INFORMATION MEMORANDUM
OTE PLC (incorporated with limited liability in England and Wales)
GUARANTEED BY HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. (incorporated with limited liability in the Hellenic Republic) EURO 2,500,000,000 GLOBAL MEDIUM TERM NOTE PROGRAMME ______
Under this Euro 2,500,000,000 Global Medium Term Programme (the “Programme”) OTE PLC (the “Issuer”) may from time to time issue notes (the “Notes”) denominated in any currency agreed between the Issuer and the relevant Dealer (as defined below). The Notes will have the benefit of an unconditional and irrevocable guarantee by Hellenic Telecommunications Organization S.A. (the “Guarantor”). This Information Memorandum supersedes and replaces the previous Information Memorandum dated 29 July 2003. The maximum aggregate principal amount of Notes outstanding at any one time under the Programme will not exceed Euro 2,500,000,000 (or the equivalent in other currencies) (and, for this purpose, any Notes denominated in any other currency shall be translated into Euro at the date of the agreement to issue such Notes calculated in accordance with the provisions of the Dealership Agreement (as defined under “Subscription and Sale”)). The maximum aggregate principal amount of Notes which may be outstanding at any one time under the Programme may be increased from time to time, subject to compliance with the relevant provisions of the Dealership Agreement. The Notes may be issued on a continuing basis to one or more of the Dealers specified under “Summary of the Programme” and any additional Dealer appointed under the Programme from time to time by the Issuer and the Guarantor (each a “Dealer” and together the “Dealers”), which appointment may be for a specific issue or on an ongoing basis. References in this Information Memorandum to the “relevant Dealer” shall, in relation to an issue of Notes being (or intended to be) subscribed by more than one Dealer, be to the lead manager of such issue and, in relation to an issue of Notes being intended to be subscribed by one Dealer, be to such Dealer. Application has been made to list Notes issued under the Programme described in this Information Memorandum during the period of twelve months after the date hereof on the Luxembourg Stock Exchange. The Programme also permits Notes to be issued on an unlisted basis or to be listed on such other or further stock exchanges as may be agreed with the Issuer. The relevant Pricing Supplement (as defined herein) in respect of the issue of any Notes will specify whether or not such Notes will be listed on the Luxembourg Stock Exchange (or on any other stock exchange). The Issuer and the Guarantor may agree with any Dealer that Notes may be issued in a form not contemplated by the Terms and Conditions of the Notes herein, in which event (in the case of Notes intended to be listed on the Luxembourg Stock Exchange) a supplementary Information Memorandum, if appropriate, will be made available, which will describe the effect of the agreement reached in relation to such Notes.
Arranger DEUTSCHE BANK
Dealers Alpha Bank Goldman Sachs International Citigroup JPMorgan Credit Suisse First Boston Merrill Lynch International Deutsche Bank Morgan Stanley Dresdner Kleinwort Wasserstein NBG International EFG Eurobank Ergasias S.A.
19 November 2004 TABLE OF CONTENTS
IMPORTANT NOTICES ...... 3
DOCUMENTS INCORPORATED BY REFERENCE ...... 5
SUPPLEMENTARY INFORMATION MEMORANDUM...... 5
SUMMARY OF PROGRAMME...... 6
FORMS OF THE NOTES AND TRANSFER RESTRICTIONS RELATING TO U.S. SALES .. 10
TERMS AND CONDITIONS OF THE NOTES ...... 21
FORM OF PRICING SUPPLEMENT ...... 47
DESCRIPTION OF THE ISSUER...... 56
DESCRIPTION OF THE GUARANTOR ...... 61
TAXATION...... 151
SUBSCRIPTION AND SALE ...... 155
GENERAL INFORMATION ...... 158
2 IMPORTANT NOTICES
Each of OTE PLC (the “Issuer") and Hellenic Telecommunications Organization S.A. (the “Guarantor”) accepts responsibility for the information contained in this document and, to the best of the knowledge and belief of each of the Issuer and the Guarantor (each of which has taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.
This Information Memorandum should be read and construed together with any amendments or supplements hereto and with any other documents incorporated by reference herein and, in relation to any Tranche (as defined herein) of Notes, should be read and construed together with the relevant Pricing Supplement (as defined herein).
The Issuer and the Guarantor, having made all reasonable enquiries, have confirmed to the Dealers named under “Subscription and Sale” below that the information contained in this Information Memorandum (including for this purpose, each relevant Pricing Supplement) with regard to the Issuer, the Guarantor and the Guarantor's subsidiaries is true and accurate in all material respects and is not misleading; that any opinions or intentions expressed herein with respect to the Issuer, the Guarantor, the Guarantor and its consolidated subsidiaries and the Notes are honestly held; that this Information Memorandum does not omit to state any other fact necessary to make such information, opinions or intentions (with respect to the Issuer, the Guarantor or the Notes) not misleading in any material respect; and that all reasonable enquiries have been made to ascertain all facts material for the purposes aforesaid.
No person has been authorized to give any information or to make any representation not contained in or not consistent with this Information Memorandum or any other document entered into in relation to the Programme or any information supplied by the Issuer or the Guarantor or such other information as is in the public domain and, if given or made, such information or representation should not be relied upon as having been authorized by the Issuer, the Guarantor or any Dealer.
No representation or warranty is made or implied by the Dealers or any of their respective affiliates, and none of the Dealers and any of their respective affiliates makes any representation or warranty or accepts any responsibility as to the accuracy or completeness of the information contained in this Information Memorandum. Neither the delivery of this Information Memorandum or any Pricing Supplement nor the offering, sale or delivery of any Note shall, in any circumstances, create any implication that the information contained in this Information Memorandum is true subsequent to the date hereof or the date upon which this Information Memorandum has been most recently amended or supplemented or that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer or the Guarantor since the date thereof or, if later, the date upon which this Information Memorandum has been most recently amended or supplemented or that any other information supplied in connection with the Programme is correct at any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same.
The distribution of this Information Memorandum and any Pricing Supplement and the offering, sale and delivery of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Information Memorandum or any Pricing Supplement comes are required by the Issuer, the Guarantor and each of the Dealers to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Notes and on the distribution of this Information Memorandum or any Pricing Supplement and other offering material relating to the Notes, see “Subscription and Sale” and “Form of Notes and Transfer Restrictions relating to U.S. Sales”. In particular, Notes have not been and will not be registered under the United States Securities Act of 1933 (as amended) (the “Securities Act”) and are subject to U.S. tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to U.S. persons. Notes may be offered and sold outside the
3 United States in reliance on Regulation S under the Securities Act (“Regulation S”) and in the United States to qualified institutional buyers (as defined in Rule 144A under the Securities Act (“Rule 144A”)) in reliance on Rule 144A. Prospective purchasers of Notes are hereby notified that a seller of Notes may be relying on the exemption from the registration requirements of Section 5 of the Securities Act provided by Rule 144A. In addition, the Issuer and the Guarantor have not authorized any offer of Notes having a maturity of one year or more to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 (as amended) (the “Regulations”). Notes may not lawfully be offered or sold to persons in the United Kingdom except in circumstances which do not result in an offer to the public in the United Kingdom within the meaning of the Regulations or otherwise in compliance with all applicable provisions of the Regulations.
Neither this Information Memorandum nor any Pricing Supplement constitutes an offer or an invitation to subscribe for or purchase any Notes and is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by the Issuer, the Guarantor, the Dealers or any of them that any recipient of this Information Memorandum or any Pricing Supplement should subscribe for or purchase any Notes. Each recipient of this Information Memorandum or any Pricing Supplement should determine for itself the relevance of the information contained in this Information Memorandum and shall be taken to have made its own investigation and appraisal of the condition (financial or otherwise) of the Issuer and the Guarantor.
The maximum aggregate principal amount of Notes outstanding and guaranteed at any one time under the Programme will not exceed Euro 2,500,000,000 (or the equivalent in other currencies) (and, for this purpose, any Notes denominated in another currency shall be translated into Euros at the date of the agreement to issue such Notes, calculated in accordance with the provisions of the Dealer Agreement). The maximum aggregate principal amount of Notes which may be outstanding and guaranteed at any one time under the Programme may be increased from time to time, subject to compliance with the relevant provisions of the Dealer Agreement as defined under “Subscription and Sale”.
In this Information Memorandum, unless otherwise specified, references to “U.S.$”, “U.S. dollars” or “dollars” are to United States dollars, references to “£” are to pounds sterling and references to “EUR”, “f” or “Euro” are to the single currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty establishing the European Communities, as amended.
Certain figures included in this Information Memorandum have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.
In connection with the issue of any tranche of Notes under the Programme, the Dealer (if any) which is specified in the relevant Pricing Supplement as the Stabilising Manager (or any person acting for the Stabilising Manager) may over-allot or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail for a limited period. However, there may be no obligation on the Stabilising Manager (or any agent of the Stabilising Manager) to do this. Such stabilising, if commenced, may be discontinued at any time and must be brought to an end after a limited period. Such stabilising shall be in compliance with all applicable laws, regulations and rules.
4 NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents shall be deemed to be incorporated in, and to form part of, this Information Memorandum:
(1) the most recently published audited annual financial statements of the Issuer from time to time, and the most recently published audited annual consolidated U.S. GAAP financial statements and any consolidated interim quarterly and semi-annual financial statements (whether audited or unaudited) published subsequently to such annual consolidated U.S. GAAP financial statements of the Guarantor from time to time;
(2) the most recent annual report of the Guarantor pursuant to section 13 or 15(d) of the U.S. Securities Exchange Act of 1934; and
(3) all amendments and supplements to this Information Memorandum prepared by the Issuer and the Guarantor from time to time; save that any statement contained in this Information Memorandum or in any of the documents incorporated by reference in, and forming part of, this Information Memorandum shall be deemed to be modified or superseded for the purpose of this Information Memorandum to the extent that a statement contained in any document subsequently incorporated by reference modifies or supersedes such statement.
The Information Memorandum and all documents incorporated by reference are obtainable free of charge, upon request, at the specified offices of the Paying Agents. Written or telephone requests for such documents should be directed to the specified office of any Paying Agent or the specified office of the Listing Agent in Luxembourg.
SUPPLEMENTARY INFORMATION MEMORANDUM
The Issuer and the Guarantor have undertaken, in connection with the listing of the Notes on the Luxembourg Stock Exchange, that if there shall occur any adverse change in the business or financial position of the Issuer or the Guarantor or any change in the information set out under “Terms and Conditions of the Notes”, that is material in the context of issuance under the Programme, the Issuer will prepare or procure the preparation of an amendment or supplement to this Information Memorandum or, as the case may be, publish a new Information Memorandum, for use in connection with any subsequent issue by the Issuer of Notes to be listed on the Luxembourg Stock Exchange.
5 SUMMARY OF THE PROGRAMME
The following summary does not purport to be complete and is qualified in its entirety by the remainder of this Information Memorandum. Words and expressions defined in “Forms of the Notes” or “Terms and Conditions of the Notes” below shall have the same meanings in this summary.
Issuer: OTE PLC
Guarantor: Hellenic Telecommunications Organization S.A.
Arranger: Deutsche Bank AG London
Dealers: Alpha Bank A.E., Citigroup Global Markets Limited, Credit Suisse First Boston (Europe) Limited, Deutsche Bank AG London, Dresdner Bank Aktiengesellschaft, EFG Eurobank Ergasias S.A., Goldman Sachs International, J.P. Morgan Securities Ltd., Merrill Lynch International, Morgan Stanley & Co. International Limited, NBG International and any other Dealer appointed from time to time by the Issuer and the Guarantor either generally in respect of the Programme or in relation to a particular Tranche of Notes.
Fiscal Agent: The Bank of New York (London branch)
Registrar: The Bank of New York (New York branch)
Luxembourg Listing Agent: The Bank of New York Europe Limited
Listing: Each Series may be listed on the Luxembourg Stock Exchange and/or admitted to listing, trading and/or quotation by any other listing authority and/or quotation system as may be agreed between the Issuer, the Guarantor and the relevant Dealer and specified in the relevant Pricing Supplement or may be unlisted.
Clearing Systems: Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”), Clearstream Banking, societe anonyme, Luxembourg (“Clearstream, Luxembourg”) and/or The Depository Trust Company (“DTC”) and/or any other clearing system as may be specified in the relevant Pricing Supplement.
Initial Programme Amount: Up to Euro 2,500,000,000 (or its equivalent in other currencies) aggregate principal amount of Notes outstanding and guaranteed at any one time.
Issuance in Series: Notes will be issued on a syndicated or non-syndicated basis. Notes will be issued in Series. Each Series may comprise one or more Tranches issued on different issue dates. The Notes of each Series will all be subject to identical terms, except that the issue date and the amount of the first payment of interest may be different in respect of different Tranches. The Notes of each Tranche will all be subject to identical terms in all respects save that a Tranche may comprise Notes of different denominations.
Pricing Supplements: Each Tranche will be the subject of a pricing supplement (a “Pricing Supplement”) which, for the purposes of that Tranche
6 only, supplements the Terms and Conditions of the Notes and this Information Memorandum and must be read in conjunction with this Information Memorandum. The terms and conditions applicable to any particular Tranche of Notes are the Terms and Conditions of the Notes as supplemented, amended and/or replaced by the relevant Pricing Supplement.
Forms of Notes: Notes may be issued in bearer form (“Bearer Notes”) or registered form (“Registered Notes”), as specified in the relevant Pricing Supplement.
Bearer Notes
Each Tranche of Notes in bearer form will initially be in the form of either a Temporary Global Note (as defined herein) or a Permanent Global Note (as defined herein), in each case as specified in the relevant Pricing Supplement. Each Global Note in bearer form (a “Bearer Global Note”) will be deposited on or around the relevant issue date with a depositary or a common depositary for Euroclear and/or Clearstream, Luxembourg, and/or any other relevant clearing system. Each Temporary Global Note will be exchangeable for a Permanent Global Note or, if so specified in the relevant Pricing Supplement, for Definitive Notes. If the TEFRA D Rules are specified in the relevant Pricing Supplement as applicable, certification as to non-U.S. beneficial ownership will be a condition precedent to any exchange of an interest in a Temporary Global Note or receipt of any payment of interest in respect of a Temporary Global Note. Each Permanent Global Note will be exchangeable for Definitive Notes in accordance with its terms. Definitive Notes will, if interest- bearing, have Coupons attached and, if appropriate, a Talon for further Coupons.
Registered Notes
Notes in registered form which are offered and sold outside the United States in reliance on Regulation S will be represented by interests in a global registered note certificate (the “Unrestricted Global Note Certificate”), deposited with a custodian for and registered in the name of a nominee of DTC on or about the date of issue of the relevant Tranche.
Notes which are offered and sold in the United States in reliance on Rule 144A will be represented by interests in a global registered note certificate (the “Restricted Global Note Certificate” and, together with the Unrestricted Global Note Certificate, the “Global Note Certificates”), deposited with a custodian for and registered in the name of a nominee of DTC on or about the date of issue of the relevant Tranche. Interests in the Global Note Certificates will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its direct and indirect participants, including depositaries for Euroclear and Clearstream, Luxembourg. Individual note certificates (“Individual Note Certificates”) evidencing holdings of Notes will only be
7 available in certain limited circumstances. See “Form of Notes and Transfer Restrictions relating to U.S. Sales".
Currencies: The Notes may be denominated in any currency or currencies, subject to compliance with all applicable legal and/or regulatory and/or central bank requirements. Payments in respect of Notes may, subject to such compliance, be made in and/or linked to any currency or currencies other than the currency in which such Notes are denominated.
Status of the Notes: The Notes will constitute unsubordinated and unsecured obligations of the Issuer as described in Condition 5(a) (Status and Guarantee - Status of the Notes).
Status of the Guarantee: The Notes will be unconditionally and irrevocably guaranteed by the Guarantor on an unsubordinated and unsecured basis as described in Condition 5(b) (Status and Guarantee - Guarantee of the Notes).
Issue Price: The Notes may be issued at any price and either on a fully or partly paid basis, as specified in the relevant Pricing Supplement.
Maturities: Any maturity subject, in relation to specific currencies, to compliance with all applicable legal and/or regulatory and/or central bank requirements.
Redemption: The Notes may be redeemable at par or at such other Redemption Amount (detailed in a formula, index or otherwise) as may be specified in the relevant Pricing Supplement. Notes may also be redeemable in two or more instalments on such dates and in such manner as may be specified in the relevant Pricing Supplement.
Any Notes having a maturity of less than one year must (a) have a minimum redemption value of £100,000 (or its equivalent in other currencies) and be issued only to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses; or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses or (b) be issued in other circumstances which do not constitute a contravention of section 19 of the Financial Services and Markets Act 2000 (the “FSMA”) by the Issuer.
Optional Redemption: The Notes may be redeemed before their stated maturity at the option of the Issuer (either in whole or in part) and/or the Noteholders to the extent (if at all) specified in the relevant Pricing Supplement.
Tax Redemption: Except as described in “Optional Redemption” above, early redemption will only be permitted for tax reasons as described in Condition 11(b) (Redemption and Purchase - Redemption for tax reasons).
8 Interest: The Notes may be interest-bearing or non-interest bearing. Interest (if any) may accrue at a fixed rate or a floating rate or other variable rate or be index-linked and the method of calculating interest may vary between the issue date and the maturity date of the relevant Series.
Denominations: The Notes will be issued in such denominations as may be specified in the relevant Pricing Supplement, subject to compliance with all applicable legal and/or regulatory and/or central bank requirements.
Negative Pledge: The Notes will have the benefit of a negative pledge as described in Condition 6 (Negative Pledge).
Cross Default: The Notes will have the benefit of a cross default as described in Condition 14 (Events of Default).
Taxation: All payments in respect of Notes will be made free and clear of withholding taxes of the United Kingdom or the Hellenic Republic, as the case may be, unless the withholding is required by law. In that event, the Issuer or, as the case may be, the Guarantor will (subject as provided in Condition 13 (Taxation)) pay such additional amounts as will result in the Noteholders receiving such amounts as they would have received in respect of such Notes had no such withholding been required.
Redenomination: In respect of any Tranche of Notes, if the country of the Specified Currency becomes, or announces its intention to become, a Participating Member State, the Notes may be redenominated in Euro in accordance with Condition 25 (Redenomination, Renominalisation and Reconventioning) if so specified in the relevant Pricing Supplement.
Governing Law: English law.
In the case of Global Notes, investors' rights against the Issuer will be supported by a Deed of Covenant executed by the Issuer and dated 7 November 2001 (the “Deed of Covenant”), a copy of which will be available for inspection at the specified office of the Fiscal Agent.
Selling Restrictions: For a description of certain restrictions on offers, sales and deliveries of Notes and on the distribution of offering material in the United States of America, the United Kingdom, the Hellenic Republic and Japan, see “Subscription and Sale” below.
9 FORMS OF THE NOTES AND TRANSFER RESTRICTIONS RELATING TO U.S. SALES
Bearer Notes
Each Tranche of Bearer Notes will initially be in the form of either a temporary global note (the “Temporary Global Note”), without interest coupons, or a permanent global note (the “Permanent Global Note”), without interest coupons, in each case as specified in the relevant Pricing Supplement. Each Temporary Global Note or, as the case may be, Permanent Global Note (each a “Global Note”) will be deposited on or around the issue date of the relevant Tranche of the Notes with a depositary or a common depositary for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system.
The relevant Pricing Supplement will also specify whether United States Treasury Regulation §1.163-5(c)(2)(i)(C) (the “TEFRA C Rules”) or United States Treasury Regulation §1.163- 5(c)(2)(i)(D) (the “TEFRA D Rules”) are applicable in relation to the Notes or, if the Notes do not have a maturity of more than 365 days, that neither the TEFRA C Rules nor the TEFRA D Rules are applicable.
Temporary Global Note exchangeable for Permanent Global Note
If the relevant Pricing Supplement specifies the form of Notes as being “Temporary Global Note exchangeable for a Permanent Global Note”, then the Notes will initially be in the form of a Temporary Global Note which will be exchangeable, in whole or in part, for interests in a Permanent Global Note, without interest coupons, not earlier than the later of (i) 40 days after the issue date of the relevant Tranche of the Notes and (ii) the expiry of the period that ends 40 days after completion of the distribution of the relevant Tranche of Notes as certified by the relevant Dealer(s) to the Issuer and the Fiscal Agent, and in each case upon certification as to non-U.S. beneficial ownership. No payments will be made under the Temporary Global Note unless exchange for interests in the Permanent Global Note is improperly withheld or refused. In addition, interest payments in respect of the Notes cannot be collected without such certification of non-U.S. beneficial ownership.
Whenever any interest in the Temporary Global Note is to be exchanged for an interest in a Permanent Global Note, the Issuer shall procure (in the case of first exchange) the prompt delivery (free of charge to the bearer) of such Permanent Global Note to the bearer of the Temporary Global Note or (in the case of any subsequent exchange) an increase in the principal amount of the Permanent Global Note in accordance with its terms against:
(i) presentation and (in the case of final exchange) surrender of the Temporary Global Note at the specified office of the Fiscal Agent; and
(ii) receipt by the Fiscal Agent of a certificate or certificates of non-U.S. beneficial ownership, within 7 days of the bearer requesting such exchange.
The principal amount of the Permanent Global Note shall be equal to the aggregate of the principal amounts specified in the certificates of non-U.S. beneficial ownership; provided, however, that in no circumstances shall the principal amount of the Permanent Global Note exceed the initial principal amount of the Temporary Global Note.
The Permanent Global Note will be exchangeable, upon notice, in whole, but not in part, for Notes in definitive form (“Definitive Notes”):
(i) on the terms specified in the relevant Pricing Supplement; or
(ii) if the relevant Pricing Supplement specifies “in the limited circumstances described in the Permanent Global Note”, then if (a) Euroclear or Clearstream, Luxembourg or any other relevant clearing system is closed for business for a continuous period of 14 days (other than
10 by reason of legal holidays) or announces an intention permanently to cease business or in fact does so, or (b) any of the circumstances described in Condition 14 (Events of Default) occurs; or
(iii) if the Issuer has or will become obliged to pay additional amounts as provided for or referred to in Condition 13 (Taxation), which would not be required were the Notes represented by the Permanent Global Note in definitive form.
Whenever the Permanent Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Notes, duly authenticated and with Coupons and Talons attached (if so specified in the relevant Pricing Supplement), in an aggregate principal amount equal to the principal amount of the Permanent Global Note to the bearer of the Permanent Global Note against the surrender of the Permanent Global Note at the specified office of the Fiscal Agent within 30 days of the bearer requesting such exchange.
Temporary Global Note exchangeable for Definitive Notes
If the relevant Pricing Supplement specifies the form of Notes as being “Temporary Global Note exchangeable for Definitive Notes” and also specifies that the TEFRA C Rules are applicable or that neither the TEFRA C Rules or the TEFRA D Rules are applicable, then the Notes will initially be in the form of a Temporary Global Note which will be exchangeable, in whole but not in part, for Definitive Notes not earlier than 40 days after the issue date of the relevant Tranche of the Notes.
If the relevant Pricing Supplement specifies the form of Notes as being “Temporary Global Note exchangeable for Definitive Notes” and also specifies that the TEFRA D Rules are applicable, then the Notes will initially be in the form of a Temporary Global Note which will be exchangeable, in whole or in part, for Definitive Notes not earlier than 40 days after the issue date of the relevant Tranche of the Notes upon certification as to non-U.S. beneficial ownership. Interest payments in respect of the Notes cannot be collected without such certification of non-U.S. beneficial ownership.
Whenever the Temporary Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Notes, duly authenticated and with Coupons and Talons attached (if so specified in the relevant Pricing Supplement), in an aggregate principal amount equal to the principal amount of the Temporary Global Note to the bearer of the Temporary Global Note against the surrender of the Temporary Global Note at the specified office of the Fiscal Agent within 30 days of the bearer requesting such exchange.
Clearing System Accountholders
Each Global Note will be in bearer form. Consequently, in relation to any Tranche of Notes represented by a Global Note, references in the Terms and Conditions of the Notes to “Noteholder” are references to the bearer of the relevant Global Note which, for so long as the Global Note is held by a depositary or a common depositary for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system, will be that depositary or common depositary.
Each of the persons shown in the records of Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system as being entitled to an interest in a Global Note (each an “Accountholder”) must look solely to Euroclear and/or Clearstream, Luxembourg and/or such other relevant clearing system (as the case may be) for such Accountholder’s share of each payment made by the Issuer or the Guarantor to the bearer of such Global Note and in relation to all other rights arising under the Global Note. The extent to which, and the manner in which, Accountholders may exercise any rights arising under the Global Note will be determined by the respective rules and procedures of Euroclear and Clearstream, Luxembourg and any other relevant clearing system from time to time. For so long as the relevant Notes are represented by the Global Note,
11 Accountholders shall have no claim directly against the Issuer or the Guarantor in respect of payments due under the Notes and such obligations of the Issuer and the Guarantor will be discharged by payment to the bearer of the Global Note.
Exchange of Temporary Global Notes
Whenever any interest in a Temporary Global Note is to be exchanged for an interest in a Permanent Global Note, the Issuer shall procure:
(i) in the case of first exchange, the prompt delivery (free of charge to the bearer) of such Permanent Global Note, duly authenticated, to the bearer of the Temporary Global Note; or
(ii) in the case of any subsequent exchange, an increase in the principal amount of such Permanent Global Note in accordance with its terms, in each case in an aggregate principal amount equal to the aggregate of the principal amounts specified in the certificates issued by Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system and received by the Fiscal Agent against presentation and (in the case of final exchange) surrender of the Temporary Global Note at the specified office of the Fiscal Agent within 7 days of the bearer requesting such exchange.
Whenever a Temporary Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Notes, duly authenticated and with Coupons and Talons attached (if so specified in the relevant Pricing Supplement), in an aggregate principal amount equal to the principal amount of the Temporary Global Note to the bearer of the Temporary Global Note against the surrender of the Temporary Global Note at the specified office of the Fiscal Agent within 30 days of the bearer requesting such exchange.
If:
(i) a Permanent Global Note has not been delivered or the principal amount thereof increased by 5.00 p.m. (London time) on the seventh day after the bearer of a Temporary Global Note has requested exchange of an interest in the Temporary Global Note for an interest in a Permanent Global Note; or
(ii) Definitive Notes have not been delivered by 5.00 p.m. (London time) on the thirtieth day after the bearer of a Temporary Global Note has requested exchange of the Temporary Global Note for Definitive Notes; or
(iii) a Temporary Global Note (or any part thereof) has become due and payable in accordance with the Terms and Conditions of the Notes or the date for final redemption of a Temporary Global Note has occurred and, in either case, payment in full of the amount of principal falling due with all accrued interest thereon has not been made to the bearer of the Temporary Global Note in accordance with the terms of the Temporary Global Note on the due date for payment, then the Temporary Global Note (including the obligation to deliver a Permanent Global Note or increase the principal amount thereof or deliver Definitive Notes, as the case may be) will become void at 5.00 p.m. (London time) on such seventh day (in the case of (i) above) or at 5.00 p.m. (London time) on such thirtieth day (in the case of (ii) above) or at 5.00 p.m. (London time) on such due date (in the case of (iii) above) and the bearer of the Temporary Global Note will have no further rights thereunder (but without prejudice to the rights which the bearer of the Temporary Global Note or others may have under the Deed of Covenant. Under the Deed of Covenant, persons shown in the records of Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system as being entitled to an interest in a Temporary Global Note will acquire directly against the Issuer all those rights to which they would have been entitled if, immediately before the Temporary Global Note became void, they had been the holders of Definitive Notes in
12 an aggregate principal amount equal to the principal amount of Notes they were shown as holding in the records of Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system.
Exchange of Permanent Global Notes
Whenever a Permanent Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Notes, duly authenticated and with Coupons and Talons attached (if so specified in the relevant Pricing Supplement), in an aggregate principal amount equal to the principal amount of the Permanent Global Note to the bearer of the Permanent Global Note against the surrender of the Permanent Global Note at the specified office of the Fiscal Agent within 30 days of the bearer requesting such exchange.
If:
(i) Definitive Notes have not been delivered by 5.00 p.m. (London time) on the thirtieth day after the bearer of a Permanent Global Note has duly requested exchange of the Permanent Global Note for Definitive Notes; or
(ii) a Permanent Global Note (or any part of it) has become due and payable in accordance with the Terms and Conditions of the Notes or the date for final redemption of the Notes has occurred and, in either case, payment in full of the amount of principal falling due with all accrued interest thereon has not been made to the bearer of the Permanent Global Note in accordance with the terms of the Permanent Global Note on the due date for payment, then the Permanent Global Note (including the obligation to deliver Definitive Notes) will become void at 5.00 p.m. (London time) on such thirtieth day (in the case of (i) above) or at 5.00 p.m. (London time) on such due date (in the case of (ii) above) and the bearer of the Permanent Global Note will have no further rights thereunder (but without prejudice to the rights which the bearer of the Permanent Global Note or others may have under the Deed of Covenant. Under the Deed of Covenant, persons shown in the records of Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system as being entitled to an interest in a Permanent Global Note will acquire directly against the Issuer all those rights to which they would have been entitled if, immediately before the Permanent Global Note became void, they had been the holders of Definitive Notes in an aggregate principal amount equal to the principal amount of Notes they were shown as holding in the records of Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system.
Registered Notes
Each Tranche of Registered Notes will be represented by (i) interests in an Unrestricted Global Note Certificate (in the case of Notes sold outside the United States in reliance on Regulation S under the Securities Act) (“Unrestricted Notes”) or (ii) interests in a Restricted Global Note Certificate (in the case of Notes sold in reliance on Rule 144A under the Securities Act) (“Restricted Notes”).
Each Unrestricted Global Note Certificate will be registered in the name of Cede & Co. (or such other entity as is specified in the applicable Pricing Supplement) as nominee for DTC and will be deposited on or about the relevant issue date with the custodian for DTC (the “DTC Custodian”) specified in the applicable Pricing Supplement.
Each Restricted Global Note Certificate will be registered in the name of Cede & Co. (or such other entity as is specified in the applicable Pricing Supplement) as nominee for DTC and will be deposited on or about the relevant issue date with the DTC Custodian as custodian for DTC. The Restricted Global Note Certificate (and any Individual Note Certificates issued in exchange
13 therefor) will be subject to certain restrictions on transfer as described below under “Transfer Restrictions”.
Transfer Restrictions
On or prior to the fortieth day after the relevant issue date, Notes represented by an interest in an Unrestricted Global Note Certificate may be transferred to a person who wishes to hold such Notes in the form of an interest in a Restricted Global Note Certificate only upon receipt by the Registrar of a written certification from the transferor (in the form set out in Schedule 4 to the Agency Agreement) to the effect that such transfer is being made to a person whom the transferor reasonably believes is a qualified institutional buyer within the meaning of Rule 144A, in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States. After such fortieth day, such certification requirements will no longer apply to such transfers, but such transfers will continue to be subject to the transfer restrictions contained in the legend appearing on the face of such Global Note Certificate, as described below under “Exchange of Interests in Global Note Certificates for Individual Note Certificates”.
