Document:

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EXHIBIT 4.3

 

Second Supplemental Indenture

among

Telefónica Emisiones, S.A.U.,

as Issuer,

Telefónica, S.A.,

as Guarantor

and

JPMorgan Chase Bank, N.A.,

as Trustee and Paying Agent

June 20, 2006

$1,000,000,000

Fixed Rate Senior Notes due 2011

 

 

 

Table of Contents

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	 	ARTICLE 1	 	 	 	 
	 
	 	Definitions and Other Provisions of General Application	 	 	 	 
	 
	 	 	 	 	 	 
	SECTION 1.1.
	 	Definitions	 	 	1	 
	SECTION 1.2.
	 	Conflict with Trust Indenture Act	 	 	4	 
	SECTION 1.3.
	 	Effect of Headings and Table of Contents	 	 	5	 
	SECTION 1.4.
	 	Successors and Assigns	 	 	5	 
	SECTION 1.5.
	 	Separability Clause	 	 	5	 
	SECTION 1.6.
	 	Benefits of Supplemental Indenture	 	 	5	 
	SECTION 1.7.
	 	Governing Law	 	 	5	 
	SECTION 1.8.
	 	Execution in Counterparts	 	 	5	 
	SECTION 1.9.
	 	Recitals by the Issuer and the Guarantor	 	 	5	 
	SECTION 1.10.
	 	Ratification and Incorporation of Original Indenture	 	 	5	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 2	 	 	 	 
	 
	 	Designated Securities	 	 	 	 
	 
	 	 	 	 	 	 
	SECTION 2.1.
	 	Creation of Designated Securities	 	 	6	 
	SECTION 2.2.
	 	Limitation on Aggregate Principal Amount of Designated Securities	 	 	6	 
	SECTION 2.3.
	 	Payment of Principal	 	 	6	 
	SECTION 2.4.
	 	Interest and Interest Rate	 	 	7	 
	SECTION 2.5.
	 	Paying Agent	 	 	7	 
	SECTION 2.6.
	 	Place of Payment	 	 	11	 
	SECTION 2.7.
	 	Denominations	 	 	11	 
	SECTION 2.8.
	 	Listing	 	 	11	 
	SECTION 2.9.
	 	Security Certificates	 	 	11	 
	SECTION 2.10.
	 	Defeasance and Covenant Defeasance	 	 	12	 
	SECTION 2.11.
	 	Additional Amounts	 	 	12	 
	SECTION 2.12.
	 	Redemption	 	 	12	 
	SECTION 2.13.
	 	Applicable Procedures and Tax Certification Procedures	 	 	12	 
	SECTION 2.14.
	 	Maintenance of Tax Certification Procedures	 	 	12	 
	 
	 	 	 	 	 	 
	EXHIBIT A
	 	Form of Security Certificate Representing Designated Securities	 	 	A-1	 

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     This Second Supplemental Indenture, dated as of June 20, 2006,
among Telefónica Emisiones, S.A.U., a sociedad anónima incorporated under the laws of the Kingdom
of Spain (the “Issuer”), Telefónica, S.A., a sociedad anónima incorporated under the laws of the
Kingdom of Spain (the “Guarantor”), and JPMorgan Chase Bank, N.A., a national banking association
organized and existing under the laws of the United States of America, as trustee (the “Trustee”,
which term includes any successor Trustee) and paying agent (the “Paying Agent”, which term
includes any successor Paying Agent).

     Whereas, the Issuer has heretofore entered into an Indenture, dated as of June 20,
2006 (as amended and supplemented, the “Original Indenture”), with the Guarantor and the Trustee;

     Whereas, the Original Indenture is incorporated herein by this reference and the
Original Indenture, as supplemented by this Supplemental Indenture, is herein called the
“Indenture”;

     Whereas, the Issuer proposes to create a new series of Securities under the
Indenture;

     Whereas, Mr. Miguel Escrig Meliá, as Director (Administrador Solidario) of the Issuer
and exercising the delegation to issue debt securities approved by the Guarantor as sole
shareholder of the Issuer on April 7, 2006 in favor of the Directors (Administradores Solidarios)
of the Issuer, hereby resolves to issue the Designated Securities (as this term is defined in
Section 2.1 below) in an aggregate principal amount of $1,000,000,000 and with the terms and
conditions referred to in this Supplemental Indenture; and

     Whereas, all things necessary to make this Supplemental Indenture a valid agreement
of the Issuer and the Guarantor, in accordance with its terms, have been done;

     Now, therefore, for and in consideration of the premises and the purchases of the
Designated Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal
and proportionate benefit of all Holders of Designated Securities, as follows:

ARTICLE 1

Definitions and Other Provisions of General Application

     SECTION 1.1. Definitions. For all purposes of this Supplemental Indenture, except as otherwise
expressly provided or unless the context otherwise requires:

(a) the terms defined in this Article have the meanings assigned to them in this Article
and include the plural as well as the singular;

(b) all other terms used herein which are defined in the Trust Indenture Act, either
directly or by reference therein, have the meanings assigned to them therein;

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(c) all accounting terms not otherwise defined herein have the meanings assigned to them in
accordance with generally accepted accounting principles, and, except as otherwise herein
expressly provided, the term “generally accepted accounting principles”, or “GAAP”, with
respect to any computation required or permitted hereunder shall mean (i) in the case of
the Issuer’s and the Guarantor’s unconsolidated financial statements, the accounting
principles generally accepted in the Kingdom of Spain and (ii) in the case of the
Guarantor’s consolidated financial statements, International Financial Reporting Standards
as adopted by the European Union, in each case as in effect at the date of such computation
and as applied by the Issuer or the Guarantor, as the case may be;

(d) unless the context otherwise requires, any reference to an “Article” or a “Section”
refers to an Article or a Section, as the case may be, of this Supplemental Indenture;

(e) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to
this Supplemental Indenture as a whole and not to any particular Article, Section or other
subdivision; and

(f) all terms used but not defined in this Supplemental Indenture, which are defined in the
Original Indenture, shall have the meanings assigned to them in the Original Indenture.

     “Business Day” means a day other than a Saturday, a Sunday or any other day on which banking
institutions in New York, New York, or the city of Madrid, Spain are authorized or required by law
or executive order to close.

     “Comparable Treasury Issue” means the United States Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining term (“Remaining
Life”) of the Designated Securities to be redeemed that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of the Designated Securities being
redeemed.

     “Comparable Treasury Price” means, with respect to any Redemption Date, (1) the average of the
Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations, or (2) if the Independent Investment Banker
obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such
Quotations or, if only one such Quotation is obtained, such Quotation.

     “Depositary” means The Depositary Trust Company and its successors.

     “Designated Guarantee” means that certain guarantee dated June 20, 2006, executed and
delivered by the Guarantor and endorsed on each Security Certificate representing Designated
Securities, pursuant to which, among other things, the Guarantor

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shall unconditionally and
irrevocably guarantee to the Holders of the Designated Securities the due and punctual payment of
principal of, premium, if any, and interest and all other amounts due under the Indenture and the
Designated Securities.

     “Designated Securities” has the meaning ascribed in Section 2.1.

     “Guarantor” means the Person named as “Guarantor” in the first paragraph of this
Supplemental Indenture.

     “Independent Investment Banker” means an independent investment banking institution of
national standing appointed by the Issuer and the Guarantor, which may be one of the Reference
Treasury Dealers.

     “Interest Payment Date” has the meaning ascribed in Section 2.4(b).

     “Issuer” means the Person named as “Issuer” in the first paragraph of this Supplemental
Indenture.

     “New York Business Day” means a day other than a Saturday, a Sunday or any other day on which
banking institutions in New York, New York are authorized or required by law or executive order to
close.

     “Paying Agent” means the Person named as “Paying Agent” in the first paragraph of this
Supplemental Indenture.

     “Redemption Date” has the meaning ascribed in Section 2.12.

     “Redemption Price” has the meaning ascribed in Section 2.12.

     “Reference Treasury Dealer” means each of (1) Lehman Brothers Inc. and its successors,
provided that if the foregoing shall cease to be a primary U.S. government securities dealer in New
York City (a “Primary Treasury Dealer”), the Issuer and the Guarantor will substitute therefore
another Primary Treasury Dealer and (2) any other Primary Treasury Dealer selected by the Issuer
and the Guarantor.

     “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer
and any Redemption Date, the average, as determined by the Independent Investment Banker, of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of
its principal amount) quoted in writing to the Independent Investment Banker by the Reference
Treasury Dealer at 5:00 p.m. on the third New York Business Day preceding such Redemption Date.

     “Regular Record Date” means the 10th New York Business Day prior to the applicable
Interest Payment Date.

     “Stated Maturity” means June 20, 2011.

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     “Supplemental Indenture” means this instrument as originally executed or as it may from time
to time be supplemented or amended in accordance with the terms of the Indenture.

     “Tax Certification Agency Agreement” means that certain Tax Certification Agency Agreement
dated as of June 20, 2006 among the Issuer, the Guarantor, and the Tax Certification Agent (as
defined below), as amended, supplemented, modified, replaced or restated from time to time in
accordance with its terms.

     “Tax Certification Agent” means Acupay System LLC, a New York limited liability corporation,
or any successor Tax Certification Agent appointed in accordance with the terms of the Tax
Certification Agency Agreement.

     “Tax Certification Procedures” means those certain procedures to collect certain information
with respect to Beneficial Owners of the Designated Securities specified in the Tax Certification
Agency Agreement, as such procedures may be amended, supplemented, modified or replaced from time
to time in accordance with the terms of the Tax Certification Agency Agreement.

     “Treasury Rate” means, with respect to any Redemption Date, (1) the yield, under the heading
which represents the average for the immediately preceding week, appearing in the most recently
published statistical release designated “H.15(519)” or any successor publication which is
published weekly by the Board of Governors of the Federal Reserve System and which establishes
yields on actively traded United States Treasury securities adjusted to constant maturity under the
caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury
Issue (if no maturity is within three months before or after the Remaining Life, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue shall be
determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month), (2) if the period from the Redemption Date to
the maturity date of the Securities to be redeemed is less than one year, the weekly average yield
on actually traded United States Treasury securities adjusted to a constant maturity of one year
will be used, or (3) if such release (or any successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate per annum equal to the
semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price
for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated by the
Independent Investment Banker on the third New York Business Day preceding the Redemption Date.

     “Trustee” means the Person named as “Trustee” in the first paragraph of this Supplemental
Indenture.

     SECTION 1.2. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or
conflicts with a provision of the Trust Indenture Act that is required under

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such Act to be a part
of and govern the Indenture, the provision of the Trust Indenture Act shall control. If any
provision of this Supplemental Indenture modifies or excludes any provision of the Trust Indenture
Act that may be so modified or excluded, the provision of the Trust Indenture Act shall be deemed
to apply to this Supplemental Indenture as so modified or to be excluded, as the case may be.

     SECTION 1.3. Effect of Headings and Table of Contents. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the construction hereof.

     SECTION 1.4. Successors and Assigns. All covenants and agreements in this Supplemental Indenture
by the Issuer or the Guarantor shall bind their respective successors and assigns, whether so
expressed or not.

     SECTION 1.5. Separability Clause. In case any provision in this Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

     SECTION 1.6. Benefits of Supplemental Indenture. Nothing in the Indenture, the Designated
Securities or the Designated Guarantee, express or implied, shall give to any Person, other than
the parties hereto and their successors hereunder and the Holders of Designated Securities, any
benefit or any legal or equitable right, remedy or claim under the Indenture.

     SECTION 1.7. Governing Law. Pursuant to Section 5-1401 of the General Obligations Law of the State
of New York, this Supplemental Indenture, the Designated Securities and the Designated Guarantee
shall be governed by, and construed in accordance with, the laws of the State of New York.

     SECTION 1.8. Execution in Counterparts. This Supplemental Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

     SECTION 1.9. Recitals by the Issuer and the Guarantor.
The recitals in this Supplemental Indenture are made by the Issuer and the Guarantor only and
not by the Trustee, and all of the provisions contained in the Original Indenture in respect of the
rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of
the Designated Securities, the Designated Guarantee and of this Supplemental Indenture as fully and
with like effect as if set forth herein in full.

     SECTION 1.10. Ratification and Incorporation of Original Indenture. As supplemented hereby, the
Original Indenture is in all respects ratified and confirmed, and the Original Indenture and this
Supplemental Indenture shall be read, taken and construed as one and the same instrument.

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ARTICLE 2

Designated Securities

     SECTION 2.1. Creation of Designated Securities. There is hereby created a new series of Securities
to be issued under the Indenture, to be designated as Fixed Rate Senior Notes due 2011 (the
“Designated Securities”). The Designated Securities have been designated as series B of the Issuer
in the public deed of issuance executed by one of the Directors (Administradores Solidarios) of the
Issuer on June 12, 2006 and registered with the Mercantile Registry of Madrid on June 16, 2006.

