Redemption of Telefónica, S.A. Loan Notes

Redemption of Telefónica, S.A. Loan Notes

If you were an O2 shareholder or you participated in any O2 share plans, you had the choice of receiving your proceeds of the sale of your shares in cash or in loan notes under the recommended offer for O2 from Telefónica.

Those who opted for loan notes would have received a loan note certificate (entitled "Telefónica, S.A. Floating Rate Loan Notes Due 2010"). Those who opted to receive cash were sent cheques in February 2006.

What are loan notes?
Loan notes are essentially IOUs between the holder and Telefónica, and can be redeemed in stages.  There are two redemption dates per year, 30 June and 31 December. 

Can the loan notes be redeemed?
Redeeming the loan notes means exchanging them for cash.

The next date for loan note redemption is 30 June 2008; if you wish to redeem all or part of your loan note holdings, you are required to take action before 30 May 2008. 

Process for redeeming loan notes
On the reverse of the certificate is a Notice of Redemption which you must complete and return. However, there are some important points to note:

• You must return the whole certificate - do not detach the notice.  If you redeem only a part of your holdings, Equiniti (the Company's Loan Note Registrars) will send you a certificate for the balance of the loan notes.
• Partial redemptions can only be in multiples of £1,000.
• Notices of redemption must be received by Equiniti not less than 30 days before the redemption date. Therefore, you must complete and return your notice and certificate no later than Friday, 30 May 2008 if you wish to redeem all or part of your holdings on 30 June 2008.

Further information can be found on the reverse of the Loan Note certificate, or contact the Equiniti Redemptions & Repayments helpline on 0870 240 7969.

Equiniti have advised that Loan Note holders should receive their cheques in early July 2008.

Tax
You are reminded that redemption of all or part of your Loan Note holdings represents a disposal for Capital Gains Tax purposes. The amount of your gain will depend on the base cost of the shares you transferred into Loan Notes. You are advised to seek independent financial advice if you are unsure of your own circumstances. The annual exemption for the tax year to 5 April 2009 is £9,600 capital gain per person.

Telefónica O2 Europe Group Secretariat
April 2008