Notes represented by an interest in a Restricted Global Note Certificate may also be transferred to a person who wishes to hold such Notes in the form of an interest through an Unrestricted Global Note Certificate, but only upon receipt by the Registrar of a written certification from the transferor (in the form set out in Schedule 5 or 6, as appropriate, to the Agency Agreement) to the effect that such transfer is being made in accordance with Regulation S or Rule 144 (if available) under the Securities Act.
Transfer restrictions will terminate two years after the relevant issue date provided that any Notes purchased by or on behalf of the Issuer, the Guarantor or any of their respective affiliates have been cancelled in accordance with Condition 11(i) (Redemption and Purchase – Cancellation).
Any interest in either a Restricted Global Note Certificate or an Unrestricted Global Note Certificate that is transferred to a person who takes delivery in the form of an interest in the other Global Note Certificate will, upon transfer, cease to be an interest in such Global Note Certificate and become an interest in the other Global Note Certificate and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to an interest in such other Global Note Certificate.
The Notes are being offered and sold in the United States only to qualified institutional buyers within the meaning of and in reliance on Rule 144A.
Each purchaser of Notes offered pursuant to Rule 144A will be deemed to have represented and agreed as follows (terms used in the following paragraphs that are defined in Rule 144A have the respective meanings given to them in Rule 144A):
(i) the purchaser (i) is a qualified institutional buyer, (ii) is acquiring the Notes for its own account or for the account of such a qualified institutional buyer and (iii) is aware that the sale of the Notes to it is being made in reliance on Rule 144A;
(ii) the purchaser understands that the Notes are being offered only in a transaction not involving any public offering in the United States within the meaning of the Securities Act and that the Notes have not been and will not be registered under the Securities Act and may not be reoffered, resold, pledged or otherwise transferred except in accordance with the legend set forth below; and
(iii) the purchaser understands that the Restricted Global Note Certificate and any Restricted Individual Note Certificates (as defined below) will bear a legend to the following effect, unless the Issuer determines otherwise in accordance with applicable law:
14 THE NOTES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY SECURITIES LAW OF ANY STATE OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING THE NOTES REPRESENTED HEREBY, AGREES FOR THE BENEFIT OF THE ISSUER AND THE GUARANTOR THAT THE NOTES REPRESENTED HEREBY MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR A PERSON PURCHASING FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (4) TO THE ISSUER, THE GUARANTOR OR THEIR RESPECTIVE AFFILIATES.
Upon the transfer, exchange or replacement of a Restricted Global Note Certificate or a Restricted Individual Note Certificate bearing the above legend, or upon specific request for removal of the legend, the Issuer will deliver only Individual Note Certificates that bear such legend (“Restricted Individual Note Certificates”) or will refuse to remove such legend, unless there is delivered to the Issuer and the Registrar such satisfactory evidence (which may include a legal opinion) as may be required by the Issuer that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act. Such transfer restrictions will terminate two years after the relevant issue date provided that any Notes purchased by or on behalf of the Issuer, the Guarantor or any of their respective affiliates have been cancelled in accordance with Condition 11(i) (Redemption and Purchase – Cancellation).
Exchange of Interests in Global Note Certificates for Individual Note Certificates
Registration of title to Notes initially represented by the Global Note Certificates in a name other than DTC or a successor depositary or one of their respective nominees will not be permitted unless:
(i) such depositary notifies the Issuer that it is no longer willing or able to discharge properly its responsibilities as depositary with respect to the relevant Global Note Certificate or ceases to be a clearing agency (as defined in the United States Securities Exchange Act of 1934 (the “Exchange Act”), or is at any time no longer eligible to act as such, and the Issuer is (in the case of it ceasing to be depositary) unable to locate a qualified successor within 90 days of receiving notice of such ineligibility on the part of such depositary; or
(ii) any of the circumstances described in Condition 14 (Events of Default) occurs and is continuing and the Holder requests an exchange; or
(iii) (in the case of the Unrestricted Global Note Certificate only) Euroclear or Clearstream, Luxembourg or any other relevant clearing system is closed for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business or in fact does so and no alternative clearing system satisfactory to the Issuer is available.
In such circumstances, the Issuer shall procure the delivery of Individual Note Certificates in exchange for the Unrestricted Global Note Certificate and/or the Restricted Global Note Certificate. A person having an interest in a Global Note Certificate must provide the Registrar (through DTC, Euroclear and/or Clearstream, Luxembourg) with (a) such information as the Issuer and the Registrar may require to complete and deliver Individual Note Certificates (including the name and address of each person in which the Individual Note Certificates are to be registered and the
15 principal amount of each such person’s holding) and (b) (in the case of the Restricted Global Note Certificate only) a certificate given by or on behalf of the holder of each beneficial interest in the Restricted Global Note Certificate stating either (i) that such holder is not transferring its interest at the time of such exchange or (ii) that the transfer or exchange of such interest has been made in compliance with the transfer restrictions applicable to the Notes and that the person transferring such interest reasonably believes that the person acquiring such interest is a qualified institutional buyer and is obtaining such beneficial interest in a transaction meeting the requirements of Rule 144A. Individual Note Certificates issued in exchange for interests in the Restricted Global Note Certificate will bear the legends and be subject to the transfer restrictions set out above under ‘Transfer Restrictions”. Such transfer restrictions will terminate two years after the relevant issue date, provided that any Notes purchased by or on behalf of the Issuer, the Guarantor or any of their respective affiliates have been cancelled in accordance with Condition 11(i) (Redemption and Purchase – Cancellation).
Whenever a Global Note Certificate is to be exchanged for Individual Note Certificates, such Individual Note Certificates will be issued within five business days of the delivery to the Registrar of the information and any required certification described in the preceding paragraph against the surrender of the relevant Global Note Certificate at the specified office of the Registrar. Such exchange shall be effected in accordance with the regulations concerning the transfer and registration from time to time relating to the Notes and shall be effected without charge, but against such indemnity as the Registrar may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such exchange.
If (a) Individual Note Certificates have not been delivered by 5.00 p.m. (London time) on the thirtieth day after the due date for their delivery in exchange for interests in a Global Note Certificate or (b) any of the Notes represented by a Global Note Certificate has become due and payable in accordance with the Conditions or the date for final redemption of the Notes has occurred and, in either case, payment in full of the amount of principal falling due with all accrued interest thereon has not been made to the registered Holder of such Global Note Certificate in accordance with its terms on the due date for payment, then such Global Note Certificate (including the obligation to deliver Individual Note Certificates) will become void at 5.00 p.m. (London time) on such thirtieth day (in the case of (a) above) or at 5.00 p.m. (London time) on such due date (in the case of (b) above) and the registered Holder will have no further rights under such Global Note Certificate (but without prejudice to the rights which the Holder of the Notes represented by such Global Note Certificate or others may have under the Deed of Covenant executed by the Issuer). Under the Deed of Covenant, persons shown in the records of DTC, Euroclear and/or Clearstream, Luxembourg as being entitled to an interest in the Notes represented by a Global Note Certificate will acquire directly against the Issuer all those rights to which they would have been entitled if, immediately before such Global Note Certificate became void, they had been the registered Holders of Notes represented by Individual Note Certificates in an aggregate principal amount equal to the principal amount of Notes they were shown as holding in the records of DTC, Euroclear and/or (as the case may be) Clearstream, Luxembourg.
The Registrar will not register the transfer of or exchange of interests in a Global Note Certificate for Individual Note Certificates for a period of 15 days ending on the due date for any payment of principal or interest in respect of the Notes.
DTC Book-Entry Ownership of Global Note Certificates
The Issuer will make an application to DTC, Euroclear and Clearstream, Luxembourg for acceptance in their respective book-entry settlement systems of each Tranche of Unrestricted Notes. The Unrestricted Notes will have a CINS number, a common code and an ISIN. The Issuer will also make an application to DTC for acceptance in its book-entry settlement system of each Tranche of Restricted Notes. The Restricted Notes will have a CUSIP number.
16 The DTC Custodian and DTC will record electronically the principal amount of the Notes represented by an Unrestricted Global Note Certificate and a Restricted Global Note Certificate held within the DTC system. Investors may hold their interests in an Unrestricted Global Note Certificate or Restricted Global Certificate directly through DTC, if they are participants in DTC, or indirectly through organisations which are participants in DTC, including Clearstream, Luxembourg and Euroclear. Clearstream, Luxembourg and Euroclear will hold such interests on behalf of their account holders through customers’ securities accounts in Clearstream, Luxembourg’s or Euroclear’s respective names on the books of their respective depositaries, which in turn will hold such interests in customers’ securities accounts in the depositaries’ names on the books of DTC.
Payments of the principal of, interest on and any other amounts payable under each Global Note Certificate registered in the name of DTC’s nominee will be made to or to the order of its nominee as the registered Holder of such Global Note Certificate. The Issuer expects that the nominee, upon receipt of any such payment, will immediately credit DTC participants’ accounts with payments in amounts proportionate to their respective interests in the principal amount of the relevant Global Note Certificate as shown on the records of DTC or the nominee. The Issuer also expects that payments by DTC participants to owners of interests in such Global Note Certificate held through such DTC participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such DTC participants. None of the Issuer, the Guarantor, the Registrar, any Transfer Agent or any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in the Global Note Certificates or for maintaining, supervising or reviewing any records relating to such ownership interests.
While a Global Note Certificate is lodged with DTC or its custodian, Notes represented by Individual Note Certificates will not be eligible for clearing or settlement through DTC, Clearstream, Luxembourg or Euroclear.
Transfers of Interests in Global Note Certificates
Transfers of interests in Global Note Certificates within DTC, Euroclear and Clearstream, Luxembourg will be in accordance with the usual rules and operating procedures of the relevant clearing system.
The laws of some jurisdictions require that certain persons receive individual certificates in respect of their holdings of Notes. Consequently, the ability to transfer interests in a Global Note Certificate to such persons will be limited. Because DTC only acts on behalf of participants, who in turn act on behalf of indirect participants, the ability of a person having an interest in a Global Note Certificate to pledge such interest to persons or entities which do not participate in the relevant clearing system, or otherwise take actions in respect of such interest, may be affected by the lack of an Individual Note Certificate representing such interest.
Subject to compliance with the transfer restrictions applicable to the Notes described above and under “Subscription and Sale”, cross-market transfers between DTC participants, on the one hand, and Clearstream, Luxembourg or Euroclear account holders, on the other, will be effected in DTC in accordance with DTC rules and procedures and on behalf of Clearstream, Luxembourg or (as the case may be) Euroclear by its respective depositary. However, such cross-market transactions will require delivery of instructions to Clearstream, Luxembourg or (as the case may be) Euroclear by the counterparty in such system in accordance with its rules and procedures and within its established deadlines. Clearstream, Luxembourg or (as the case may be) Euroclear will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving beneficial interests in the relevant Global Note Certificate in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream, Luxembourg
17 account holders and Euroclear account holders may not deliver instructions directly to the depositaries for Clearstream, Luxembourg or Euroclear.
Because of time zone differences, credits of Notes received in Clearstream, Luxembourg or Euroclear as a result of a transaction with a DTC participant will be made during the securities settlement processing day dated the business day following the DTC settlement date and such credits of any transactions in such securities settled during such processing will be reported to the relevant Clearstream, Luxembourg or Euroclear account holder on such business day. Cash received in Clearstream, Luxembourg or Euroclear as a result of sales of Notes by or through a Clearstream, Luxembourg account holder or a Euroclear account holder to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream, Luxembourg or Euroclear cash account only as of the business day following settlement in DTC. Settlement between Euroclear or Clearstream, Luxembourg account holders and DTC participants cannot be made on a delivery versus payment basis. The arrangements for transfer of payments must be established separately from the arrangements for transfer of Notes, the latter being effected on a free delivery basis. The customary arrangements for delivery versus payment between Euroclear and Clearstream, Luxembourg account holders or between DTC participants are not affected.
For a further description of restrictions on the transfer of Notes, see “Subscription and Sale”.
DTC has advised the Issuer that it will take any action permitted to be taken by a holder of Notes (including, without limitation, the presentation of Global Note Certificates for exchange as described above) only at the direction of one or more participants in whose account with DTC interests in Global Note Certificates are credited, and only in respect of such portion of the aggregate principal amount of the Global Note Certificates as to which such participant or participants has or have given such direction. However, in certain circumstances, DTC will exchange the Global Note Certificates for Individual Note Certificates (which will, in the case of Restricted Notes, bear the legend set out above under “Transfer Restrictions”).
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note Certificates among participants and account holders of DTC, Clearstream, Luxembourg and Euroclear, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of the Issuer, the Guarantor, the Registrar, the Fiscal Agent, any Transfer Agent and any Paying Agent will have any responsibility for the performance by DTC, Clearstream, Luxembourg or Euroclear or their respective direct or indirect participants or account holders of their respective obligations under the rules and procedures governing their respective operations.
The terms and conditions applicable to any Definitive Note will be endorsed on that Note and will consist of the terms and conditions set out under “Terms and Conditions of the Notes” below and the provisions of the relevant Pricing Supplement which supplement, amend and/or replace those terms and conditions.
Conditions applicable to Global Notes and Global Note Certificates
Each Global Note and Global Note Certificate will contain provisions which modify the Terms and Conditions of the Notes as they apply to the Global Note and the Global Note Certificate. The following is a summary of certain of those provisions:
Global Notes:
Payments: All payments in respect of the Global Note will be made against presentation and (in the case of payment of principal in full with all interest accrued thereon) surrender of the Global Note at the specified office of any Paying Agent and will be effective to satisfy and discharge the corresponding liabilities of the Issuer in respect of the Notes. On each occasion on which a
18 payment of principal or interest is made in respect of the Global Note, the Issuer shall procure that the same is noted in a schedule thereto.
Exercise of put option: In order to exercise the option contained in Condition 11(e) (Redemption at the option of Noteholders) the bearer of the Permanent Global Note must, within the period specified in the Conditions for the deposit of the relevant Note and put notice, give written notice of such exercise to the Fiscal Agent specifying the principal amount of Notes in respect of which such option is being exercised. Any such notice will be irrevocable and may not be withdrawn.
Partial exercise of call option: In connection with an exercise of the option contained in Condition 11(c) (Redemption at the option of the Issuer) in relation to some only of the Notes, the Permanent Global Note may be redeemed in part in the principal amount specified by the Issuer in accordance with the Conditions and the Notes to be redeemed will not be selected as provided in the Conditions.
Notices: Notwithstanding Condition 20 (Notices), while all the Notes are represented by a Permanent Global Note (or by a Permanent Global Note and/or a Temporary Global Note) and the Permanent Global Note is (or the Permanent Global Note and/or the Temporary Global Note are) deposited with a depositary or a common depositary for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system, notices to Noteholders may be given by delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system, provided, however, that, so long as the Notes are listed on the Luxembourg Stock Exchange and its rules so require, notices will also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort).
Redenomination: If the Notes are redenominated pursuant to Condition 25 (Redenomination, Renominalisation and Reconventioning), then following redenomination:
(i) if Definitive Notes are required to be issued, they shall be issued at the expense of the Issuer in the denominations of Euro 0.01, Euro 1,000, Euro 10,000, Euro 100,000 and such other denominations as the Fiscal Agent shall determine and notify to the Noteholders; and
(ii) the amount of interest due in respect of Notes represented by a Permanent Global Note and/or a Temporary Global Note will be calculated by reference to the aggregate principal amount of such Notes and the amount of such payment shall be rounded down to the nearest Euro 0.01.
Global Note Certificates:
Exercise of put option: In order to exercise the option described in Condition 11(e) (Redemption at the option of Noteholders), the bearer of a Global Note Certificate must, within the period specified in the Conditions for the deposit of the relevant Note Certificate and put notice, give written notice of such exercise to the Fiscal Agent specifying the principal amount of Notes in respect of which such option is being exercised. Any such notice will be irrevocable and may not be withdrawn.
Notice: Notwithstanding Condition 20 (Notices), so long as a Global Note Certificate is held on behalf of Euroclear, Clearstream, Luxembourg, DTC or any other clearing system (an “Alternative Clearing System”), notices to bearers of notes represented by such Global Note Certificate may be given by delivery of the relevant notice to Euroclear, Clearstream, Luxembourg, DTC or (as the case may be) such Alternative Clearing System, provided, however, that, so long as the Notes are listed on the Luxembourg Stock Exchange and its rules so require, notices will also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort).
19 Legend concerning United States persons
In the case of any Tranche of Bearer Notes having a maturity of more than 365 days, the Notes in global form, the Notes in definitive form and any Coupons and Talons appertaining thereto will bear a legend to the following effect:
“Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code.”
The sections referred to in such legend provide that a United States person who holds a Note, Coupon or Talon will generally not be allowed to deduct any loss realised on the sale, exchange or redemption of such Note, Coupon or Talon and any gain (which might otherwise be characterized as capital gain) recognized on such sale, exchange or redemption will be treated as ordinary income.
20 TERMS AND CONDITIONS OF THE NOTES
The following is the text of the terms and conditions which, as supplemented, amended and/or replaced by the relevant Pricing Supplement, will be endorsed on each Note in definitive form issued under the Programme. The terms and conditions applicable to any Note in global form will differ from those terms and conditions which would apply to the Note were it in definitive form to the extent described under “Summary of Provisions Relating to the Notes while in Global Form” below.
1. Introduction
(a) Programme: OTE PLC (the “Issuer”) has established a Global Medium Term Note Programme (the “Programme”) for the issuance of up to Euro 2,500,000,000 in aggregate principal amount of notes (the “Notes”) guaranteed by Hellenic Telecommunications Organization S.A. (the “Guarantor”).
(b) Pricing Supplement: Notes issued under the Programme are issued in series (each a “Series”) and each Series may comprise one or more tranches (each a “Tranche”) of Notes. Each Tranche is the subject of a pricing supplement (the “Pricing Supplement”) which supplements these terms and conditions (the “Conditions”). The terms and conditions applicable to any particular Tranche of Notes are these Conditions as supplemented, amended and/or replaced by the relevant Pricing Supplement. In the event of any inconsistency between these Conditions and the relevant Pricing Supplement, the relevant Pricing Supplement shall prevail.
(c) Agency Agreement: The Notes are the subject of an issue and paying agency agreement dated 24 February 2003 (as amended or supplemented from time to time, the “Agency Agreement”) between the Issuer, the Guarantor, The Bank of New York as fiscal agent (the “Fiscal Agent”, which expression includes any successor fiscal agent appointed from time to time in connection with the Notes), The Bank of New York as registrar (the “Registrar”, which expression includes any successor registrar appointed from time to time in connection with the Notes) and the transfer and paying agents named therein (together with the Fiscal Agent and the Registrar, the “Agents”, which expression includes any successor or additional agents appointed from time to time in connection with the Notes).
(d) Deed of Guarantee: The Notes are the subject of a deed of guarantee dated 7 November 2001 (as amended or supplemented from time to time, the “Deed of Guarantee”) entered into by the Guarantor.
(e) The Notes: All subsequent references in these Conditions to “Notes” are to the Notes which are the subject of the relevant Pricing Supplement. Copies of the relevant Pricing Supplement are available for inspection by Noteholders during normal business hours at the Specified Office of the Fiscal Agent or, in the case of Registered Notes (as defined in Condition 2 (Interpretation)), the Specified Office of the Registrar.
(f) Summaries: Certain provisions of these Conditions are summaries of the Agency Agreement and the Deed of Guarantee and are subject to their detailed provisions. Noteholders and Couponholders, if any, are bound by, and are deemed to have notice of, all the provisions of the Agency Agreement and the Deed of Guarantee applicable to them. Copies of the Agency Agreement and the Deed of Guarantee are available for inspection by Noteholders during normal business hours at the Specified Offices of each of the Paying Agents.
2. Interpretation
(a) Definitions: In these Conditions the following expressions have the following meanings:
“Accrual Yield” has the meaning given in the relevant Pricing Supplement;
21 “Additional Business Centre(s)” means the city or cities specified as such in the relevant Pricing Supplement;
“Additional Financial Centre(s)” means the city or cities specified as such in the relevant Pricing Supplement;
“Bearer Note” means a Note in bearer form; “Business Day” means:
(i) in relation to any sum payable in Euro, a TARGET Settlement Day and a day on which commercial banks and foreign exchange markets settle payments generally in each (if any) Additional Business Centre; and
(ii) in relation to any sum payable in a currency other than Euro, a day on which commercial banks and foreign exchange markets settle payments generally in London, in the Principal Financial Centre of the relevant currency and in each (if any) Additional Business Centre;
“Business Day Convention”, in relation to any particular date, has the meaning given in the relevant Pricing Supplement and, if so specified in the relevant Pricing Supplement, may have different meanings in relation to different dates and, in this context, the following expressions shall have the following meanings:
(i) “Following Business Day Convention” means that the relevant date shall be postponed to the first following day that is a Business Day;
(ii) “Modified Following Business Day Convention” or “Modified Business Day Convention” means that the relevant date shall be postponed to the first following day that is a Business Day unless that day falls in the next calendar month in which case that date will be the first preceding day that is a Business Day;
(iii) “Preceding Business Day Convention” means that the relevant date shall be brought forward to the first preceding day that is a Business Day;
(iv) “FRN Convention”, “Floating Rate Convention” or “Eurodollar Convention” means that each relevant date shall be the date which numerically corresponds to the preceding such date in the calendar month which is the number of months specified in the relevant Pricing Supplement as the Specified Period after the calendar month in which the preceding such date occurred provided, however, that:
(A) if there is no such numerically corresponding day in the calendar month in which any such date should occur, then such date will be the last day which is a Business Day in that calendar month;
(B) if any such date would otherwise fall on a day which is not a Business Day, then such date will be the first following day which is a Business Day unless that day falls in the next calendar month, in which case it will be the first preceding day which is a Business Day; and
(C) if the preceding such date occurred on the last day in a calendar month which was a Business Day, then all subsequent such dates will be the last day which is a Business Day in the calendar month which is the specified number of months after the calendar month in which the preceding such date occurred; and
(v) “No Adjustment” means that the relevant date shall not be adjusted in accordance with any Business Day Convention;
“Calculation Agent” means the Fiscal Agent or such other Person specified in the relevant Pricing Supplement as the party responsible for calculating the Rate(s) of Interest and
22 Interest Amount(s) and/or such other amount(s) as may be specified in the relevant Pricing Supplement;
“Coupon” means an interest coupon pertaining to a Bearer Note; “Couponholder” means the holder of a Coupon;
“Coupon Sheet” means, in respect of a Bearer Note, a coupon sheet relating to such Note;
“Day Count Fraction” means, in respect of the calculation of an amount for any period of time (the “Calculation Period”), such day count fraction as may be specified in these Conditions or the relevant Pricing Supplement and:
(i) if “Actual/Actual (ISMA)” is so specified, means:
(a) where the Calculation Period is equal to or shorter than the Regular Period during which it falls, the actual number of days in the Calculation Period divided by the product of (1) the actual number of days in such Regular Period and (2) the number of Regular Periods normally ending in any year; and
(b) where the Calculation Period is longer than one Regular Period, the sum of:
(A) the actual number of days in such Calculation Period falling in the Regular Period in which it begins divided by the product of (1) the actual number of days in such Regular Period and (2) the number of Regular Periods in any year; and
(B) the actual number of days in such Calculation Period falling in the next Regular Period divided by the product of (a) the actual number of days in such Regular Period and (2) the number of Regular Periods normally ending in any year;
(ii) if “Actual/365” or “Actual/Actual (ISDA)” is so specified, means the actual number of days in the Calculation Period divided by 365 (or, if any portion of the Calculation Period falls in a leap year, the sum of (A) the actual number of days in that portion of the Calculation Period falling in a leap year divided by 366 and (B) the actual number of days in that portion of the Calculation Period falling in a non-leap year divided by 365);
(iii) if “Actual/365 (Fixed)” is so specified, means the actual number of days in the Calculation Period divided by 365;
(iv) if “Actual/360” is so specified, means the actual number of days in the Calculation Period divided by 360;
(v) if “30/360” is so specified, means the number of days in the Calculation Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months (unless (i) the last day of the Calculation Period is the 31st day of a month but the first day of the Calculation Period is a day other than the 30th or 31st day of a month, in which case the month that includes that last day shall not be considered to be shortened to a 30-day month, or (ii) the last day of the Calculation Period is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month)); and
(vi) if “30E/360” or “Eurobond Basis” is so specified means, the number of days in the Calculation Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months, without regard to the date of the first day or last day of the Calculation Period unless, in the case of the final Calculation Period, the date of final maturity is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month);
23 “Dual Currency Note” means a Note with the characteristics specified in Condition 10 (Dual Currency Note Provisions);
“Early Redemption Amount (Tax)” means, in respect of any Note, its principal amount or such other amount as may be specified in, or determined in accordance with, the relevant Pricing Supplement;
“Early Termination Amount” means, in respect of any Note, its principal amount or such other amount as may be specified in, or determined in accordance with, these Conditions or the relevant Pricing Supplement;
“Extraordinary Resolution” has the meaning given in the Agency Agreement;
“Final Redemption Amount” means, in respect of any Note, its principal amount or such other amount as may be specified in, or determined in accordance with, the relevant Pricing Supplement;
“Fixed Coupon Amount” has the meaning given in the relevant Pricing Supplement;
“Guarantee” means, in relation to any Indebtedness of any Person, any obligation of another Person to pay such Indebtedness including (without limitation):
(i) any obligation to purchase such Indebtedness;
(ii) any obligation to lend money, to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Indebtedness;
(iii) any indemnity against the consequences of a default in the payment of such Indebtedness; and
(iv) any other agreement to be responsible for such Indebtedness;
“Guarantee of the Notes” means the guarantee of the Notes given by the Guarantor in the Deed of Guarantee;
“Holder” means a Registered Holder or, as the context requires, the holder of a Bearer Note;
“Indebtedness” means any indebtedness of any Person for money borrowed or raised including (without limitation) any indebtedness for or in respect of:
(i) amounts raised by acceptance under any acceptance credit facility;
(ii) amounts raised under any note purchase facility;
(iii) the amount of any liability in respect of leases or hire purchase contracts which would, in accordance with applicable law and generally accepted accounting principles, be treated as finance or capital leases;
(iv) the amount of any liability in respect of any purchase price for assets or services the payment of which is deferred for a period in excess of 60 days; and
(v) amounts raised under any other transaction (including, without limitation, any forward sale or purchase agreement) having the commercial effect of a borrowing;
“Interest Amount” means, in relation to a Note and an Interest Period, the amount of interest payable in respect of that Note for that Interest Period;
“Interest Commencement Date” means the Issue Date of the Notes or such other date as may be specified as the Interest Commencement Date in the relevant Pricing Supplement;
“Interest Determination Date” has the meaning given in the relevant Pricing Supplement;
24 “Interest Payment Date” means the date or dates specified as such in, or determined in accordance with the provisions of, the relevant Pricing Supplement and, if a Business Day Convention is specified in the relevant Pricing Supplement:
(i) as the same may be adjusted in accordance with the relevant Business Day Convention; or
(ii) if the Business Day Convention is the FRN Convention, Floating Rate Convention or Eurodollar Convention and an interval of a number of calendar months is specified in the relevant Pricing Supplement as being the Specified Period, each of such dates as may occur in accordance with the FRN Convention, Floating Rate Convention or Eurodollar Convention at such Specified Period of calendar months following the Interest Commencement Date (in the case of the first Interest Payment Date) or the previous Interest Payment Date (in any other case);
“Interest Period” means each period beginning on (and including) the Interest Commencement Date or any Interest Payment Date and ending on (but excluding) the next Interest Payment Date;
“ISDA Definitions” means the 2000 ISDA Definitions and as further amended and updated as at the date of issue of the first Tranche of the Notes of the relevant Series (as specified in the relevant Pricing Supplement) as published by the International Swaps and Derivatives Association, Inc.;
“Issue Date” has the meaning given in the relevant Pricing Supplement;
“Maximum Redemption Amount” has the meaning given in the relevant Pricing Supplement;
“Margin” has the meaning given in the relevant Pricing Supplement; “Maturity Date” has the meaning given in the relevant Pricing Supplement;
“Minimum Redemption Amount” has the meaning given in the relevant Pricing Supplement;
“Note Certificate” means a certificate issued to each Registered Holder in respect of its registered holding;
“Noteholder” means a holder of a Bearer Note or, as the context requires, a Registered Holder;
“Operating Revenue” means, in relation to a Subsidiary of any Person, its total turnover for the most recent fiscal year as shown in such Person’ s latest audited or unaudited, as the case may be, consolidated accounts;
“Optional Redemption Amount (Call)” means, in respect of any Note, its principal amount or such other amount as may be specified in, or determined in accordance with, the relevant Pricing Supplement;
“Optional Redemption Amount (Put)” means, in respect of any Note, its principal amount or such other amount as may be specified in, or determined in accordance with, the relevant Pricing Supplement;
“Optional Redemption Date (Call)” has the meaning given in the relevant Pricing Supplement;
“Optional Redemption Date (Put)” has the meaning given in the relevant Pricing Supplement;
“Participating Member State” means a Member State of the European Communities which adopts the Euro as its lawful currency in accordance with the Treaty;
“Payment Business Day” means:
25 (i) if the currency of payment is Euro, any day which is:
(A) a day on which banks in the relevant place of presentation are open for presentation and payment of bearer debt securities and for dealings in foreign currencies; and
(B) in the case of payment by transfer to an account, a TARGET Settlement Day and a day on which dealings in foreign currencies may be carried on in each (if any) Additional Financial Centre; or
(ii) if the currency of payment is not Euro, any day which is:
(A) a day on which banks in the relevant place of presentation are open for presentation and payment of bearer debt securities and for dealings in foreign currencies; and
(B) in the case of payment by transfer to an account, a day on which dealings in foreign currencies may be carried on in the Principal Financial Centre of the currency of payment and in each (if any) Additional Financial Centre;
“Person” means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality;
“Principal Financial Centre” means, in relation to any currency, the principal financial centre for that currency provided, however, that:
(i) in relation to Euro, it means the principal financial centre of such Member State of the European Communities as is selected (in the case of a payment) by the payee or (in the case of a calculation) by the Calculation Agent; and
(ii) in relation to Australian dollars, it means Sydney and, in relation to New Zealand dollars, it means either Wellington or Auckland as is selected (in the case of a payment) by the payee or (in the case of a calculation) by the Calculation Agent;
“Put Option Notice” means a notice which must be delivered to a Paying Agent by any Noteholder wanting to exercise a right to redeem a Note at the option of the Noteholder;
“Put Option Receipt” means a receipt issued by a Paying Agent to a depositing Noteholder upon deposit of a Note with such Paying Agent by any Noteholder wanting to exercise a right to redeem a Note at the option of the Noteholder;
“Rate of Interest” means the rate or rates (expressed as a percentage per annum) of interest payable in respect of the Notes specified in relevant Pricing Supplement or calculated or determined in accordance with the provisions of these Conditions and/or the relevant Pricing Supplement;
“Redemption Amount” means, as appropriate, the Final Redemption Amount, the Early Redemption Amount (Tax), the Optional Redemption Amount (Call), the Optional Redemption Amount (Put), the Early Termination Amount or such other amount in the nature of a redemption amount as may be specified in, or determined in accordance with the provisions of, the relevant Pricing Supplement;
“Reference Banks” has the meaning given in the relevant Pricing Supplement or, if none, four (or if the Principal Financial Centre is Helsinki, five) major banks selected by the Calculation Agent in the market that is most closely connected with the Reference Rate;
“Reference Price” has the meaning given in the relevant Pricing Supplement; “Reference Rate” has the meaning given in the relevant Pricing Supplement;
26 “Register” means the register maintained by the Registrar in respect of Registered Notes in accordance with the Agency Agreement;
“Registered Holder” means the person in whose name a Registered Note is for the time being registered in the Register (or, in the case of a joint holding, the first named thereof);
“Registered Note” means a Note in registered form; “Regular Period” means:
(i) in the case of Notes where interest is scheduled to be paid only by means of regular payments, each period from and including the Interest Commencement Date to but excluding the first Interest Payment Date and each successive period from and including one Interest Payment Date to but excluding the next Interest Payment Date;
(ii) in the case of Notes where, apart from the first Interest Period, interest is scheduled to be paid only by means of regular payments, each period from and including a Regular Date falling in any year to but excluding the next Regular Date, where “Regular Date” means the day and month (but not the year) on which any Interest Payment Date falls; and
(iii) in the case of Notes where, apart from one Interest Period other than the first Interest Period, interest is scheduled to be paid only by means of regular payments, each period from and including a Regular Date falling in any year to but excluding the next Regular Date, where “Regular Date” means the day and month (but not the year) on which any Interest Payment Date falls other than the Interest Payment Date falling at the end of the irregular Interest Period.