     SECTION 2.2. Limitation on Aggregate Principal Amount of Designated Securities. The aggregate
principal amount of the Designated Securities shall initially be limited to $1,000,000,000
(except for Designated Securities represented by any Security Certificate authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of, other Designated
Securities pursuant to Section 2.4, 2.5, 2.7, 9.6 or 11.7 of the Original Indenture and except for
any Designated Securities which, pursuant to Section 2.3 of the Original Indenture, are deemed
never to have been authenticated and delivered under the Indenture). The Issuer may from
time to time, without the consent of the Holders of Designated Securities, create and issue further
securities having the same terms and conditions as the previously issued Designated Securities in
all respects (or in all respects except for the issue date, the first payment of interest thereon
and/or issue price), so that such further issue shall be consolidated and form a single series with
the Outstanding Designated Securities; provided, however, that any such further issuance will only
be made if either such additional securities are issued with no more than de minimis original issue
discount for U.S. federal income tax purposes or any such further issuance is a “qualified
reopening” as such term is defined under Treasury Regulations Section 1.1275-2(k)(3) promulgated
under the Internal Revenue Code of 1986, as amended.

     SECTION 2.3. Payment of Principal.
The principal of the Outstanding Designated Securities shall be due and payable at the Stated
Maturity.

     SECTION 2.4. Interest and Interest Rate.

(a) The Designated Securities will bear interest from June 20, 2006 or from the most recent
date through which the Issuer has paid or provided for interest on the Designated
Securities at an annual rate of 5.984%.

(b) Subject to and in accordance with the Tax Certification Procedures, the Issuer or the
Guarantor, as the case may be, will pay interest on the Designated Securities semi-annually
on each June 20 and December 20 of each year, beginning on December 20, 2006 until the
Maturity, and at Maturity (each an “Interest Payment Date”).

(c) Interest on the Designated Securities will be computed on the basis of a 360-day year
of twelve 30-day months. Except as described below for the first

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Interest Payment Date, on
each Interest Payment Date, the Issuer or the Guarantor, as the case may be, will pay
interest on the Designated Securities for the period commencing on and including the
immediately preceding Interest Payment Date and ending on and including the day immediately
preceding that Interest Payment Date.

(d) On the first Interest Payment Date, the Issuer or the Guarantor, as the case may be,
will pay interest for the period beginning on and including the issue date of the
Designated Securities and ending on and excluding the first Interest Payment Date.

(e) If any Interest Payment Date would fall on a day that is not a Business Day, the
interest payment shall be postponed to the next day that is a Business Day, and no interest
on such payment shall accrue for the period from and after such Interest Payment Date.

(f) If the Maturity of any Designated Security is not a Business Day, payment of principal
and interest on the applicable Designated Security will be made on the next succeeding day
that is a Business Day, and no interest will accrue for the period from and after such
Maturity.

(g) Subject to and in accordance with the Tax Certification Procedures, interest on each
Designated Security will be paid only to the Person in whose name such Designated Security
was registered at the close of business on the Regular Record Date for the applicable
Interest Payment Date.

SECTION 2.5. Paying Agent.

(a) Upon the terms and subject to the conditions contained herein, the Issuer hereby
appoints JPMorgan Chase Bank, N.A. as the initial Paying Agent under
the Indenture for the purpose of performing the functions of the Paying Agent with respect
to the Designated Securities.

(b) The Paying Agent shall exercise due care in performing the functions of the Paying
Agent for the Designated Securities.

(c) The Paying Agent accepts its obligations set forth herein, upon the terms and subject
to the conditions hereof, including the following, to all of which the Issuer and the
Guarantor agree:

(i) The Paying Agent shall be entitled to such compensation as may be agreed in
writing with the Issuer and the Guarantor for all services rendered by the Paying
Agent, and the Issuer and the Guarantor promise to pay such compensation and to
reimburse the Paying Agent for the reasonable out-of-pocket expenses (including
reasonable counsel fees and expenses) incurred by it in connection with the
services rendered by it hereunder upon receipt of such invoices as the Issuer and
the Guarantor

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shall reasonably require. The Issuer and the Guarantor agree to
indemnify the Paying Agent for, and to hold it harmless against, any and all loss,
liability, damage, claims or expenses (including the costs and expenses of
defending against any claim of liability) incurred by the Paying Agent that arises
out of or in connection with its acting as Paying Agent hereunder, except such as
may result from the negligence, willful misconduct or bad faith of the Paying Agent
or any of its agents or employees. The Paying Agent shall incur no liability and
shall be indemnified and held harmless by the Issuer and the Guarantor for, or in
respect of, any actions taken, omitted to be taken or suffered to be taken in good
faith by the Paying Agent in reliance upon (1) the written opinion of counsel
satisfactory to it and upon obtaining the prior written consent of the Issuer or
the Guarantor or (2) written instructions from the Issuer and the Guarantor. The
provisions of this paragraph shall survive the termination of this Supplemental
Indenture.

(ii) In acting under the Indenture and in connection with the Designated
Securities, the Paying Agent is acting solely as agent of the Issuer and the
Guarantor and does not assume any obligations to, or relationship of agency or
trust for or with, any of the Holders of the Designated Securities.

(iii) The Paying Agent shall be protected and shall incur no liability for or in
respect of any action taken or omitted to be taken or anything suffered by it in
reliance upon the terms of the Designated Securities, any notice, direction,
certificate, affidavit, statement or other paper, document or communication
reasonably believed by it to be genuine and to have been approved or signed by the
proper party or parties.

(iv) The Paying Agent shall be obligated to perform only such duties as are herein
specifically set forth and any duties necessarily incidental thereto, and no
implied duties or obligations shall be read into the Indenture against the Paying
Agent.

(v) Unless herein otherwise specifically provided, any order, certificate, notice,
request, direction or other communication from the Issuer or the Guarantor made or
given by it under any provision of the Indenture shall be sufficient if signed by
any proper officer or an authorized person of the Issuer or the Guarantor, as the
case may be.

(vi) The Paying Agent may, upon obtaining the prior written consent of the Issuer
and the Guarantor, perform any duties hereunder either directly or by or through
agents or attorneys, and the Paying Agent shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with due
care by it hereunder.

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(vii) Under no circumstances will any party to this Supplemental Indenture be
liable to any other party to this Supplemental Indenture for any special, indirect,
punitive or consequential loss or damage (including, but not limited to, the loss
of business, goodwill, opportunity or profit) whether or not foreseeable and even
if advised of the possibility of such loss or damage and regardless of whether the
claim for loss or damage is made in negligence, for breach of contract, breach of
trust, breach of fiduciary obligation or otherwise.

	 	(d)	 	(i) The Paying Agent may at any time resign as Paying Agent by giving written
notice to the Issuer and the Guarantor of such intention on its part, specifying the
date on which its desired resignation shall become effective; provided, however, that
such date shall not be earlier than 60 days after the receipt of such notice by the
Issuer and the Guarantor, unless the Issuer and the Guarantor agree in writing to
accept less notice. The Paying Agent may be removed (with or without cause) at any
time by the filing with it of any instrument in writing signed on behalf of the Issuer
and the Guarantor by any proper officer or an authorized person thereof and specifying
such removal and the date when it is intended to become effective, subject to (if such
Paying Agent is not the Trustee) the written consent of the Trustee, which consent
shall not be unreasonably withheld. Such resignation or removal shall take effect
only upon the date of the appointment by the Issuer and the Guarantor, as hereinafter
provided, of a successor Paying Agent. If within 60 days after notice of resignation
or removal has been given, a successor Paying Agent has not been appointed, the Paying
Agent may petition a court of competent jurisdiction to appoint a successor Paying
Agent. A successor Paying Agent shall be appointed by the Issuer and the Guarantor by
an instrument in writing signed on behalf of the Issuer and the Guarantor, as the case
may be, by any proper
officer or an authorized person thereof and the successor Paying Agent. Upon the
appointment of a successor Paying Agent and acceptance by it of such appointment,
the Paying Agent so superseded shall cease to be such Paying Agent hereunder. Upon
its resignation or removal, the Paying Agent shall be entitled to the payment by
the Issuer and the Guarantor of its compensation, if any is owed to it, for
services rendered hereunder and to the reimbursement of all reasonable
out-of-pocket expenses incurred in connection with the services rendered by it
hereunder.

(ii) Any successor Paying Agent appointed hereunder shall execute and deliver to
its predecessor and to the Issuer and the Guarantor an instrument accepting such
appointment hereunder, and thereupon such successor Paying Agent, without any
further act, deed or conveyance, shall become vested with all the authority,
rights, powers, trusts, immunities, duties and obligations of such predecessor with
like effect as if originally named as such Paying Agent hereunder, and such
predecessor, upon payment of its charges and disbursements then unpaid,

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shall
thereupon become obliged to transfer and deliver, and such successor Paying Agent
shall be entitled to receive, copies of any relevant records maintained by such
predecessor Paying Agent.

(iii) Any Person into which the Paying Agent may be merged or converted or with
which the Paying Agent may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which the Paying Agent shall be a party, or
any Person succeeding to all or substantially all of the assets and business of the
Paying Agent, or all or substantially all of the corporate trust business of the
Paying Agent shall, to the extent permitted by applicable law and provided that it
shall have an established place of business in The City of New York, be the
successor Paying Agent under the Indenture without the execution or filing of any
paper or any further act on the part of any of the parties hereto. Notice of any
such merger, conversion, consolidation or sale shall forthwith be given to the
Issuer and the Guarantor within 30 days of such merger, conversion, consolidation
or sale.

(iv) Any notice required to be given by the Paying Agent to any other person
hereunder other than the Tax Certification Agent shall be given in accordance with
Section 1.5 of the Original Indenture. Any notice required to be given to the Tax
Certification Agent shall be delivered in person, sent by letter or communicated by
telephone (subject, in the case of communication by telephone, to confirmation
dispatched within twenty-four hours by letter), to the following address (or to any
other address of which the Tax Certification Agent shall have notified the others
in writing as herein provided): Acupay Systems, LLC, Attn: Marian Guerrero, 30
Broad Street, 46th Floor, New York, NY 10004, Telephone: (212) 422-1222,
Facsimile: (212) 422-0790. Any notice to be given to
the Paying Agent shall be delivered in person, sent by letter or communicated by
telephone (subject, in the case of communications by telephone, to confirmation
dispatched within twenty-four hours by letter), to the following address (or to any
other address of which the Paying Agent shall have notified the others in writing):
JPMorgan Chase Bank, N.A., 4 New York Plaza, 15th floor, New York, New York 10004,
Attention: Worldwide Securities Services, facsimile: (212) 623-6216. Any notice
hereunder given by telephone or letter shall be deemed to be received when in the
ordinary course of transmission or post, as the case may be, it would be received.

     SECTION
2.6. Place of Payment. The place or places where, subject to the provisions of Section 10.2
of the Original Indenture, the principal of, and any premium and interest on, and any Additional
Amounts in respect of, the Designated Securities shall be payable, Security Certificates
representing the Designated Securities may be surrendered for exchange or conversion of the
Designated Securities represented thereby and notices and demands to or upon the Issuer or the
Guarantor in respect of the

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Designated Securities and this Indenture may be served shall be the
Corporate Trust Office of the Trustee.

     SECTION 2.7. Denominations.The Designated Securities may be issued in denominations of $1,000.

     SECTION 2.8. Listing. From and including the issue date of the Designated Securities to and
including the first Interest Payment Date in respect of the Designated Securities, the Issuer will
use its reasonable best efforts to obtain or maintain, as applicable, a listing of the Designated
Securities on the New York Stock Exchange or another organized market in an OECD country.

     SECTION 2.9. Security Certificates.

(a) The Designated Securities shall initially be represented by one or more Global
Certificates substantially in the form of Exhibit A, which shall be deposited with a
custodian for the Depositary and the Designated Securities represented thereby will be
registered in the name of a nominee of the Depositary, for the accounts of participants in
the Depositary.

(b) Designated Securities represented by a Global Certificate may be transferred, in whole
and not in part, only: (i) by the Depositary to a nominee of the Depositary, (ii) by a
nominee of the Depositary to the Depositary or to another nominee of the Depositary, or
(iii) by the Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary.

(c) Beneficial interests in any Designated Securities represented by a Global Certificate
will be exchangeable for Designated Securities represented by Definitive Certificates only
if: (i) the Depositary notifies the Issuer that it is unwilling or unable to continue to
act as Depositary or that it is no longer a clearing agency registered under the Exchange
Act and, in either case, a successor Depositary is not appointed by the Issuer within 120
days after the date of such notice from the Depositary, (ii) the Issuer notifies the
Trustee in writing that it has reasonably elected to cause the issuance of Designated
Securities represented by Definitive Certificates or (iii) there shall have occurred and be
continuing an Event of Default with respect to the Designated Securities and the Designated
Securities will be accelerated in accordance with their terms and the terms of the
Indenture.

