“Although the ruling of the Higher Commercial Court is now final, it does not change the fact that Telenor remains the controlling shareholder of Kyivstar, with a 56.5% ownership interest. The Kyivstar Shareholders Agreement provides for disputes to be settled by arbitration in New York and we are continuing to pursue our claims against Storm in such proceeding,” says Jan Edvard Thygesen, Executive Vice President and head of Telenor’s operations in Central and Eastern Europe. “However, to ensure that the Kyivstar Board continues to function in accordance with the Kyivstar Shareholders Agreement following this ruling, we have proposed some technical amendments to the Charter. I note that the Kyivstar Shareholders Agreement, which Telenor Mobile, Storm and Kyivstar signed in January 2004, expressly provides that it takes precedence over the Charter.”

The ruling states that only shareholders of Kyivstar can be elected to its Board of Directors and that a shareholder cannot on its own nominate Kyivstar's CEO. Telenor has proposed that the provision in the Charter giving Telenor the right to nominate the CEO be removed, preserving the appointment of the CEO by a simple majority of the Board. Consistent with the terms of the Kyivstar Shareholders Agreement, Telenor has also proposed that the Board of Directors consist of nine shareholders of Kyivstar, five of which are Telenor entities and four of which are Storm entities, reflecting Telenor's 56.5% ownership share and Storm’s 43.5% ownership share. The Kyivstar Shareholders Agreement provides for a nine-member board, five of whom are affiliated with Telenor and four of whom are affiliates of Storm, so the technical changes proposed by Telenor will continue the governance structure to which the parties agreed.

“The requirement under Ukrainian law that only shareholders can be Board members is not consistent with how business is conducted in other Western European countries. A Board of Directors should be elected to represent the shareholders, and Directors should be nominated based on their professional merits. The requirement that holders of more than 60% of the shares in a Ukrainian company must be present for a shareholders’ meeting to be properly convened is also inconsistent with how business is conducted in Western European countries,” says Jan Edvard Thygesen. “We sincerely hope Ukrainian corporate law will become more aligned with normal European corporate governance principles and that in the meantime such laws and court rulings do not frighten off other European investors who may be considering entering the Ukrainian market.”

The Kyivstar Shareholders Agreement is governed by New York law and explicitly states that all disputes between the parties should be settled by arbitration in New York under the UNCITRAL (United Nations Commission on International Trade Law) rules. For this reason, Telenor has commenced an arbitration proceeding against Storm in New York. “As part of its claim, Telenor seeks an arbitration award that will make Alfa, Storm and their affiliates comply with the terms of the Shareholders Agreement and, among other things, require Storm and its representatives on the Kyivstar Board to attend future shareholder and board meetings, and Storm and its affiliates to cease the commencement or further pursuit of all court actions in Ukraine,” says Thygesen.

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