“Relevant Date” means, in relation to any payment, whichever is the later of (a) the date on which the payment in question first becomes due and (b) if the full amount payable has not been received in the Principal Financial Centre of the currency of payment by the Fiscal Agent on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Noteholders;
“Relevant Financial Centre” has the meaning given in the relevant Pricing Supplement;
“Relevant Indebtedness” means any Indebtedness which is in the form of or represented by any bond, note, debenture, debenture stock, loan stock, certificate or other instrument which is, or is capable of being, listed, quoted or traded on any stock exchange or in any securities market (including, without limitation, any over-the-counter market);
“Relevant Screen Page” means the page, section or other part of a particular information service (including, without limitation, the Reuters Markets 3000 and the Bridge/Telerate Service) specified as the Relevant Screen Page in the relevant Pricing Supplement, or such other page, section or other part as may replace it on that information service or such other information service, in each case, as may be nominated by the Person providing or sponsoring the information appearing there for the purpose of displaying rates or prices comparable to the Reference Rate;
“Relevant Time” has the meaning given in the relevant Pricing Supplement;
“Relevant Total Assets” means, in relation to a Subsidiary of any Person, its total assets, less the aggregate of all receivables due from such Person or other subsidiaries of such Person and all intangible assets (including, without limitation, goodwill) as of the end of the most recent fiscal year as shown in such Person’ s latest annual audited consolidated accounts from time to time;
“Reserved Matter” means any proposal to change any date fixed for payment of principal or interest in respect of the Notes, to reduce the amount of principal or interest payable on any date in respect of the Notes, to alter the method of calculating the amount of any payment in respect of the Notes or the date for any such payment, to change the currency of any
27 payment under the Notes or to change the quorum requirements relating to meetings or the majority required to pass an Extraordinary Resolution;
“Security Interest” means any mortgage, mortgage prenotation, charge, pledge, lien or other security interest including, without limitation, anything analogous to any of the foregoing under the laws of any jurisdiction;
“Specified Currency” has the meaning given in the relevant Pricing Supplement;
“Specified Denomination(s)” has the meaning given in the relevant Pricing Supplement;
“Specified Office” of any Agent means the office specified against its name in Clause 25 of the Agency Agreement or any other address as the Agent has, by prior written notice to the sender, specified for the relevant purpose;
“Specified Period” has the meaning given in the relevant Pricing Supplement;
“Subsidiary” means, in relation to any Person (the “first Person”) at any particular time, any other Person (the “second Person”):
(i) whose affairs and policies the first Person controls or has the power to control, whether by ownership of share capital, contract, the power to appoint or remove members of the governing body of the second Person or otherwise; or
(ii) whose financial statements are, in accordance with applicable law and generally accepted accounting principles, consolidated with those of the first Person;
“Talon” means a talon for further Coupons;
“TARGET Settlement Day” means any day on which the Trans-European Automated Real- Time Gross Settlement Express Transfer (TARGET) System is open;
“Treaty” means the Treaty establishing the European Communities, as amended; and
“Zero Coupon Note” means a Note specified as such in the relevant Pricing Supplement.
(b) Interpretation: In these Conditions:
(i) if the Notes are Zero Coupon Notes, references to Coupons and Couponholders are not applicable;
(ii) if Talons are specified in the relevant Pricing Supplement as being attached to the Notes at the time of issue, references to Coupons shall be deemed to include references to Talons;
(iii) if Talons are not specified in the relevant Pricing Supplement as being attached to the Notes at the time of issue, references to Talons are not applicable;
(iv) any reference to principal shall be deemed to include the Redemption Amount, any additional amounts in respect of principal which may be payable under Condition 13 (Taxation), any premium payable in respect of a Note and any other amount in the nature of principal payable pursuant to these Conditions;
(v) any reference to interest shall be deemed to include any additional amounts in respect of interest which may be payable under Condition 13 (Taxation) and any other amount in the nature of interest payable pursuant to these Conditions;
(vi) references to Notes being “outstanding” shall be construed in accordance with the Agency Agreement; and
(vii) if an expression is stated in Condition 2(a) (Definitions) to have the meaning given in the relevant Pricing Supplement, but the relevant Pricing Supplement gives no such
28 meaning or specifies that such expression is “not applicable” then such expression is not applicable to the Notes.
3. Form, Denomination and Title
The Notes are Bearer Notes or Registered Notes, as specified in the relevant Pricing Supplement.
Notes in Bearer Form
Bearer Notes are issued in the Specified Denomination(s) with Coupons and, if specified in the relevant Pricing Supplement, Talons attached at the time of issue. In the case of a Series of Bearer Notes with more than one Specified Denomination, Bearer Notes of one Specified Denomination will not be exchangeable for Bearer Notes of another Specified Denomination. Title to Bearer Notes and Coupons will pass by delivery. The holder of any Bearer Note or Coupon shall (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing thereon or any notice of any previous loss or theft thereof) and no Person shall be liable for so treating such Holder.
Notes in Registered Form
Registered Notes are issued in the Specified Denominations and may be held in holdings equal to the Specified Minimum Amount (specified in the relevant Pricing Supplement) and integral multiples equal to the Specified Increments (specified in the relevant Pricing Supplement) in excess thereof (an “Authorized Holding”). The Holder of each Registered Note shall (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing on the Note Certificate relating thereto (other than the endorsed form of transfer) or any previous loss or theft of such Note Certificate) and no person shall be liable for so treating such Holder.
4. Register and Transfers of Registered Notes
(a) Register: The Registrar will maintain the Register in accordance with the provisions of the Agency Agreement. A Note Certificate will be issued to each Registered Holder in respect of its holding. Each Note Certificate will be numbered serially with an identifying number which will be recorded in the Register.
(b) Transfers: Subject to paragraphs (e) and (f) below, a Registered Note may be transferred upon surrender of the relevant Note Certificate, with the endorsed form of transfer duly completed, at the Specified Office of the Registrar or any Transfer Agent, together with such evidence as the Registrar or (as the case may be) such Transfer Agent may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer; provided, however, that a Registered Note may not be transferred unless the principal amount of Registered Notes transferred and (where not all of the Registered Notes held by a Holder are being transferred) the principal amount of the balance of Notes not transferred are Authorized Holdings. Where not all the Registered Notes represented by the surrendered Note Certificate are the subject of the transfer, a new Note Certificate in respect of the balance of the Registered Notes will be issued to the transferor.
(c) Registration and delivery of Note Certificates: Within five business days of the surrender of a Note Certificate in accordance with paragraph (a) above, the Registrar will register the transfer in question and deliver a new Note Certificate of a like principal amount to the Registered Notes transferred to each Registered Holder at its Specified Office or (as the case may be) the Specified Office of any Transfer Agent or (at the request and risk of any such relevant Registered Holder) by uninsured first class mail (airmail if overseas) to the
29 address specified for the purpose by such Registered Holder. In this paragraph, “business day” means a day on which commercial banks are open for business (including dealings in foreign currencies) in the city where the Registrar or (as the case may be) the relevant Transfer Agent has its Specified Office.
(d) No charge: The transfer of a Registered Note will be effected without charge by or on behalf of the Issuer, the Guarantor, the Registrar or any Transfer Agent but against such indemnity as the Registrar or (as the case may be) such Transfer Agent may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer.
(e) Closed periods: Registered Holders may not require transfers to be registered during the period of 15 days ending on the due date for any payment of principal or interest in respect of the Registered Notes.
(f) Regulations concerning transfers and registration: All transfers of Registered Notes and entries on the Register are subject to the detailed regulations concerning the transfer of Registered Notes scheduled to the Agency Agreement. The regulations may be changed by the Issuer and the Guarantor with the prior written approval of the Registrar. A copy of the current regulations will be mailed (free of charge) by the Registrar to any Registered Holder who requests in writing a copy of such regulations.
5. Status and Guarantee
(a) Status of the Notes: The Notes are direct, unconditional, unsubordinated and unsecured obligations of the Issuer and rank pari passu among themselves and (except for certain debts required to be preferred by law) equally with all other unsecured, unsubordinated obligations of the Issuer, from time to time outstanding.
(b) Guarantee of the Notes: The Guarantee of the Notes ranks pari passu (except for certain debts required to be preferred by law) with all other unsecured and unsubordinated indebtedness and guarantee obligations of the Guarantor, from time to time outstanding.
6. Negative Pledge
So long as any Note shall remain outstanding, neither the Issuer nor the Guarantor shall create or suffer to exist any Security Interest on or with respect to any of its undertakings, assets, properties or revenues, whether now owned or hereafter acquired to secure any Relevant Indebtedness or Guarantee of Relevant Indebtedness without at the same time or prior thereto (i) securing the Notes equally and rateably therewith or (ii) providing such other security for the Notes as may be approved by an Extraordinary Resolution (as defined above) of Noteholders.
7. Fixed Rate Note Provisions
(a) Application: This Condition 7 (Fixed Rate Note Provisions) is applicable to the Notes only if the Fixed Rate Note Provisions are specified in the relevant Pricing Supplement as being applicable.
(b) Accrual of interest: The Notes bear interest from, and including, the Interest Commencement Date at the Rate of Interest payable in arrear on each Interest Payment Date, subject as provided in Condition 12 (Payments). Each Note will cease to bear interest from the due date for final redemption unless, upon due presentation, payment of the Redemption Amount is improperly withheld or refused, in which case it will continue to bear interest in accordance with this Condition 7 (as well after as before judgment) until whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder and (ii) the day which is seven days after the Fiscal Agent has
30 notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).
(c) Fixed Coupon Amount: The amount of interest payable in respect of each Note for any Interest Period shall be the relevant Fixed Coupon Amount and, if the Notes are in more than one Specified Denomination, shall be the relevant Fixed Coupon Amount in respect of the relevant Specified Denomination.
(d) Calculation of interest amount: The amount of interest payable in respect of each Note for any period for which a Fixed Coupon Amount is not specified shall be calculated by applying the Rate of Interest to the principal amount of such Note, multiplying the product by the relevant Day Count Fraction and rounding the resulting figure to the nearest sub-unit of the Specified Currency (half a sub-unit being rounded upwards). For this purpose a “sub-unit” means, in the case of any currency other than Euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, in the case of Euro, means one cent.
8. Floating Rate Note and Index-Linked Interest Note Provisions
(a) Application: This Condition 8 (Floating Rate Note and Index-Linked Interest Note Provisions) is applicable to the Notes only if the Floating Rate Note Provisions or the Index-Linked Interest Note Provisions are specified in the relevant Pricing Supplement as being applicable.
(b) Accrual of interest: The Notes bear interest from, and including, the Interest Commencement Date at the Rate of Interest payable in arrear on each Interest Payment Date, subject as provided in Condition 12 (Payments). Each Note will cease to bear interest from the due date for final redemption unless, upon due presentation, payment of the Redemption Amount is improperly withheld or refused, in which case it will continue to bear interest in accordance with this Condition (as well after as before judgment) until whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder and (ii) the day which is seven days after the Fiscal Agent has notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).
(c) Screen Rate Determination: If Screen Rate Determination is specified in the relevant Pricing Supplement as the manner in which the Rate(s) of Interest is/are to be determined, the Rate of Interest applicable to the Notes for each Interest Period will be determined by the Calculation Agent on the following basis:
(i) if the Reference Rate is a composite quotation or customarily supplied by one entity, the Calculation Agent will determine the Reference Rate which appears on the Relevant Screen Page as of the Relevant Time on the relevant Interest Determination Date;
(ii) in any other case, the Calculation Agent will determine the arithmetic mean of the Reference Rates which appear on the Relevant Screen Page as of the Relevant Time on the relevant Interest Determination Date;
(iii) if, in the case of (i) above, such rate does not appear on that page or, in the case of (ii) above, fewer than two such rates appear on that page or if, in either case, the Relevant Screen Page is unavailable, the Calculation Agent will:
(A) request the principal Relevant Financial Centre office of each of the Reference Banks to provide a quotation of the Reference Rate at approximately the Relevant Time on the Interest Determination Date to prime banks in the Relevant Financial Centre interbank market in an amount that is representative for a single transaction in that market at that time; and
31 (B) determine the arithmetic mean of such quotations; and
(iv) if fewer than two such quotations are provided as requested, the Calculation Agent will determine the arithmetic mean of the rates (being the nearest to the Reference Rate, as determined by the Calculation Agent) quoted by major banks in the Principal Financial Centre of the Specified Currency, selected by the Calculation Agent, at approximately 11.00 a.m. (local time in the Principal Financial Centre of the Specified Currency) on the first day of the relevant Interest Period for loans in the Specified Currency to leading European banks for a period equal to the relevant Interest Period and in an amount that is representative for a single transaction in that market at that time,
and the Rate of Interest for such Interest Period shall be the sum of the Margin and the rate or (as the case may be) the arithmetic mean so determined; provided, however, that if the Calculation Agent is unable to determine a rate or (as the case may be) an arithmetic mean in accordance with the above provisions in relation to any Interest Period, the Rate of Interest applicable to the Notes during such Interest Period will be the sum of the Margin and the rate (or as the case may be) the arithmetic mean last determined in relation to the Notes in respect of a preceding Interest Period.
(d) ISDA Determination: If ISDA Determination is specified in the relevant Pricing Supplement as the manner in which the Rate(s) of Interest is/are to be determined, the Rate of Interest applicable to the Notes for each Interest Period will be the sum of the Margin and the relevant ISDA Rate where “ISDA Rate” in relation to any Interest Period means a rate equal to the Floating Rate (as defined in the ISDA Definitions) that would be determined by the Calculation Agent under an interest rate swap transaction if the Calculation Agent were acting as Calculation Agent for that interest rate swap transaction under the terms of an agreement incorporating the ISDA Definitions and under which:
(i) the Floating Rate Option (as defined in the ISDA Definitions) is as specified in the relevant Pricing Supplement;
(ii) the Designated Maturity (as defined in the ISDA Definitions) is a period specified in the relevant Pricing Supplement; and
(iii) the relevant Reset Date (as defined in the ISDA Definitions) is either (A) if the relevant Floating Rate Option is based on the London inter-bank offered rate (LIBOR) for a currency, the first day of that Interest Period or (B) in any other case, as specified in the relevant Pricing Supplement.
(e) Index-Linked Interest: If the Index-Linked Interest Note Provisions are specified in the relevant Pricing Supplement as being applicable, the Rate(s) of Interest applicable to the Notes for each Interest Period will be determined in the manner specified in the relevant Pricing Supplement.
(f) Maximum or Minimum Rate of Interest: If any Maximum Rate of Interest or Minimum Rate of Interest is specified in the relevant Pricing Supplement, then the Rate of Interest shall in no event be greater than the maximum or be less than the minimum so specified.
(g) Calculation of Interest Amount: The Calculation Agent will, as soon as practicable after the time at which the Rate of Interest is to be determined in relation to each Interest Period, calculate the Interest Amount payable in respect of each Note for such Interest Period. The Interest Amount will be calculated by applying the Rate of Interest for such Interest Period to the principal amount of such Note during such Interest Period and multiplying the product by the relevant Day Count Fraction.
(h) Calculation of other amounts: If the relevant Pricing Supplement specifies that any other amount is to be calculated by the Calculation Agent, the Calculation Agent will, as soon as
32 practicable after the time or times at which any such amount is to be determined, calculate the relevant amount. The relevant amount will be calculated by the Calculation Agent in the manner specified in the relevant Pricing Supplement.
(i) Publication: The Calculation Agent will cause each Rate of Interest and Interest Amount determined by it, together with the relevant Interest Payment Date, and any other amount(s) required to be determined by it together with any relevant payment date(s) to be notified to the Issuer, the Guarantor, the Paying Agents and each stock exchange (if any) on which the Notes are then listed as soon as practicable after such determination but (in the case of each Rate of Interest, Interest Amount and Interest Payment Date) in any event not later than the first day of the relevant Interest Period. Notice thereof shall also promptly be given to the Noteholders. The Calculation Agent will be entitled to recalculate any Interest Amount (on the basis of the foregoing provisions) without notice in the event of an extension or shortening of the relevant Interest Period.
(j) Notifications etc: All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of this Condition by the Calculation Agent will (in the absence of manifest error) be binding on the Issuer, the Guarantor, the Paying Agents, the Noteholders and the Couponholders and (subject as aforesaid) no liability to any such Person will attach to the Calculation Agent in connection with the exercise or non-exercise by it of its powers, duties and discretions for such purposes.
9. Zero Coupon Note Provisions
(a) Application: This Condition 9 (Zero Coupon Note Provisions) is applicable to the Notes only if the Zero Coupon Note Provisions are specified in the relevant Pricing Supplement as being applicable.
(b) Late payment on Zero Coupon Notes: If the Redemption Amount payable in respect of any Zero Coupon Note is improperly withheld or refused, the Redemption Amount shall thereafter be an amount equal to the sum of:
(i) the Reference Price; and
(ii) the product of the Accrual Yield (compounded annually) being applied to the Reference Price from (and including) the Issue Date to (but excluding) whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder and (ii) the day which is seven days after the Fiscal Agent has notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).
10. Dual Currency Note Provisions
(a) Application: This Condition 10 (Dual Currency Note Provisions) is applicable to the Notes only if the Dual Currency Note Provisions are specified in the relevant Pricing Supplement as being applicable.
(b) Rate of Interest: If the rate or amount of interest falls to be determined by reference to an exchange rate, the rate or amount of interest payable shall be determined in the manner specified in the relevant Pricing Supplement.
11. Redemption and Purchase
(a) Scheduled redemption: Unless previously redeemed, or purchased and cancelled, the Notes will be redeemed at their Final Redemption Amount on the Maturity Date, subject as provided in Condition 12 (Payments).
33 (b) Redemption for tax reasons: The Notes may be redeemed at the option of the Issuer in whole, but not in part:
(i) at any time (if neither the Floating Rate Note Provisions or the Index-Linked Interest Note Provisions are specified in the relevant Pricing Supplement as being applicable); or
(ii) on any Interest Payment Date (if the Floating Rate Note Provisions or the Index-Linked Interest Note Provisions are specified in the relevant Pricing Supplement as being applicable),
on giving not less than 30 nor more than 60 days’ notice to the Noteholders (which notice shall be irrevocable), at their Early Redemption Amount (Tax), together with interest accrued (if any) to the date fixed for redemption, if:
(A) (1) the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 13 (Taxation) as a result of any change in, or amendment to, the laws (or any regulations, rulings or other administrative pronouncements promulgated thereunder) of the United Kingdom or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws, regulations, rulings or other administrative pronouncements, which change or amendment becomes effective on or after the date of issue of the first Tranche of the Notes or any other date specified in the Pricing Supplement; and (2) such obligation cannot be avoided by the Issuer taking reasonable measures available to it; or
(B) (1) the Guarantor has or (if a demand was made under the Guarantee of the Notes) would become obliged to pay additional amounts as provided or referred to in Condition 13 (Taxation) as a result of any change in, or amendment to, the laws or any regulations, rulings or administrative pronouncements promulgated thereunder of the Hellenic Republic or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws, regulations, rulings or other administrative pronouncements (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after the date of issue of the first Tranche of the Notes or any other date specified in the Pricing Supplement and (2) such obligation cannot be avoided by the Guarantor taking reasonable measures available to it,
provided, however, that no such notice of redemption shall be given earlier than:
(1) where the Notes may be redeemed at any time, 90 days prior to the earliest date on which the Issuer or the Guarantor would be obliged to pay such additional amounts if a payment in respect of the Notes were then due or (as the case may be) a demand under the Guarantee of the Notes were then made; or
(2) where the Notes may be redeemed only on an Interest Payment Date, 60 days prior to the Interest Payment Date occurring immediately before the earliest date on which the Issuer or the Guarantor would be obliged to pay such additional amounts if a payment in respect of the Notes were then due or (as the case may be) a demand under the Guarantee of the Notes were then made,
and provided further that reasonable measures as contemplated in paragraphs (A)(2) and (B)(2) above shall include a requirement that the Guarantor use its best efforts to provide the Issuer with sufficient capital to enable the Issuer to make payments under the Notes in the event that payments under the Guarantee of the Notes would obligate the Guarantor to pay such additional amounts.
34 Prior to the publication of any notice of redemption pursuant to this paragraph, the Issuer shall deliver or procure that there is delivered to the Fiscal Agent a certificate signed by a duly authorized officer of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred and an opinion of independent legal advisers of recognized standing to the effect that the Issuer or (as the case may be) the Guarantor has or will become obliged to pay such additional amounts as a result of such change or amendment. Upon the expiry of any such notice as is referred to in this Condition 11(b), the Issuer shall be bound to redeem the Notes in accordance with this Condition 11(b).
(c) Redemption at the option of the Issuer. If the Call Option is specified in the relevant Pricing Supplement as being applicable, the Notes may be redeemed at the option of the Issuer in whole or, if so specified in the relevant Pricing Supplement, in part on any Optional Redemption Date (Call) at the relevant Optional Redemption Amount (Call) on the Issuer’ s giving not less than 30 nor more than 60 days’ notice to the Noteholders (which notice shall be irrevocable and shall oblige the Issuer to redeem the Notes or, as the case may be, the Notes specified in such notice on the relevant Optional Redemption Date (Call) at the Optional Redemption Amount (Call) plus accrued interest (if any) to such date).
(d) Partial redemption:
(i) Partial redemption of Bearer Notes:
If Bearer Notes are to be redeemed in part only on any date in accordance with Condition 11(c) (Redemption at the option of the Issuer), the Notes to be redeemed shall be selected by the drawing of lots in such place as the Fiscal Agent approves and in such manner as the Fiscal Agent considers appropriate, subject to compliance with applicable law and the rules of each stock exchange on which the Notes are then listed, and the notice to Noteholders referred to in Condition 11(c) (Redemption at the option of the Issuer) shall specify the serial numbers of the Notes so to be redeemed. If any Maximum Redemption Amount or Minimum Redemption Amount is specified in the relevant Pricing Supplement, then the Optional Redemption Amount (Call) shall in no event be greater than the maximum or be less than the minimum so specified;
(ii) Partial Redemption of Registered Notes:
If Registered Notes are to be redeemed in part only on any date in accordance with Condition 11(c) (Redemption at the option of the Issuer), each Registered Note shall be redeemed in part in the proportion which the aggregate principal amount of the outstanding Registered Notes to be redeemed on the relevant Option Redemption Date (Call) bears to the aggregate principal amount of outstanding Registered Notes on such date.
(e) Redemption at the option of Noteholders: If the Put Option is specified in the relevant Pricing Supplement as being applicable, the Issuer shall, at the option of the Holder of any Note redeem such Note on the Optional Redemption Date (Put) specified in the relevant Put Option Notice at the relevant Optional Redemption Amount (Put) together with interest (if any) accrued to such date. In order to exercise the option contained in this Condition 11(e), the Holder of a Note must, not less than 30 nor more than 60 days before the relevant Optional Redemption Date (Put), deposit with any Agent such Note together, in the case of Bearer Notes, with all unmatured Coupons relating thereto and a duly completed Put Option Notice in the form obtainable from any Agent. The Agent with which a Note is so deposited shall deliver a duly completed Put Option Receipt to the depositing Holder. No Note, once deposited with a duly completed Put Option Notice in accordance with this Condition 11(e), may be withdrawn; provided, however, that if, prior to the relevant Optional Redemption Date (Put), any such Note becomes immediately due and payable or, upon due presentation of any such Note on the relevant Optional Redemption Date (Put), payment of the redemption
35 moneys is improperly withheld or refused, the relevant Agent shall mail notification thereof to the depositing Noteholder at such address as may have been given by such Noteholder in the relevant Put Option Notice and shall hold such Note at its Specified Office for collection by the depositing Noteholder against surrender of the relevant Put Option Receipt. For so long as any outstanding Note is held by a Agent in accordance with this Condition 11(e), the depositor of such Note and not such Agent shall be deemed to be the holder of Note for all purposes.
(f) No other redemption: The Issuer shall not be entitled to redeem the Notes otherwise than as provided in paragraphs (a) to (e) above.
(g) Early redemption of Zero Coupon Notes: Unless otherwise specified in the relevant Pricing Supplement, the Redemption Amount payable on redemption of a Zero Coupon Note at any time before the Maturity Date shall be an amount equal to the sum of:
(i) the Reference Price; and
(ii) the product of the Accrual Yield (compounded annually) being applied to the Reference Price from (and including) the Issue Date to (but excluding) the date fixed for redemption or (as the case may be) the date upon which the Note becomes due and payable.
Where such calculation is to be made for a period which is not a whole number of years, the calculation in respect of the period of less than a full year shall be made on the basis of such Day Count Fraction as may be specified in the Pricing Supplement for the purposes of this Condition 11(g) or, if none is so specified, a Day Count Fraction of 30E/360.
(h) Purchase: The Issuer, the Guarantor or any of their respective Subsidiaries may at any time purchase Notes in the open market or otherwise and at any price, provided that all unmatured Coupons are purchased therewith.
(i) Cancellation: All Notes so redeemed or purchased by the Issuer, the Guarantor or any of their respective Subsidiaries and any unmatured Coupons attached to or surrendered with them shall be cancelled and may not be reissued or resold and the obligations of the Issuer and the Guarantor in respect of any such Notes shall be discharged.
12. Payments
Payments under Bearer Notes
(a) Principal: Payments of principal shall be made only against presentation and (provided that payment is made in full) surrender of Bearer Notes at the Specified Office of any Paying Agent outside the United States and the Hellenic Republic by cheque drawn in the currency in which the payment is due on, or by transfer to an account denominated in that currency (or, if that currency is Euro, any other account to which Euro may be credited or transferred) and maintained by the payee with, a bank in the Principal Financial Centre of that currency (in the case of a sterling cheque, a town clearing branch of a bank in the City of London).
(b) Interest: Payments of interest shall, subject to paragraph (h) below, be made only against presentation and (provided that payment is made in full) surrender of the appropriate Coupons at the Specified Office of any Paying Agent outside the United States and the Hellenic Republic in the manner described in paragraph (a) above.
(c) Payments in New York City: Payments of principal or interest may be made at the Specified Office of an Agent in New York City if (i) the Issuer has appointed Agents outside the United States with the reasonable expectation that such Agents will be able to make payment of the full amount of the interest on the Bearer Notes in the currency in which the payment is due when due, (ii) payment of the full amount of such interest at the offices of all such Agents is
36 illegal or effectively precluded by exchange controls or other similar restrictions and (iii) payment is permitted by applicable United States law without involving, in the opinion of the Issuer, any adverse tax consequences to the Issuer.
(d) Payments subject to fiscal laws: All payments in respect of the Bearer Notes are subject in all cases to any applicable fiscal or other laws, regulations and directives in the place of payment, but without prejudice to the provisions of Condition 13 (Taxation). No commissions or expenses shall be charged to the Noteholders or Couponholders in respect of such payments.
(e) Deductions for unmatured Coupons: If the relevant Pricing Supplement specifies that the Fixed Rate Note Provisions are applicable and a Bearer Note is presented without all unmatured Coupons relating thereto:
(i) if the aggregate amount of the missing Coupons is less than or equal to the amount of principal due for payment, a sum equal to the aggregate amount of the missing Coupons will be deducted from the amount of principal due for payment; provided, however, that if the gross amount available for payment is less than the amount of principal due for payment, the sum deducted will be that proportion of the aggregate amount of such missing Coupons which the gross amount actually available for payment bears to the amount of principal due for payment;
(ii) if the aggregate amount of the missing Coupons is greater than the amount of principal due for payment:
(A) so many of such missing Coupons shall become void (in inverse order of maturity) as will result in the aggregate amount of the remainder of such missing Coupons (the “Relevant Coupons”) being equal to the amount of principal due for payment; provided, however, that where this sub-paragraph would otherwise require a fraction of a missing Coupon to become void, such missing Coupon shall become void in its entirety; and
(B) a sum equal to the aggregate amount of the Relevant Coupons (or, if less, the amount of principal due for payment) will be deducted from the amount of principal due for payment; provided, however, that, if the gross amount available for payment is less than the amount of principal due for payment, the sum deducted will be that proportion of the aggregate amount of the Relevant Coupons (or, as the case may be, the amount of principal due for payment) which the gross amount actually available for payment bears to the amount of principal due for payment.
Each sum of principal so deducted shall be paid in the manner provided in paragraph (a) above against presentation and (provided that payment is made in full) surrender of the relevant missing Coupons.
(f) Unmatured Coupons void: If the relevant Pricing Supplement specifies that this Condition 12(f) (Unmatured Coupons) is applicable or that the Floating Rate Note Provisions or the Index-Linked Interest Note Provisions are applicable, on the due date for final redemption of any Note or early redemption of such Note pursuant to Condition 11(b) (Redemption for tax reasons), Condition 11(e) (Redemption at the option of Noteholders), Condition 11(c) (Redemption at the option of the Issuer) or Condition 14 (Events of Default), all unmatured Coupons relating thereto (whether or not still attached) shall become void and no payment will be made in respect thereof.