(d) Upon the occurrence of any of the events specified in (i), (ii) or (iii) of (c) above,
Designated Securities represented by Definitive Certificates shall be (i) delivered by the
Trustee in exchange for beneficial interest in Designated Securities represented by Global
Certificates and (ii) registered in such names, and issued in such authorized
denominations, as shall be requested by or on behalf of the Depositary in accordance with
its customary procedures.

11

 

     SECTION 2.10. Defeasance and Covenant Defeasance. The provisions of Sections 4.3 and 10.8 of
the Original Indenture will apply to the Designated Securities.

     SECTION 2.11. Additional Amounts. Except as otherwise provided in the immediately following
sentence, the provisions of Section 10.4 of the Original Indenture will apply to the Designated
Securities. In the event of an early redemption of the Designated Securities for the reasons set
forth in Section 11.8(b) of the Original Indenture, the Issuer or the Guarantor, as the case may
be, will be required to withhold tax and will pay interest in respect of the principal amount of
the Designated Securities redeemed net of the withholding tax applicable to such payments. If this
were to occur, Beneficial Owners would have to either follow the “Quick Refund Procedures” set
forth in Article II of Exhibit A to the Tax Certification Agency Agreement or follow the “Direct
Refund from Spanish Tax Authorities Procedures” set forth in Article IV of Exhibit A to the Tax
Certification Agency Agreement.

     SECTION 2.12. Redemption. The provisions of Article 11 of the Original Indenture will apply
to the Designated Securities. The “Redemption Price” means: (a) with respect to any Designated
Securities to be redeemed other than pursuant to Section 11.8 of the Original Indenture, an amount
equal to the greater of: (x) 100% of the principal amount of such Designated Securities to be
redeemed plus accrued but unpaid interest to, but excluding, the Redemption Date (as defined below)
of such Designated Securities and (y) as determined by the Independent Investment Banker, the sum
of the present values of the remaining scheduled payments of principal thereof and interest thereon
(exclusive of interest accrued thereon to the Redemption Date) discounted to the Redemption Date of
the Designated Securities being redeemed on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate plus 20 basis points for the Designated Securities
being redeemed, plus accrued and unpaid interest on the principal amount of such Designated
Securities (or any portion thereof) being redeemed to, but excluding, the Redemption Date of the
Designated Securities (or any portion thereof) being redeemed; and (b) with respect to any
Designated Securities to be redeemed pursuant to Section 11.8 of the Original Indenture, an amount
equal to their principal amount, together with accrued and unpaid interest, if any, thereon to but
excluding the Redemption Date. The “Redemption Date” of any Designate Securities to be redeemed
will be any Business Day fixed by the Issuer for redemption of such Designed Securities and
specified in the applicable notice of redemption provided by the Issuer to the Trustee pursuant to
Section 11.2 of the Original Indenture; provided, however, that the Redemption Date of any
Designated Securities to be redeemed pursuant to Section 11.8(a) of the Original Indenture shall be
an Interest Payment Date.

     SECTION 2.13. Applicable Procedures and Tax Certification Procedures. The Trustee and Paying
Agent shall comply with the Applicable Procedures and Tax Certification Procedures with respect to
any Designated Securities (and any beneficial interest therein).

     SECTION 2.14. Maintenance of Tax Certification Procedures. So long as any principal amount of
the Designated Securities remains outstanding, the Issuer and the

12

 

Guarantor shall, insofar as it is
practicable, maintain, implement or arrange for the implementation of Tax Certification Procedures
that will facilitate the collection of information concerning the identity and country of residence
of Beneficial Owners so long as such collection is required under Spanish law to allow payment of
interest on the Designated Securities free and clear of Spanish withholding tax.

13

 

     In witness whereof, each of the parties hereto has caused this Supplemental Indenture
to be duly executed on its behalf as of the date first above written.

	 	 	 	 	 	 	 
	 	 	Telefónica Emisiones, S.A.U.,	 	 
	 	 	as Issuer	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title: Director (Administrador Solidario)	 	 
	 
	 	 	 	 	 	 
	 	 	Telefónica, S.A.,	 	 
	 	 	as Guarantor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	JPMorgan Chase Bank, N.A.,	 	 
	 	 	as Trustee and Paying Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title:	 	 

Second Supplemental Indenture

 

EXHIBIT A

Form of Security Certificate Representing Designated Securities

Telefónica Emisiones, S.A.U.

Fixed Rate Senior Notes due 2011

Guaranteed by

Telefónica, S.A.

	 	 	 
	No. [l]

	 	CUSIP No. 87938WAA1
	 

	 	ISIN No. US87938WAA18

     UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR DEFINITIVE CERTIFICATES, THIS GLOBAL
CERTIFICATE MAY BE TRANSFERRED, IN WHOLE AND NOT IN PART, ONLY: (I) BY THE DEPOSITARY TO A NOMINEE
OF THE DEPOSITARY, (II) BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR TO ANOTHER NOMINEE OF
THE DEPOSITARY, OR (III) BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITARY, AND TRANSFERS OF THE SECURITIES REPRESENTED BY THIS GLOBAL
CERTIFICATE AND ANY BENEFICIAL INTERESTS IN ANY SECURITIES REPRESENTED BY THIS GLOBAL CERTIFICATE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO BELOW.

     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST
COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

     Telefónica Emisiones, S.A.U., a sociedad anónima incorporated under the laws of the
Kingdom of Spain (herein called the “Issuer”, which term includes any successor Person under the
Indenture referred to hereinafter), for value received, hereby promises to pay to Cede & Co., or
registered assigns, the principal sum of $[l] on June 20, 2011 and, subject to and in
accordance with the Tax Certification Procedures, to pay interest thereon from December 20, 2006,
or from the most recent Interest Payment Date to which interest has been paid or duly

A-1

 

provided for, semi-annually in arrears on June 20 and December 20 of each year,
commencing December 20, 2006, at the rate of 5.984% per annum until Maturity, and at Maturity.

     Interest will be computed on the basis of a 360-day year of twelve 30-day months. Except as
provided below for the first Interest Payment Date, on each Interest Payment Date, the Issuer will
pay interest on the Designated Securities (as defined herein) for the period commencing on and
including the immediately preceding Interest Payment Date and ending on and including the day
immediately preceding that Interest Payment Date. On the first Interest Payment Date, the Issuer
will pay interest for the period beginning on and including June 20, 2006 and ending on and
including December 19, 2006. If any Interest Payment Date falls on a day that is not a Business
Day, the interest payment shall be postponed to the next day that is a Business Day, and no
interest on such payment shall accrue for the period from and after such Interest Payment Date. If
the Maturity of the Designated Securities is not a Business Day, payment of principal and interest
on the Designated Securities will be made on the next succeeding day that is a Business Day and no
interest will accrue for the period from and after the Maturity.

     The interest so payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in the Indenture, be paid to the Person in whose name the Designated
Securities represented hereby (or one or more Predecessor Securities) are registered at the close
of business on the Regular Record Date for such Interest Payment Date, which shall be the
10th New York Business Day prior to the applicable Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose name the
Designated Securities represented hereby (or one or more Predecessor Securities) are registered at
the close of business on a Special Record Date for the payment of such Defaulted Interest to be
fixed by the Trustee, notice whereof shall be given to Holders of Designated Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the Designated
Securities may be listed, and upon such notice as may be required by such exchange, all as more
fully provided in the Indenture.

     For informational purposes only, without any substantive effect whatsoever and solely in order
to comply with Article 291, letter d) of the Spanish Corporations Law (Ley de Sociedades Anónimas),
approved by Royal Decree (Real Decreto Legislativo) 1564/1989, of December 22, as amended, it is
hereby noted that the principal amount of the Designated Securities was equivalent to €792,204,705,
based on the Noon Buying Rate as determined and published by the Federal Reserve Bank of New York,
as of June 16, 2006, for the Euro of $1.2623 per €1.00. Amounts due under the Designated
Securities shall not under any circumstances whatsoever be payable in any currency other than U.S.
dollars or such coin or currency of the United States as at the time of payment shall be legal
tender for the payment of public and private debts.

     JPMorgan Chase Bank, N.A. shall initially act as Trustee and Paying Agent with respect to the
Designated Securities.

A-2

 

     Reference is hereby made to the further provisions of the Designated Securities set forth on
the reverse of this Security Certificate, which further provisions shall for all purposes have the
same effect as if set forth at this place.

     Unless the certificate of authentication hereon has been executed by the Trustee referred to
on the reverse hereof, directly or through an Authenticating Agent, by manual signature of an
authorized signatory, the Designated Securities represented by this Security Certificate shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

     The public deed of issuance (escritura de emisión) related to the Designated Securities
represented hereby was executed on June 12, 2006 before Mr. Ángel Almoguera with the number 2,116
of his files.

A-3

 

     In witness whereof, the Issuer has caused this instrument to be duly executed
manually or in facsimile.

	 	 	 	 	 	 	 
	Dated: June 20, 2006	 	Telefónica Emisiones, S.A.U.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title: Director (Administrador Solidario)	 	 

Certificate of Authentication

     This is one of the Security Certificates representing the Securities of the series designated
thereon referred to in the within-mentioned Indenture.

	 	 	 	 	 	 	 
	Dated: June 20, 2006
	 	 	 	 	 	 
	 	 	JPMorgan Chase Bank, N.A. ,	 	 
	 	 	as Trustee	 	 
	 
	 	 	 	 	 	 
	 

	 	Manually By:	 	 	 	 
	 

	 	 	 	 

Authorized Officer
	 	 

     The Designated Securities represented by this Security Certificate are unconditionally and
irrevocably guaranteed by Telefonica, S.A. on the terms set forth in the within-mentioned
Designated Guarantee pursuant to the Indenture.

	 	 	 	 	 	 	 
	Dated: June 20, 2006	 	Telefónica, S.A.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title:	 	 

A-4

 

Reverse of Security Certificate

     This Security Certificate is one of the Security Certificates representing a duly authorized
issue of Fixed Rate Senior Notes due 2011 (the “Designated Securities”), issued under an Indenture,
dated as of June 20, 2006 (as amended and supplemented the “Original Indenture”), among the Issuer,
Telefónica, S.A., a sociedad anónima incorporated under the laws of the Kingdom of Spain (herein
called the “Guarantor”, which term includes any successor Person under the Indenture referred to
herein), and JPMorgan Chase Bank, N.A., as Trustee (herein called the “Trustee”, which term
includes any other successor trustee under the Indenture), as supplemented with respect to the
Designated Securities by the Second Supplemental Indenture, dated as of June 20, 2006, among the
Issuer, the Guarantor and JPMorgan Chase Bank, N.A., as Trustee and Paying Agent (collectively with
the Original Indenture, as supplemented, the “Indenture”) and reference is hereby made to the
Indenture for a statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Issuer, the Guarantor, the Trustee and the Holders of the Designated Securities
and of the terms upon which each Security Certificate representing the Designated Securities is,
and is to be, authenticated and delivered.

     The Designated Securities will be subject to redemption at any time, as a whole or in part, at
the election of the Issuer at a Redemption Price which is equal to the greater of: (i) 100% of the
principal amount of the Designated Securities to be redeemed plus accrued and unpaid interest
thereon to, but excluding, the Redemption Date of the Designated Securities to be redeemed; and
(ii) as determined by the Independent Investment Banker, the sum of the present values of the
remaining scheduled payments of principal thereof and interest thereon (exclusive of interest
accrued thereon to the Redemption Date) discounted to the Redemption Date of such Designated
Securities being redeemed on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate plus 20 basis points for the Designated Securities being
redeemed, plus accrued and unpaid interest on the principal amount of such Designated Securities
(or any portion thereof) being redeemed to, but excluding, the Redemption Date of the Designated
Securities (or any portion thereof) being redeemed. Any such redemption will be made in accordance
with the terms of the Indenture.

     “Comparable Treasury Issue” means the United States Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining term (“Remaining
Life”) of the Designated Securities to be redeemed that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of the Designated Securities being
redeemed.

     “Comparable Treasury Price” means, with respect to any Redemption Date, (1) the average of the
Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations, or (2) if the Independent Investment Banker
obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such
Quotations or, if only one such Quotation is obtained, such Quotation.

     “Independent Investment Banker” means an independent investment banking institution of
national standing appointed by the Issuer and the Guarantor, which may be one of the Reference
Treasury Dealers.

A-5

 

     “Reference Treasury Dealer” means each of (1) Lehman Brothers Inc. and its successors,
provided that if the foregoing shall cease to be a primary U.S. government securities dealer in New
York City (a “Primary Treasury Dealer”), the Issuer and the Guarantor will substitute therefor
another Primary Treasury Dealer and (2) any other Primary Treasury Dealer selected by the Issuer
and the Guarantor.

     “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer
and any Redemption Date, the average, as determined by the Independent Investment Banker, of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of
its principal amount) quoted in writing to the Independent Investment Banker by the Reference
Treasury Dealer at 5:00 p.m. on the third New York Business Day preceding such Redemption Date.

