BT 2003 Annual Report Download - page 152

Demerger Agreement
On 18 September 2001, BT Group plc, British Telecommunications plc and mmO
2
plc entered into a demerger
agreement (the ‘‘Demerger Agreement’’) which set out the obligations of the parties in implementing the steps
to achieve the demerger of mmO
2
(‘‘the Demerger’’).
Under this agreement, mmO
2
agreed to transfer BT Group Investments to BT Group plc and, in exchange for
that transfer, BT Group agreed to allot and issue BT Group shares to the mmO
2
shareholders in satisfaction of the
Demerger dividend (being the dividend declared by mmO
2
of an amount equal to the book value of its
shareholding in BT Group Investments) so that each mmO
2
shareholder at the Demerger record time was entitled
to receive one BT Group share for each mmO
2
share then held. No party to the Demerger Agreement gave any
representation, warranty or indemnity to the others and no party had any right to rescind the agreement.
Separation Agreement
On 18 September 2001, British Telecommunications plc, BT Group plc, mmO
2
plc and O
2
Limited entered into a
separation agreement (the ‘‘Separation Agreement’’) relating to the Demerger. Under the Separation Agreement,
it was agreed that mmO
2
would have net debt (excluding trading balances) of approximately £500 million on
19 November 2001 (the ‘‘Demerger Effective Date’’), including loan indebtedness to BT Group.
BT Group and mmO
2
also agreed to allocate certain assets and liabilities and rights and obligations, in each
case relating to the mmO
2
business, between their respective groups and agreed, subject to certain limited
exceptions, to indemnify each other against certain actual and contingent liabilities to the extent arising directly
or indirectly out of their respective businesses. Furthermore, BT Group and mmO
2
agreed to indemnify one
another against certain liabilities arising from certain incomplete, false or misleading information provided by
either of BT Group or mmO
2
,ortheir respective groups, for inclusion in public documents. These indemnities
apply indefinitely and are not subject to any financial limit.
mmO
2
plc agreed that, after the Demerger Effective Date, it would seek to obtain a full and effective release
of each relevant member of the BT Group from any guarantees, undertakings and indemnities which the BT Group
member may have given in respect of the mmO
2
group, including an undertaking of support in respect of Viag
Interkom’s licence obligations.
The Separation Agreement sets out the parties’ agreement for the separation of the pensions arrangements
of the BT Group and the mmO
2
Group and also sets out an informal, non-binding dispute resolution procedure
which BT Group and mmO
2
have agreed shall be applied to resolve key disputes which may arise between them
and their respective groups in connection with their continuing relationship and the Demerger.
Under the Separation Agreement, BT Group and mmO
2
agreed that certain costs of the Demerger would be
apportioned between them as they may agree in writing.
Under a separate arrangement, BT Group and mmO
2
agreed that mmO
2
would pay the remaining amount of
approximately US$20 million in respect of the 1,500,000 non-voting shares in Esat Digifone Limited (now called
O
2
Communications (Ireland)) acquired in April 2000.
Property Sale and Leaseback
On 13 December 2001, BT sold to Telereal Group Limited (‘‘Telereal’’) a substantial part of BT’s property
portfolio together with the BT property division. Around 6,700 properties comprising offices, telephone
exchanges, vehicle depots, warehouses, call centres and computer centres were transferred. The transaction also
included the transfer of approximately 350 employees from BT to Land Securities Trillium (Telecom). Telereal will
be responsible for providing accommodation and estates management services to BT. In return, we pay Telereal
around £190 million of annual rental, increasing at 3% a year, for use of the freeholds. In addition, BT has
transferred the economic risk on a large portion of its leased properties to Telereal in return for an annual rental
commencing at approximately £90 million per annum.
BT will have the flexibility to vacate approximately 35% by rental value of the estate over the contract term at
no extra cost.
Telereal, defined above, is a 50/50 joint venture between Land Securities Trillium Limited (a wholly-owned
subsidiary of Land Securities plc) and William Pears Family Holdings Limited. The transaction raised
approximately £2.38 billion for BT.
Concert Unwind Agreement
On 15 October 2001, AT&T, BT and Concert entered into binding agreements to terminate the Concert joint
venture. The termination was completed on 1 April 2002, whereupon Concert ceased to exist as a joint venture.
In connection with the termination, the assets, liabilities, contracts, customers and other operational items were
allocated between BT and AT&T with appropriate true up payment mechanisms to reflect the allocation of assets.
The assets and liabilities were allocated between AT&T and BT with the majority of items originally contributed
by each of AT&T and BT in connection with the formation of the Concert joint venture being returned to the
relevant parent.
Following termination of the joint venture, Concert BV was renamed BT Global Networks Holdings
(Netherlands) BV.
Additional information for shareholders
BT Annual Report and Form 20-F 2003 151