(g) Payments on business days: If the due date for payment of any amount in respect of any Note or Coupon is not a Payment Business Day in the place of presentation, the holder shall not be entitled to payment in such place of the amount due until the next succeeding
37 Payment Business Day in such place and shall not be entitled to any further interest or other payment in respect of any such delay.
(h) Payments other than in respect of matured Coupons: Payments of interest other than in respect of matured Coupons shall be made only against presentation of the relevant Notes at the Specified Office of any Agent outside the United States (or in New York City if permitted by paragraph (c) above) and the Hellenic Republic.
(i) Partial payments: If a Paying Agent makes a partial payment in respect of any Note or Coupon presented to it for payment, such Paying Agent will endorse thereon a statement indicating the amount and date of such payment.
(j) Exchange of Talons: On or after the maturity date of the final Coupon which is (or was at the time of issue) part of a Coupon Sheet relating to the Notes, the Talon forming part of such Coupon Sheet may be exchanged at the Specified Office of the Fiscal Agent for a further Coupon Sheet (including, if appropriate, a further Talon but excluding any Coupons in respect of which claims have already become void pursuant to Condition 15 (Prescription). Upon the due date for redemption of any Note, any unexchanged Talon relating to such Note shall become void and no Coupon will be delivered in respect of such Talon.
Payments under Registered Notes
(a) Principal: Payments of principal shall be made by cheque drawn in the currency in which the payment is due on or, upon application by a Registered Holder to the Specified Office of the Fiscal Agent or any Paying Agent not later than the fifteenth day before the due date for any such payment, by transfer to an account denominated in such currency (or, if that currency is Euro, any other account to which Euro may be credited or transferred) maintained by the payee with a bank in the Principal Financial Centre of such currency (in the case of a sterling cheque, a town clearing branch of a bank in the City of London).
(b) Interest: Payments of interest shall be made by cheque drawn in the currency in which the payment is due on or, upon application by a Registered Holder to the Specified Office of the Fiscal Agent or any Paying Agent not later than the fifteenth day before the due date for any such payment, by transfer to an account denominated in such currency (or, if that currency is Euro, any other account to which Euro may be credited or transferred) maintained by the payee with a bank in the Principal Financial Centre of such currency and, in the case of interest payable on redemption) upon surrender (or, in the case of part payment only, endorsement) of the relevant Note Certificate at the Specified Office of any Agent.
(c) Payments subject to fiscal laws: All payments in respect of the Registered Notes are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 13 (Taxation). No commissions or expenses shall be charged to the Registered Holders in respect of such payments.
(d) Payments on business days: Where payment is to be made by transfer to an account, payment instructions (for value the due date, or, if the due date is not a business day, for value the next succeeding business day) will be initiated and, where payment is to be made by cheque, the cheque will be mailed (i) (in the case of payments of principal and interest payable on redemption) on the later of the due date for payment and the day on which the relevant Note Certificate is surrendered (or, in the case of part payment only, endorsed) at the Specified Office of an Agent and (ii) (in the case of payments of interest payable other than on redemption) on the due date for payment. A Registered Holder shall not be entitled to any interest or other payment in respect of any delay in payment resulting from (A) the due date for a payment not being a business day or (B) a cheque mailed in accordance with this Condition arriving after the due date for payment or being lost in the mail. In this paragraph, “business day” means:
38 (i) if the currency of payment is Euro, any day which is in the case of payment by transfer to an account, a TARGET Settlement Day and a day on which dealings in foreign currencies may be carried on in each (if any) Additional Financial Centre; or
(ii) if the currency of payment is not Euro, any day which is in the case of payment by transfer to an account, a day on which dealings in foreign currencies may be carried on in the Principal Financial Centre of the currency of payment and in each (if any) Additional Financial Centre;
and, in the case of surrender (or, in the case of part payment only, endorsement) of a Note Certificate, in the place in which the Note Certificate is surrender (or, as the case may be, endorsed).
13. Taxation
(a) Gross up: All payments of principal and interest in respect of the Notes and the Coupons (if any) by or on behalf of the Issuer or the Guarantor shall be made free and clear of, and without withholding or deduction for or on account of, any taxes, duties, assessments or governmental charges of whatsoever nature imposed, levied, collected, withheld or assessed by the United Kingdom or the Hellenic Republic or any political subdivision or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. In that event, the Issuer or (as the case may be) the Guarantor shall pay such additional amounts as will result in the receipt by the Noteholders and the Couponholders (if relevant) after such withholding or deduction of such amounts as would have been received by them if no such withholding or deduction had been required, except that no such additional amounts shall be payable:
(i) where the relevant Noteholder or Couponholder (if relevant) is liable for such taxes, duties, assessments or governmental charges in respect of such Note or Coupon by reason of its having some connection with the jurisdiction by which such taxes, duties, assessments or governmental charges are imposed, levied, collected, withheld or assessed other than the mere holding of such Note or Coupon or the receipt of interest or principal in respect thereof;
(ii) where such withholding or deduction is imposed on a payment to 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 26-27 November 2000 or any law implementing or complying with, or introduced to conform to, such Directive;
(iii) where such withholding or deduction is imposed upon presentation for payment of a Note or Coupon by or on behalf of a Noteholder or Couponholder (if relevant) who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the European Union;
(iv) if the payment could have been made without such deduction or withholding if the beneficiary of the payment had presented the Note for payment less than 30 days after the Relevant Date except to the extent that the holder thereof would have been entitled to an additional amount on presenting the same for payment on such thirtieth day;
(v) with respect to any estate, inheritance, gift, sales, excise, transfer, personal property tax or similar tax, assessment or governmental charge;
(vi) with respect to any payment of principal of or interest on any Note or Coupon to any holder who is a fiduciary or partnership or any person other than the sole beneficial owner of such payment, to the extent that a beneficiary or settlor with respect to such
39 fiduciary, a member of such a partnership or the beneficial owner of such payment would not have been entitled to the additional amounts had such beneficiary, settlor, member or beneficial owner been the actual holder of such Note or Coupon;
(vii) to, or to a third party on behalf of, a Noteholder who would not be liable or subject to the withholding or deduction by making a declaration of non-residence or other similar claim for exemption to the relevant tax authority; or
(viii) with respect to any combination of any of the foregoing.
(b) Taxing jurisdiction: If the Issuer or the Guarantor becomes subject at any time to any taxing jurisdiction other than the United Kingdom or the Hellenic Republic respectively, references in these Conditions to the United Kingdom or the Hellenic Republic shall be construed as references to the United Kingdom or (as the case may be) the Hellenic Republic and/or such other jurisdiction.
14. Events of Default
If any one or more of the following events (each an “Event of Default”) shall have occurred and be continuing:
(a) the Issuer fails to pay any principal due on the Notes when due or fails to pay for more than seven days any interest due in respect of the Notes including, in either such case, any additional amounts as provided or referred to in Condition 13 (Taxation) in respect thereof;
(b) the Issuer or the Guarantor is in default in the performance of any of its obligations (other than to make payments in respect of the Notes) contained in the Notes or the Guarantee, and such default shall continue for more than 45 days after written notice requiring such default to be remedied shall have been given to the Issuer or the Guarantor, as the case may be;
(c) any payment obligation under Indebtedness of the Issuer or the Guarantor becomes due and repayable prior to its stated maturity or the Issuer or the Guarantor fails to make any payment in respect of any Indebtedness within 30 days of the due date for payment (or within the applicable grace period, if such period is longer than 30 days) or any security given by the Issuer or the Guarantor for any Indebtedness becomes enforceable or if default is made by the Issuer or the Guarantor in making any payment due under any guarantee and/or indemnity given by it in relation to any obligation of any other person for 30 days (or within the applicable grace period if such period is longer than 30 days), provided that no such event shall constitute an Event of Default unless the Indebtedness or other relative liability either alone or when aggregated with other Indebtedness and/or liabilities relative to all (if any) other events which shall have occurred and be outstanding shall amount to at least U.S.$ 17,500,000 (or its equivalent in any other currency);
(d) any provision of the Guarantee of the Notes becomes invalid or unenforceable in any material respect or any such provision is repudiated by, or the validity or enforceability of such provision is challenged by, the Guarantor;
(e) the Issuer or the Guarantor goes into liquidation (except in connection with a merger or reorganisation in such a way that all assets and liabilities of the Issuer or the Guarantor, as the case may be, pass to another legal person in universal succession by operation of law);
(f) the Issuer or the Guarantor suspends payment or announces its inability to meet its financial obligations when they fall due; or
(g) public administration, insolvency, bankruptcy or moratorium proceedings are instituted against the Issuer or the Guarantor which shall not have been dismissed or stayed within 60 days after institution, or if the Issuer or the Guarantor applies for institution of such
40 proceedings in respect of itself or offers to make an arrangement for the benefit of the creditors; then any Noteholder may, by written notice to the Issuer at the Specified Office of the Agent, effective upon the date of receipt thereof by the Agent, declare the Note held by such Noteholder to be forthwith due and payable whereupon the same shall become forthwith due and payable at its Early Termination Amount together with accrued interest, if any, to the date of repayment, and any additional amounts as provided or referred to in Condition 13 (Taxation) due thereon without presentment, demand, protest or other notice of any kind.
15. Prescription
Claims against the Issuer for payment of principal and interest in respect of the Notes will be prescribed and become void unless made, in the case of principal, within ten years or, in the case of interest, five years after the Relevant Date.
16. Replacement of Notes and Coupons
If any Note or Coupon is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the Specified Office of the Fiscal Agent or, in the case of Registered Notes, the Registrar (and, if the Notes are then listed on any stock exchange which requires the appointment of an Agent in any particular place, the Paying Agent having its Specified Office in the place required by such stock exchange), subject to all applicable laws and stock exchange requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity (which may provide, inter alia, that if the allegedly lost, stolen or destroyed Note or Coupon is subsequently presented for payment or, or as the case may be, for exchange for further Coupons, there will be paid to the Issuer on demand the amount payable by the Issuer in respect of such Notes, Coupons or Further Coupons) and otherwise as the Issuer may require. Mutilated or defaced Notes or Coupons must be surrendered before replacements will be issued.
17. Agents
In acting under the Agency Agreement and in connection with the Notes and the Coupons, the Agents act solely as agents of the Issuer and the Guarantor and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders or Couponholders.
The initial Agents and their initial Specified Offices are set out in the Agency Agreement. The initial Calculation Agent (if any) is specified in the relevant Pricing Supplement. The Issuer and the Guarantor reserve the right at any time to vary or terminate the appointment of any Agent and to appoint a successor fiscal agent or Calculation Agent and additional or successor paying agents; provided, however, that:
(a) the Issuer and the Guarantor shall at all times maintain a Fiscal Agent and a Registrar;
(b) the Issuer and the Guarantor shall at all times maintain an Agent outside the European Union;
(c) if a Calculation Agent is specified in the relevant Pricing Supplement, the Issuer and the Guarantor shall at all times maintain a Calculation Agent;
(d) if and for so long as the Notes are listed on any stock exchange which requires the appointment of a Paying Agent in any particular place, the Issuer and the Guarantor shall maintain a Paying Agent having its Specified Office in the place required by the rules of such stock exchange;
41 (e) if and for so long as the Notes are listed on the Luxembourg Stock Exchange and if and for so long as the rules of the Luxembourg Stock Exchange so require, the Issuer shall maintain a Transfer Agent in Luxembourg; and
(f) if European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000 is brought into force, the Issuer and the Guarantor will ensure that they maintain a Paying Agent in an EU member state that will not be obliged to withhold or deduct tax pursuant to such Directive or any law implementing or complying with, or introduced to conform to, such Directive; and
Notice of any change in any of the Agents or in their Specified Offices shall promptly be given to the Noteholders in accordance with Condition 20 (Notices).
18. Meetings of Noteholders; Modification and Waiver
(a) Meetings of Noteholders: The Agency Agreement contains provisions for convening meetings of Noteholders to consider matters relating to the Notes, including the modification of any provision of these Conditions. Any such modification may be made if sanctioned by an Extraordinary Resolution. Such a meeting may be convened by the Issuer and the Guarantor (acting together) and shall be convened by them upon the request in writing of Noteholders holding not less than one-tenth of the aggregate principal amount of the outstanding Notes. The quorum at any meeting convened to vote on an Extraordinary Resolution will be two or more Persons holding or representing not less than one half of the aggregate principal amount of the outstanding Notes or, at any adjourned meeting, two or more Persons being or representing Noteholders whatever the principal amount of the Notes held or represented; provided, however, that Reserved Matters may only be sanctioned by an Extraordinary Resolution passed at a meeting of Noteholders at which one or more Persons holding or representing not less than two-thirds or, at any adjourned meeting, one quarter of the aggregate principal amount of the outstanding Notes form a quorum. Any Extraordinary Resolution duly passed at any such meeting shall be binding on all the Noteholders and Couponholders, whether present or not.
In addition, a resolution in writing signed by or on behalf of all Noteholders who for the time being are entitled to receive notice of a meeting of Noteholders will take effect as if it were an Extraordinary Resolution. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders.
(b) Modification: The Notes, these Conditions and the Deed of Guarantee may be amended without the consent of the Noteholders or the Couponholders to correct a manifest error. In addition, the parties to the Agency Agreement may agree to modify any provision thereof, but the Issuer and the Guarantor shall not agree, without the consent of the Noteholders, to any such modification unless it is of a formal, minor or technical nature, it is made to correct a manifest error or it is, in the opinion of such parties, not materially prejudicial to the interests of the Noteholders.
19. Further Issues
The Issuer may from time to time, without the consent of the Noteholders or the Couponholders, create and issue further notes having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest) so as to form a single series with the Notes and references in these Conditions to “Notes” shall be construed accordingly.
42 20. Notices
To Holders of Bearer Notes
Notices to the Holders of Bearer Notes shall be valid if published in a leading English language daily newspaper published in London (which is expected to be the Financial Times) and, if the Notes which are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or in either case, if such publication is not practicable, in a leading English language daily newspaper having general circulation in Europe. Any such notice shall be deemed to have been given on the date of first publication (or if required to be published in more than one newspaper, on the first date on which publication shall have been made in all the required newspapers). Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the Noteholders.
To Registered Holders
Notices to the Registered Holders will be sent to them by first class registered mail (or its equivalent) or (if posted to an overseas address) by airmail at their respective addresses on the Register. Any such notice shall be deemed to have been given on the fourth day after the date of mailing. In addition, so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, notices to Registered Holders will be published on the date of such mailing in a daily newspaper of general circulation in Luxembourg (which is expected to be the Luxembourg Wort) or, if such publication is not practicable, in a leading English language daily newspaper having general circulation in Europe.
21. Currency Indemnity
If any sum due from the Issuer in respect of the Notes or the Coupons or any order or judgment given or made in relation thereto has to be converted from the currency (the “first currency”) in which the same is payable under these Conditions or such order or judgment into another currency (the “second currency”) for the purpose of (a) making or filing a claim or proof against the Issuer, (b) obtaining an order or judgment in any court or other tribunal or (c) enforcing any order or judgment given or made in relation to the Notes, the Issuer shall indemnify each Noteholder, on the written demand of such Noteholder addressed to the Issuer and delivered to the Issuer or to the Specified Office of the Fiscal Agent or, in the case of Registered Notes, the Registrar, against any loss suffered as a result of any discrepancy between (i) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (ii) the rate or rates of exchange at which such Noteholder may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof.
This indemnity constitutes a separate and independent obligation of the Issuer and shall give rise to a separate and independent cause of action.
22. Substitution
(a) The Issuer and the Guarantor may at any time, without the consent of the Noteholders or the Couponholders, substitute for such Issuer any company (the “Substitute”) upon notice by such Issuer, the Guarantor and the Substitute to be given in accordance with Condition 20 (Notices), provided that:
(i) no payment in respect of the Notes or the Coupons or the Deed of Guarantee (as the case may be) is at the relevant time overdue;
(ii) the Substitute shall, by means of a deed poll in the form scheduled to the Agency Agreement (the “Deed Poll”), agree to indemnify each Noteholder and Couponholder
43 against any tax, duty, assessment or governmental charge which is imposed on it by (or by any authority in or of) the jurisdiction of the country of the Substitute’ s residence for tax purposes and, if different, of its incorporation with respect to any Note, Coupon or the Deed of Covenant and which would not have been so imposed had the substitution not been made, as well as against any tax, duty, assessment or governmental charge, and any cost or expense, relating to the substitution;
(iii) where the Substitute is not the Guarantor, the obligations of the Substitute under the Deed Poll, the Notes, Coupons and Deed of Covenant shall be unconditionally guaranteed by the Guarantor by means of the Deed Poll;
(iv) all action, conditions and things required to be taken, fulfilled and done (including the obtaining of any necessary consents) to ensure that the Deed Poll, the Notes, Coupons and Deed of Covenant represent valid, legally binding and enforceable obligations of the Substitute and in the case of the Deed Poll of the Guarantor have been taken, fulfilled and done are in full force and effect;
(v) the Substitute shall have become party to the Agency Agreement, with any appropriate consequential amendments, as if it had been an original party to it;
(vi) legal opinions shall have been delivered to the Fiscal Agent from lawyers of recognized standing in each jurisdiction referred to in (ii) above and in England as to the fulfillment of the requirements of this Condition 22 and the other matters specified in the Deed Poll and that the Notes and Coupons are legal, valid and binding obligations of the Substitute;
(vii) each stock exchange on which the Notes are listed shall have confirmed that, following the proposed substitution of the Substitute, the Notes will continue to be listed on such stock exchange;
(viii) Standard & Poor’s and/or Moody’s and/or Fitch Ratings Ltd, as the case may be, shall have confirmed that following the proposed substitution of the Substitute, the credit rating of the Notes will not be adversely affected; and
(ix) if applicable, the Substitute has appointed a process agent as its agent in England to receive service of process on its behalf in relation to any legal proceedings arising out of or in connection with the Notes.
(b) Upon the execution of the Deed Poll and the delivery of the legal opinions, the Substitute shall succeed to, and be substituted for, and may exercise every right and power, of the Issuer under the Notes and the Agency Agreement with the same effect as if the Substitute had been named as the Issuer herein, and the Issuer shall be released from its obligations under the Notes and under the Agency Agreement;
(c) After a substitution pursuant to Condition 22(a), the Substitute may, without the consent of any Noteholder, effect a further substitution. All the provisions specified in Condition 22(a) and 22(b) shall apply mutatis mutandis, and references in these Conditions to the Issuer shall, where the context so requires, be deemed to be or include references to any such further Substitute.
(d) After a substitution pursuant to Condition 22(a) or 22(c) any Substitute may, without the consent of any Noteholder, reverse the substitution, mutatis mutandis.
(e) The Deed Poll and all documents relating to the substitution shall be delivered to, and kept by, the Fiscal Agent. Copies of such documents will be available free of charge at the Specified Office of each of the Paying Agents.
44 23. Provision of Information
The Issuer shall, during any period in which it is not subject to and in compliance with the reporting requirements of Section 13 or 15(d) of the United States Securities Exchange Act of 1934 (the “Exchange Act”) nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, duly provide to any Registered Holder of a Note which is a “restricted security within the meaning of Rule 144(a)(3) under the United States Securities Act of 1933, as amended (the “Securities Act”) or to any prospective purchaser of such securities designated by such Holder, upon the written request of such Holder or (as the case may be) prospective Holder addressed to the Issuer and delivered to the Issuer or to the Specified Office of the Registrar, the information specified in Rule 144A(d)(4) under the Securities Act.
24. Rounding
For the purposes of any calculations referred to in these Conditions (unless otherwise specified in these Conditions or the relevant Pricing Supplement), (a) all percentages resulting from such calculations will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point (with 0.000005 per cent, being rounded up to 0.00001 per cent.), (b) all United States dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one half cent being rounded up), (c) all Japanese Yen amounts used in or resulting from such calculations will be rounded downwards to the next lower whole Japanese Yen amount, and (d) all amounts denominated in any other currency used in or resulting from such calculations will be rounded to the nearest two decimal places in such currency, with 0.005 being rounded upwards.
25. Redenomination, Renominalisation and Reconventioning
(a) Application: This Condition 25 (Redenomination, Renominalisation and Reconventioning) is applicable to the Notes only if it is specified in the relevant Pricing Supplement as being applicable.
(b) Notice of redenomination: If the country of the Specified Currency becomes or, announces its intention to become, a Participating Member State, the Issuer may, without the consent of the Noteholders and Couponholders, on giving at least 30 days’ prior notice to the Noteholders and the Paying Agents, designate a date (the “Redenomination Date”), being an Interest Payment Date under the Notes falling on or after the date on which such country becomes a Participating Member State.
(c) Redenomination: Notwithstanding the other provisions of these Conditions, with effect from the Redenomination Date:
(i) the Notes shall be deemed to be redenominated into Euro in the denomination of Euro 0.01 with a principal amount for each Note equal to the principal amount of that Note in the Specified Currency, converted into Euro at the rate for conversion of such currency into Euro established by the Council of the European Union pursuant to the Treaty (including compliance with rules relating to rounding in accordance with European Community regulations); provided, however, that if the Issuer determines, with the agreement of the Fiscal Agent that market practice in respect of the redenomination into Euro 0.01 of internationally offered securities is different from that specified above, such provisions shall be deemed to be amended so as to comply with such market practice and the Issuer shall promptly notify the Noteholders and Couponholders, each stock exchange (if any) on which the Notes are then listed and the Paying Agents of such deemed amendments;
(ii) if Notes have been issued in definitive form:
(A) all unmatured Coupons denominated in the Specified Currency (whether or not attached to the Notes) will become void with effect from the date (the “Euro
45 Exchange Date”) on which the Issuer gives notice (the “Euro Exchange Notice”) to the Noteholders that replacement Notes and Coupons denominated in Euro are available for exchange (provided that such Notes and Coupons are available) and no payments will be made in respect thereof;
(B) the payment obligations contained in all Notes denominated in the Specified Currency will become void on the Euro Exchange Date but all other obligations of the Issuer thereunder (including the obligation to exchange such Notes in accordance with this Condition 25) shall remain in full force and effect; and
(C) new Notes and Coupons denominated in Euro will be issued in exchange for Notes and Coupons denominated in the Specified Currency in such manner as the Fiscal Agent may specify and as shall be notified to the Noteholders in the Euro Exchange Notice; and
(iii) all payments in respect of the Notes (other than, unless the Redenomination Date is on or after such date as the Specified Currency ceases to be a sub¬division of the Euro, payments of interest in respect of periods commencing before the Redenomination Date) will be made solely in Euro by cheque drawn on, or by credit or transfer to a Euro account (or any other account to which Euro may be credited or transferred) maintained by the payee with, a bank in the principal financial centre of any Member State of the European Communities.
(d) Interest: Following redenomination of the Notes pursuant to this Condition 25, where Notes have been issued in definitive form, the amount of interest due in respect of the Notes will be calculated by reference to the aggregate principal amount of the Notes presented (or, as the case may be, in respect of which Coupons are presented) for payment by the relevant holder.
(e) Interest Determination Date: If the Floating Rate Note Provisions are specified in the relevant Pricing Supplement as being applicable and Screen Rate Determination is specified in the relevant Pricing Supplement as the manner in which the Rate(s) of Interest is/are to be determined, with effect from the Redenomination Date the Interest Determination date shall be deemed to be the second TARGET Settlement Day before the first day of the relevant Interest Period.
26. Governing Law and Jurisdiction
The Notes are governed by, and shall be construed in accordance with, English law.
No person shall have any right to enforce any term or condition of this Note under the Contracts (Rights of Third Parties) Act 1999.
46 FORM OF PRICING SUPPLEMENT
The Pricing Supplement in respect of each Tranche of Notes will be substantially in the following form, duly supplemented (if necessary), amended (if necessary) and completed to reflect the particular terms of the relevant Notes and their issue. Text in this section appearing in italics does not form part of the form of the Pricing Supplement but denotes directions for completing the Pricing Supplement.
Pricing Supplement dated [ ]
OTE PLC
Issue of [Aggregate Nominal Amount of Tranche] [Title of Notes]
Guaranteed by Hellenic Telecommunications Organization S.A. under the Euro 2,500,000,000 Euro Medium Term Note Programme
This document constitutes the Pricing Supplement relating to the issue of Notes described herein. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Information Memorandum dated 19 November 2004 [and the supplemental Information Memorandum dated [ ]]. This Pricing Supplement contains the final terms of the Notes and must be read in conjunction with such Information Memorandum [as so supplemented].
The following alternative language applies if the first tranche of an issue which is being increased was issued under an Information Memorandum with an earlier date.
[Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the “Conditions”) set forth in the Information Memorandum dated 19 November 2004. This Pricing Supplement contains the final terms of the Notes and must be read in conjunction with the Information Memorandum dated 19 November 2004 [and the supplemental Information Memorandum dated [ ]], save in respect of the Conditions which are extracted from the Information Memorandum dated 19 November 2004 and are attached hereto.]
[Set out any additions or variations to the selling restrictions.]
(NB: If issuing or selling Notes into the Netherlands consider applicable selling restrictions)
[Include whichever of the following apply or specify as “Not Applicable” (N/A). Note that the numbering should remain as set out below, even if “Not Applicable” is indicated for individual paragraphs or sub-paragraphs. Italics denote directions for completing the Pricing Supplement]
47 :
1. (i) Issuer: OTE PLC
(ii) Guarantor: Hellenic Telecommunications Organization S.A.
2. [(i)] Series Number: [ ]
[(ii) Tranche Number:
(If fungible with an existing [] Series, details of that Series, including the date on which the Notes become fungible).]
3. Specified Currency or Currencies [ ]
4. Aggregate Nominal Amount:
[(i)] Series: [ ]
[(ii) Tranche: [ ]]
5. [(i)] Issue Price: [ ] per cent, of the Aggregate Nominal Amount [plus accrued interest from [insert date] (in the case of fungible issues only, if applicable)] [(ii) Net proceeds: [ ] (Required only for listed issues)]
6. Specified Denominations: [ ]
Notes [(including Notes denominated in Sterling) in respect of which the issue proceeds are to be accepted by the Issuer in the United Kingdom or whose issue otherwise constitutes a contraven- tion of S.19 of FMSA and] which have a maturity of less than one year must have a minimum redemption value of £100,000 (or its equivalent in other currencies).
7. [(i)] Issue Date: [ ]
[(ii)Interest Commencement Date (if [ ]] difference from the Issue Date): 8. Maturity Date: [specify date or (for Floating Rate Notes) Interest Payment Date falling in or nearest to the relevant month and year]
9. Interest Basis: [ per cent. Fixed Rate]
[[specify reference rate] +/- per cent. Floating Rate]
[Zero Coupon]
[Index-Linked Interest]
[Other (specify)]
(further particulars specified below)
48 10. Redemption/Payment Basis: [Redemption at par]
[Index-Linked Redemption]
[Dual Currency]
[Partly Paid]
[Installment]
[Other (specify)]
11.Change of Interest or Redemption/ [Specify details of any provision for convertibility Payment Basis: of Notes into another interest or redemption/ payment basis]
12. Put/Call Options: [Investor Put]
[Issuer Call]
[(further particulars specified below)]
13. (i) Status of the Notes: [Senior/Dated/Perpetual]/Subordinated]
(ii) Status of the Guarantee: [Senior/Dated/Perpetual]/Subordinated]
14. Listing: [Luxembourg/other (specify)/None]
15. Method of distribution: [Syndicated/Non syndicated]
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
16. Fixed Rate Note Provisions [Applicable/Not Applicable]
(If not applicable, delete the remaining sub- paragraphs of this paragraph)
(i) Rate[(s)] of Interest: [ ] per cent, per annum [payable [annually/semi-annually/quarterly/monthly] in arrear]
(ii) Interest Payment Date(s): [ ] in each year [adjusted in accordance with [specify Business Day Convention and any applicable Business Centre(s) for the definition of “Business Day”]/not adjusted]
(iii) Fixed Coupon Amount[(s)]: [ ] [per [ ] in Nominal Amount
(iv) Broken Amount(s): [Insert particulars of any initial or final broken interest amounts which do not correspond with the Fixed Coupon Amount[(s)] and the Interest Payment Date(s) to which they relate]
(v)Day Count Fraction (Condition [30/360]/[Actual/Actual (ISMA)/ISDA]/other 7(d)): (vi) Determination Dates: [ ] in each year (insert regular interest payment dates, ignoring issue date or maturity date in the case of a long or short first or last coupon. N.B. only relevant where Day Count Fraction is Actual/Actual (ISMA))
49 (vii)Other terms relating to the [Not Applicable/give details] method of calculating interest for Fixed Rate Notes: (Consider if day count fraction, particularly for Euro denominated issues, should be on an Actual/Actual (ISMA) basis. Also consider what should happen to unmatured Coupons in the event of early redemption of the Notes.)