     “Treasury Rate” means, with respect to any Redemption Date, (1) the yield, under the heading
which represents the average for the immediately preceding week, appearing in the most recently
published statistical release designated “H.15(519)” or any successor publication which is
published weekly by the Board of Governors of the Federal Reserve System and which establishes
yields on actively traded United States Treasury securities adjusted to constant maturity under the
caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury
Issue (if no maturity is within three months before or after the Remaining Life, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue shall be
determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month), (2) if the period from the Redemption Date to
the maturity date of the Designated Securities to be redeemed is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a constant maturity
of one year will be used, or (3) if such release (or any successor release) is not published during
the week preceding the calculation date or does not contain such yields, the rate per annum equal
to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a
price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal
to the Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated
by the Independent Investment Banker on the third New York Business Day preceding the Redemption
Date.

     The Issuer may from time to time, without the consent of the Holders of Designated Securities,
create and issue further Securities having the same terms and conditions as the previously issued
Designated Securities in all respects (or in all respects except for the issue date, the first
payment of interest thereon and/or the issue price), so that such further issue shall be
consolidated and form a single series with the outstanding Designated Securities; provided,
however, that, any such further issuance will only be made if either such additional securities are
issued with no more than de minimis original issue discount for U.S. federal income tax purposes,
or any such further issuance is a “qualified reopening” as such term is defined under Treasury
Regulations Section 1.1275-2(k)(3) promulgated under the Internal Revenue Code of 1986, as amended.

     The Designated Securities may be redeemed upon not less than 30 nor more than 60 days’ notice
(ending on an Interest Payment Date) given as provided in the Indenture, if (i) as a result of any
change in the laws or regulations of the Kingdom of Spain or any political

A-6

 

subdivision thereof or any authority or agency therein or thereof having power to tax, or in
the interpretation or administration of any such laws or regulations which becomes effective on or
after the date of issuance of the Designated Securities, (x) the Issuer or the Guarantor, as the
case may be, is or would be required to pay any Additional Amounts (y) the Guarantor is or would be
required to deduct or withhold tax on any payment to the Issuer to enable the Issuer to make any
payment of principal, premium, if any, or interest on the Securities and such payment cannot with
reasonable effort by the Guarantor be structured to avoid such deduction or withholding and (ii)
such circumstances are evidenced by the delivery by the Issuer or the Guarantor, as the case may
be, to the Trustee of a certificate signed by an authorized officer or director of the Issuer or
the Guarantor, as the case may be, stating that such circumstances prevail and describing the facts
leading to such circumstances, together with an opinion of independent legal advisers of recognized
standing to the effect that such circumstances prevail, at a Redemption Price equal to their
principal amount, together with accrued interest, if any, thereon to but excluding the Redemption
Date.

     If the Designated Securities are not listed on an organized market in an OECD country no later
than 45 days prior to the initial Interest payment Date on such Designated Securities, the Issuer
or the Guarantor, as the case may be, may, at its option and having given no less than 15 days’
notice (ending on a day which is no later than a Business Day immediately preceding such Interest
Payment Date) to the Holders of such Designated Securities and upon proper notice as provided in
the Indenture, which notice shall be irrevocable, redeem all of the outstanding Designated
Securities at their principal amount, together with accrued interest, if any, thereon to but no
including the Redemption Date; provided that from and including the issue date of such Designated
Securities to and including such Interest Payment Date, the Issuer will use its reasonable best
efforts to obtain or maintain such listing, as applicable. In the event of an early redemption of
the Designated Securities for the reason set forth in the immediately preceding sentence, the
Issuer or the Guarantor, as the case may be, will be required to withhold tax and will pay interest
in respect of the principal amount of the Designated Securities redeemed net of the withholding tax
applicable to such payments. If this were to occur, Beneficial Owners would have to either follow
the “Quick Refund Procedures” set forth in Article II of Exhibit A to the Tax Certification Agency
Agreement or follow the “Direct Refund from Spanish Tax Authorities Procedures” set forth in
Article IV of Exhibit A to the Tax Certification Agency Agreement.

     In the event of redemption of the Designated Securities represented by this Security
Certificate in part only, a new Security Certificate representing the unredeemed portion of the
Designated Securities represented hereby will be issued and registered in the name of the Holder of
the Designated Securities represented hereby upon the cancellation hereof.

     All amounts payable (whether in respect of principal, redemption amount, interest or
otherwise) in respect of the Designated Securities and the Designated Guarantee by the Issuer or
the Guarantor will be made free and clear of and without withholding or deduction for or on account
of any present or future taxes, duties, assessments or governmental charges of whatever nature
imposed or levied by or on behalf of the Kingdom of Spain or any political subdivision thereof or
any authority or agency therein or thereof having power to tax, unless the withholding or deduction
of such taxes, duties, assessments or governmental charges is required by law. In the event that
such withholding or deduction is required by law, the Issuer or the Guarantor shall pay such
Additional Amounts as will result in receipt by the Holders of the Designated Securities

A-7

 

of such amounts as would have been received by them had no such withholding or deduction been
required; provided, however, that the Issuer and the Guarantor will not be required to pay any
Additional Amounts in respect of any Designated Security:

	 	(1)	 	to a Holder of such Designated Security who is liable for such taxes, duties,
assessments or governmental charges in respect of such Designated Security by reason of it
(or the Beneficial Owner for whose benefit it holds such Designated Security) having some
connection with the Kingdom of Spain other than the mere holding of such Designated
Security (or such beneficial interest);
	 
	 	(2)	 	to a Holder of such Designated Security in respect of whom the Issuer or the Guarantor
does not receive such information (which may include a tax residence certificate)
concerning such Holder’s identity and tax residence (or the identity and tax residence of
the Beneficial Owner for whose benefit it holds such Designated Security) as it may require
in order to comply with Law 13/1985 of May 25 (as amended by Law 19/2003 of July 4 and Law
23/2005 of November 18) and any implementing legislation or regulation;
	 
	 	(3)	 	presented for payment (where presentation is required) more than 30 days after the
Relevant Date (as defined below), except to the extent that the relevant Holder would have
been entitled to such Additional Amounts on presenting the same for payment on the expiry
of such period of 30 days;
	 
	 	(4)	 	where the withholding or deduction is imposed on a payment to or for the benefit of an
individual and is required to be made pursuant to European Council Directive 2003/48/EC or
any other Directive implementing the conclusions of the ECOFIN Council meeting of November
26-27, 2000 or any law implementing or complying with, or introduced in order to conform
to, such Directives;
	 
	 	(5)	 	presented for payment (where presentation is required) by or on behalf of a Holder (or
Beneficial Owner) who would have been able to avoid such withholding or deduction by
presenting the relevant Designated Security to another paying agent in a Member State of
the European Union;
	 
	 	(6)	 	to or for the benefit of individuals resident for tax purposes in the Kingdom of Spain
or individuals or any other legal entities resident in, or obtaining income through, a tax
haven territory (as defined in Royal Decree 1080/1991 of July 5); or
	 
	 	(7)	 	to or for the benefit of a Spanish-resident legal entity subject to Spanish Corporate
Income Tax if the Spanish tax authorities determine that the Designated Securities do not
comply with exemption requirements specified in the Reply to a Consultation of the
Directorate General for Taxation (Dirección General de Tributos) dated July 27, 2004 or
otherwise and require a withholding to be made;

provided further that Additional Amounts in respect of the Designated Securities will also not be
paid with respect to any payment to a Holder of any Designated Securities who is a fiduciary, a
partnership, a limited liability company or other than the sole Beneficial Owner of that payment,
to the extent that payment would be required by the laws of the Kingdom of Spain (or any

A-8

 

political subdivision thereof or any authority or agency therein or thereof having power to tax) to
be included in the income, for tax purposes, of a beneficiary or settlor with respect to the
fiduciary, a member of that partnership, an interest holder in that limited liability company or a
Beneficial Owner who would not have been entitled to the Additional Amounts had it been the Holder.

     “Relevant Date” means, in respect of any payment, the date on which such payment first becomes
due and payable, but if the full amount of the moneys payable has not been received by the Paying
Agent on or prior to such due date, it means the first date on which the full amount of such moneys
having been so received and being available for payment to Holders, notice to that effect shall
have been duly given to the Holders in accordance with the Indenture.

     The foregoing provisions shall apply mutatis mutandis to any withholding or deduction for or
on account of any present or future taxes, assessments or governmental charges of whatever nature
of any jurisdiction in which any successor Person to the Issuer or the Guarantor, as the case may
be, is organized, or any political subdivision or taxing authority thereof or therein.

     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and
the modification of the rights and obligations of the Issuer and the Guarantor and the rights of
the Holders of the Securities of each series to be affected under the Indenture at any time by the
Issuer, the Guarantor and the Trustee with the consent of the Holders of a majority in principal
amount of the Securities at the time Outstanding of each series to be affected. The Indenture also
contains provisions permitting the Holders of specified percentages in principal amount of the
Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of
such series, to waive compliance by the Issuer or the Guarantor with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences. Any such consent
or waiver by the Holder of the Designated Securities represented by this Security Certificate shall
be conclusive and binding upon such Holder and upon all future Holders of the Designated Securities
represented by this Security Certificate and of the Designated Securities represented by any
Security Certificate issued upon the registration of transfer of the Designated Securities
represented by this Security Certificate or in exchange thereof or in lieu thereof, whether or not
notation of such consent or waiver is made upon this Security Certificate.

     As set forth in, and subject to, the provisions of the Indenture, if any Event of Default
shall occur in relation to the Designated Securities (taking into account any applicable grace
period), the Trustee or the Holders of not less than 25% in principal amount of the Outstanding
Designated Securities may, by written notice to the Issuer, at the Corporate Trust Office (and to
the Trustee if given by the Holders), declare that the Designated Securities including principal,
and all interest then accrued and unpaid on such Designated Securities shall be immediately due and
payable, whereupon the same shall become immediately due and payable, at their principal amount
together with all interest, if any, accrued and unpaid thereon and Additional Amounts, if any,
payable in respect thereof without presentment, demand, protest or other notice of any kind, all of
which the Issuer or the Guarantor, as the case may be, will expressly waive, unless, prior thereto,
all Events of Default in respect of such Securities of such series shall have been cured.

A-9

 

     No reference herein to the Indenture and no provision of the Designated Securities or of the
Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional,
to pay the principal of and interest and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal or premium on any overdue interest, on the
Designated Securities at the rate or rates herein prescribed.

     Except as set forth in the Indenture, the Designated Securities represented hereby may be
transferred, in whole and not in part, only: (i) by the Depositary to a nominee of the Depositary,
(ii) by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or
(iii) by the Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary. Beneficial interests in a Designated Security represented by a Global
Certificate will be exchangeable for Certificated Securities of this series only if: (a) the
Depositary notifies the Issuer that it is unwilling or unable to continue to act as Depositary or
that it is no longer a clearing agency registered under the Exchange Act and, in either case, a
successor Depositary is not appointed by the Issuer within 120 days after the date of such notice
from the Depositary, (b) the Issuer notifies the Trustee in writing that it has reasonably elected
to cause the issuance of Certificated Securities of this series or (c) there shall have occurred
and be continuing an Event of Default with respect to the Designated Securities and the Designated
Securities will be accelerated in accordance with their terms and the terms of the Indenture. Upon
the occurrence of any of the events specified in (a), (b) or (c) above, Certificated Securities of
this series shall be (x) delivered by the Trustee in exchange for beneficial interest in Designated
Securities represented by Global Certificates and (y) registered in such names, and issued in such
authorized denominations, as shall be requested by or on behalf of the Depositary in accordance
with its customary procedures.

     As provided in the Indenture, the Issuer shall cause to be kept at the Corporate Trust Office
of the Trustee a Register in which, subject to such reasonable regulations as it may prescribe, the
Issuer shall provide for the registration of Designated Securities and of transfers of Designated
Securities.

     No service charge shall be made for any such registration of transfer or exchange, but the
Issuer or the Trustee may require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith other than as set forth in the Indenture.

     Prior to due presentment of this Security Certificate for registration of transfer of any
Security represented hereby, the Issuer, the Guarantor, the Trustee and any agent of the Issuer,
the Guarantor or the Trustee may treat the Person in whose name such Security is registered as the
owner of such Security for the purpose of receiving payment of principal of and any premium and
(subject to Section 2.8 of the Original Indenture) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the Issuer, the
Guarantor, the Trustee nor any agent of the Issuer, the Guarantor or the Trustee shall be affected
by notice to the contrary.

     Pursuant to Section 5-1401 of the General Obligations Law of the State of New York, the
Indenture, the Designated Securities and the Designated Guarantee shall be governed by, and
construed in accordance with, the laws of the State of New York.

A-10

 

     All terms used in this Security Certificate which are not otherwise defined herein shall have
the meanings assigned to them in the Indenture.

