approve a proposed business plan or to materially change the business plan can be reconsidered by the board of directors at a meeting held not less than 30 days after the initial vote and can be adopted by a simple majority vote (and the chairman's casting vote is again counted for this purpose). Matters covered by a business plan approved at the subsequent board meeting remain subject to the specific shareholder approval requirement referred to below.
4. There are a number of actions that require the approval of both shareholders or, in certain cases, at least one of their designated directors, including a material change to the agreed scope of the business conferring of certain equity rights to lenders, certain related party agreements, certain asset disposals, the incurring of certain indebtedness, certain mergers and amalgamations, certain reductions or return of capital, certain changes to constitutional documents, the listing of RWC's shares, and the offering of new shares of RWC other than to Telstra or PCCW.
IDC
The IDC venture is 50% owned by Telstra and 50% by PCCW. Key legal elements of IDC (as applicable prior to any initial public offering by IDC) include:
1. The board of directors of IDC is equally divided so long as each party is at least a 35% shareholder. The board of directors will appoint the chairman and the deputy chairman. The chairman does not have a casting vote.
2. Specified significant actions of the board of directors of IDC require a majority vote that includes the affirmative vote of at least one director appointed by each 35% shareholder. These actions include a material change to the scope of business, a decision to approve or materially revise an approved business plan, certain related party agreements, including related party indebtedness other than in accordance with an approved business plan, the offering of securities of IDC other than in accordance with an approved business plan, the listing of IDC's shares on any stock exchange, the incurrence of certain indebtedness other than in accordance with an approved business plan and certain asset acquisitions or dispositions. In any case, any resolution of the board of directors requires a majority vote in a context where, as noted, the board of directors is equally divided so long as each party is at least a 35% shareholder.
3. There are a number of actions that require the approval of both shareholders, including the conferring of certain equity rights to lenders, the reduction or return of capital, the decision to voluntarily liquidate, a change to IDC's constitutional documents, certain mergers or amalgamations, certain calls for additional equity capital, and the offering of new shares of IDC other than to Telstra or PCCW.
Persons interested in a more detailed and precise description of the legal corporate governance aspects of the arrangements of these ventures should refer to the more detailed description contained in the Circular.
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