17. Floating Rate Note Provisions [Applicable/Not Applicable]
(If not applicable, delete the remaining sub- paragraphs of this paragraph. Also consider whether EURO BBA LIBOR or EURIBOR is the appropriate reference rate for Notes deno- minated in Euro)
(i) Interest Period(s): [ ]
Specified Interest Payment Date: [ ]
(iii) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/ Modified Following Business Convention / Preceding Business Day Conven- tion / other (give details)]
(iv) Additional Business Centre(s): [Not Applicable/give details]
(v)Manner in which the Rate(s) of [Screen Rate Determination / ISDA Determina- Interest is/are to be determined: tion / other (give details)]
(vi)Party responsible for calculating [[Name] shall be the Calculation Agent (no need the Rate(s) of Interest and to specify if the Fiscal Agent is to perform this Interest Amount(s) (if not the function)] [Fiscal Agent]): (vii) Screen Rate Determination:
– Reference Rate: [For example, LIBOR or EURIBOR]
– Relevant Screen Page: [For example, Reuters Money 3000/Moneyline Telerate/other] page
– Interest Determination Date(s): [ ]
– Relevant Time: [For example, 11.00 a.m. London time/Brussels time]
– Relevant Financial Centre: [For example, London/Euro-zone (where Euro- zone means the region comprised of the countries whose lawful currency is the Euro)]
(vii) ISDA Determination:
– Floating Rate Option: [ ]
– Designated Maturity: [ ]
– Reset Date: [ ]
(viii) Margin(s): [+/-][ ] per cent, per annum
(ix) Minimum Rate of Interest: [ ] per cent. per annum
50 (x) Maximum Rate of Interest: [ ] per cent, per annum
(xi)Day Count Fraction (Condition [ ] 7(d)):
(xii)Fall back provisions, rounding [ ] provisions, denominator and any other terms relating to the method of calculating interest on Floating Rate Notes, if different from those set out in the Conditions: 18. Zero Coupon Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph)
(i) [Amortisation/Accrual] Yield: [ ] per cent, per annum
(ii) Reference Price: [ ]
(iii) Day Count Fraction (Condition [ ]
(iv)Any other formula/basis of [ ] determining amount payable:
19.Index-Linked Interest Note [Applicable/Not Applicable] Provisions (If not applicable, delete the remaining sub- paragraphs of this paragraph)
(i) Index/Formula: [Give or annex details]
(ii)Calculation Agent responsible for [ ] calculating the interest due:
(iii)Provisions for determining [ ] Coupon where calculation by reference to Index and/or Formula is impossible or impracticable
(iv)Specified Period(s)/Specified [ ] Interest Payment Dates:
(v) Business Day Convention: [Floating Rate Convention / Following Business Day Convention/Modified Following Business Convention / Preceding Business Day Conven- tion / other (give details)]
(vi) Business Centre(s): [ ]
(vii) Minimum Rate of Interest: [ ] per cent, per annum
(viii) Maximum Rate of Interest: [ ] per cent, per annum
(ix)Day Count Fraction (Condition [ ] 7(d)):
51 20. Dual Currency Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph)
(i)Rate of Exchange/method of [Give details] calculating Rate of Exchange:
(ii)Calculation Agent, if any, [ ] responsible for calculating the principal and/or interest due:
(iii)Provisions applicable where [ ] calculation by reference to Rate of Exchange impossible or impracticable:
(iv)Person at whose option [ ] Specified Currency(ies) is/are payable
(v)Day Count Fraction (Condition [ ] 7(d)):
PROVISIONS RELATING TO REDEMPTION
21. Call Option [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph)
(i)Optional Redemption Date(s) [ ] Call):
(ii)Optional Redemption Amount(s) [ ] (Call) of each Note and method, if any, of calculation of such amount(s): (iii) If redeemable in part:
(a) Minimum Redemption Amount: [ ]
(b) Maximum Redemption Amount: [ ]
(iv)Notice period (if other than as [ ] set out in the Conditions): 22. Put Option [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph)
(i) Optional Redemption Date(s): [ ]
(ii)Optional Redemption Amount(s) [ ] and method, if any, of calculation of such amount(s):
(iii)Notice period (if other than as [ ] set out in the Conditions): 23. Final Redemption Amount [Par/other/see Appendix]
52 24. Early Redemption Amount
Early Redemption Amount(s) [Not Applicable (if both the Early Redemption payable on redemption for Amount (Tax) and the Early Termination taxation reasons or on event of Amount are the principal amount of the default and/or the method of Notes/specify the Early Redemption Amount calculating the same (if required (Tax) and/or the Early Termination Amount if or if different from that set out in different from the principal amount of the Notes)] the Conditions): GENERAL PROVISIONS APPLICABLE TO THE NOTES
25. Form of Notes: Bearer Notes:
[Temporary Global Note exchangeable for a Permanent Global Note which is exchangeable for Definitive Notes on [ ] days’ notice/at any time/in the limited circumstances specified in the Permanent Global Note.]
[Temporary Global Note exchangeable for Definitive Notes on [ ] days’ notice.]
[Permanent Global Note exchangeable for Definitive Notes on [ ] days’ notice/at any time/in the limited circumstances specified in the Permanent Global Note].
Registered Notes:
[specify]
26.Financial Centre(s) or other [Not Applicable/give details.] Note that this special provisions relating to item relates to the place of payment, and not Payment Dates: interest period end dates, to which items 16(ii), 17(iii) and 19(vi) relate]
27.Talons for future Coupons or [Yes/No. If yes, give details] Receipts to be attached to Definitive Notes (and dates on which such Talons mature):
28.Details relating to Partly Paid [Not Applicable/give details] Notes: amount of each payment comprising the Issue Price and date on which each payment is to be made and consequences (if any) of failure to pay, including any right of the Issuer to forfeit the Notes and interest due on late payment:
29.Details relating to Instalment [Not Applicable/give details] Notes: amount of each instalment, data on which each payment is to be made, minimum instalment amount, maximum instalment amount:
53 30.Redenomination, [Not Applicable/The provisions [in Condition 25 Renominalisation and (Redenomination, Renominalisation and Recon- reconventioning provisions: ventioning)] [annexed to this Pricing Supplement] apply]
31. Consolidation provisions: [Not Applicable/The provisions [in Condition 19 (Further Issues)] [annexed to this Pricing Supplement] apply]
32. Other terms or special conditions: [Not Applicable/give details]
DISTRIBUTION
33. (i) If syndicated, names of Managers: [Not Applicable/give names]
(ii) Stabilising Manager (if any): [Not Applicable/give name] In connection with the issue of the Notes, [name of Stabilising Manager] or any agent acting for it may over-allot or effect transactions with a view to supporting the market price of such Notes at a level higher than that which might otherwise prevail for a limited period. However, there may be no obligation on the [name of Stabilising Manager] or any agent acting for it to do this. Such stabilising, if commenced, may be discontinued at any time and must be brought to an end after a limited period. Such stabilising shall be in compliance with all applicable laws, regulations and rules. Any loss resulting from over-allotment and stabilisation shall be borne, and any net profit arising there from shall be retained, by the Stabilising Manager for its own account.
(iii) Manager’s commission: [Not Applicable/give details]
34. If non-syndicated, name of Dealer: [Not Applicable/give name]
35. TEFRA: [Not Applicable/The [C/D] Rules are applicable]
36. Additional selling restrictions: [Not Applicable/give details]
(NB: If issuing or selling Notes into the Netherlands consider applicable selling restrictions)
OPERATIONAL INFORMATION
37. ISIN Code: [ ]
38. Common Code: [ ]
39.Any clearing system(s) other [Not Applicable/give name(s) and number(s)] than Euroclear and Clearstream, Luxembourg and the relevant identification number(s): 40. Delivery: Delivery [against/free of] payment
41. Additional Paying Agent(s) (if any): [ ]
54 GENERAL
42.The aggregate principal amount [Not Applicable/Euro [ ]] of Notes issued has been translated into Euro at a rate of Euro [ ], providing a sum of (for Notes not denominated in Euro):
[LISTING APPLICATION
This Pricing Supplement comprises the final terms required to list the issue of Notes described herein pursuant to the Euro 2,500,000,000 Euro Medium Term Note Programme of OTE PLC Guaranteed by Hellenic Telecommunications Organization S.A.]
RESPONSIBILITY
The Issuer and the Guarantor accept responsibility for the information contained in this Pricing Supplement.
Signed on behalf of the Issuer:
By:
111111111111111111 Duly authorized
Signed on behalf of the Guarantor:
By:
111111111111111111 Duly authorized
Date: [ ]
55 DESCRIPTION OF THE ISSUER
Incorporation and Duration
The Issuer was incorporated under the laws of England and Wales on 17 December 1999 for an indefinite period of time. The Issuer produces annual financial statements, commencing with financial statements for the year ended 31 December 2000.
Capital
As of 31 December 2003 the authorized capital of the Issuer was £50,000 (of which £12,500 was paid up), divided into 50,000 shares of £1 nominal value each, all of which were beneficially owned by the Guarantor. Each share carries one vote at general meetings of shareholders.
Board of Directors
The affairs of the Issuer are managed by the Board of Directors. The members of the Board of Directors of the Issuer are:
Name Business Address Business Occupation lordanis Aivazis Hellenic Telecommunications Chief Financial Officer Organization S.A. Hellenic Telecommunications 99 Kifissias Avenue Organization S.A. GR 151 81 Amaroussion Athens, Greece
Panos Kaliabetsos Hellenic Telecommunications Treasurer Organization S.A. Hellenic Telecommunications 99 Kifissias Avenue Organization S.A. GR 151 81 Amaroussion Athens, Greece
SPV Management Limited SPV Management Limited Management of special (Director & Company Tower 42, International purpose companies Secretary) Financial Centre 25 Old Broad Street London EC2N 1HQ
James Patrick Johnston SPV Management Limited Management of special Fairrie Tower 42, International purpose companies Financial Centre 25 Old Broad Street London EC2N 1HQ
Robin Gregory Baker (as SPV Management Limited Management of special alternate director of Mr. Tower 42, International purpose companies Fairrie) Financial Centre 25 Old Broad Street London EC2N 1HQ
56 The Directors of SPV Management Limited and their respective occupations are:
Name Business Occupation Principal Activities David Dupert Non-Executive Chairman Banker Howard Cohen Non-Executive Deputy Banker Chairman Martin McDermott Managing Director/Chief Company Director Executive Officer James Fairrie Managing Director/Sales and Company Director Marketing Nicolas Patch Executive Director Company Director Anthony Raikes Non-Executive Director Company Director David Roulston Non-Executive Director Banker Robin Gregory Baker Alternate Director of Transaction Manager Mr. M. McDermott and Mr. J. Fairrie
The business address of the directors of SPV Management Limited is Tower 42, International Financial Centre, 25 Old Broad Street, London EC2N 1HQ.
The company secretary of SPV Management Limited is Clifford Chance Secretaries (CCA) Limited.
Auditors
The auditors of the Issuer are Ernst & Young LLP, 1 More London Place, London SE1 2AF, England.
Financial Year
The financial year of the Issuer is the calendar year.
Registered Office
The registered office of the Issuer and of SPV Management Limited is located at Tower 42, International Financial Centre, 25 Old Broad Street, London EC2N 1HQ.
Since 31 December 2003, there has been no material adverse change in its financial situation.
57 CAPITALISATION OF THE ISSUER
The following table sets out the capitalisation of the Issuer as of 30 June 2004, extracted from its unaudited management accounts as of 30 June 2004. Except as disclosed in this Information Memorandum, there has been no material change in the capitalisation of the Issuer since 30 June 2004.
111111111122211130 June 2004 Euro US$ (in millions) Long-Term Liabilities: Long-term debt, net of current maturities ...... (2,673,945,037) (3,294,300,286) Shareholders’ Equity: Share capital...... (80,076) (98,654) Accumulated deficits...... 1111111 2,304,066 1111111 2,838,609 Total shareholders’ equity ...... 1111111 2,223,990 1111111 2,739,955 Total capitalisation ...... (2,671,721,047) (3,291,560,331) 1111111 1111111
Notes (1) Translated at Euro 1.00 = U.S.$1.232, the noon buying rate on 30 June 2004.
58 SUMMARY FINANCIAL INFORMATION RELATING TO THE ISSUER
OTE PLC
BALANCE SHEET As at 31 December 2002 and 2003
11111111111111131 December 11111112002 1111111 2003 Euro Current assets Debtors – due within one year ...... 61,888,394 88,364,307 – due after one year ...... 1,092,967,847 2,664,751,347 Cash at bank and in hand ...... 1111111 957,310 1111111 5,584,974 1,155,813,551 2,785,700,628 Creditors: Amounts falling due within one year ...... 1111111 (60,364,964) 1111111 (88,942,937) Net current assets ...... 1111111 1,095,448,587 1111111 2,669,757,691 Total assets less current liabilities...... 1111111 1,095,448,587 1111111 2,669,757,691 Creditors: Amounts falling due after more than one year...... (1,095,780,039) (2,672,754,612) Net liabilities ...... (331,452) (2,996,921) 1111111 1111111 Capital and reserves Called-up share capital...... 80,076 80,076 Profit and loss account...... 1111111 (411,528) 1111111 (3,076,997) Equity shareholders' funds ...... (331,452) (2,996,921) 1111111 1111111
PROFIT AND LOSS ACCOUNT For the years ended 31 December 2002 and 2003
11111111111111131 December 11111112002 1111111 2003 Euro
Administrative expenses...... 1111111 (165,184) 1111111 (206,179) Operating loss ...... (165,184) ( 206,179) Finance lncome/(charges) (net) ...... 1111111 42,102 1111111 (2,459,290) Loss on ordinary activities before taxation...... 1111111 (123,082) 1111111 (2,665,469) Tax on loss on ordinary activities ...... 1111111 – 1111111 – Loss on ordinary activities after taxation ...... 1111111 (123,082) 1111111 (2,665,469) Retained loss for the year ...... (123,082) (2,665,469) 1111111 1111111
The above results were from continuing operations for the respective period.
There were no recognized gains and losses other than the retained loss for the respective period.
59 SUMMARY FINANCIAL INFORMATION RELATING TO THE ISSUER
OTE PLC
BALANCE SHEET As at 31 December 2003 and 30 June 2004
Year ended Six months 31 December ended 30 June 11111112003 1111111 2004 (Unaudited) Euro Current assets Debtors – due within one year ...... 88,364,307 85,786,663 – due after one year ...... 2,664,751,347 2,664,751,347 Cash at banks ...... 1111111 5,584,974 1111111 6,305,774 2,785,700,628 2,756,843,784 Creditors: Amounts falling due within one year ...... 1111111 (88,942,937) 1111111 (85,122,737) Net current amounts ...... 1111111 2,669,757,691 1111111 2,671,721,047 Total assets less current liabilities...... 2,669,757,691 2,671,721,047 Creditors: Amounts falling due after more than one year...... 1111111 (2,672,754,612) 1111111 (2,673,945,037) Net Liabilities ...... (2,996,921) (2,223,990) 1111111 1111111 Capital and reserves Called up share capital...... 80,076 80,076 Profit and loss account ...... 1111111 (3,076,997) 1111111 (2,304,066) Shareholders’ deficit ...... (2,996,921) (2,223,990) 1111111 1111111
PROFIT AND LOSS ACCOUNT For the year ended 31 December 2003 and the six months ended 30 June 2004
Year ended Six months 31 December ended 30 June 11111112003 1111111 2004 (Unaudited) Euro
Administrative (expenses) ...... 1111111 (206,179) 1111111 (181,058) Operating loss ...... (206,179) (181,058) Finance income (charges), (net) ...... 1111111 (2,459,290) 1111111 953,989 Income on ordinary activities before taxation...... (2,665,469) 772,931 Taxation ...... 1111111 – 1111111 – Income on ordinary activities after taxation ...... 1111111 (2,665,469) 1111111 772,931 Profit/(Loss) for the year/period ...... (2,665,469) 772,931 1111111 1111111
The above results were from continuing operations.
There are no recognised gains and losses other than the loss for the year.
60 DESCRIPTION OF THE GUARANTOR
Description of Business
Overview
The Guarantor is a full-service telecommunications group operating as a société anonyme under Greek law. The Guarantor provides local, long-distance and international fixed line telecommunications services to Greek and foreign businesses, consumers and government agencies. In addition, the Guarantor offers its customers a range of technologically advanced services including mobile telephony, Internet access, integrated service digital network (“ISDN”), high-speed data communications, sales of equipment and asynchronous transfer mode (“ATM”), as well as traditional services, such as leased lines, maritime and satellite communications, telex and telegraphy, audiotex, telecards and directory services. Based on trends elsewhere in Europe, the Guarantor expects demand for its recently introduced offerings to reflect the increasing interest in these services and it has upgraded and expanded its infrastructure in an effort to meet its customers’ growing needs for a complete range of telecommunications products.
Greece has progressively liberalised its telecommunications sector in recent years. Under European Union and Greek law, the Guarantor had the exclusive right until 31 December 2000 to install, operate and commercially exploit the Greek public fixed telecommunications network and to provide fixed line voice telephony services. In its efforts to meet the challenges of a competitive environment, the Guarantor has made significant investments to enhance the capability of its network and to offer an expanding range of products. During the past several years, the Guarantor has invested heavily in the digitalisation of its fixed line network. Digitalisation enables the Guarantor to bill local calls on a time basis, increases call quality and completion rates, allows the Guarantor to provide enhanced services to its customers, reduces maintenance costs, as substantially fewer employees are required to maintain a digital switch, and permits the Guarantor to retrieve customer and traffic information for corporate planning, costing and marketing purposes. As of 31 December 2003, the Guarantor had 6,027,752 access lines installed and 5,200,231 access lines in service, of which 99.66 per cent. (5,182,713) were connected to digital exchanges and 0.34 per cent. (17,518) were connected to analogue exchanges. Moreover, in Athens and Thessaloniki, the two largest urban centres in Greece that generate the heaviest traffic volume, all of the Guarantor’s lines are connected to digital exchanges. The focus of the Guarantor’s capital expenditure program is now on mobile telecommunication services, Internet services, broadband, Internet Protocol and capacity in trunk network using dense wavelength division multiplexing (“DWDM”), as well as more generally on the dimensioning of the network to maintain the quality already achieved. The Guarantor is also adjusting its tariff structure, streamlining its workforce to promote organisational resilience and improving productivity and enhancing its customer service to foster customer loyalty.
The Guarantor provides fixed line telecommunications services, directly or through its subsidiaries, in Greece, Romania, Serbia and Armenia. The principal services offered by the Guarantor’s fixed line telecommunication services business include access lines, local and long distance calling and public phone services from phone booths.
In addition to fixed line services, the Guarantor offers mobile telephony services using GSM 900 and GSM 1800 technology through COSMOTE Mobile Telecommunications S.A. (“COSMOTE”), its 58.77 per cent.-owned subsidiary (as of 30 June 2004). As of 31 December 2003, COSMOTE had 3,917,010 subscribers, representing a market share of approximately 37.5 per cent., based on the total number of contract and prepaid mobile telephony subscribers in Greece. As of 31 December 2003, COSMOTE had 2,700 base stations and its network covered over 99.6 per cent. of the population of Greece with a geographic coverage of 93.6 per cent. of the Greek mainland and 96.7 per cent. of its territorial waters.
61 The Guarantor also offers the following additional services: • IP-based solutions; • ISDN applications; • high-speed data communications responsive to the increased market demand and flow of data traffic; • ADSL; • integrated broadband data transfer services that can efficiently handle a combination of voice, data and Internet through a single nationwide ATM backbone network (currently offered nationwide through the HellasStream service); • new technologies and applications, including digital subscriber line or high speed digital subscriber loop; • intelligent network services, including: universal access numbers, prepaid and post-paid calling cards, virtual private networks, televoting (a function which uses specialised numbers allowing customers to “vote” by dialling such numbers on their keypads), Freephone, which permits subscribers to pay a fixed charge for a number that their customers can call toll free, premium rate services and universal personal telecommunication; • telecards, which are prepaid phone cards, and an increased number of public telephones that accept both telecards and credit cards; • voicemail, call waiting, caller line identification-presentation, call barring, call forwarding, three-party conference and other value-added services for the Guarantor’s fixed line telephony network; and • full local loop unbundling and shared access to wholesalers. OTEnet S.A. (“OTEnet”), the Guarantor’s 90.2 per cent.-owned subsidiary, is the leading Internet Protocol services provider in Greece, offering Internet access services for both domestic and business users and a range of other IP and IT services. As of 31 December 2003, OTEnet had approximately 213,000 customers. This number includes all dial up, OnDSL HOME and prepaid Internet card users. On 31 December 2003, OTEnet had approximately 6,330 business customers. This number includes all Office Gate, Leased Line, OnDSL OFFICE and Data Centre customers.
The Guarantor also owns the largest data network in Greece, which covers the whole country and offers integrated data communications between companies. The Guarantor’s data services include packet-switched data transmission by means of the Hellaspac network and ATM/Internet Protocol network. The Guarantor also provides data services through the Hellascom network, its managed digital network for leased lines which operates with data speeds of up to 2 Mbps.
The Guarantor has installed an extensive broadband network across Greece and launched its ADSL services in June 2003. The Guarantor currently offers ADSL services to most of the large cities and metropolitan centres in Greece. As of 31 December 2003, the Guarantor had 7,159 retail and 514 wholesale customers for the Guarantor’s broadband services in Greece. The Guarantor’s broadband network will be expanded according to demand and is expected to play a key role in the new era of broadband services.
The Guarantor’s regional expansion strategy has been to be the leading telecommunications operator in the Southeastern European region and an active player in the development of the European telecommunications sector in accordance with its geographical coverage. This has involved equity investments in Serbia, Romania, Albania, Bulgaria, Armenia and the Former Yugoslav Republic of Macedonia.
62 The joint venture “OTE-COSMOTE-OTEnet” was a Grand Sponsor for the Telecommunications Sector of the Athens 2004 Summer Olympic Games and Special Olympics. The Athens Organising Committee (“ATHOC”) appointed the “OTE-COSMOTE-OTEnet” joint venture to provide ATHOC with telecommunications services relating to the Athens 2004 Summer Olympic Games. The benefits which are expected to accrue to the participants in the joint venture include increased revenues generated during the Athens 2004 Summer Olympic Games and the fact that most of the new telecommunications infrastructure which was installed for the Athens 2004 Summer Olympic Games is expected to be used after the Games to meet the increased needs of the liberalised Greek telecommunications market, thereby contributing to the modernization of the Guarantor’s group of companies. Moreover, the use of the joint venture’s services by millions of people around the globe, as well as the extensive exposure which the joint venture’s brand names enjoyed during the Games, are expected to yield intangible benefits which will contribute to the strengthening of the international reputation and prestige of the companies that comprise the joint venture. Over the seventeen days of the Olympic Games, the Guarantor’s network successfully covered the needs of 16,000 athletes, as well as media representatives, employees, volunteers and visitors in 60 Olympic facilities and 50 other non-Olympic facilities throughout Greece. Over the same period, COSMOTE’s network successfully covered increased mobile traffic exceeding a total 34 million minutes with an average 2 million minutes on a daily basis. By way of example, on 21 August, one of the peak days of the Games, the number of mobile calls made in the Olympic Complex area exceeded 400,000.
Following a spin-off in 2003, the management, exploitation and development of the Guarantor’s real estate assets is the responsibility of its subsidiary, OTE Estate S.A., which has been the freeholder of the property since 6 June 2003. Following the spin-off of its real estate to OTE Estate S.A., the Guarantor has become a lessee of OTE Estate, for all the property that the Guarantor uses for its telecommunications needs.
As at 30 June 2004, the Guarantor’s share capital amounts to Euro 1,174,109,724.61 and is divided into 491,259,299 ordinary registered shares with a nominal value Euro 2.39 each. On 17 June 2004 the ordinary general assembly of the Guarantor’s shareholders resolved to cancel 12,794,900 shares representing approximately 2.54 per cent. of its share capital, regarding which the three-year period for which the Guarantor was permitted by law to hold its own shares had expired. The ordinary general assembly of the Guarantor’s shareholders also approved the distribution of a full year dividend for fiscal year 2003 of Euro 0.35 per share. The dividend is paid as of 9 August 2004 to shareholders of record as of 17 June 2004.
Recent Developments
The Guarantor's operating revenues for the six months ended 30 June 2004 were Euro 2,527.9 million, as compared to Euro 2,327.9 million for the same period in 2003, representing an increase of 8.6%. Over the same six-month period, income before provision for income taxes and minority interests was Euro 308.2 million, as compared to Euro 441.7 million for the same period in 2003, representing a decrease of 30.2%, and net income was Euro 93.1 million, as compared to Euro 210.3 million for the same period in 2003, representing a decrease of 55.7%.
These results reflect the poor performance of the Guarantor's Greek fixed-line activities, mainly due to the deterioration of its competitive position in fixed-line telephony and rising operating expenses, partly offset by better performance in mobile activities. The Guarantor's condensed consolidated financial statements for the six months ended 30 June 2004 and 2003 are set out on pages 146to150 of this Information Memorandum.
On 30 September 2004, the Guarantor updated guidance regarding its results, announcing that operating income before depreciation and amortisation in its Greek fixed-line telephony activities is expected to be significantly below previous guidance and comparable performance in the year 2003. The Guarantor attributed these declines mainly to the EETT’s decisions of December 2003 and January 2004 which imposed lower tariffs on a number of the Guarantor’s products and
63 services and other factors including increased personnel expenses and other operating expenses, partly attributable to expenses related to the 2004 Olympic Games. Despite the continued strong performance of all its other activities, the Guarantor expects this decline to have a detrimental impact on its consolidated results for 2004.
The Guarantor has stated that it is currently considering a number of measures to address this issue, including the reorganisation of its Greek fixed-line operations and headcount reductions through voluntary retirement to be agreed with the unions and the government.
On 12 November 2004, the EETT announced a decision imposing new interconnection and wholesale leased lines tariffs. Pursuant to this decision, the EETT approved, as cost-oriented, new interconnection tariffs for the Guarantor, which the Guarantor estimates to be approximately 18% lower on a weighted average, as compared to those currently in effect. These new interconnection tariffs will apply retroactively as of 1 January 2004 and are expected to affect the Guarantor's results of operations for the third and fourth quarters of 2004. The EETT also decreed that the Guarantor's tariffs for wholesale leased lines are not cost-oriented and imposed interim tariffs for wholesale leased lines. The interim wholesale leased lines tariffs, which are higher than those imposed by the EETT in its 15 December 2003 decision, will apply as of the official publication of the EETT decision in the Government Gazette. Preliminary estimates indicate that the tariffs imposed by this decision may have a slightly positive impact on the Guarantor's results of operations as of the fourth quarter of 2004, although the Guarantor remains in the process of assessing the full impact of this decision.
Pursuant to a Memorandum of Understanding dated 20 September 2004 and definitive agreements implementing the MoU between OTE, Serbian PTT and Telecom Serbia, Telecom Serbia undertook to repay in full the principal amount of a loan of approximately e12.5 million granted to it by OTE in previous years, plus the associated stamp duty and accrued interest, based on an agreed repayment schedule. OTE agreed to waive its management fees of approximately e21 million, provided certain conditions are met. For a further discussion please see “Regional Acquisitions and Equity Investments” below.
Furthermore, on 20 September 2004, OTE, Serbian PTT and Telecom Serbia entered into an agreement providing, among other matters, that OTE agrees to suspend until 31 March 2005 the pending arbitrations against the defendants and subsequently withdraw them, provided certain conditions are met. For a further discussion please see “Legal Proceedings” below.
Telepassport, a Greek fixed-line telephony services provider, filed a lawsuit against the Guarantor before the Athens First Instance Court claiming an amount of 28.5 million Euro, because of the Guarantor's delay in providing leased lines to Telepassport. A hearing is scheduled for 8 December 2004.
Strategy
The Guarantor’s aim is to deliver increasing value to its shareholders and to its customers following the liberalisation of the Greek telecommunications market with effect from 1 January 2001. To this end, the Guarantor is seeking to maintain its position as the only one-stop shop for telecommunications services in Greece.
The Guarantor’s key strategic objectives are to: • enhance its competitiveness in domestic fixed line telecommunications; • grow in mobile telephony and Internet Protocol services; • focus on its international operations; • continue to improve profitability across its operations, with a particular focus on resolving issues arising from under-performing operations both in Greece and internationally; and
64 • improve its relationship with its regulator, the National Telecommunications and Post Commission (“EETT”).
In furtherance of these objectives, the Guarantor will aim to: • increase its customer focus; • improve the quality of its operations and services and broaden its product portfolio; • improve returns through an increased focus on the Guarantor’s wholesale business in order to compensate for lower retail revenues resulting from the increased competition in its principal markets; • undertake prudent pricing, further cost reductions and capital expenditure rationalisation; • focus on the conduct of its operations within a transparent regulatory framework; • strengthen COSMOTE’s position in Greece; • achieve growth in its Balkan mobile subsidiaries under COSMOTE’s management; • strengthen OTEnet’s position in the Greek Internet service provider market; • restructure its international operations, principally through the hiring of a new management team at Romtelecom S.A. (“Romtelecom”), reducing employee numbers and maintaining capital expenditure in line with its business plan; • rationalise its international investment portfolio, with particular focus on resolving issues arising from under-performing operations both in Greece and internationally; • enhance free cash flow generation; • maximise the value of its real estate investments; • continue to upgrade and expand information systems; • create a unified culture and promote greater involvement by its personnel across its operations; and • simplify its organisational structure and optimise its corporate governance.
Enhancing competitiveness in fixed line telecommunications
The Guarantor aims to enhance the competitiveness of its fixed line telecommunications businesses by increasing customer focus; improving service quality and broadening its product portfolio; improving returns through prudent pricing, further cost reductions and rationalisation of capital expenditure; and focusing on the conduct of its operations within a transparent regulatory framework.
Increasing customer focus. The Guarantor believes that the ability to offer innovative and useful services that respond to its customers’ needs increases customer satisfaction and enhances revenues by stimulating usage. With an expanding, innovative and integrated range of advanced products and services, specifically directed to multinational and large corporate customers, the Guarantor believes it will strengthen its position as the only one-stop shop telecommunications operator in Greece. To support its products, the Guarantor will continue to allocate dedicated personnel, who are trained to offer residential and business customers effective after-sales support and other enhanced services.
Improving service quality and broadening the product portfolio. Over the last few years, the Guarantor has undertaken a program to enhance the capability of its network in order to permit faster and more reliable means of information transmission. The Guarantor has made substantial
65 investments in the digitalisation of its network and is continuing to invest in broadband connections, data/Internet Protocol infrastructure and node development in major international markets in order to deliver integrated voice, video and data services to its customers. The Guarantor’s network supports broadband data communications, video and audio services (satellite and digital subscriber line), fast Internet access and other multimedia services. The Guarantor intends to monitor the demands of its customers and to carefully invest in a financially optimised telecommunications infrastructure designed to immediately cover customer needs, as well as to increase the return on its assets.
In parallel, the Guarantor views improvements in quality as a priority that will help it to retain its subscriber base and increase customer satisfaction and loyalty in what is now a fully liberalised and competitive market. The Guarantor has installed a nationwide network management system that enables it to operate and maintain its network more effectively by automating workflow. The benefit of this investment lies in its potential to improve the quality of the telecommunication services provided to customers, while reducing maintenance and operating costs. Having made progress with its network upgrade program, the Guarantor’s focus has shifted to exploiting this network to maximise usage and revenue growth.
The Guarantor intends to expand the range of its products, especially in potentially high-growth areas, such as mobile telephony, Internet services and data communications. The Guarantor aims to provide a complete range of telecommunications services to its customers in Greece and to introduce newer products through its expanding network, particularly in Southeastern Europe.
Improving overall revenues by focusing on wholesale businesses. The Guarantor intends to focus on its interconnection and leased line activities, which the Guarantor believes are currently less susceptible to competitive pressures resulting from the liberalisation of the Greek telecommunications market. By providing high quality and reliable network services and offering innovative products to other operators, the Guarantor is seeking to create increased customer demand in its wholesale businesses and thereby improve, or at least maintain, its wholesale market penetration. In this way, the Guarantor aims to generate higher revenues from these activities to compensate for lower revenues resulting from the loss of some of its market share in the retail sector as a result of heightened competition.
Prudent pricing, further cost reductions and rationalisation of capital expenditure. As required by the regulatory framework applicable to its operations in Greece, the Guarantor intends to continue to set tariffs for its core telecommunication services (fixed line telephony, leased lines and data communications) in conjunction with the regulator on a cost-oriented basis. The Guarantor expects, however, that there will be scope to accommodate a flexible pricing policy, including specially formulated pricing packages, which will both comply with applicable regulations and remain competitive, and it intends to take advantage of this flexibility using its new information technology and customer charging and billing systems.