A-11exv4w4

 

EXHIBIT 4.4

 

Third Supplemental Indenture

among

Telefónica Emisiones, S.A.U.,

as Issuer,

Telefónica, S.A.,

as Guarantor

and

JPMorgan Chase Bank, N.A.,

as Trustee and Paying Agent

June 20, 2006

$1,250,000,000

Fixed Rate Senior Notes due 2016

 

 

 

Table of Contents

	 	 	 	 	 	 	 
	 	 	 	 	Page
	ARTICLE 1
	 	 	 	 
	Definitions and Other Provisions of General Application
	 	 	 	 
	 	 	 
	 	 	 	 
	SECTION 1.1.
	 	Definitions

	 	 	1	 
	SECTION 1.2.
	 	Conflict with Trust Indenture Act

	 	 	4	 
	SECTION 1.3.
	 	Effect of Headings and Table of Contents

	 	 	5	 
	SECTION 1.4.
	 	Successors and Assigns

	 	 	5	 
	SECTION 1.5.
	 	Separability Clause

	 	 	5	 
	SECTION 1.6.
	 	Benefits of Supplemental Indenture

	 	 	5	 
	SECTION 1.7.
	 	Governing Law

	 	 	5	 
	SECTION 1.8.
	 	Execution in Counterparts

	 	 	5	 
	SECTION 1.9.
	 	Recitals by the Issuer and the Guarantor

	 	 	5	 
	SECTION 1.10.
	 	Ratification and Incorporation of Original Indenture

	 	 	5	 
	 	 	 
	 	 	 	 
	ARTICLE 2
	 	 	 	 
	Designated Securities
	 	 	 	 
	 	 	 
	 	 	 	 
	SECTION 2.1.
	 	Creation of Designated Securities

	 	 	6	 
	SECTION 2.2.
	 	Limitation on Aggregate Principal Amount of Designated Securities

	 	 	6	 
	SECTION 2.3.
	 	Payment of Principal

	 	 	6	 
	SECTION 2.4.
	 	Interest and Interest Rate

	 	 	6	 
	SECTION 2.5.
	 	Paying Agent

	 	 	7	 
	SECTION 2.6.
	 	Place of Payment

	 	 	10	 
	SECTION 2.7.
	 	Denominations

	 	 	11	 
	SECTION 2.8.
	 	Listing

	 	 	11	 
	SECTION 2.9.
	 	Security Certificates

	 	 	11	 
	SECTION 2.10.
	 	Defeasance and Covenant Defeasance

	 	 	12	 
	SECTION 2.11.
	 	Additional Amounts

	 	 	12	 
	SECTION 2.12.
	 	Redemption

	 	 	12	 
	SECTION 2.13.
	 	Applicable Procedures and Tax Certification Procedures

	 	 	12	 
	SECTION 2.14.
	 	Maintenance of Tax Certification Procedures

	 	 	12	 
	 	 	 
	 	 	 	 
	EXHIBIT A
	 	Form of Security Certificate Representing Designated Securities

	 	 	A-1	 

i

 

     This Third Supplemental Indenture, dated as of June 20, 2006, among Telefónica
Emisiones, S.A.U., a sociedad anónima incorporated under the laws of the Kingdom of Spain (the
“Issuer”), Telefónica, S.A., a sociedad anónima incorporated under the laws of the Kingdom of Spain
(the “Guarantor”), and JPMorgan Chase Bank, N.A., a national banking association organized and
existing under the laws of the United States of America, as trustee (the “Trustee”, which term
includes any successor Trustee) and paying agent (the “Paying Agent”, which term includes any
successor Paying Agent).

     Whereas, the Issuer has heretofore entered into an Indenture, dated as of June 20,
2006 (as amended and supplemented, the “Original Indenture”), with the Guarantor and the Trustee;

     Whereas, the Original Indenture is incorporated herein by this reference and the
Original Indenture, as supplemented by this Supplemental Indenture, is herein called the
“Indenture”;

     Whereas, the Issuer proposes to create a new series of Securities under the
Indenture;

     Whereas, Mr. Miguel Escrig Meliá, as Director (Administrador Solidario) of the Issuer
and exercising the delegation to issue debt securities approved by the Guarantor as sole
shareholder of the Issuer on April 7, 2006 in favor of the Directors (Administradores Solidarios)
of the Issuer, hereby resolves to issue the Designated Securities (as this term is defined in
Section 2.1 below) in an aggregate principal amount of $1,250,000,000 and with the terms and
conditions referred to in this Supplemental Indenture; and

     Whereas, all things necessary to make this Supplemental Indenture a valid agreement
of the Issuer and the Guarantor, in accordance with its terms, have been done;

     Now, therefore, for and in consideration of the premises and the purchases of the
Designated Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal
and proportionate benefit of all Holders of Designated Securities, as follows:

ARTICLE 1

Definitions and Other Provisions of General Application

     SECTION 1.1. Definitions. For all purposes of this Supplemental Indenture, except as otherwise
expressly provided or unless the context otherwise requires:

(a) the terms defined in this Article have the meanings assigned to them in this Article
and include the plural as well as the singular;

(b) all other terms used herein which are defined in the Trust Indenture Act, either
directly or by reference therein, have the meanings assigned to them therein;

1

 

(c) all accounting terms not otherwise defined herein have the meanings assigned to them in
accordance with generally accepted accounting principles, and, except as otherwise herein
expressly provided, the term “generally accepted accounting principles”, or “GAAP”, with
respect to any computation required or permitted hereunder shall mean (i) in the case of
the Issuer’s and the Guarantor’s unconsolidated financial statements, the accounting
principles generally accepted in the Kingdom of Spain and (ii) in the case of the
Guarantor’s consolidated financial statements, International Financial Reporting Standards
as adopted by the European Union, in each case as in effect at the date of such computation
and as applied by the Issuer or the Guarantor, as the case may be;

(d) unless the context otherwise requires, any reference to an “Article” or a “Section”
refers to an Article or a Section, as the case may be, of this Supplemental Indenture;

(e) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to
this Supplemental Indenture as a whole and not to any particular Article, Section or other
subdivision; and

(f) all terms used but not defined in this Supplemental Indenture, which are defined in the
Original Indenture, shall have the meanings assigned to them in the Original Indenture.

     “Business Day” means a day other than a Saturday, a Sunday or any other day on which banking
institutions in New York, New York, or the city of Madrid, Spain are authorized or required by law
or executive order to close.

     “Comparable Treasury Issue” means the United States Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining term (“Remaining
Life”) of the Designated Securities to be redeemed that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of the Designated Securities being
redeemed.

     “Comparable Treasury Price” means, with respect to any Redemption Date, (1) the average of the
Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations, or (2) if the Independent Investment Banker
obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such
Quotations or, if only one such Quotation is obtained, such Quotation.

     “Depositary” means The Depositary Trust Company and its successors.

     “Designated Guarantee” means that certain guarantee dated June 20, 2006, executed and
delivered by the Guarantor and endorsed on each Security Certificate representing Designated
Securities, pursuant to which, among other things, the Guarantor

2

 

shall unconditionally and irrevocably guarantee to the Holders of the Designated Securities
the due and punctual payment of principal of, premium, if any, and interest and all other amounts
due under the Indenture and the Designated Securities.

     “Designated Securities” has the meaning ascribed in Section 2.1.

     “Guarantor” means the Person named as “Guarantor” in the first paragraph of this
Supplemental Indenture.

     “Independent Investment Banker” means an independent investment banking institution of
national standing appointed by the Issuer and the Guarantor, which may be one of the Reference
Treasury Dealers.

     “Interest Payment Date” has the meaning ascribed in Section 2.4(b).

     “Issuer” means the Person named as “Issuer” in the first paragraph of this Supplemental
Indenture.

     “New York Business Day” means a day other than a Saturday, a Sunday or any other day on which
banking institutions in New York, New York are authorized or required by law or executive order to
close.

     “Paying Agent” means the Person named as “Paying Agent” in the first paragraph of this
Supplemental Indenture.

     “Redemption Date” has the meaning ascribed in Section 2.12.

     “Redemption Price” has the meaning ascribed in Section 2.12.

     “Reference Treasury Dealer” means each of (1 Lehman Brothers Inc. and its successors, provided
that if the foregoing shall cease to be a primary U.S. government securities dealer in New York
City (a “Primary Treasury Dealer”), the Issuer and the Guarantor will substitute therefore another
Primary Treasury Dealer and (2) any other Primary Treasury Dealer selected by the Issuer and the
Guarantor.

     “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer
and any Redemption Date, the average, as determined by the Independent Investment Banker, of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of
its principal amount) quoted in writing to the Independent Investment Banker by the Reference
Treasury Dealer at 5:00 p.m. on the third New York Business Day preceding such Redemption Date.

     “Regular Record Date” means the 10th New York Business Day prior to the applicable
Interest Payment Date.

     “Stated Maturity” means June 20, 2016.

3

 

     “Supplemental Indenture” means this instrument as originally executed or as it may from time
to time be supplemented or amended in accordance with the terms of the Indenture.

     “Tax Certification Agency Agreement” means that certain Tax Certification Agency Agreement
dated as of June 20, 2006 among the Issuer, the Guarantor, and the Tax Certification Agent (as
defined below), as amended, supplemented, modified, replaced or restated from time to time in
accordance with its terms.

     “Tax Certification Agent” means Acupay System LLC, a New York limited liability corporation,
or any successor Tax Certification Agent appointed in accordance with the terms of the Tax
Certification Agency Agreement.

     “Tax Certification Procedures” means those certain procedures to collect certain information
with respect to Beneficial Owners of the Designated Securities specified in the Tax Certification
Agency Agreement, as such procedures may be amended, supplemented, modified or replaced from time
to time in accordance with the terms of the Tax Certification Agency Agreement.

     “Treasury Rate” means, with respect to any Redemption Date, (1) the yield, under the heading
which represents the average for the immediately preceding week, appearing in the most recently
published statistical release designated “H.15(519)” or any successor publication which is
published weekly by the Board of Governors of the Federal Reserve System and which establishes
yields on actively traded United States Treasury securities adjusted to constant maturity under the
caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury
Issue (if no maturity is within three months before or after the Remaining Life, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue shall be
determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month), (2) if the period from the Redemption Date to
the maturity date of the Securities to be redeemed is less than one year, the weekly average yield
on actually traded United States Treasury securities adjusted to a constant maturity of one year
will be used, or (3) if such release (or any successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate per annum equal to the
semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price
for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated by the
Independent Investment Banker on the third New York Business Day preceding the Redemption Date.

     “Trustee” means the Person named as “Trustee” in the first paragraph of this Supplemental
Indenture.

     SECTION 1.2. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or
conflicts with a provision of the Trust Indenture Act that is required under

4

 

such Act to be a part of and govern the Indenture, the provision of the Trust Indenture Act shall
control. If any provision of this Supplemental Indenture modifies or excludes any provision of the
Trust Indenture Act that may be so modified or excluded, the provision of the Trust Indenture Act
shall be deemed to apply to this Supplemental Indenture as so modified or to be excluded, as the
case may be.

     SECTION 1.3. Effect of Headings and Table of Contents. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the construction hereof.

     SECTION 1.4. Successors and Assigns. All covenants and agreements in this Supplemental Indenture
by the Issuer or the Guarantor shall bind their respective successors and assigns, whether so
expressed or not.

     SECTION 1.5. Separability Clause. In case any provision in this Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

     SECTION 1.6. Benefits of Supplemental Indenture. Nothing in the Indenture, the Designated
Securities or the Designated Guarantee, express or implied, shall give to any Person, other than
the parties hereto and their successors hereunder and the Holders of Designated Securities, any
benefit or any legal or equitable right, remedy or claim under the Indenture.

     SECTION 1.7. Governing Law. Pursuant to Section 5-1401 of the General Obligations Law of the State
of New York, this Supplemental Indenture, the Designated Securities and the Designated Guarantee
shall be governed by, and construed in accordance with, the laws of the State of New York.

     SECTION 1.8. Execution in Counterparts. This Supplemental Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

     SECTION 1.9. Recitals by the Issuer and the Guarantor. The recitals in this Supplemental
Indenture are made by the Issuer and the Guarantor only and not by the Trustee, and all of the
provisions contained in the Original Indenture in respect of the rights, privileges, immunities,
powers and duties of the Trustee shall be applicable in respect of the Designated Securities, the
Designated Guarantee and of this Supplemental Indenture as fully and with like effect as if set
forth herein in full.

     SECTION 1.10. Ratification and Incorporation of Original Indenture. As supplemented hereby, the
Original Indenture is in all respects ratified and confirmed, and the Original Indenture and this
Supplemental Indenture shall be read, taken and construed as one and the same instrument.

5

 

ARTICLE 2

Designated Securities

     SECTION 2.1. Creation of Designated Securities. There is hereby created a new series of Securities
to be issued under the Indenture, to be designated as Fixed Rate Senior Notes due 2016 (the
"Designated Securities”). The Designated Securities have been designated as series C of the Issuer
in the public deed of issuance executed by one of the Directors (Administradores Solidarios) of the
Issuer on June 12, 2006 and registered with the Mercantile Registry of Madrid on June 16, 2006.