The Guarantor plans to continue to implement its cost reduction policies through acceleration of head-count reduction, on the basis of its collective bargaining agreement, and through further decreases in non-payroll expenses. In particular, management plans to concentrate on controlling operating expenses, which constitute a significant component of the Guarantor’s cost base, by undertaking a line-by-line examination of the elements comprising such expenses and implementing cuts where appropriate.
The Guarantor is seeking to further rationalise its capital expenditure program since its network is almost completely digitalised and the Guarantor does not expect that it will require significant new investment.
Seeking to promote and operate within a transparent regulatory framework. The Guarantor has worked and intends to keep working closely with the Greek State and regulatory authorities to enable it to operate in a regulatory environment which is fair and clear to all telecommunications operators.
66 Growing mobile telephony operations and Internet services
Through COSMOTE, the Guarantor plans to continue to be a leading participant in the Greek mobile telephony market. Through OTEnet, the Guarantor intends to remain actively involved in the growing Greek market for Internet access services, integrated Internet Protocol telecommunications solutions, e-business and e-content services.
Strengthening COSMOTE’s position in Greece. The Guarantor’s strategy for COSMOTE is to consolidate and manage COSMOTE’s growth, while continuing to develop its network and offer new services to satisfy customer demand, including third generation (“3G”) services. COSMOTE seeks to maximise its revenues through the launching of new services, promotion of value-added services and churn reduction. COSMOTE offers competitive tariff packages that provide special incentives for high-volume customers. Having already achieved a 38.0 per cent. market share of the Greek mobile telephony market as of 31 March 2004, COSMOTE intends to strengthen its leading position in the Greek mobile market, including its quality of service and profitability.
Strengthening OTEnet’s leading position in the Greek Internet Protocol Services market. As of 31 December 2003, OTEnet had a market share of approximately 41 per cent. of the dial-up subscription market. The Guarantor believes that OTEnet will continue to grow organically. The Guarantor will also seek to evaluate potential acquisition opportunities, as the fragmented Greek Internet service provider market continues to consolidate.
Focusing on international operations
In providing international services, the Guarantor is seeking to: • reduce substantially the cost of international telephony services by negotiating new cost- efficient agreements with other carriers and by redirecting international traffic through alternative less costly routes; • expand in new geographic markets through the development of new international services and through the continuous expansion of its international data/IP network in strategic sites around the globe; and • establish long term customer relations with other telecom providers in the Greek and international market, by offering complete packages of customised solutions for their telecommunication needs.
To maximise the benefits to be derived from its international operations, the Guarantor intends to continue to pursue restructuring programs and to rationalise its international investment portfolio.
Restructuring international operations and rationalizing the international investment portfolio. The Guarantor is seeking to continue to restructure its international operations and rationalise its investment portfolio.
In Romania in 2003, the Guarantor continued Romtelecom’s restructuring by strengthening the management team, reducing employee numbers and maintaining capital expenditure under its business plan. Management believes Romtelecom’s restructuring is on track as reflected by improved financial results to date in 2004. In addition, headcount reduction for the first five months of 2004 exceeded targets with a corresponding positive impact on reduction of operating expenses.
Romtelecom’s mobile subsidiary, Cosmorom, is experiencing financial difficulties and faces uncertainty about its future. Various strategic options are under consideration. See “International Investments – Regional Acquisitions and Equity Investments.”
In Armenia, following a change in ArmenTel’s management, an effort has been undertaken to streamline the company’s operations. Negotiations are also underway to resolve certain disputes with the Armenian Government. See “Description of the Guarantor – Legal Proceedings”.
67 In Serbia, the Guarantor continues to evaluate its options with respect to its investment in Telecom Serbia. Discussions were recently held with the Serbian Government exploring the possibility of the Guarantor acquiring a majority state in Telecom Serbia’s mobile operations in exchange for its current 20 per cent. stake in Telecom Serbia’s fixed line operations.
Continuing to improve profitability
The Guarantor aims to deliver increasing value to its shareholders through improved profitability. To increase profits, the Guarantor intends to enhance free cash flow generation; disengage from non-core activities; continue to upgrade and expand its information systems; create a unified culture and promote greater involvement by its personnel; and optimise its corporate governance.
Enhancing free cash flow generation. The Guarantor continues to seek to redirect its internal operational processes in order to achieve systematic cashflow targets on the basis of its new organisational plan. The Guarantor plans to continue to focus on the allocation of responsibilities across its business activities through regular performance monitoring.
Maximizing the value of real estate. The Guarantor is developing plans designed to increase revenues generated from or otherwise maximise the value of investments in real estate held by OTE Estate, the Guarantor’s wholly-owned subsidiary to which the Guarantor’s real estate assets were transferred in 2003.
Upgrading and expanding information systems. The Guarantor intends to pursue on-going efforts and investments aimed at the continuous upgrade and expansion of its information systems, with a view to supporting the implementation of its strategy and improving both the quality of the products and services it offers to customers and its internal business efficiency.
Creating a unified culture and greater involvement of the Guarantor’s personnel across its operations. The Guarantor aims to continue its efforts to enhance productivity and improve employee efficiency. To this end, the Guarantor will maintain its policy of steadily reducing staff levels through natural attrition and an early retirement program in order to reduce the number of employees involved in the provision of basic services, while, at the same time, continuing to recruit employees with the specialised knowledge required in the global telecommunications environment. The Guarantor will also pursue and develop its employee training programs, retraining existing staff so that employees have the skills required for the development of its business. To attract and retain qualified personnel, the Guarantor will also offer competitive wages and remuneration incentives for higher performing individuals and groups, within the terms permitted by its collective bargaining agreement as required by applicable Greek legislation.
Simplifying the Guarantor’s organisational structure and optimizing corporate governance. In 2002, the Guarantor reorganised its business into four dedicated business units designed to transform the Guarantor into a market-oriented, modern and competitive telecommunications group. The Guarantor intends to complete its restructuring to further simplify the organisation, by grouping its business activities along logical standards that match its revenue streams and relevant market characteristics, and to refine its reporting lines. In addition the Guarantor will continue to pursue the implementation of an appropriate corporate governance regime with a view to improving operational efficiency and achieving synergies across its operations.
With the goal of improving corporate governance, in 2002, the Guarantor established a Group Corporate Centre. However, following a management review of the Guarantor’s organisational structure, the Group Corporate Centre was abolished in July 2004. The rationale for the decision to dismantle the Group Corporate Centre was that, within the context of the company’s cost cutting goals, elimination of the Group Corporate Centre would contribute to a more streamlined organisational structure and a more efficient decision making process.
The new regulatory framework in Greece gives increased flexibility to the EETT to intervene in the Guarantor’s operations and promotes the wider application of competition rules, while also
68 endorsing enhanced cooperation between the EETT and the European Commission and increasing the accountability of the EETT under a clear set of identified regulatory objectives. Within this environment, the Guarantor aims to: • lobby for a high degree of regulatory certainty to be included in a new draft bill with respect to interventions by the EETT, with maximum importance being placed on the return on investments; • strengthen its relationships with the European Union and other international bodies, such as the European Telecommunication Network Operators and the European Telecommunications Platform; and • improve its relationship and cooperation with the EETT in order to assist in fostering a healthy competitive environment in Greece, so as to promote sustainable development of the telecommunications market, while also maximizing the benefit to its customers.
Overview of Revenues
The table below shows the Guarantor’s revenues by category of service and is derived from the Group’s consolidated financial statements for each of the two years ended 31 December 2003.
1111111111111123Year ended 31 December (1) 11112002 1111 2003 1111 2003 ffU.S.$ (millions) Service Area Domestic telephony(2) ...... 2,120.5 2,349.5 2,959.7 International telephony(3) ...... 349.9 375.5 473.0 Mobile telephony services ...... 950.3 1,228.8 1,547.9 (4) Other revenues ...... 1111 888.2 1111 960.5 1111 1,209.9 Total Revenues...... 4,308.9 4,914.3 6,190.5 1111 1111 1111
Notes (1) Solely for the convenience of the reader, Euro amounts have been translated into U.S. Dollars at the noon buying rate on 31 December 2003 of Euro 1.00 per U.S.$ 1.2597. (2) Domestic telephony and other revenues include charges to customers on outgoing calls to subscribers of the unaffiliated mobile telephony operators of Euro 430.4 million in 2003 and Euro 406.7 million in 2002. For fiscal year 2002, substantially all these amounts were billed to by the mobile operators for calls placed from the Guarantor’s network to their customers. Simultaneously, the Guarantor billed the mobile operators an interconnection fee relating to these calls. Effective 1 February 2003, the Guarantor pays the mobile operators new termination charges for calls terminating on their networks and the Guarantor no longer charges them any interconnection fee. Domestic telephony and other revenues for 2003 include Euro 123.7 million contributed by Romtelecom for the ten months ended 31 December 2003, as Romtelecom was first consolidated beginning in March 2003. Such revenues also includes revenues from operator assistance, connection and reconnection charges and paging services. (3) Includes revenues from incoming, including transit, and outgoing traffic, gross of amounts charged by foreign telephone operators, and payments from the unaffiliated mobile telephony operators in Greece, TIM (formerly STET Hellas), Vodafone and, since June 2002, Q-Telecom to the Guarantor for international calls. The respective revenues from consolidated subsidiaries providing mobile services are eliminated upon consolidation. (4) Includes telecard sales, directory services, radio communications, audiotex, telex and telegraphy, leased lines and data communications, ISDN, sales of telecommunications equipment, internet services, ATM, services rendered and interconnection charges.
Fixed Line Telephony
The Guarantor provides fixed line telecommunications services, directly or through its subsidiaries, in Greece, Romania, Armenia and its associate in Serbia. The principal services offered by the Guarantor’s fixed line telecommunication services business include access lines, local and long distance calling and public phone services from phone booths.
69 Network and Subscribers The Guarantor’s fixed line telecommunications network serves all of Greece while Romtelecom’s fixed lined telecommunications network and ArmenTel’s fixed line telecommunications network serve all of Romania and Armenia, respectively.
To increase capacity and enhance its local and trunk transmission networks, the Guarantor has made investment in new fibre optic cables and in digital microwave links. In carrying out this enhancement of the capability of its fixed line network, the Guarantor has increased the use of fibre optic cable, which may be used for telephony, data transmission, cable television and multimedia services. The Guarantor is in the process of implementing a major fibre optic urban network to improve service in major traffic areas. The Guarantor does not expect additional substantial increases in access lines in the future due to the rapid development of mobile telephony in Greece, which has led some customers to terminate multiple access lines in their homes.
The following table provides information concerning fixed access lines in Greece in 2002 and 2003:
11112111112As at 31 December 111122002 11112 2003 PSTN access lines in service ...... 5,412,796 5,200,231 ISDN channels in service...... 880,154 1,097,020 Total lines in service(1) ...... 6,292,950 6,297,462 PSTN access lines installed ...... 6,067,600 6,027,752 ISDN channels installed...... 1,051,336 1,281,712 Total lines installed(1)...... 7,118,936 7,309,464 Percentage of PSTN installed lines connected to digital exchanges ...... 96.5% 99.6%
Notes (1) Each ISDN channel is counted as the equivalent of one PSTN access line.
Domestic Fixed Line Telephony
Following liberalisation of the market on 1 January 2001, the Guarantor lost its exclusive right to provide fixed line telephony services in Greece and has been facing substantial pressure from its competitors. The regulatory framework in Greece has been conducive to the development of the Guarantor’s competitors, while restricting the Guarantor’s pursuit of its commercial strategy. As a result of liberalisation, the Guarantor has experienced some loss of its market share in domestic and international telephony services to new entrants. Although the Guarantor remains the principal provider of both domestic telephony services and international telephony services in Greece, the Guarantor estimates that its market share of the fixed line business (in terms of total fixed line minutes) was 87 per cent. as of each of 31 March 2004 and 31 December 2003, compared to 96 per cent. as of 31 December 2002. In common with other former monopoly providers of telephony services in the European Union, which have faced liberalisation in their respective jurisdictions, the Guarantor expects that its market share will decline further over the next few years.
In the future, the Guarantor’s management believe that competition in the market for fixed line telephony services is likely to be based on such factors as: • the regulatory framework; • market conditions in Greece and the other countries in Southeastern Europe; • European Union regulations with respect to telecommunications service and basic telecommunications infrastructure; • the financial strength and operating capacity of competitors; and
70 • the continuing effectiveness of the Guarantor’s commercial policies and the overall ability of the Guarantor to withstand increased competition.
Domestic fixed line telephony services, including local and long-distance telephony services, accounted for 47.8 per cent. of total operating revenues in 2003, as compared to 49.2 per cent. in 2002. The 2003 revenues include Euro 495.1 million contributed by Romtelecom for the ten-month period beginning March 2003 when Romtelecom was first consolidated.
In 2003 and 2002, 61.6 per cent. and 66.9 per cent., respectively, of revenues from domestic telephony services were derived from call charges. These amounts include charges to customers on outgoing calls to subscribers of the unaffiliated mobile telephony operators. These tariffs accounted for approximately 13.1 per cent. of domestic telephony revenues in 2003 and 19.2 per cent. in 2002. For 2002, substantially all these amounts were billed to the Guarantor by the mobile operators representing calls placed from the Guarantor’s network to their customers. Simultaneously, the Guarantor billed the mobile operators an interconnection fee relating to these calls. Effective 1 February 2003, the Guarantor no longer charges an interconnection fee for calls placed from the Guarantor’s network to customers of the mobile operators. Revenues from new fixed line services (including principally leased lines and ISDN) contributed 9.7 per cent. of total revenue in 2003, compared to 8.8 per cent. in 2002.
An additional 33.6 per cent. and 30.2 per cent. of domestic telephony revenues in 2003 and 2002, respectively, were derived from monthly rental charges while the remaining 4.8 per cent. and 2.9 per cent. of domestic telephony revenues in 2003 and 2002, respectively, related to other domestic telephony charges such as connection charges, operator assistance, extension lines, directory and various other services.
In the past, the Guarantor measured domestic traffic volume by number of tariff units. However, tariff units were not an accurate indicator of the level of call traffic or existing call patterns, due to the fact that time intervals corresponding to each tariff unit vary depending on the nature of each call (local or long-distance calls, calls to Internet service providers, or fixed-to-mobile calls). Following the launch of IRIS, the Guarantor’s sales statistic software module, which provides access to traffic and other statistical data with respect to all of its Guarantor’s centres, the Guarantor has been able, since 2001, to measure domestic traffic volume for statistical purposes in terms of minutes.
The total domestic traffic volume for 2003 was approximately 32.1 billion minutes, of which approximately 14.2 billion minutes, or 44.3 per cent., was accounted for by local calls, 2.1 billion minutes, or 6.5 per cent., was accounted for by long distance calls, 13.6 billion minutes, or 42.4 per cent., was accounted for by calls to Internet service providers, 1.8 billion minutes, or 5.6 per cent., was accounted for by fixed-to-mobile calls, and 0.4 billion minutes, or 1.2 per cent., was accounted for by special calls, which are calls to three and four digit numbers and to which special tariffs apply. Calls placed from public payphones are included in the total domestic traffic volume figure for 2003. As analogue exchanges do not produce detailed call records, the volume of calls placed from existing analogue lines has not been included in the aforementioned total domestic traffic volume figure for 2003. Analogue lines represented less than 0.4 per cent. of the Guarantor’s lines in service as at 31 December 2003.
International Fixed Line Telephony
Following liberalisation of the market on 1 January 2001, the Guarantor lost its exclusive right to provide international fixed line telephony services in Greece. This has resulted in a decline in the Guarantor’s share of the market for international fixed line telephony services. Although the Guarantor still remains the principal provider of these services, in common with the trend elsewhere in the European Union, the Guarantor anticipates that its market share of international telephony will decline further over the next few years.
71 The Guarantor’s revenues from international telephony, which include revenues from international incoming, transit and outgoing traffic routed through the Guarantor’s fixed network in Greece, ArmenTel’s network in Armenia and Romtelecom’s network in Romania, amounted to Euro 375.5 million in 2003 and Euro 349.9 million in 2002, representing 7.6 per cent. and 8.1 per cent., respectively, of total operating revenues. Revenues also include payments from unaffiliated mobile telephony operators in Greece for the international traffic generated from their networks and routed through the Guarantor’s fixed networks. The 2003 revenues include revenues of Euro 91.8 million contributed by Romtelecom beginning in March 2003 when Romtelecom was first consolidated. Revenues from outgoing international traffic amounted to Euro 187.4 million in 2003 and Euro 185.5 million in 2002, while revenues from third parties for incoming and transit traffic amounted to Euro 151.2 million in 2003 and Euro 127.9 million in 2002, respectively. International revenues from unaffiliated mobile operators for outgoing traffic amounted to Euro 36.9 million in 2003 and Euro 36.5 million in 2002.
The Guarantor has entered into bilateral settlement agreements with other international telecommunications companies. These agreements govern payments among telecommunications operators for settling incoming and transit traffic. Outgoing traffic to each destination is netted against incoming traffic for the purpose of determining net settlement amounts with each foreign operator. To settle payments, net settlement amounts are calculated primarily on the basis of the Special Drawing Rights (“SDRs”) of the International Monetary Fund, although the payment currency is regulated by relevant bilateral agreements, the most common currency being the U.S. Dollar. Thus, revenues from international calls include both payments by subscribers in Greece and payments received from other telecommunications operators for incoming and transit traffic.
The demand for international telecommunications traffic in Greece experiences seasonal fluctuations, with peak outgoing traffic occurring in the summer and incoming traffic peaking during September and October.
The following table sets out international traffic volume data, including outgoing calls originated by mobile telephony operators in Greece, for the two years ended 31 December 2003.
International Traffic Volume Data
Year ended 1111211111231 December 111122002 11112 2003 Outgoing: Total outgoing traffic (millions of chargeable minutes)...... 897.9 835.1 Growth in outgoing traffic (% per annum) ...... 8.8 (7.0) Incoming: Total incoming traffic (millions of chargeable minutes) ...... 840.6 792.5 Growth in incoming traffic (% per annum) ...... (5.6) (5.7)
Tariff Policy
The Guarantor’s revenues from domestic fixed line voice telephony services are derived mainly from call charges, monthly rental charges and connection charges. The same tariff rates apply to business and residential customers. Certain volume discounts apply in the case of special discount packages.
The price of local telephony services provided by the Guarantor in Greece, including its fixed monthly charges and connection fees, is among the lowest in the European Union, while, according to Global Telecom Data Base, LYNX Technologies, Inc., the Guarantor’s prices for long distance and international telephony services are approximately in line with the European Union average.
72 Changes in tariff rates proposed by the Guarantor are subject to approval by the EETT. In recent years, the Guarantor has gradually increased monthly rental and adjusted local call charges to levels which now better reflect the costs of providing these services and the Guarantor has reduced long-distance and international call charges. The Guarantor implemented these changes to its tariff structures in an effort to align its charges with those of other European Union member countries, prepare for competition and comply with the applicable European Union directives.
The Guarantor took into account applicable EETT requirements for cost-oriented tariffs at the time of its tariff proposals in December 2003, by reflecting the findings of its enterprise costing / profitability system (“ECOS”), the principles and methodology of which have been approved by the EETT. With respect to interconnection, the tariff decisions were based on the results of the long run average incremental costing methodology as applied to current cost data. The methodology used by the Guarantor for the setting of tariffs for retail services is fully distributed costing based on historical cost data. The methodology used by the Guarantor for the setting of tariffs and charges for wholesale services, such as interconnection and unbundled local loop services, is long run average incremental costing.
The Guarantor believes, on the basis of its ECOS data, that the tariff policy it has followed in recent years, based on cost methodologies, has been in the right direction in achieving compliance with European Union and EETT regulation. The Guarantor believes that in the future its tariff policy will need to consider the requirements of the EETT for cost-oriented tariffs, according to regulatory rules, the competitive pressures of the liberalised Greek telecommunications market and the requirement imposed on it to provide universal service at reasonable prices to all users.
However, given that other companies, which have recently entered the Greek market, primarily through the use of a selection carrier code, and which take advantage of the low charges of selection and termination of calls from and to the Guarantor’s network, are offering lower charges, especially for long distance and international telephony and for calls to mobile phones, the Guarantor aims to lower its costs in order to achieve competitive prices. All adjustments to tariffs, including any reductions thereof where such reductions relate to tariffs previously approved by the EETT, require the approval of the EETT.
On 31 March 2003, the Guarantor adjusted its tariffs for leased lines and data communications. The EETT did not approve these new tariffs for leased lines and data communications due to alleged insufficient proof of cost-orientation. However, the EETT resolved to allow the Guarantor to implement these new tariffs in the interests of competition. If a third party disputes the cost- orientation of the new tariffs, the Guarantor would be obliged to provide sufficient proof of cost- orientation. The Guarantor developed a more comprehensive costing methodology for leased lines, which, although submitted to EETT during the audit of the Guarantor’s old ECOS system (carried out during August-November 2003), was not considered by the external auditors due allegedly to lack of time as a result of late submission by the Guarantor. The Guarantor incorporated this methodology in its new ECOS system, improving the allocation of total leased lines cost to individual lines thus adhering more effectively to the cost causation principle. The aforementioned tariffs differ between different kinds of leased lines (e.g., analogue, digital, local, trunk high speed, and low speed). The Guarantor has submitted its costing data for 2004 which have been audited by external auditors appointed by the EETT. The audit was concluded on 1 October 2004.
On 12 November 2004, the EETT announced a decision imposing new interconnection and wholesale leased lines tariffs. Pursuant to this decision, the EETT approved, as cost-oriented, new interconnection tariffs for the Guarantor, which the Guarantor estimates to be approximately 18% lower on a weighted average, as compared to those currently in effect. These new interconnection tariffs will apply retroactively as of 1 January 2004 and are expected to affect the Guarantor's results of operations for the third and fourth quarters of 2004. The EETT also decreed that the Guarantor's tariffs for wholesale leased lines are not cost-oriented and imposed interim tariffs for wholesale leased lines. The interim wholesale leased lines tariffs, which are higher than those
73 imposed by the EETT in its 15 December 2003 decision, will apply as of the official publication of the EETT decision in the Government Gazette. Preliminary estimates indicate that the tariffs imposed by this decision may have a slightly positive impact on the Guarantor's results of operations as of the fourth quarter of 2004, although the Guarantor remains in the process of assessing the full impact of this decision.
On 27 March 2003, the Guarantor announced the introduction of “OTEoptions” and “OTEbusiness”, tailored discount packages for residential and small business customers, respectively. On 9 July 2003, the Guarantor announced certain adjustments to these discount packages arising out of a decision of the Greek Administrative Court of Appeals following an application by the EETT. In particular, the court ruling decreed that the call rates applicable to Guarantor’s international long-distance packages must be linked to the volume of international calls made by the respective customers and not to their total bills. As at 31 December 2003, additional discounts regarding local, long-distance and fixed-to mobile calls had been implemented. In addition, a new discount package targeting corporate customers, “OTEbusiness Plus”, was introduced.
In September 2004, the Guarantor introduced multi-ISDN, a fixed-line product which allows up to four personal numbers in a household through one connection and contemporaneous use of the line by two callers, and Student Pack, a product designed for students for the duration of their studies.
Mobile Telephony – COSMOTE
COSMOTE was established in 1996 and began commercial operations in April 1998. COSMOTE is one of the four holders of licences for the provision of mobile telephony services in Greece; it is one of the four holders of a 2G licence and one of the three holders of a 3G licence in Greece. COSMOTE’s registered office is located at 15, Stadiou Street, GR 10561 Athens.
COSMOTE provides mobile telecommunications services in Greece in the 1800 MHz frequency band, according to the terms of its 2G licence. The 2G licence was initially granted to OTE and subsequently transferred to COSMOTE. The 2G licence has a duration of 25 years starting from 29 November 1995 and can be renewed pursuant to a resolution of the EETT. In December 2001, the EETT harmonised all 2G special licences, including COSMOTE’s.
In August 2001, following a tender initiated by the EETT for the award of 2G and 3G licences, COSMOTE was awarded one of three 3G licences (the other two were awarded to Vodafone and TIM (formerly STET Hellas), respectively) in respect of segments of 2x15 MHz (paired) and 2x5 MHz (unpaired) for a consideration of Euro 161.4 million. Vodafone and TIM were each awarded 2x20 MHz and 2x10 MHz paired spectrum and 2x5 MHz unpaired spectrum. 70 per cent. of the consideration for the 3G licence was paid simultaneously with the award of the licence, while the remaining 30 per cent. is scheduled to be paid in three equal annual instalments commencing in December 2005.
Moreover, in May 2002, the EETT approved the transfer to COSMOTE of the Guarantor’s fixed wireless access licence in the 25GHz frequency band for a price of Euro 9.5 million (which included both the price paid by the Guarantor for this licence in December 2000 and the respective capitalised interest). This transfer was also approved by the Extraordinary General Meeting of COSMOTE Shareholders on 21 February 2002.
The EETT awarded COSMOTE a segment of 2x5MHz in the GSM 900 frequency band for 2G mobile telecommunications services in August 2002 for Euro 38.2 million, the reserve price which it had set for GSM spectrum. This capacity supplements COSMOTE’s existing capacity to provide 2G services to customers in the GSM 900 spectrum band and improves the coverage levels provided to COSMOTE’s customers. The overall GSM spectrum allocation in Greece is as follows: 2x30MHz for COSMOTE, 2x30MHz for Vodafone, 2x15MHz for TIM and 2x10MHz for Q-Telecom. In addition, there is an unallocated spectrum segment of 2x15MHz in the 1800 MHz frequency
74 band.
In October 2002, following an application by COSMOTE to the EETT, and in accordance with the applicable regulations, COSMOTE was granted a special authorisation for the use of the spectrum zone of 2.4GHz for the provision of W-LAN public mobile communications services.
In October 2003, following the completion of the invitation procedures by the EETT to all mobile operators for the provisional grant of radiofrequency spectrum DCS 1800 for the coverage of the needs of the Athens 2004 Summer Olympic Games, COSMOTE was granted the right to use in Attica, solely for the period from 10 June 2004 to 30 September 2004, additional spectrum of 2x5 MHz in the DCS 1800 frequency band, for a total price of Euro 344,000. Additional spectrum of 2x5 MHz in the DCS 1800 frequency band was also awarded to Vodafone and TIM for the same purposes and under the same terms and conditions.
COSMOTE operates as a stand-alone company, with its own administrative, financial, marketing, billing and collection systems separate from those of the Guarantor. The Guarantor cooperates with COSMOTE in certain areas and provide each other with certain services on an arm’s-length basis. In addition, the Guarantor provides COSMOTE with a number of the Guarantor’s personnel, as well as distribution and maintenance services for COSMOTE’s products and network, also on an arm’s-length basis. In addition, COSMOTE leases certain transmission capacity from the Guarantor. The Guarantor also owns and leases to COSMOTE a large number of the base station sites that COSMOTE requires for its network.
In October 2000, COSMOTE completed its initial public offering, pursuant to which its shares were listed on the Athens Exchange (formerly the Athens Stock Exchange) and its global depositary shares were listed on the London Stock Exchange. As of 30 June 2004, the Guarantor’s interest in COSMOTE was 58.77 per cent. and the remaining 41.23 per cent. of COSMOTE’s shares were publicly held. As of the same date, COSMOTE’s share capital was Euro 155,658,477.50 divided into 331,188,250 shares with a nominal value of Euro 0.47 each. The ordinary general meeting of COSMOTE’s shareholders held on 8 June 2004, resolved to distribute dividends in an amount equal to Euro 0.5 per share for the financial year ended 31 December 2003. Dividends were paid at the end of June 2004.
Products & Services
COSMOTE offers its customers a wide range of mobile telephony services ranging from basic wireless voice telephony and short text messaging services (“SMS”) to up-to-date value added services such as multimedia messaging services (“MMS”). Launched in September 2002, MMS services enable customers to send and receive content, which they have created themselves or content which is electronically stored and already in existence. COSMOTE offered its MMS services free of charge for a period of six months, to encourage usage and familiarise customers with the new technology and applications. In collaboration with important content providers, COSMOTE offers a wide range of exclusive applications based on MMS technology. These applications allow the exchange of messages which combine text, sound and image (person to person messaging) and include a variety of services such as news headlines, sports news, humorous comic strips, ringtones, screensavers and wallpapers.
COSMOTE currently distributes its services and products through a distribution channel comprised of: • a master dealer network consisting of two non-exclusive and six exclusive master dealers and five smaller distributors; • twelve COSMOTE branded stores, including seven in Athens, three in Thessaloniki, one in Herakleion and one in Patra; • COSMOTE’s corporate accounts sales forces; and
75 • three distributors of the COSMOKARTA packages and prepaid airtime cards: Elgeka S.A., the Greek Post Office and Alpha Copy.
In September 2000, COSMOTE launched MyCosmos, a mobile portal which offers customers access to an umbrella of value-added services that can be accessed through a wide range of technologies. MyCosmos is currently available through SMS, SIM micro browser, WAP and voice recognition. MyCosmos emphasises services, rather than technology, by providing access to all customers, contract and prepaid, using any kind of mobile technology and from anywhere in the world. It offers a wide range of services including mobile banking, e-mail and SMS communications, entertainment and information services, including political, financial and sports news, Athens Exchange quotes, weather forecasts, ship routes, airport information and cinema and theatre guides. Through MyCosmos, COSMOTE also offers its customers a variety of ringtones, logos and picture messages they can download. It also provides links to other mobile portals in Greece and abroad.
In April 2003, COSMOTE launched video MMS applications, which combine image and sound with motion. COSMOTE was the first mobile operator to introduce video MMS applications in the Greek market. In June 2003, COSMOTE launched “MYCOSMOSview” which provides customers with convenient access to an integrated range of nine technologically advanced and sophisticated service categories, including sports, travel, astrology and an entertainment guide.
In November 2003, COSMOTE entered into an exclusive strategic partnership agreement with NTT DoCoMo, Inc., the leading Japanese mobile communications company (“DoCoMo”), pursuant to which DoCoMo has granted COSMOTE a licence to launch “i-mode”, the world’s leading mobile Internet service. On 7 June 2004, COSMOTE launched i-mode to the Greek mobile market. Using a number of i-mode compatible handsets (including NEC and Panasonic) provided exclusively by COSMOTE, i-mode customers are offered Internet access to a large variety of thematic content, including news, weather, finance sports, mobile banking and entertainment, as well as other applications, such as e-mail, on their mobile phones. Under the above-mentioned agreement, COSMOTE now offers its i-mode service to all customers in Greece, both contract and prepaid over its 2.5G GPRS network and 3G UMTS network and will also cooperate with DoCoMo on the introduction of i-mode services in other markets where COSMOTE either maintains subsidiaries (AMC in Albania) or manages operations (Globul in Bulgaria and Cosmofon in the Former Yugoslav Republic of Macedonia).
In May 2004, COSMOTE commercially launched its 3G services and introduced video streaming for the first time in the Greek mobile market. Video streaming is a service that allows COSMOTE’s customers to enjoy lengthy videos of unique quality and at high speed. COSMOTE aims to enrich available video content through collaborations with important content providers in Greece, such as Antenna TV and Databank.
COSMOTE’s range of 3G services also features video calling, a service through which COSMOTE customers can see the person they are talking to while making a call, in real time.
COSMOTE’s 3G network deployment allows COSMOTE to upgrade existing services. More specifically, it provides: • Faster Internet browsing, with speed up to 384 kbps (10 time faster than GPRS), a capability especially useful to COSMOTE’s corporate customers; and • Multimedia Messaging Service (MMS) and access to WAP web pages at a higher speed and with richer content.
COSMOTE’s 3G network currently covers 30 per cent. of the country’s population, mostly the metropolitan areas of Athens and Thessaloniki, as well as other major Greek cities. In addition, COSMOTE, as a Grand National Sponsor of the ATHENS 2004 Summer Olympic Games, has
76 deployed its 3G network in areas that covered key Olympic venues (located in the cities of Athens, Thessaloniki, Patra, Volos and Herakleion in Crete).
Interconnection. In March 2002, the EETT issued a decision naming COSMOTE and Vodafone as organisations with significant market power in the mobile market, according to the provisions of European Union Directive 97/33/EC (the “Interconnection Directive”). This designation was reaffirmed by the EETT in March 2003 when it also designated TIM as an organisation with significant market power in the mobile market. As a result, COSMOTE, (as well as Vodafone and TIM) is obliged to: satisfy all reasonable requests for access to its network; apply a single termination fee irrespective of whether the interconnected call originates from a fixed or mobile network; set its termination fee at a level lower than its lowest on-net tariff; and apply any discounts in a transparent and non-discriminatory manner. In the context of the aforementioned decision, COSMOTE introduced a unified termination fee (which has since been revised) with effect from 1 February 2003.
In February 2003, the EETT issued a decision designating COSMOTE, OTE and Vodafone as organisations with significant market power in the interconnection market in Greece pursuant to the Interconnection Directive. According to the current regulatory framework, organisations with significant market power in the interconnection market are obliged to adopt a cost-oriented methodology when setting interconnection tariffs, and charge transparent interconnection tariffs. According to declarations by the EETT and in line with European Union trends, the EETT’s tariff policy is expected to be gradual tariff reductions to avoid market disturbance. Nonetheless, COSMOTE has applied to the Council of State for an annulment of the above-mentioned decision.
The European Union has adopted a new regulatory framework relating to, among other issues, interconnection. The Greek State was required to transpose the provisions of European Union Directive 2002/19/EC on access to and interconnection of electronic communications networks and associated facilities into domestic national law by 24 July 2003. The Greek State has not yet complied with this requirement and, as a consequence, the European Commission has opened infringement proceedings against Greece.
The EETT has concluded a public consultation regarding the definition of the mobile call termination market and an analysis of the level of competition in such market. The EETT concluded that termination on each individual mobile network constitutes a separate market and that each mobile company in Greece holds significant market power in the relevant market.
The EETT also carried out a public consultation regarding the imposition of regulatory measures in the market for call termination on individual mobile networks. It proposes a range of regulatory remedies, including cost orientation of charges and the imposition of a three-year declining price cap on the termination charges of each mobile network operator.
In addition, the EETT has assigned to an external consulting company the development of a long- run average incremental cost model relating to the call termination services of each mobile network in Greece. In its consultation document on remedies, the EETT states that it will use the results of this long-run average incremental cost model to set the price cap on each operator’s termination charges. Implementation of such results may lead to a decrease of mobile call termination charges in Greece.
COSMOTE has entered into interconnection agreements with the three other Greek providers of mobile telecommunications services (Vodafone, TIM and Q-Telecom). COSMOTE charges the other mobile operators an Interconnection fee of Euro 0.18 per minute, with a minimum charge duration of 30 seconds for calls originating from the other operators’ networks and terminating on COSMOTE’s network. COSMOTE is charged interconnection fees by the other mobile operators for calls originating from COSMOTE’s network and terminating on the other mobile networks in Greece, as follows: Euro 0.18 per minute with a minimum charge of 30 seconds in the case of Vodafone; Euro 0.19 per minute with a minimum duration charge of 30 seconds in the case of TIM and Euro 0.23 per minute with a minimum duration charge of 30 seconds in the case of Q-Telecom.
77 COSMOTE’s incoming and outgoing International Traffic is handled by the Guarantor, under the terms of bilateral interconnection agreements.
As of 1 October 2004, COSMOTE reduced its interconnection fee for calls originating from a fixed operator and terminating on its network from 0.17 Euro per minute to 0.145 Euro per minute with a minimum charge duration of 30 seconds. Since December 31 2003, the Guarantor receives an interconnection charge of Euro 0.0107 per minute during peak hours for calls terminating on its network, Euro 0.01 per minute during off-peak hours and Saturdays, and Euro 0.0087 per minute on Sundays, for single transit. For double transit the Guarantor receives an interconnection charge of Euro 0.0158 per minute during peak hours, Euro 0.0147 per minute during off-peak hours and Saturdays, and Euro 0.0129 per minute on Sundays.
COSMOTE’s Strategy. Having achieved a significant and expanding share of the Greek mobile telephony market, COSMOTE’s principal objective is to continue to capitalise on the opportunities it believes are available in the growing and evolving mobile market in Greece. In pursuit of this objective, its strategy will be to focus on the following goals: • consolidate its leading position in the Greek and Albanian markets; • establish a model ‘work-place’ organisation, in terms of quality and efficiency; • differentiate from competition on all fronts; • increase usage of traditional voice services; • sustain its successful customer-oriented strategy and competitive offering; • boost the contribution of data and value added services in revenues and capitalise on the i- mode service launch; • offer an integrated telecommunications services portfolio; • expand operations in the Southeastern European region; • optimise capital structure and increase returns to shareholders; and • continue delivering strong financial performance.
Network
COSMOTE has an extensive mobile telecommunications network in place with 2,700 base stations as at 31 December 2003. COSMOTE operates a mobile communications network based on second generation (2G) GSM technology, which is the most widely adopted standard across the world. COSMOTE is also one of three licence holders in Greece for the operation of third generation (3G) (UMTS) mobile telephony services. The 2G GSM system is an efficient and high quality system used mainly for voice and short messaging communication. It also provides a limited rate of packet data transmission which can accommodate a series of value added services, such as multimedia messaging services. The 3G UMTS system enables operators to provide a richer set of services besides voice, such as video telephony and high rate packet data providing faster Internet access and a wide variety of other data services. An operator having an existing 2G network must install additional infrastructure to facilitate the proper functioning of the 3G network at all levels. This additional infrastructure is often co-located with the 2G systems and utilises common lines of interconnection between the various network sites. During 2003, COSMOTE initiated the rollout of its 3G network fulfilling the requirements of the licence granted by EETT. COSMOTE plans to invest an additional Euro 27 million in 2004 and Euro 50 million in 2005 in the rollout of its 3G network.
GSM technology operates in both the 900 MHz frequency band and the 1800MHz band. The handsets and the network equipment operate in both frequencies in the same way. Base stations
78 operating in the 1800 MHz frequency band provide lower levels of geographic coverage than base stations operating in the 900 band or in both bands and, accordingly, a greater density of base stations is required to achieve the same level of coverage in the 1800 MHz frequency band stations as in the 900 MHz frequency band. The more radio spectrum an operator has available to it, the greater the capacity it can deploy and the higher the quality of service it can offer. For a country like Greece, a minimum of 2x10 MHz spectrum is required for the operation of a GSM network, although a wider spectrum is essential for a major operator in Greece, such as COSMOTE, given the very high level of penetration of mobile communication services in the Greek market.
Nokia is COSMOTE’s principal equipment supplier and it supplies the bulk of the equipment required to maintain and upgrade COSMOTE’s 2G and 2.5G networks. The long-term framework contract with Nokia allows the Guarantor and COSMOTE to obtain the equipment they require at competitive prices and to avoid extended procurement and tender procedures for individual investments. This framework contract expires in June 2005. Furthermore, COSMOTE uses Ericsson equipment for its 2G network in Northern Greece. On 19 June 2003, COSMOTE announced that it had selected Ericsson to be its main equipment supplier for the first phase of its 3G rollout (i.e., up to the end of 2004).
COSMOTE’s objectives have been to cover more geographical areas in Greece than any of its competitors and to provide an extended array of roaming services and the best international coverage for subscribers. As of 31 December 2003, COSMOTE provided coverage to 99.6 per cent. of the population of Greece with a geographic coverage of 93.6 per cent. of Greece’s mainland and 96.7 per cent. of its territorial waters. Its network consisted of 2,700 base stations, mobile switching centres with an aggregate capacity of 4,100,000 subscribers and five home location registers with a capacity of 5,400,000 subscribers. In addition, COSMOTE has rolled out a nationwide general packet radio service network with enhanced functionality and speed of up to 100 kpbs downlink. Today COSMOTE’s network interconnects with other fixed networks and with the other three mobile telephony networks. Furthermore, as at 31 December 2003, COSMOTE had entered into 307 roaming agreements with mobile telephony operators in 148 countries.
Market Position & Competition
As of 31 December 2003, COSMOTE had 3,917,010 subscribers. The total number of customers in the Greek mobile market at the end of December 2003 is not available since Vodafone has not announced its total number of customers. COSMOTE’s subscriber numbers grew by 11.7 per cent. in 2003, as the result of the net addition of 44,411 contract subscribers and 366,261 prepaid customers.
COSMOTE is the leading provider of mobile telecommunications services to contract subscribers in Greece with a total of 1,595,852 contract customers as of 31 December 2003. Contract subscribers are more attractive than prepaid subscribers to COSMOTE because of their greater loyalty and higher average monthly revenues per user. As of 31 December 2003, COSMOTE had 2,321,158 prepaid customers.
TIM and Vodafone operate under licences for the operation of mobile telephony services issued by the Greek State on 30 September 1992. The initial licences granted to TIM and Vodafone only covered the GSM 900 frequency, although now TIM and Vodafone operate in both the GSM 900 and the GSM 1800 frequency bands. The additional frequencies were awarded by the EETT in August 2001. TIM and Vodafone each began their operations in 1993. Q-Telecom (the trade name of Info Quest S.A.), the fourth player in the Greek mobile market, was licensed by the EETT in August 2001. Q-Telecom launched its commercial operations in June 2002 and it operates in the GSM 1800 frequency band. In December 2001, the EETT harmonised the licence texts of COSMOTE, Vodafone and TIM.
Competition in mobile communications is generally intense and conducted on the basis of price, subscription options offered, offers of subsidised handsets, coverage, range of services offered,
79 innovation and quality of service. Given that mobile usage is now widespread in Greece, growth in the number of COSMOTE subscribers in this market is slowing and the focus of competition has shifted from customer acquisition to customer retention and to increasing average revenues per user by stimulating demand for voice usage and new data products and services. In this connection, the timely introduction of new technologies that permit faster data transmission and enhance services is highly significant.
Revenues
For the year 2003, COSMOTE’s consolidated revenues and net income amounted to Euro 1,357.2 million and Euro 252.9 million, respectively. For 2002, COSMOTE’s consolidated revenues and net income amounted to Euro 1,201.3 million and Euro 229.3 million, respectively.
In the six months ended 30 June 2004, COSMOTE's operating revenues increased by 20.6% as compared to the same period in 2003, mainly due to growth in usage in Greek operations and positive performance in Albanian operations. Net income in the same six-month period increased by 26.4% compared to the same period in 2003.
Volume/Traffic
A total of approximately 4.8 billion minutes were distributed through COSMOTE’s network during 2003 up from approximately 3.6 billion minutes in 2002, representing a 34 per cent. annual growth and continuing the trend started in 2002.
Tariffs
COSMOTE charges subscribers monthly subscription charges and traffic charges for outgoing calls based on seconds of use, plus roaming charges when customers use the service outside Greece. COSMOTE has focused its efforts on offering its subscribers competitive and user-friendly tariff packages. In this regard, COSMOTE has structured tariff packages that are intended to maximise usage and revenues per subscriber while controlling customer churn.
COSMOTE offers its contract subscribers standard GSM services and a selection of value added services (e.g. voice mail services and calling line identification) at no additional monthly access fee. COSMOTE’s basic tariff structure for its contract subscribers does not distinguish between peak and off-peak calls, nor does it distinguish between local and long distance calls within Greece. Internationals calls made by COSMOTE customers are charged at the applicable OTE rate plus the applicable COSMOTE per second airtime charge provided for in the relevant package. Until November 2002, COSMOTE offered its services to contract subscribers on the basis of two tariff plans. In November 2002, COSMOTE increased the number of its contract tariff plans through the introduction of a wide range of bundled contract packages in order to better meet the needs of its customers. Consistent with its slogan “the more you talk, the less you pay”, COSMOTE introduced lower ‘on-net’ charges for all COSMOTE originating calls that terminate on COSMOTE’s network or on fixed line networks. The concept behind the tariff plans based on ‘on- net’ and ‘off-net’ call distinction is to offer more affordable services to COSMOTE subscribers, thus further increasing usage and profitability, and thereby encouraging customer loyalty. On 4 February 2003, COSMOTE announced additional enhancements to its contract tariff plans by extending bundled minutes for both ‘on-net’ and ‘off-net’ calls and began to offer additional packages, which include 15, 45, 90, 150 and 480 minutes, respectively, of cheaper, paid in advance, airtime for all calls regardless of the terminating network.
In May 2003, COSMOTE announced the rebalancing of its prepaid ‘off-net’ tariffs resulting in a reduction of 18 per cent. in charges for its prepaid COSMOKARTA and “What’s Up?” services and a reduction in charges for SMS usage for “What’s Up?” customers. At the same time, COSMOTE adopted a unified rate for ‘on-net’ and ‘off-net’ calls of Euro 0.33 per minute. COSMOTE has also introduced a subscriber identity module (SIM)-only package, which includes a subscriber identity
80 module card and options of Euro 30, Euro 15 or Euro 7 of airtime. This package is designed to appeal to contract subscribers who have a second handset and who do not wish to enrol twice as contract subscribers
Subsidiaries and Joint Ventures
CosmoONE. The Guarantor and COSMOTE participate in CosmoONE Hellas Marketsite S.A., the Guarantor’s consolidated subsidiary, which was formed to establish a Greece-based horizontal Internet business-to-business portal. CosmoONE operates an electronic marketplace for the provision of business-to-business, electronic commerce applications and services. CosmoONE facilitates on-line real-time transactions throughout the purchasing chain and runs auctions. As of 31 December 2003, the Guarantor and COSMOTE each held 26 per cent. of CosmoONE’s share capital, the National Bank of Greece and Alpha Bank each held 15 per cent., and a further 18 per cent. was held by Diinekis Pliroforiki, the Greek licensee of Commerce One.
The ordinary general meeting of the shareholders of CosmoONE held on 2 June 2003 resolved to effect a reduction of its nominal share capital from Euro 7.325 million to Euro 3.625 million with a corresponding reduction in the nominal value of each share from Euro 2.93 to Euro 1.45 due to the fact that, as of 31 December 2002, CosmoONE’s total equity was less than half of its paid in share capital.
In April 2004, the ordinary general meeting of the shareholders of CosmoONE decided to increase the company’s share capital by Euro 1,766,100 paid in cash and the issuance of 1,218,000 new shares, with nominal value Euro 1.45 each and an issue price of Euro 2.50 above par per share. This increase, which was implemented on 27 July 2004, was approved, among other reasons, in order to improve the ratio of equity capital and issued share capital as required by law. As of the date of this Information Memorandum, the share capital of CosmoONE is Euro 5,391,000 represented by 3,718,000 shares; the Guarantor and COSMOTE each hold 30.87 per cent. of CosmoONE’s share capital, the National Bank of Greece holds 10.08 per cent., Alpha Bank holds 15 per cent. and Diinekis Pliroforiki holds 13.18 per cent.
Two joint letters of comfort have been provided by OTE and COSMOTE to Agrotiki Bank and Alpha Bank, in favour of CosmoONE. These joint letters of comfort have been provided in respect of loan agreements in amounts of Euro 1.0 million and Euro 1.76 million, respectively, between CosmoONE and each one of the abovementioned banks, assuring the banks that OTE and COSMOTE shall not decrease their respective interests in the share capital of CosmoONE.
For the year ended 31 December 2003, the total value of transactions through CosmoONE’s electronic market amounted to Euro 308 million, while 188 auctions were conducted. To date, more than 400 companies have made use of the capabilities of e-commerce through the product and services of CosmoONE. CosmoONE is also planning to provide value added services in support of electronic business to business transactions such as electronic monitoring of price lists, sourcing services, shipping options and insurance.
Cosmo-Megala Katastimata S.A. COSMOTE holds a 40 per cent. interest in Cosmo-Megala Katastimata S.A., a joint venture with Vivere Entertainment, which is the Greek licensee of Virgin trademarks. This joint venture operates a Greece-based mobile Internet site for on-line sales of CDs, DVDs and other music products.
The ordinary general meeting of the shareholders of Cosmo-Megala Katastimata S.A. held in June 2003 expanded the company’s objectives to include the sale through the Internet of products and services related to entertainment in general, PCs, hardware and mobile telephony items, as well as the creation, processing and formation of different kinds of digital content (e.g., ring tones, logos and MMS) in order to provide such content through SMS or by other means on the Internet or to telecommunications companies.
81 International Management Agreement
In October 2002, the Guarantor entered into a management agreement with COSMOTE and OTE International pursuant to which COSMOTE assumed management responsibility for certain of the Guarantor’s mobile assets, namely Globul (based in Bulgaria) and Cosmofon (based in the Former Yugoslav Republic of Macedonia).
Pursuant to this management agreement, COSMOTE undertakes the financial, technical, commercial and operational management as well as the legal and regulatory support for the Guarantor’s mobile telephony companies, Globul and Cosmofon. The management of issues relating to ownership, financing and conduct of relationships with government bodies for these companies is managed by OTE International. The agreement also provides that, where specifically requested, management support will be provided by COSMOTE on an ad hoc basis for all of the Guarantor’s other international mobile subsidiaries.
COSMOTE’s fees pursuant to this management agreement are comprised of two elements. The first element consists of the reimbursement of the operational costs of COSMOTE for the management of these mobile companies, excluding amortisation expenses and financial losses, plus a 10 per cent. premium as profit. The second element compensates COSMOTE for the added value provided to these companies and amounts to 5 per cent. of the respective annual revenues of each company, provided that specific EBITDA targets for the relevant company are met, as defined in the business plan for each company. Such fees are eliminated upon consolidation.
COSMOTE’s fees for ad hoc projects conducted for the Guarantor’s other mobile telephony subsidiaries pursuant to this agreement are agreed on a case-by-case basis. The management agreement expires on 31 December 2004, but the terms of agreement provide for its automatic renewal for one more year, unless a party to the agreement objects to the renewal at least two months’ prior to its expiration. The management agreement can be terminated by a party, for cause, upon giving three months’ notice.
On 3 November 2004, the Guarantor and COSMOTE announced that they entered a Memorandum of Understanding for the commencement of procedures for an increase of the share capital of COSMOTE through a contribution in kind by OTE of the shares of Globul and of the Dutch holding company MTS Holding BV which owns the entire share capital of Cosmofon. The Guarantor and COSMOTE have agreed to assign to two independent investment banking firms, one acting for OTE and the other acting for COSMOTE, the valuation of Globul and Cosmofon in order to assist their respective boards of directors to determine the number of COSMOTE shares to be issued in exchange for the contribution in kind. Provided agreement on the number of shares to be issued is reached between the two parties, a valuation will be conducted by a three-member committee appointed by the Ministry of Development pursuant to applicable Greek law. Following such valuation, the transaction will be submitted to the shareholders meeting of COSMOTE for approval. The transaction remains subject to administrative and regulatory consents in Greece.
Revenues from Interconnection
The Guarantor provides interconnection services to mobile operators and to other fixed line operators. The Guarantor’s revenues from interconnection services totalled Euro 81.5 million in 2003, as compared to Euro 96.2 million in 2002. The 2003 amount was comprised of Euro 52.6 million in revenues from interconnection with the unaffiliated mobile telephony operators in Greece and Euro 28.9 million in revenues from interconnection with fixed telephony operators. These amounts of revenues from interconnection do not include revenues from interconnection fees for international calls originated by mobile operators of Euro 36.9 million in 2003 and Euro 36.5 million in 2002, which are included in international revenues as payments from mobile operators. The Guarantor’s revenues from interconnection with COSMOTE are eliminated upon consolidation.
82 Internet Protocol Services – OTEnet
The Guarantor offers Internet Protocol services through its 90.2 per cent.-owned subsidiary, OTEnet, the leading Internet service provider in Greece. The Guarantor established OTEnet in 1996 as part of a strategy to enter the field of new technologies. The remaining shares are held by State Academic and Research Institutions. On 6 August 2004, the Guarantor increased its interest in OTEnet from 80.2 to 90.2 per cent. by acquiring 180,000 shares from the National Bank of Greece for consideration of Euro 12.5 million. As of the date of this Information Memorandum, OTEnet’s share capital is Euro 5,400,000 divided into 1,800,000 ordinary shares with a nominal value Euro 3.00 each.
In February 2003, OTEnet restructured and created two general departments, the General Commercial Department and the General Department of Technology, Strategy & Development, in order to coordinate actions on consumer and business commercial issues more efficiently, organise the development of new products and services and supervise its network and IT systems. This corporate restructuring was also designed to facilitate business development issues and improve OTEnet’s ability to monitor its subsidiaries.
Products & Services
OTEnet’s portfolio of products and services includes Internet access and services both for domestic and business users, Internet provider telecommunication services for the transmission of voice and data, as well as information technology application development and hosting services, using Internet Protocol technologies.
During 2003, OTEnet introduced several new products including the following: • OTEnet’s Data Centre; • “Smile & Web” card, a prepaid card for voice telephony and Internet access; • “B2B X-tra Value”, an integrated package of services, developed through the co-operation of (OTEnet, INFOTE and CosmoONE), which includes an annual dial-up connection to OTEnet’s network, an annual subscription to INFOTE’s business directory and annual access to CosmoONE’s electronic market; • a range of value added services such as free antivirus protection, “Market Eye” (a real-time service, providing information on the Athens Exchange) and the innovative subscriber service “e-mail by phone” providing access to e-mails via the telephone; • OnDSL OFFICE and OnDSLHome, newly launched broadband ADSL connections targeting home and business customers, respectively; • “OnWireless”, a service for Wireless Local Area Network (WLAN) connectivity with the use of a prepaid card; and • Cool4U, a new generation of services designed to make the Internet more user-friendly and entertaining.
OTEnet has also designed and developed more than 50 web sites for major customers. In addition, it has supported its in-house corporate needs by developing websites for internal projects, including the design and development of OTEnet’s online shop.
In 2003, OTEnet also focused on the development of portals for different uses, using advanced procedures and infrastructures. Such portals automate the operational procedures of a company and make it accessible to its customers, staff and business partners either via the Internet or a mobile phone.
83 In addition, OTEnet is actively involved in research and development by participating in European Union projects and programs, such as WIN, GEMINI and OLYMPIC, and developing pilot services investigating new trends, technologies and applications.
Strategy
OTEnet’s strategy for 2004 targets three areas: (i) Internet access and services; (ii) IP telecommunication services for the transmission of voice and data; and (iii) IT applications and web hosting services based on IP technology. OTEnet strives to capitalise on the Guarantor’s brand name, expand service offerings to cover the full Internet value chain, target growth in the consumer and business sectors and expand geographically consistent with the Guarantor’s overall regional expansion plans. A principal strategic goal of OTEnet is to continue developing from a traditional Internet service provider into a leading provider of business solutions for corporate customers. OTEnet intends to actively contribute towards opening the market for Internet Protocol services by providing companies and consumers with more effective channels for communication, entertainment and trade. OTEnet is focusing on introducing new innovative service offerings, placing particular emphasis on broadband Internet access and services, while at the same time realising growth through an expansion of its business model in the areas of corporate IP services (IP, virtual private networks, Voice-over IP), e-business application development and managed network and systems services. OTEnet’s managed network services are designed especially to handle all network monitoring and management needs of its customers to enable them to focus on their core businesses. This bundle of services offers network equipment supply and maintenance, network management and monitoring and either remote or on-site technical support. Managed network services are offered on top of two fundamental telecom services: dedicated Internet access and virtual private networks. OTEnet proactively manages customer networks to provide a clear view of their infrastructure and identify performance degradation and possible problem areas. Constant monitoring allows administrators to identify network load patterns and provide timely network resources upgrade to preserve performance excellence.
Network
OTEnet has a reliable and extensive network that enables the offering of Internet access services, fully integrated IP telecom solutions and scalable network and IT application services, all using IP- based technologies. In order to enhance Internet connection speed and reliability, OTEnet regularly upgrades its network. OTEnet was the first company in Greece to upgrade its national backbone network and is currently connected to international networks through two 622-Mbps circuits.
In 2003, the transition to the new IT infrastructure for the support of business applications was completed. The new systems include: billing, provisioning, mediation and implementation of sales procedures. Among other benefits, this IT infrastructure allows OTEnet to implement a wide range of services, supporting many types of new services that the company wishes to implement in an IP environment. In addition it provides automatic provisioning of services while offering flexible billing models.
Market Position & Competition
Despite the sharp rise in competition in the Greek Internet market, OTEnet increased its customer base in 2003. As of 31 December 2003, OTEnet had approximately 213,000 active subscribers, including all dial-up and OnDSL Home subscribers, as well as prepaid card users (Smile & Web). Of this total number of subscribers, as of the same date, OTEnet had more than 6,000 business customers including all leased line, Office Gate, OnDSL Office and Data Centre customers.
As a result of liberalisation of the Greek telecommunications market, new players are entering the Internet market claiming market share. The new market entrants are investing in infrastructure,
84 especially in the metropolitan area of Athens, and, accordingly, competition is expected to continue to intensify.
Revenues
OTEnet’s consolidated operating revenues for the year ended 31 December 2003 increased by 41.4 per cent. to Euro 67.0 million, as compared to Euro 47.4 million for the year ended 31 December 2002. The increase mainly reflects an increase in revenues of 22 per cent. from Internet and value added services and an increase in revenues of 406 per cent. from voice-over IP. OTEnet’s net income for 2003 amounted to Euro 2.5 million as compared to a loss of Euro 0.8 million in 2002.
Tariffs
Subscribers dialling Internet service providers, including OTEnet, pay a two-fold cost: a monthly subscription fee to the Internet service provider and the cost of the telephone connection for the time the subscriber is connected to the Internet, which is paid to the Guarantor. Typically, the fee paid to the Internet service provider varies depending on the type (analogue/digital), the speed (64/128 k/bits per second) and the duration of the subscription. Regardless of the type of exchange, analogue or digital, or the speed of the service, to which the access line is connected, for subscribers calling within the same prefecture (district), the Guarantor charges a peak rate of Euro 0.006 per minute for calls made from 8:00 am to 10:00 pm and an off-peak rate of Euro 0.003 per minute for calls made from 10:00 pm to 8:00 am.
OTEnet and the Athens 2004 Summer Olympic Games
OTEnet participates in a joint venture with the Guarantor and COSMOTE, responsible for the telecommunication infrastructure of the Athens 2004 Summer Olympic Games. OTEnet provided connection to international networks at speeds reaching 1244 Mbps. OTEnet offered Internet connectivity to ATHOC and hosting services for ATHOC and its partners. In addition, OTEnet developed and is hosting the Athens 2004 Summer Olympic Games portal.
Subsidiaries & Joint Ventures
OTEnet has three subsidiaries and one indirect subsidiary as follows:
Voice@net (formerly Southgate Communications Hellas S.A.) is a provider of voice telephony over IP in which OTEnet acquired an 80 per cent. interest in June 2002. OTEnet currently holds 84.07 per cent. of Voice@net’s shares while Sanyo Hellas Symetohiki S.A. owns the remaining 15.93 per cent. Having invested in network infrastructure, IT systems and human resources and with a goal to enhance network quality, Voice@net today offers its customers a package of IP services designed to meet modern business telecommunications needs for local, long-distance and international telephony, as well as calls to mobile phones and Internet services. With special emphasis on corporate customers, Voice@net has gained a share of the alternative telecom market and had over 5,000 business customers as of 31 December 2003. 80 per cent. of Voice@net’s corporate customers are companies that had left the Guarantor for an alternative carrier but decided to return to the OTE Group. The remaining 20 per cent. are companies that had decided to end their co-operation with the Guarantor but were still investigating the market for alternative carriers.
OTEnet (Cyprus) Ltd. was founded in November 2000. The majority of its share capital (60 per cent.) is owned by OTEnet, while Germanos Industrial & Commercial S.A. and Cyprus Trading Corporation, a member of the Siakolas Group, each own 20 per cent. In September 2003, OTEnet Cyprus Ltd. signed an agreement for the acquisition of the majority (51 per cent.) of the share capital of Http Planitis Communications Ltd. When the take-over was completed on 2 October
85 2003, Http Planitis Communications Ltd was renamed “OTEnet Telecommunications” and uses the trade name “OTEnet Telecom”.
OTEnet Telecom is the first licensed telecommunications company in Cyprus with Licence No. 001/2003 and has already started to offer integrated telephony packages at competitive rates. This company also offers integrated telecommunications solutions over IP, aiming to meet the needs of medium size and large Cypriot enterprises, as well as multinational businesses based in Cyprus. OTEnet Telecom has a customer base of approximately 300 corporate customers and its services include telecommunications solutions, Internet services and fixed telephony services. Following the completion of the connection of its network to the Public Telecommunication Network of CYTA, OTEnet Telecom owns one of the most technologically advanced networks in Cyprus and continues to invest in new infrastructure and qualified human resources. With a view to providing reliable and quality services, OTEnet Telecom recently upgraded its network with circuits of 155 Mbps capacity and established a private data centre that will allow it to offer its corporate customers a modern and safe environment to host their infrastructure.
On 4 November 2004, the shareholders meeting of OTENET Telecom resolved to increase its share capital by 1.500.000 CYP. On 7 October 2004, the shareholders meeting of OTENET Cyprus Ltd resolved to increase its share capital by 1.250.000 CYP. These share capital increases have not been completed to date.
Travel.gr by OTEnet is active in the field of procurement and provision of products and services in the tourist industry via the Internet. It aims to provide easy access to tourist markets and products. OTEnet currently holds 100 per cent. of the shares of Travel.gr and is in the process of merging Travel.gr into OTEnet.
Relations with the Guarantor
The Guarantor provides OTEnet with a limited number of its personnel, as well as distribution services for its products and maintenance services for its Internet Protocol network infrastructure, on an arm’s length basis. In addition, OTEnet leases transmission capacity from the Guarantor on an arm’s length basis.