     SECTION 2.2. Limitation on Aggregate Principal Amount of Designated Securities. The aggregate
principal amount of the Designated Securities shall initially be limited to $1,250,000,000
(except for Designated Securities represented by any Security Certificate authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of, other Designated
Securities pursuant to Section 2.4, 2.5, 2.7, 9.6 or 11.7 of the Original Indenture and except for
any Designated Securities which, pursuant to Section 2.3 of the Original Indenture, are deemed
never to have been authenticated and delivered under the Indenture). The Issuer may from
time to time, without the consent of the Holders of Designated Securities, create and issue further
securities having the same terms and conditions as the previously issued Designated Securities in
all respects (or in all respects except for the issue date, the first payment of interest thereon
and/or issue price), so that such further issue shall be consolidated and form a single series with
the Outstanding Designated Securities; provided, however, that any such further issuance will only
be made if either such additional securities are issued with no more than de minimis original issue
discount for U.S. federal income tax purposes or any such further issuance is a “qualified
reopening” as such term is defined under Treasury Regulations Section 1.1275-2(k)(3) promulgated
under the Internal Revenue Code of 1986, as amended.

     SECTION 2.3. Payment of Principal. The principal of the Outstanding Designated Securities shall be
due and payable at the Stated Maturity.

     SECTION 2.4. Interest and Interest Rate.

(a) The Designated Securities will bear interest from June 20, 2006 or from the most recent
date through which the Issuer has paid or provided for interest on the Designated
Securities at an annual rate of 6.421%.

(b) Subject to and in accordance with the Tax Certification Procedures, the Issuer or the
Guarantor, as the case may be, will pay interest on the Designated Securities semi-annually
on each June 20 and December 20 of each year, beginning on December 20, 2006 until the
Maturity, and at Maturity (each an “Interest Payment Date”).

(c) Interest on the Designated Securities will be computed on the basis of a 360-day year
of twelve 30-day months. Except as described below for the first

6

 

Interest Payment Date, on
each Interest Payment Date, the Issuer or the
Guarantor, as the case may be, will pay interest on the Designated Securities for the
period commencing on and including the immediately preceding Interest Payment Date and
ending on and including the day immediately preceding that Interest Payment Date.

(d) On the first Interest Payment Date, the Issuer or the Guarantor, as the case may be,
will pay interest for the period beginning on and including the issue date of the
Designated Securities and ending on and excluding the first Interest Payment Date.

(e) If any Interest Payment Date would fall on a day that is not a Business Day, the
interest payment shall be postponed to the next day that is a Business Day, and no interest
on such payment shall accrue for the period from and after such Interest Payment Date.

(f) If the Maturity of any Designated Security is not a Business Day, payment of principal
and interest on the applicable Designated Security will be made on the next succeeding day
that is a Business Day, and no interest will accrue for the period from and after such
Maturity.

(g) Subject to and in accordance with the Tax Certification Procedures, interest on each
Designated Security will be paid only to the Person in whose name such Designated Security
was registered at the close of business on the Regular Record Date for the applicable
Interest Payment Date.

     SECTION 2.5. Paying Agent.

(a) Upon the terms and subject to the conditions contained herein, the Issuer hereby
appoints JPMorgan Chase Bank, N.A. as the initial Paying Agent under the Indenture for the
purpose of performing the functions of the Paying Agent with respect to the Designated
Securities.

(b) The Paying Agent shall exercise due care in performing the functions of the Paying
Agent for the Designated Securities.

(c) The Paying Agent accepts its obligations set forth herein, upon the terms and subject
to the conditions hereof, including the following, to all of which the Issuer and the
Guarantor agree:

(i) The Paying Agent shall be entitled to such compensation as may be agreed in
writing with the Issuer and the Guarantor for all services rendered by the Paying
Agent, and the Issuer and the Guarantor promise to pay such compensation and to
reimburse the Paying Agent for the reasonable out-of-pocket expenses (including
reasonable counsel fees and expenses) incurred by it in connection with the
services rendered by it hereunder upon receipt of such invoices as the Issuer and
the Guarantor

7

 

shall reasonably require. The Issuer and the Guarantor agree to
indemnify
the Paying Agent for, and to hold it harmless against, any and all loss, liability,
damage, claims or expenses (including the costs and expenses of defending against
any claim of liability) incurred by the Paying Agent that arises out of or in
connection with its acting as Paying Agent hereunder, except such as may result
from the negligence, willful misconduct or bad faith of the Paying Agent or any of
its agents or employees. The Paying Agent shall incur no liability and shall be
indemnified and held harmless by the Issuer and the Guarantor for, or in respect
of, any actions taken, omitted to be taken or suffered to be taken in good faith by
the Paying Agent in reliance upon (1) the written opinion of counsel satisfactory
to it and upon obtaining the prior written consent of the Issuer or the Guarantor
or (2) written instructions from the Issuer and the Guarantor. The provisions of
this paragraph shall survive the termination of this Supplemental Indenture.

(ii) In acting under the Indenture and in connection with the Designated
Securities, the Paying Agent is acting solely as agent of the Issuer and the
Guarantor and does not assume any obligations to, or relationship of agency or
trust for or with, any of the Holders of the Designated Securities.

(iii) The Paying Agent shall be protected and shall incur no liability for or in
respect of any action taken or omitted to be taken or anything suffered by it in
reliance upon the terms of the Designated Securities, any notice, direction,
certificate, affidavit, statement or other paper, document or communication
reasonably believed by it to be genuine and to have been approved or signed by the
proper party or parties.

(iv) The Paying Agent shall be obligated to perform only such duties as are herein
specifically set forth and any duties necessarily incidental thereto, and no
implied duties or obligations shall be read into the Indenture against the Paying
Agent.

(v) Unless herein otherwise specifically provided, any order, certificate, notice,
request, direction or other communication from the Issuer or the Guarantor made or
given by it under any provision of the Indenture shall be sufficient if signed by
any proper officer or an authorized person of the Issuer or the Guarantor, as the
case may be.

(vi) The Paying Agent may, upon obtaining the prior written consent of the Issuer
and the Guarantor, perform any duties hereunder either directly or by or through
agents or attorneys, and the Paying Agent shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with due
care by it hereunder.

8

 

(vii) Under no circumstances will any party to this Supplemental Indenture be
liable to any other party to this Supplemental Indenture for any special, indirect,
punitive or consequential loss or damage (including, but not limited to, the loss
of business, goodwill, opportunity or profit) whether or not foreseeable and even
if advised of the possibility of such loss or damage and regardless of whether the
claim for loss or damage is made in negligence, for breach of contract, breach of
trust, breach of fiduciary obligation or otherwise.

	 	(d)	 	(i) The Paying Agent may at any time resign as Paying Agent by giving written
notice to the Issuer and the Guarantor of such intention on its part, specifying the
date on which its desired resignation shall become effective; provided, however, that
such date shall not be earlier than 60 days after the receipt of such notice by the
Issuer and the Guarantor, unless the Issuer and the Guarantor agree in writing to
accept less notice. The Paying Agent may be removed (with or without cause) at any
time by the filing with it of any instrument in writing signed on behalf of the Issuer
and the Guarantor by any proper officer or an authorized person thereof and specifying
such removal and the date when it is intended to become effective, subject to (if such
Paying Agent is not the Trustee) the written consent of the Trustee, which consent
shall not be unreasonably withheld. Such resignation or removal shall take effect
only upon the date of the appointment by the Issuer and the Guarantor, as hereinafter
provided, of a successor Paying Agent. If within 60 days after notice of resignation
or removal has been given, a successor Paying Agent has not been appointed, the Paying
Agent may petition a court of competent jurisdiction to appoint a successor Paying
Agent. A successor Paying Agent shall be appointed by the Issuer and the Guarantor by
an instrument in writing signed on behalf of the Issuer and the Guarantor, as the case
may be, by any proper officer or an authorized person thereof and the successor Paying
Agent. Upon the appointment of a successor Paying Agent and acceptance by it of such
appointment, the Paying Agent so superseded shall cease to be such Paying Agent
hereunder. Upon its resignation or removal, the Paying Agent shall be entitled to the
payment by the Issuer and the Guarantor of its compensation, if any is owed to it, for
services rendered hereunder and to the reimbursement of all reasonable out-of-pocket
expenses incurred in connection with the services rendered by it hereunder.
	 
	 	(ii)	 	Any successor Paying Agent appointed hereunder shall execute and deliver to its
predecessor and to the Issuer and the Guarantor an instrument accepting such
appointment hereunder, and thereupon such successor Paying Agent, without any
further act, deed or conveyance, shall become vested with all the authority,
rights, powers, trusts, immunities, duties and obligations of such predecessor with
like effect as if originally named as such Paying Agent hereunder, and such
predecessor, upon payment of its charges and disbursements then unpaid,

9

 

	 	 	 	shall thereupon become obliged to transfer and deliver, and such successor Paying
Agent shall be entitled to receive, copies of any relevant records maintained by
such predecessor Paying Agent.
	 
	 	(iii)	 	Any Person into which the Paying Agent may be merged or converted or with
which the Paying Agent may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which the Paying Agent shall be a party, or
any Person succeeding to all or substantially all of the assets and business of the
Paying Agent, or all or substantially all of the corporate trust business of the
Paying Agent shall, to the extent permitted by applicable law and provided that it
shall have an established place of business in The City of New York, be the
successor Paying Agent under the Indenture without the execution or filing of any
paper or any further act on the part of any of the parties hereto. Notice of any
such merger, conversion, consolidation or sale shall forthwith be given to the
Issuer and the Guarantor within 30 days of such merger, conversion, consolidation
or sale.
	 
	 	(iv)	 	Any notice required to be given by the Paying Agent to any other person
hereunder other than the Tax Certification Agent shall be given in accordance with
Section 1.5 of the Original Indenture. Any notice required to be given to the Tax
Certification Agent shall be delivered in person, sent by letter or communicated by
telephone (subject, in the case of communication by telephone, to confirmation
dispatched within twenty-four hours by letter), to the following address (or to any
other address of which the Tax Certification Agent shall have notified the others
in writing as herein provided): Acupay Systems, LLC, Attn: Marian Guerrero, 30
Broad Street, 46th Floor, New York, NY 10004, telephone: (212) 422-1222, facsimile:
(212) 422-0790. Any notice to be given to the Paying Agent shall be delivered in
person, sent by letter or communicated by telephone (subject, in the case of
communications by telephone, to confirmation dispatched within twenty-four hours by
letter), to the following address (or to any other address of which the Paying
Agent shall have notified the others in writing): JPMorgan Chase Bank, N.A., 4 New
York Plaza, 15th floor, New York, New York 10004, Attention: Worldwide Securities
Services, facsimile: (212) 623-6216. Any notice hereunder given by telephone or
letter shall be deemed to be received when in the ordinary course of transmission
or post, as the case may be, it would be received.

     SECTION 2.6. Place of Payment.The place or places where, subject to the provisions of Section 10.2
of the Original Indenture, the principal of, and any premium and interest on, and any Additional
Amounts in respect of, the Designated Securities shall be payable, Security Certificates
representing the Designated Securities may be surrendered for exchange or conversion of the
Designated Securities represented thereby and notices and demands to or upon the Issuer or the
Guarantor in respect of the

10

 

Designated Securities and this Indenture may be served shall be the Corporate Trust Office of the
Trustee.

     SECTION 2.7. Denominations.The Designated Securities may be issued in denominations of $1,000.

     SECTION 2.8. Listing. From and including the issue date of the Designated Securities to and
including the first Interest Payment Date in respect of the Designated Securities, the Issuer will
use its reasonable best efforts to obtain or maintain, as applicable, a listing of the Designated
Securities on the New York Stock Exchange or another organized market in an OECD country.

     SECTION 2.9. Security Certificates.

(a) The Designated Securities shall initially be represented by one or more Global
Certificates substantially in the form of Exhibit A, which shall be deposited with a
custodian for the Depositary and the Designated Securities represented thereby will be
registered in the name of a nominee of the Depositary, for the accounts of participants in
the Depositary.

(b) Designated Securities represented by a Global Certificate may be transferred, in whole
and not in part, only: (i) by the Depositary to a nominee of the Depositary, (ii) by a
nominee of the Depositary to the Depositary or to another nominee of the Depositary, or
(iii) by the Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary.

(c) Beneficial interests in any Designated Securities represented by a Global Certificate
will be exchangeable for Designated Securities represented by Definitive Certificates only
if: (i) the Depositary notifies the Issuer that it is unwilling or unable to continue to
act as Depositary or that it is no longer a clearing agency registered under the Exchange
Act and, in either case, a successor Depositary is not appointed by the Issuer within 120
days after the date of such notice from the Depositary, (ii) the Issuer notifies the
Trustee in writing that it has reasonably elected to cause the issuance of Designated
Securities represented by Definitive Certificates or (iii) there shall have occurred and be
continuing an Event of Default with respect to the Designated Securities and the Designated
Securities will be accelerated in accordance with their terms and the terms of the
Indenture.

(d) Upon the occurrence of any of the events specified in (i), (ii) or (iii) of (c) above,
Designated Securities represented by Definitive Certificates shall be (i) delivered by the
Trustee in exchange for beneficial interest in Designated Securities represented by Global
Certificates and (ii) registered in such names, and issued in such authorized
denominations, as shall be requested by or on behalf of the Depositary in accordance with
its customary procedures.

11

 

     SECTION 2.10. Defeasance and Covenant Defeasance. The provisions of Sections 4.3 and 10.8 of
the Original Indenture will apply to the Designated Securities.

     SECTION 2.11. Additional Amounts. Except as otherwise provided in the immediately following
sentence, the provisions of Section 10.4 of the Original Indenture will apply to the Designated
Securities. In the event of an early redemption of the Designated Securities for the reasons set
forth in Section 11.8(b) of the Original Indenture, the Issuer or the Guarantor, as the case may
be, will be required to withhold tax and will pay interest in respect of the principal amount of
the Designated Securities redeemed net of the withholding tax applicable to such payments. If this
were to occur, Beneficial Owners would have to either follow the “Quick Refund Procedures” set
forth in Article II of Exhibit A to the Tax Certification Agency Agreement or follow the “Direct
Refund from Spanish Tax Authorities Procedures” set forth in Article IV of Exhibit A to the Tax
Certification Agency Agreement.

     SECTION 2.12. Redemption. The provisions of Article 11 of the Original Indenture will apply
to the Designated Securities. The “Redemption Price” means: (a) with respect to any Designated
Securities to be redeemed other than pursuant to Section 11.8 of the Original Indenture, an amount
equal to the greater of: (x) 100% of the principal amount of such Designated Securities to be
redeemed plus accrued but unpaid interest to, but excluding, the Redemption Date (as defined below)
of such Designated Securities and (y) as determined by the Independent Investment Banker, the sum
of the present values of the remaining scheduled payments of principal thereof and interest thereon
(exclusive of interest accrued thereon to the Redemption Date) discounted to the Redemption Date of
the Designated Securities being redeemed on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate plus 25 basis points for the Designated Securities
being redeemed, plus accrued and unpaid interest on the principal amount of such Designated
Securities (or any portion thereof) being redeemed to, but excluding, the Redemption Date of the
Designated Securities (or any portion thereof) being redeemed; and (b) with respect to any
Designated Securities to be redeemed pursuant to Section 11.8 of the Original Indenture, an amount
equal to their principal amount, together with accrued and unpaid interest, if any, thereon to but
excluding the Redemption Date. The “Redemption Date” of any Designate Securities to be redeemed
will be any Business Day fixed by the Issuer for redemption of such Designed Securities and
specified in the applicable notice of redemption provided by the Issuer to the Trustee pursuant to
Section 11.2 of the Original Indenture; provided, however, that the Redemption Date of any
Designated Securities to be redeemed pursuant to Section 11.8(a) of the Original Indenture shall be
an Interest Payment Date.

     SECTION 2.13. Applicable Procedures and Tax Certification Procedures. The Trustee and Paying
Agent shall comply with the Applicable Procedures and Tax Certification Procedures with respect to
any Designated Securities (and any beneficial interest therein).

     SECTION 2.14. Maintenance of Tax Certification Procedures. So long as any principal amount of
the Designated Securities remains outstanding, the Issuer and the

12

 

Guarantor shall, insofar as it is practicable, maintain, implement or arrange for the
implementation of Tax Certification Procedures that will facilitate the collection of information
concerning the identity and country of residence of Beneficial Owners so long as such collection is
required under Spanish law to allow payment of interest on the Designated Securities free and clear
of Spanish withholding tax.

13

 

     In witness whereof, each of the parties hereto has caused this Supplemental Indenture
to be duly executed on its behalf as of the date first above written.

	 	 	 	 	 
	 	 	Telefónica Emisiones, S.A.U.,
	 	 	as Issuer
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title: Director (Administrador Solidario)
	 
	 	 	Telefónica, S.A.,
	 	 	as Guarantor
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:
	 
	 	 	 	 
	 	 	JPMorgan Chase Bank, N.A.,
	 	 	as Trustee and Paying Agent
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:

Third Supplemental Indenture

 

 

EXHIBIT A

Form of Security Certificate Representing Designated Securities

Telefónica Emisiones, S.A.U.

Fixed Rate Senior Notes due 2016

Guaranteed by

Telefónica, S.A.

					
	No. [l]
	 	 
	 	CUSIP No. 87938WAB9
	 
	 	 	 	ISIN No. US87938WAB90

     UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR DEFINITIVE CERTIFICATES, THIS GLOBAL
CERTIFICATE MAY BE TRANSFERRED, IN WHOLE AND NOT IN PART, ONLY: (I) BY THE DEPOSITARY TO A NOMINEE
OF THE DEPOSITARY, (II) BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR TO ANOTHER NOMINEE OF
THE DEPOSITARY, OR (III) BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITARY, AND TRANSFERS OF THE SECURITIES REPRESENTED BY THIS GLOBAL
CERTIFICATE AND ANY BENEFICIAL INTERESTS IN ANY SECURITIES REPRESENTED BY THIS GLOBAL CERTIFICATE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO BELOW.

     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST
COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

     Telefónica Emisiones, S.A.U., a sociedad anónima incorporated under the laws of the
Kingdom of Spain (herein called the “Issuer”, which term includes any successor Person under the
Indenture referred to hereinafter), for value received, hereby promises to pay to Cede & Co., or
registered assigns, the principal sum of $[l] on June 20, 2016 and, subject to and in
accordance with the Tax Certification Procedures, to pay interest thereon from December 20, 2006,
or from the most recent Interest Payment Date to which interest has been paid or duly

A-1

 

provided for,
semi-annually in arrears on June 20 and December 20 of each year, commencing December 20,
2006, at the rate of 6.421% per annum until Maturity, and at Maturity.

     Interest will be computed on the basis of a 360-day year of twelve 30-day months. Except as
provided below for the first Interest Payment Date, on each Interest Payment Date, the Issuer will
pay interest on the Designated Securities (as defined herein) for the period commencing on and
including the immediately preceding Interest Payment Date and ending on and including the day
immediately preceding that Interest Payment Date. On the first Interest Payment Date, the Issuer
will pay interest for the period beginning on and including June 20, 2006 and ending on and
including December 19, 2006. If any Interest Payment Date falls on a day that is not a Business
Day, the interest payment shall be postponed to the next day that is a Business Day, and no
interest on such payment shall accrue for the period from and after such Interest Payment Date. If
the Maturity of the Designated Securities is not a Business Day, payment of principal and interest
on the Designated Securities will be made on the next succeeding day that is a Business Day and no
interest will accrue for the period from and after the Maturity.

     The interest so payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in the Indenture, be paid to the Person in whose name the Designated
Securities represented hereby (or one or more Predecessor Securities) are registered at the close
of business on the Regular Record Date for such Interest Payment Date, which shall be the
10th New York Business Day prior to the applicable Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose name the
Designated Securities represented hereby (or one or more Predecessor Securities) are registered at
the close of business on a Special Record Date for the payment of such Defaulted Interest to be
fixed by the Trustee, notice whereof shall be given to Holders of Designated Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the Designated
Securities may be listed, and upon such notice as may be required by such exchange, all as more
fully provided in the Indenture.

     For informational purposes only, without any substantive effect whatsoever and solely in order
to comply with Article 291, letter d) of the Spanish Corporations Law (Ley de Sociedades Anónimas),
approved by Royal Decree (Real Decreto Legislativo) 1564/1989, of December 22, as amended, it is
hereby noted that the principal amount of the Designated Securities was equivalent to €990,255,882,
based on the Noon Buying Rate as determined and published by the Federal Reserve Bank of New York,
as of June 16, 2006, for the Euro of $1.2623 per €1.00. Amounts due under the Designated
Securities shall not under any circumstances whatsoever be payable in any currency other than U.S.
dollars or such coin or currency of the United States as at the time of payment shall be legal
tender for the payment of public and private debts.

     JPMorgan Chase Bank, N.A. shall initially act as Trustee and Paying Agent with respect to the
Designated Securities.

A-2

 

     Reference is hereby made to the further provisions of the Designated Securities set forth on
the reverse of this Security Certificate, which further provisions shall for all purposes have the
same effect as if set forth at this place.

     Unless the certificate of authentication hereon has been executed by the Trustee referred to
on the reverse hereof, directly or through an Authenticating Agent, by manual signature of an
authorized signatory, the Designated Securities represented by this Security Certificate shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

     The public deed of issuance (escritura de emisión) related to the Designated Securities
represented hereby was executed on June 12, 2006 before Mr. Ángel Almoguera with the number 2,116
of his files.

A-3

 

     In witness whereof, the Issuer has caused this instrument to be duly executed
manually or in facsimile.

	 	 	 	 	 
	Dated: June 20, 2006	 	Telefónica Emisiones, S.A.U.
	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 
	 	Title: Director (Administrador Solidario)

Certificate of Authentication

     This is one of the Security Certificates representing the Securities of the series designated
thereon referred to in the within-mentioned Indenture.

	 	 	 	 	 
	Dated: June 20, 2006
	 	 	 	 
	 
	 	 	 	 
	 	 	JPMorgan Chase Bank, N.A.,

as Trustee
	 
	 	 	 	 
	 

	 	Manually By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Authorized Officer

     The Designated Securities represented by this Security Certificate are unconditionally and
irrevocably guaranteed by Telefonica, S.A. on the terms set forth in the within-mentioned
Designated Guarantee pursuant to the Indenture.

	 	 	 	 	 
	Dated: June 20, 2006	 	Telefónica, S.A.
	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name:
	 

	 	 	 	Title:

A-4

 

Reverse of Security Certificate

     This Security Certificate is one of the Security Certificates representing a duly authorized
issue of Fixed Rate Senior Notes due 2016 (the “Designated Securities”), issued under an Indenture,
dated as of June 20, 2006 (as amended and supplemented the “Original Indenture”), among the Issuer,
Telefónica, S.A., a sociedad anónima incorporated under the laws of the Kingdom of Spain (herein
called the “Guarantor”, which term includes any successor Person under the Indenture referred to
herein), and JPMorgan Chase Bank, N.A., as Trustee (herein called the “Trustee”, which term
includes any other successor trustee under the Indenture), as supplemented with respect to the
Designated Securities by the Third Supplemental Indenture, dated as of June 20, 2006, among the
Issuer, the Guarantor and JPMorgan Chase Bank, N.A., as Trustee and Paying Agent (collectively with
the Original Indenture, as supplemented, the “Indenture”) and reference is hereby made to the
Indenture for a statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Issuer, the Guarantor, the Trustee and the Holders of the Designated Securities
and of the terms upon which each Security Certificate representing the Designated Securities is,
and is to be, authenticated and delivered.

     The Designated Securities will be subject to redemption at any time, as a whole or in part, at
the election of the Issuer at a Redemption Price which is equal to the greater of: (i) 100% of the
principal amount of the Designated Securities to be redeemed plus accrued and unpaid interest
thereon to, but excluding, the Redemption Date of the Designated Securities to be redeemed; and
(ii) as determined by the Independent Investment Banker, the sum of the present values of the
remaining scheduled payments of principal thereof and interest thereon (exclusive of interest
accrued thereon to the Redemption Date) discounted to the Redemption Date of such Designated
Securities being redeemed on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate plus 25 basis points for the Designated Securities being
redeemed, plus accrued and unpaid interest on the principal amount of such Designated Securities
(or any portion thereof) being redeemed to, but excluding, the Redemption Date of the Designated
Securities (or any portion thereof) being redeemed. Any such redemption will be made in accordance
with the terms of the Indenture.

     “Comparable Treasury Issue” means the United States Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining term (“Remaining
Life”) of the Designated Securities to be redeemed that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of the Designated Securities being
redeemed.

     “Comparable Treasury Price” means, with respect to any Redemption Date, (1) the average of the
Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations, or (2) if the Independent Investment Banker
obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such
Quotations or, if only one such Quotation is obtained, such Quotation.

     “Independent Investment Banker” means an independent investment banking institution of
national standing appointed by the Issuer and the Guarantor, which may be one of the Reference
Treasury Dealers.

A-5

 

     “Reference Treasury Dealer” means each of (1) Lehman Brothers Inc. and its successors,
provided that if the foregoing shall cease to be a primary U.S. government securities dealer in New
York City (a “Primary Treasury Dealer”), the Issuer and the Guarantor will substitute therefor
another Primary Treasury Dealer and (2) any other Primary Treasury Dealer selected by the Issuer
and the Guarantor.

     “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer
and any Redemption Date, the average, as determined by the Independent Investment Banker, of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of
its principal amount) quoted in writing to the Independent Investment Banker by the Reference
Treasury Dealer at 5:00 p.m. on the third New York Business Day preceding such Redemption Date.

     “Treasury Rate” means, with respect to any Redemption Date, (1) the yield, under the heading
which represents the average for the immediately preceding week, appearing in the most recently
published statistical release designated “H.15(519)” or any successor publication which is
published weekly by the Board of Governors of the Federal Reserve System and which establishes
yields on actively traded United States Treasury securities adjusted to constant maturity under the
caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury
Issue (if no maturity is within three months before or after the Remaining Life, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue shall be
determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month), (2) if the period from the Redemption Date to
the maturity date of the Designated Securities to be redeemed is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a constant maturity
of one year will be used, or (3) if such release (or any successor release) is not published during
the week preceding the calculation date or does not contain such yields, the rate per annum equal
to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a
price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal
to the Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated
by the Independent Investment Banker on the third New York Business Day preceding the Redemption
Date.

     The Issuer may from time to time, without the consent of the Holders of Designated Securities,
create and issue further Securities having the same terms and conditions as the previously issued
Designated Securities in all respects (or in all respects except for the issue date, the first
payment of interest thereon and/or the issue price), so that such further issue shall be
consolidated and form a single series with the outstanding Designated Securities; provided,
however, that, any such further issuance will only be made if either such additional securities are
issued with no more than de minimis original issue discount for U.S. federal income tax purposes,
or any such further issuance is a “qualified reopening” as such term is defined under Treasury
Regulations Section 1.1275-2(k)(3) promulgated under the Internal Revenue Code of 1986, as amended.

     The Designated Securities may be redeemed upon not less than 30 nor more than 60 days’ notice
(ending on an Interest Payment Date) given as provided in the Indenture, if (i) as a result of any
change in the laws or regulations of the Kingdom of Spain or any political

A-6

 

subdivision thereof or any authority or agency therein or thereof having power to tax, or in
the interpretation or administration of any such laws or regulations which becomes effective on or
after the date of issuance of the Designated Securities, (x) the Issuer or the Guarantor, as the
case may be, is or would be required to pay any Additional Amounts (y) the Guarantor is or would be
required to deduct or withhold tax on any payment to the Issuer to enable the Issuer to make any
payment of principal, premium, if any, or interest on the Securities and such payment cannot with
reasonable effort by the Guarantor be structured to avoid such deduction or withholding and (ii)
such circumstances are evidenced by the delivery by the Issuer or the Guarantor, as the case may
be, to the Trustee of a certificate signed by an authorized officer or director of the Issuer or
the Guarantor, as the case may be, stating that such circumstances prevail and describing the facts
leading to such circumstances, together with an opinion of independent legal advisers of recognized
standing to the effect that such circumstances prevail, at a Redemption Price equal to their
principal amount, together with accrued interest, if any, thereon to but excluding the Redemption
Date.

     If the Designated Securities are not listed on an organized market in an OECD country no later
than 45 days prior to the initial Interest payment Date on such Designated Securities, the Issuer
or the Guarantor, as the case may be, may, at its option and having given no less than 15 days’
notice (ending on a day which is no later than a Business Day immediately preceding such Interest
Payment Date) to the Holders of such Designated Securities and upon proper notice as provided in
the Indenture, which notice shall be irrevocable, redeem all of the outstanding Designated
Securities at their principal amount, together with accrued interest, if any, thereon to but no
including the Redemption Date; provided that from and including the issue date of such Designated
Securities to and including such Interest Payment Date, the Issuer will use its reasonable best
efforts to obtain or maintain such listing, as applicable. In the event of an early redemption of
the Designated Securities for the reason set forth in the immediately preceding sentence, the
Issuer or the Guarantor, as the case may be, will be required to withhold tax and will pay interest
in respect of the principal amount of the Designated Securities redeemed net of the withholding tax
applicable to such payments. If this were to occur, Beneficial Owners would have to either follow
the “Quick Refund Procedures” set forth in Article II of Exhibit A to the Tax Certification Agency
Agreement or follow the “Direct Refund from Spanish Tax Authorities Procedures” set forth in
Article IV of Exhibit A to the Tax Certification Agency Agreement.

     In the event of redemption of the Designated Securities represented by this Security
Certificate in part only, a new Security Certificate representing the unredeemed portion of the
Designated Securities represented hereby will be issued and registered in the name of the Holder of
the Designated Securities represented hereby upon the cancellation hereof.

     All amounts payable (whether in respect of principal, redemption amount, interest or
otherwise) in respect of the Designated Securities and the Designated Guarantee by the Issuer or
the Guarantor will be made free and clear of and without withholding or deduction for or on account
of any present or future taxes, duties, assessments or governmental charges of whatever nature
imposed or levied by or on behalf of the Kingdom of Spain or any political subdivision thereof or
any authority or agency therein or thereof having power to tax, unless the withholding or deduction
of such taxes, duties, assessments or governmental charges is required by law. In the event that
such withholding or deduction is required by law, the Issuer or the Guarantor shall pay such
Additional Amounts as will result in receipt by the Holders of the Designated Securities

A-7

 

of such amounts as would have been received by them had no such withholding or deduction been
required; provided, however, that the Issuer and the Guarantor will not be required to pay any
Additional Amounts in respect of any Designated Security:

	 	(1)	 	to a Holder of such Designated Security who is liable for such taxes, duties,
assessments or governmental charges in respect of such Designated Security by reason of it
(or the Beneficial Owner for whose benefit it holds such Designated Security) having some
connection with the Kingdom of Spain other than the mere holding of such Designated
Security (or such beneficial interest);
	 
	 	(2)	 	to a Holder of such Designated Security in respect of whom the Issuer or the Guarantor
does not receive such information (which may include a tax residence certificate)
concerning such Holder’s identity and tax residence (or the identity and tax residence of
the Beneficial Owner for whose benefit it holds such Designated Security) as it may require
in order to comply with Law 13/1985 of May 25 (as amended by Law 19/2003 of July 4 and Law
23/2005 of November 18) and any implementing legislation or regulation;
	 
	 	(3)	 	presented for payment (where presentation is required) more than 30 days after the
Relevant Date (as defined below), except to the extent that the relevant Holder would have
been entitled to such Additional Amounts on presenting the same for payment on the expiry
of such period of 30 days;
	 
	 	(4)	 	where the withholding or deduction is imposed on a payment to or for the benefit of an
individual and is required to be made pursuant to European Council Directive 2003/48/EC or
any other Directive implementing the conclusions of the ECOFIN Council meeting of November
26-27, 2000 or any law implementing or complying with, or introduced in order to conform
to, such Directives;
	 
	 	(5)	 	presented for payment (where presentation is required) by or on behalf of a Holder (or
Beneficial Owner) who would have been able to avoid such withholding or deduction by
presenting the relevant Designated Security to another paying agent in a Member State of
the European Union;
	 
	 	(6)	 	to or for the benefit of individuals resident for tax purposes in the Kingdom of Spain
or individuals or any other legal entities resident in, or obtaining income through, a tax
haven territory (as defined in Royal Decree 1080/1991 of July 5); or
	 
	 	(7)	 	to or for the benefit of a Spanish-resident legal entity subject to Spanish Corporate
Income Tax if the Spanish tax authorities determine that the Designated Securities do not
comply with exemption requirements specified in the Reply to a Consultation of the
Directorate General for Taxation (Dirección General de Tributos) dated July 27, 2004 or
otherwise and require a withholding to be made;

provided further that Additional Amounts in respect of the Designated Securities will also not be
paid with respect to any payment to a Holder of any Designated Securities who is a fiduciary, a
partnership, a limited liability company or other than the sole Beneficial Owner of that payment,
to the extent that payment would be required by the laws of the Kingdom of Spain (or any

A-8

 

political subdivision thereof or any authority or agency therein or thereof having power to tax) to
be included in the income, for tax purposes, of a beneficiary or settlor with respect to the
fiduciary, a member of that partnership, an interest holder in that limited liability company or a
Beneficial Owner who would not have been entitled to the Additional Amounts had it been the Holder.

     “Relevant Date” means, in respect of any payment, the date on which such payment first becomes
due and payable, but if the full amount of the moneys payable has not been received by the Paying
Agent on or prior to such due date, it means the first date on which the full amount of such moneys
having been so received and being available for payment to Holders, notice to that effect shall
have been duly given to the Holders in accordance with the Indenture.

     The foregoing provisions shall apply mutatis mutandis to any withholding or deduction for or
on account of any present or future taxes, assessments or governmental charges of whatever nature
of any jurisdiction in which any successor Person to the Issuer or the Guarantor, as the case may
be, is organized, or any political subdivision or taxing authority thereof or therein.

     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and
the modification of the rights and obligations of the Issuer and the Guarantor and the rights of
the Holders of the Securities of each series to be affected under the Indenture at any time by the
Issuer, the Guarantor and the Trustee with the consent of the Holders of a majority in principal
amount of the Securities at the time Outstanding of each series to be affected. The Indenture also
contains provisions permitting the Holders of specified percentages in principal amount of the
Securities of each series at the time Outstanding, on behalf of the Holders of all the Securities
of such series, to waive compliance by the Issuer or the Guarantor with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences. Any such consent
or waiver by the Holder of the Designated Securities represented by this Security Certificate shall
be conclusive and binding upon such Holder and upon all future Holders of the Designated Securities
represented by this Security Certificate and of the Designated Securities represented by any
Security Certificate issued upon the registration of transfer of the Designated Securities
represented by this Security Certificate or in exchange thereof or in lieu thereof, whether or not
notation of such consent or waiver is made upon this Security Certificate.

     As set forth in, and subject to, the provisions of the Indenture, if any Event of Default
shall occur in relation to the Designated Securities (taking into account any applicable grace
period), the Trustee or the Holders of not less than 25% in principal amount of the Outstanding
Designated Securities may, by written notice to the Issuer, at the Corporate Trust Office (and to
the Trustee if given by the Holders), declare that the Designated Securities including principal,
and all interest then accrued and unpaid on such Designated Securities shall be immediately due and
payable, whereupon the same shall become immediately due and payable, at their principal amount
together with all interest, if any, accrued and unpaid thereon and Additional Amounts, if any,
payable in respect thereof without presentment, demand, protest or other notice of any kind, all of
which the Issuer or the Guarantor, as the case may be, will expressly waive, unless, prior thereto,
all Events of Default in respect of such Securities of such series shall have been cured.

A-9

 

     No reference herein to the Indenture and no provision of the Designated Securities or of the
Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional,
to pay the principal of and interest and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal or premium on any overdue interest, on the
Designated Securities at the rate or rates herein prescribed.

     Except as set forth in the Indenture, the Designated Securities represented hereby may be
transferred, in whole and not in part, only: (i) by the Depositary to a nominee of the Depositary,
(ii) by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or
(iii) by the Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary. Beneficial interests in a Designated Security represented by a Global
Certificate will be exchangeable for Certificated Securities of this series only if: (a) the
Depositary notifies the Issuer that it is unwilling or unable to continue to act as Depositary or
that it is no longer a clearing agency registered under the Exchange Act and, in either case, a
successor Depositary is not appointed by the Issuer within 120 days after the date of such notice
from the Depositary, (b) the Issuer notifies the Trustee in writing that it has reasonably elected
to cause the issuance of Certificated Securities of this series or (c) there shall have occurred
and be continuing an Event of Default with respect to the Designated Securities and the Designated
Securities will be accelerated in accordance with their terms and the terms of the Indenture. Upon
the occurrence of any of the events specified in (a), (b) or (c) above, Certificated Securities of
this series shall be (x) delivered by the Trustee in exchange for beneficial interest in Designated
Securities represented by Global Certificates and (y) registered in such names, and issued in such
authorized denominations, as shall be requested by or on behalf of the Depositary in accordance
with its customary procedures.

     As provided in the Indenture, the Issuer shall cause to be kept at the Corporate Trust Office
of the Trustee a Register in which, subject to such reasonable regulations as it may prescribe, the
Issuer shall provide for the registration of Designated Securities and of transfers of Designated
Securities.

     No service charge shall be made for any such registration of transfer or exchange, but the
Issuer or the Trustee may require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith other than as set forth in the Indenture.

     Prior to due presentment of this Security Certificate for registration of transfer of any
Security represented hereby, the Issuer, the Guarantor, the Trustee and any agent of the Issuer,
the Guarantor or the Trustee may treat the Person in whose name such Security is registered as the
owner of such Security for the purpose of receiving payment of principal of and any premium and
(subject to Section 2.8 of the Original Indenture) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the Issuer, the
Guarantor, the Trustee nor any agent of the Issuer, the Guarantor or the Trustee shall be affected
by notice to the contrary.

     Pursuant to Section 5-1401 of the General Obligations Law of the State of New York, the
Indenture, the Designated Securities and the Designated Guarantee shall be governed by, and
construed in accordance with, the laws of the State of New York.

A-10

 

     All terms used in this Security Certificate which are not otherwise defined herein shall have
the meanings assigned to them in the Indenture.

A-11

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