Other Internet – Multicom S.A.
In September 2001, the Guarantor acquired a 50 per cent. participating interest in Multicom S.A., formerly a 100 per cent. subsidiary of the Copelouzos Group. Multicom specialises in the provision of services in the high technology sectors of Internet and IT. Multicom has developed the portal WIZ (www.wiz.gr), an integrated and fully automated e-commerce tool. Moreover, Multicom is active in the provision of state-of-the art IT telecoms solutions and is involved in the design, project management and implementation of fibre optic cable networks in the Athens area.
International Wholesale Telephony and Data Services – OTEGlobe
In August 2000, the Guarantor established its wholly owned subsidiary, OTEGlobe S.A. (“OTEGlobe”). OTEGlobe acts as the Guarantor’s marketing and sales channel for the provision of international wholesale data services and is also responsible for the technical planning, operation and commercial exploitation of the Guarantor’s international data/IP network. In addition, OTEGlobe is responsible for the provision and promotion of the Guarantor’s international wholesale voice services.
International Wholesale Telephony Services
In the area of international wholesale telephony services, OTEGlobe is responsible for: • establishing agreements with international carriers for the routing of international traffic and for applicable accounting rates;
86 • negotiating wholesale tariffs with mobile operators for incoming and outgoing international traffic through the Guarantor’s network; and • negotiating wholesale tariffs with domestic alternative carriers for routing their international traffic through the Guarantor’s network.
Consistent with the Guarantor’s corporate strategy, OTEGlobe is seeking to increase its market share in Southeastern Europe and in other emerging markets, such as the Middle East, in order to become the leading “carriers’ carrier” and the largest telecommunication hub in these markets. To achieve this goal, OTEGlobe will focus its marketing efforts and activities on building long-term customer relations with other carriers as well as establishing key partnerships in international markets.
International Wholesale Data/Internet Protocol Services
OTEGlobe is responsible for the technical planning, operation and commercial exploitation of the Guarantor’s international data/Internet Protocol network. The international data/Internet Protocol network based on multi-protocol label switching (“MPLS”) technology is a high capacity multi- service secure network, which provides uninterrupted operation and end-to-end central monitoring twenty-four hours a day, seven days a week. It is designed to be fully integrated with the Guarantor’s national fixed line network infrastructure to provide nationwide coverage. It also utilises elements of the Guarantor’s international fixed line network, such as optical fibre terrestrial and submarine cable resources, to address the needs of other telecom carriers and multinational corporations. The Guarantor’s international data/Internet Protocol network currently offers the following services: • international managed clear channel; • voice trunking (VoATM); • asynchronous transfer mode (constant, real time and non-real time variable bit rate); • international managed frame relay; • internet transit for carriers; • international Managed MPLS and VPN; • wholesale VoIP; and • GRX (GPRS roaming). As of 31 December 2003, 14 network nodes are in operation on the Guarantor’s international data/Internet Protocol network: Athens, London, New York, Bucharest, Nicosia, Sofia, Tirana, Skopje, Thessaloniki, Frankfurt, Brussels, Milan, Paris, and Amsterdam. The Guarantor is extending the network to cover new strategic sites around the globe.
OTEGlobe offers its wholesale customers a wide range of submarine and terrestrial cable capacity services. Through the Guarantor’s international submarine infrastructure and rights in several submarine cable systems, OTE Globe offers: • international private leased circuits (half circuits); • full circuits; and • indefeasible rights of use (long-term leasing of international circuits). In addition, through the Guarantor’s newly acquired integrated national and international private network (the GWEN Network), OTEGlobe also delivers full, end-to end, managed SDH digital
87 circuits from Greek cities to London and other European nodes, including Paris, Amsterdam, Frankfurt, Bonn, Munich, Brussels, Zurich, Geneva, Vienna and Milan.
Strategy and Marketing
Following liberalisation of the telecommunications markets in Greece and globally, OTEGlobe faces increasing competition in the provision of international wholesale telephony services. In order to generate new revenue streams, in 2003, OTEGlobe adopted a three-part strategy: • to increase both incoming and outgoing traffic and related revenues; • to increase its market share and become the leading “carrier’s carrier” and the largest telecommunication hub in the Southeastern European region and other emerging markets; and • to develop strategic alliances. Increasing traffic and revenues. OTEGlobe intends to focus on increasing both incoming and outgoing traffic by (i) securing the majority of traffic along highly competitive traffic routes; (ii) maintaining the quality of its services at all levels, including, in particular, for mobile-to-mobile traffic; (iii) adding international traffic from Greek mobile carriers and alternative network operators through the signing of calling line identification (“CLI”) agreements with a number of international carriers, which provide the calling party number to be transferred and received by the called party in an effort to obtain the highest quality routing; and (iv) developing new Tier-2 quality direct interconnects with dynamic emerging carriers, as well as established and fixed and mobile operators.
Becoming the leading telecommunications hub in the region. In order to solidify and develop its business activities in Southeastern Europe and other emerging markets, such as the Middle East, OTEGlobe aims to extend its geographical coverage through agreements for interconnection with new telecommunications carriers in the regional market aimed at generating additional revenues from hubbing traffic and cost savings from refiling. To date, OTEGlobe has entered into agreements (i) in Bulgaria, with, Orbitel and Globul, to improve the quality of its interconnection services; (ii) in Romania, with Romtelecom, to establish a preferential traffic relationship; (iii) in Cyprus, with Callsat and Netway, to promote cost reduction activities and increase hubbing revenues; and (iv) in Albania, with Albtelecom, for the exchange of international traffic.
Developing strategic alliances. OTEGlobe plans to continue to develop alliances with reliable partners with similar philosophy and operational practices. To date, strategic alliances have been reached with Singtel, Telia Sonera and Telefonica. OTEGlobe and its strategic partners will jointly focus on cost reduction and revenue generation through the exchange of premium quality international voice traffic and cooperation on other international services. The partnerships will also aim to facilitate mutual traffic termination as well as hubbing traffic exchanges, with strategic partners utilising OTEGlobe’s network for call traffic termination in Greece, the Balkan region and other parts of Southeastern Europe, while OTEGlobe takes advantage of infrastructures offered by its partners for the provision of high capacity gateways for voice traffic termination internationally at competitive wholesale rates.
In order to achieve its strategic goals, OTEGlobe has begun to focus its marketing efforts and activities on building long-term relationships with its customers, including principally other carriers. OTEGlobe’s new customer-oriented approach includes the following: • delivering complete packages of customised solutions, including technical pre-sales and post sales support and other end-to-end fully-managed services through state-of-the art management and support systems; • arranging frequent meetings with customers both in Greece and abroad;
88 • maximizing the availability and quality of its services; • providing bandwidth capacity; • providing SLAs (Service Level Agreements); • implementing market-oriented pricing; • offering volume-based contracts; • enhancing its international performance; and • offering a single point of accountability. In 2003, OTEGlobe’s sales force implemented new customer-oriented techniques to promote trustworthy long-term relationships with key personnel within the customer’s decision-making chain. As a result of this new customer focus, OTEGlobe achieved a 7.8 per cent. increase in sales of international wholesale data services in 2003, compared to 2002, despite operating in an increasingly competitive environment and reductions in international wholesale data prices.
The commercial exploitation of the international data/Internet Protocol network (or MSP) is mainly focused on the establishment of key partnerships with companies in the markets where the Guarantor has international points of presence. To date, OTEGlobe has entered into partnerships principally with companies within the OTE Group, including Romtelecom, Globul, AMC and Cosmofon. OTEGlobe is working, however, to launch ventures with unaffiliated parties. Since the MSP products involve complex and technically oriented sales processes, OTEGlobe promotes a more personalised approach through key account managers and pre-sellers, as well as customised products and pricing. In creating its partnerships, OTEGlobe also focuses on promoting its brand name to gain greater recognition and local market share. OTEGlobe works with its partners to develop appropriate promotional materials to support sales, including sales kits, product specifications, pricing tools and marketing materials for individualised customer presentations.
Turnkey telecom projects
In 1995, the Guarantor, together with manufacturers of telecommunications equipment, banks and other businesses, established Hellascom International, for the undertaking and the implementation of international telecom projects. The Guarantor is the majority shareholder of Hellascom International with 51.4 per cent. of the share capital.
Hellascom International has been active in the Balkans, Central and Eastern Europe, Eurasia and the Middle East. In December 2001, Hellascom International entered the Greek market, undertaking, among other things, infrastructure and regional interconnection projects for the Athens 2004 Summer Olympic Games. Hellascom International strives to provide custom-made and cost-effective solutions for its clients.
Since its inception, Hellascom International has completed 38 projects with a total budget of Euro 190 million and has 7 additional projects under construction with a total budget of Euro 42 million. In particular, Hellascom International has initiated activities regarding implementation of “smart building” and “smart environment” projects. The company provides a complete and integrated solution for intelligent building infrastructure, so that users and inhabitants may enjoy the benefits and comforts from adopting technological progress to both traditional and new services or products.
Other Services
In addition to the domestic and international telephony services described above, the Guarantor provides a number of other services as follows: domestic Internet Protocol services, leased lines
89 (retail and wholesale), data communications, broadband, call centres, fixed wireless access services, telephone directory services and information services, telecards, paging and telegraphy services and equipment sales.
The Guarantor believes that the market for most of these services is growing in Greece and throughout Southeastern Europe, with the exception of telex and telegraphy services the demand for which is expected to continue to decline. Many of these services, including, in particular, packet-switched data transmission, high-speed digital leased lines and audiotex, have only been introduced in Greece in recent years. The Guarantor expects demand for these services to continue to grow over the next decade, as a result of the growing needs of the Greek market and the Guarantor’s concentrated marketing efforts to stimulate growth of traffic in its network, as the enhancement of the Guarantor’s infrastructure makes these services available to a wider market in Greece and Southeastern Europe.
Domestic Internet Protocol Services
The Guarantor offers IP-based solutions to business customers via its new IP/MPLS network, which became fully operational in 2003 and offers IP services commercially to customers.
Services
The Guarantor currently offers Intranet/Extranet IP VPNs, while remote access IP-VPNs (Dial- up/ADSL VPNs) are expected to be offered in the near future. Customers have access to permanent connections (Intranet, Extranet) at speeds which vary from 64 Kbps to 34 Mbps and may also get connected via the Guarantor’s telephony (PSTN/ISDN) and ADLS networks at speeds of up to 1,024 Kbps. The Guarantor charges both a connection charge and a monthly fee for Intranet/Extranet VPNs, with the amount of the fees based on speed level.
Network
The Guarantor’s IP/MPLS network consists of 82 points of presence, which are established in principal urban areas, and offers IP-based services to enterprises all over Greece. It provides secure, reliable and effective communications and is for all types of applications (data, voice, multimedia) and all types of connections.
Market
The Guarantor’s managed IP VPN services are addressed mainly to large companies, which want to connect more than three sites or establish direct connections with partners, as well as to smaller enterprises, which usually need more remote access connections. Companies may use both permanent and remote access connections.
Leased Lines
Leased lines are telecommunications links between end points of equipment, allowing voice, data or image transmission depending on user requirements. Leased lines provide connections within a customer’s own network and within the Guarantor’s network. The Guarantor provides analogue and digital leased lines (ranging from 64 Kbps to 155 Mbps). It provides leased lines on a retail basis to corporate customers, to the public sector and also on a wholesale basis to other licensed operators, to Internet service providers and to mobile operators. Under the relevant European Union directives and its licence, the Guarantor is required to ensure that leased lines offered to its customers and other telecommunications providers satisfy certain technical specifications, as well as to make a minimum number of such lines available for leasing. TIM, Vodafone, major banks, the public sector and ERT, the Greek State television network, are the Guarantor’s largest customers for leased lines.
90 Data Communications – Hellaspac and Hellascom
The Guarantor owns the largest data network covering the whole of Greece, offering integrated data communications between companies. It offers a number of data communications services, such as packet-switched data communication transmission by means of the Hellaspac network. Data services are also provided through the Hellascom network, the Guarantor’s managed digital network for leased lines with data transmission speeds of up to 2Mbps. In addition, as of 31 January 2004, the Guarantor had converted approximately 4,300 public data network connections throughout Greece from x28 (asynchronous) to x25 (synchronous) communication protocol and upgraded the speed of such network connections.
The Guarantor’s Hellaspac network provides national and international data communications to data networks of other countries through an international gateway. Hellaspac customers can choose between establishing a permanent connection to the network and accessing information by dialling into the network. Subscribers with permanent connections can choose between both fixed and variable monthly fees depending on their specific needs. Dial-up subscribers are only charged based on the duration of the communications and on the density of the transferred data. The Guarantor has upgraded its existing technical interfaces to provide frame relay services, offering greater transmission speeds.
Hellascom is a digital data network that provides digital leased circuits to users seeking to exchange large volumes of information at speeds of up to 2 Mbps. The tariff status of Hellascom is similar to the one described above for the leased lines and it varies depending on the type of circuit (local or trunk), the distance between users and the bit rate.
Effective 31 March 2003, the Guarantor introduced a new tariff package for data network services and a new discount tariff package for corporate clients for data network services provided by the Hellascom network. The Guarantor introduced such tariffs in order to meet its clients’ needs more effectively and to facilitate further development and use of these contemporary technologies.
The Guarantor is also, through its subsidiary OTEGlobe, the sales representative in Greece for Infonet Services Corporation. Infonet is an international data network used primarily by multinational companies and it offers services such as Global Connect with one stop billing. In particular, OTEGlobe sell the services of Infonet’s Global Data Network, combined with some of the Guarantor’s products. In addition, the Guarantor provides technical support to Infonet’s multinational customers with presence in Greece.
Broadband Network Services
The Guarantor has implemented a public asynchronous transfer mode, or ATM, backbone network with the commercial name HellasStream, to serve as the basis for the nationwide broadband network, which covers all of Greece. The Guarantor has installed 46 points of presence, as well as most links between tandem and access nodes in the ATM network.
The offered categories of service are: • constant bit rate (“CBR”), which is specified so that data is sent in a steady stream. This rate is appropriate for real-time applications requiring high quality of service, such as teleconference and is analogous to a leased line; • real time variable bit rate (“rt-VBR”), which is specified so that data is sent in bursts rather than in a steady stream. This rate is appropriate for real time applications requiring a high quality of service, such as packetized voice and compressed video; and • non-real time variable bit rate (“nrt-VBR”), which is the same as rt-VBR, but is appropriate for non-real- time applications requiring a lower quality of service.
91 The Guarantor expects that in the future, a new category of service, Unspecified Bit Rate (“UBR”), will also be provided to its customers, although it has no plans to launch such service during 2004. UBR does not guarantee any throughput levels and is appropriate for applications for non-real-time applications with no quality of service requirements, such as file transfer.
All asynchronous transfer mode ATM services are offered through connections to the appropriate interfaces, such as cell relay, frame relay and circuit emulation.
The Guarantor has developed OTElink, a fully operational terrestrial trunked radio (“TETRA”) network, operating at 410MHz-430MHz compliant to European Telecommunications Standards Institute specifications. OTE link provides voice (group calls, individual calls, broadcast calls, emergency calls, calls to PABX, PSTN) and data services (short data services, status messages, connection-oriented packet data, 28.8Kbps). Three of OTElink’s large enterprise customers are the Athens International Airport, Piraeus Port Authority S.A., and, until recently, the Athens 2004 Summer Olympic Games. The Guarantor provides TETRA terminals from a large list of suppliers. OTElink currently covers the Olympic cities of Athens, Thessaloniki, Heraklion, Patras and Volos and was used as the primary mobile security and communications network for the Olympic Games.
The Guarantor has also installed an extensive broadband or asymmetrical digital subscriber line (“ADSL”) network across Greece. ADSL is a telecommunications technology that permits the transmission of data at very high rates. Most ADSL customers use 384 Kbps connections. One of the principal benefits of ADSL technology is that it enables customers to gain Internet and Internet- related services at significantly higher speeds than a traditional Internet dial-up service is capable of supporting.
The Guarantor provides ADSL services, through two sales channels: retail – directly to the final customers, enabling them to purchase high speed Internet access separately from Internet service providers; and wholesale – by providing ADSL access to other operators and enabling them to provide ADSL access and high speed Internet access directly to the final customer.
The following table sets out the tariffs for retail and wholesale ADSL access services as of 1 October 2004:
Wholesale Retail Download/Upload1111111 Activation fee 1111111 Monthly fee 1111111 Monthly fee (Euro) 384 Kbps/128 Kbps...... 34.99 16.92 19.99 512 Kbps/128 Kbps...... 34.99 30.52 35.90 1024 Kbps/256 Kbps...... 34.99 54.22 63.90
The Guarantor also charges an installation fee of Euro 44.99 for retail ADSL services.
The development of the overall ADSL market depends upon the wholesale ADSL market and the market for local loop unbundling. In the wholesale market, the Guarantor provides the ADSL link and the backhaul service and hands over the ADSL traffic to ISPs/other operators, over the interconnection link. The Guarantor provides two types of services: ADSL Access (ADSL link plus backhaul service through the ATM network (HellasStream)); and the interconnection link (the IP over ATM connection to the broadband remotes access server that enables ISPs/other operators to provide high speed Internet access to the customers).
The tariffs for the interconnection link are the same as the tariffs of HellasStream. In 2003, the Guarantor provided 650 local loops to wholesalers (294 for ADSL services and 356 for voice telephony); as of 19 May 2004 the number of local loops the Guarantor provides rose to 791. Approximately, half of these lines have been provided for the market of ADSL local loop and the other half for voice telephony. The Guarantor expects that the wholesale market for local loop unbundling will continue to grow.
92 During 2003, the Guarantor’s ADSL services were launched commercially in most of the large cities and metropolitan centres in Greece. As of April 2004, the Guarantor provided coverage to approximately 17,000 customers, including 1,700 wholesale customers. The Guarantor expects to expand this network according to demand. As broadband access is generally fast enough to support new applications, such as high quality video, the Guarantor expects that broadband customers will use the Internet more frequently and for longer periods of time than narrowband (dial-up) users.
Call Centres
The Guarantor seeks to maintain and strengthen its relationship with customers by combining methodology, software strategies and various web-based applications implemented through its web-enabled call centres, which offer quality services and contribute substantially to the Guarantor’s revenues.
Specifically, in order to respond to customer needs, the Guarantor has created the following services: • ‘134’, a customer service line, which received 5 million calls in 2003 and, based on survey evidence, achieved over 96 per cent. customer satisfaction; • ‘1200’, a customer service line for business customers (operating from the beginning of 2004); • OTELINE, a contact services centre , which offers one-to-one marketing for all of the Guarantor’s products and services, debt collecting and customer return programs (WinBack); • ‘www.oteshop.gr’, the Guarantor’s electronic shop, which had 1,500,000 visitors and 15,000 orders during 2003 and received the awards for best shop and best online game (Spyfiles) at the Greek ‘Web Awards 2002’; • ‘www.otebusiness.gr’, the Guarantor’s electronic shop for business customers (operating from the beginning of 2004); • ‘131’, voice telephone directory services and entertainment information, which receives 73 million calls per year and which achieved 90 per cent. customer satisfaction based on survey evidence; • OTE Tele-Information, a voice portal, which receives 80 million calls per year and offers weather forecasts; airplane, ship, rail and bus schedules; hospital and pharmacy details; and sports results; • ‘1502’, a citizen service centre for issuing public certificates, which received 493,000 calls in 2003 and received an international award from the United Nations; • ‘112’, the pan European emergency call number; • A service centre for people with hearing impairment (210-8815 555, 210-8251 000); • ‘139’, which enables domestic and international calls to be made via the operator; and • ‘136’, the Guarantor’s telegraph service. All of the Guarantor’s call centres are quality certified according to ISO 9001 for all processes.
Fixed Wireless Access Services
In December 2000, pursuant to an auction by the EETT, the Guarantor was granted two licences to offer fixed wireless access services in Greece, the first within the 3.5 GHz frequency band and
93 the second within the 24.5-26.5 GHz frequency band. The Guarantor paid an aggregate amount of Euro 11.8 million for these two licences. In the 3.5 GHz frequency band, which is mainly used for voice telephony services, two other licences have been granted to other parties. In the 24.5- 26.5 GHz frequency band, which is mainly used for voice and local multipoint multimedia distribution services, the EETT has granted four licences in addition to the Guarantor’s licence. Following the transfer of the fixed wireless licence in the 25 GHz frequency band from the Guarantor to COSMOTE, the Guarantor still holds the fixed wireless access licence in the 3.5 GHz frequency band, which it uses to provide point to multipoint voice telephony services in rural areas.
Telephone Directory services and Information Services – INFOTE
In 2001, the Guarantor established its wholly owned subsidiary INFOTE and, in 2002, the Guarantor transferred all its assets relating to directory services to INFOTE. The strategic vision of INFOTE is to contribute to the global “Knowledge Economy” and meet the human need for information. The main activity of INFOTE is the promotion and advertising of businesses and professional services firms through directory services in printed and electronic form. INFOTE publishes professional directory services, which are available to subscribers without charge. These include the Yellow Pages, Greek Yellow Pages and Business-to-Business directory services. Directory enquiries can also be made free of charge on the Guarantor’s website (www.infote.gr / www.xo.gr).
Yellow Pages on the Road is a directory designed to cater to every need that may arise on a trip, especially for those travelling by car or motorcycle. The directory contains information on sightseeing, detailed maps and useful telephone numbers for every region of Greece.
INFOTE also operates a new website for all Greeks and Greek businesses around the world under the name “Greek Business Network (www.greekbiz.com)”.
Within the framework of improving its services, INFOTE has designed and is now offering a new, flexible and advanced telephone service available by calling the “Greek Talking Pages” 11811. Callers are provided with live information on a wide range of products, services, professionals and businesses.
In 2004, INFOTE expects to launch a new pioneering product, the “Yellow Pages of Volunteerism”, which aims to become an international meeting point of voluntary social offering, social business activity and exploitation of free time. In addition, INFOTE intends to launch the “Local Yellow Pages” in five major Greek cities.
INFOTE also acquired the publishing and distribution rights of the “Public Services Directory”, a product which has been in the market for 43 consecutive years. Since September 2004, it is being published by INFOTE.
Maritime Radio and Satellite Communications – OTESAT-Maritel S.A.
The Guarantor’s radio and satellite services are used primarily for maritime communications services. Its subsidiary, OTESAT-Maritel S.A., provides maritime and satellite communications services. Conventional maritime communications operates by means of very high frequency, high frequency and medium frequency coastal networks. Traffic via coastal stations over the past years has been shrinking.
The Guarantor provides Inmarsat satellite communications services to maritime, land and aeronautical users in the regions of the Indian Ocean, the eastern Atlantic Ocean and the Mediterranean Sea from Inmarsat’s land earth station in Thermopylae. Ocean regions not covered by the Thermopylae station are served by other land earth station operators with which the Guarantor has established cooperation agreements. OTESAT- Maritel S.A. promotes the Guarantor’s Inmarsat services commercially.
94 Telecards, Paging and Telegraphy Services
Telecards. Telecards are chip-based prepaid cards used in all of the Guarantor’s payphones instead of coins. Telecards are sold to the public at a small premium above the tariff unit rate. The Guarantor, in turn, pays a commission of 8 – 10.2 per cent. to resellers who sell telecards to the public. In September 2004, the Guarantor introduced Allo-card, a pre-paid card offering low rates for calls from Greece to countries in the Balkans and Eastern Europe.
The number of public telecard payphones at the end of 2003 in Greece was approximately 64,500 as compared to approximately 64,000 at the end of 2002. This number includes approximately 27,000 indoor telecard payphones leased to customers for private and public use through Greece.
The Guarantor’s revenues from telecard sales were Euro 137.7 million, or 2.8 per cent. of total operating revenues, in 2003, compared to Euro 175.4 million, or 4.1 per cent. of total operating revenues, in 2002 (revenues from non-chip based prepaid cards are also included in these figures).
Paging service. The Guarantor currently provides tone only paging services. At the end of 2003, its paging network comprised 28 base stations and two switches covering six major areas, including every town in Greece with a population of more than 50,000 inhabitants, as well as the national road network. The Guarantor estimates that this service provides coverage of approximately 70 per cent. of the population of Greece. The number of subscribers to this service has been declining in recent years.
Telex and telegraphy. Telegraphy and telex are services with declining demand due to the successful application of other methods of communication. The number of inland telegrams sent in 2003 declined by 14.54 per cent., compared to 2002, while the number of international telegrams declined by 11.52 per cent. over the same period. The revenues generated by these two services were Euro 7.5 million in 2003, or 0.2 per cent. of total operating revenues, compared to Euro 5.4 million, or 0.1 per cent. of total operating revenues, in 2002, representing an increase of 38.9 per cent. in 2003 and a decrease of 42.5 per cent. in 2002. Although the Guarantor does not expect profits from these services, it maintains them for historical reasons and for their social benefits.
Equipment sales
The Greek market for telecommunications equipment is deregulated. The Guarantor sells mobile handsets, telephone sets, videophones, private automatic branch exchanges and other appliances. The Guarantor purchases telecommunications equipment from outside suppliers and maintains no manufacturing facilities of its own. Revenues from sales of equipment to third parties amounted to Euro 96.3 million, or 2.0 per cent. of total operating revenues, in 2003, compared to Euro 86.3 million, or 2.0 per cent. of total operating revenues, in 2002. The Guarantor has continued to sell equipment in order to increase revenues and earnings from this business, to promote brand recognition, to stimulate the replacement of old analogue equipment with new digital equipment and enhance the use of digital facilities, to increase traffic in the Guarantor’s shops and to package equipment with its services.
Additional services
The Guarantor also offers a variety of additional services to customers, including maintenance and transfers of existing lines. Revenues from these additional services amounted to Euro 90.5 million, or 1.8 per cent. of total operating revenues, in 2003, compared to Euro 72.4 million, or 1.7 per cent. of total operating revenues, in 2002. Revenues from these services also include revenues for such services generated by the Guarantor’s subsidiaries.
95 Recently introduced services The Guarantor has introduced a number of services, including video conferencing and three-and four-digit telephone numbers, and plans to continue to introduce new services over the next few years. As of 1 June 2004, the Guarantor offers number portability, which gives customers the right to keep their phone number after switching networks. The Guarantor is also developing a universal telephone directory, including all the end-users of the mobile and fixed telephony providers based on its existing telephone directory services, and expects to begin operating universal directory services by the end of 2004.
International Investments
In recent years, the Guarantor’s regional expansion strategy has been to be the leading telecommunications operator in the Southeastern European region and an active player in the development of the European telecommunications sector in accordance with its geographical coverage. To achieve its strategic objective, the Guarantor has made the following types of investments: • equity investments in public telephony operators in neighbouring countries with cultural, economic or historical ties with Greece; • acquisitions of licences for the provision of mobile telephony services in such countries; and • infrastructure investments in international telecommunications projects that the Guarantor believes will enable it to promote Greece as a hub for transit traffic flow between the Southeastern European region and the rest of the world.
The Guarantor believes that its international investments benefit it by generating higher revenues, which result from increased transit traffic through its network, and by enhancing its ability to provide a wide range of state-of-the-art services to its customers both in Greece and in neighbouring countries. In addition, the Guarantor aims to continue to capitalise on the relatively higher returns of operating in the mobile sector; and the possibilities for extracting value from the transfer of its technical know-how and expertise derived from COSMOTE’s successful operations and track record in Greece.
The Guarantor is seeking to continue to restructure and rationalise its international operations. In 2003, the Guarantor continued Romtelecom’s restructuring by strengthening the management team, reducing employee numbers and maintaining capital expenditure in accordance with its business plan. Currently, the Guarantor is considering various options with respect to its investments in Armenia and Serbia, including the possibility of exiting these markets.
Regional Acquisitions and Equity Investments
A significant aspect of the Guarantor’s regional expansion strategy has been to create an international network in Southeastern Europe. To this end, it has made several investments in telecommunications operators and acquired licences in neighbouring countries with cultural, economic or historical ties with Greece.
Romtelecom. In 1998, the Guarantor made an initial investment through OTE International Investments Ltd. (“OTE International”), its wholly-owned subsidiary, of U.S.$ 675 million to acquire 35 per cent. of the share capital of Romtelecom S.A., a fixed and mobile telecommunication services company operating in Romania. In March 2003, OTE International and the Romanian Ministry of Communications and Information Technology (“MCIT”), as representative of Romanian government, completed a transaction (the “Romtelecom Transaction”) involving an equity increase of approximately U.S.$ 242.6 million (Euro 229.2 million) in Romtelecom, fully subscribed by OTE International. This amount comprised the conversion of approximately U.S.$ 98.3 million (Euro 94.6 million) of debt, U.S.$ 55.7 million (Euro 55.0 million) representing a bridge loan from OTE International to Romtelecom and approximately U.S.$ 42.6 million (Euro 39.6 million) representing
96 management fees due and payable by Romtelecom to OTE International. The remainder, U.S.$ 144.3 million (Euro 134.6 million), consisted of a cash contribution from OTE International to Romtelecom in exchange for new shares in Romtelecom. Approximately U.S.$ 20.0 million in respect of outstanding management fees remains payable to OTE International by Romtelecom. As a result of the Romtelecom Transaction, the Guarantor acquired a further 19.01 per cent. interest in Romtelecom and, consequently, Romtelecom is consolidated since March 2003. As of 15 July 2004, the Guarantor holds a 54.01 per cent. interest in Romtelecom S.A. The remaining 45.99 per cent. of the shares in Romtelecom are held by the Romanian government (and three individuals who hold one share each).
In connection with its investment in Romtelecom, in January 2003, the Guarantor entered into a shareholders’ agreement with the MCIT. Among other things, the 2003 shareholder agreement stipulates that, subject to certain conditions (including, but not limited to, Romtelecom’s shares not being listed on a recognised stock exchange), Romtelecom shall not, without the consent of each shareholder holding more than 30 per cent. but less than 50 per cent. of shares in Romtelecom, enter into certain transactions, including but not limited to: (i) issuing or acquiring debt instruments having an aggregate value in excess of U.S.$ 50 million; (ii) entering into any partnership or joint venture in effect having a total investment cost to Romtelecom in excess of U.S.$ 20 million; and (iii) selling assets valued in excess of U.S.$ 20 million. Under the agreement, each such minority shareholder has the right to appoint two Directors to the Board of Directors of Romtelecom. The shareholders agreement also imposes restrictions on the transfer of shares belonging to MCIT. In particular, transfer of shares owned by MCIT to a non-public institution require OTE International’s consent. Any transfers to third parties other than public institutions are subject to the condition that no such third party acquire more than 7.5 per cent. of shares. No transfer of shares by the MCIT is permitted to companies involved in the telecommunications business, except to OTE affiliates. The MCIT and OTE International have also agreed that, to the extent that additional shares are issued in favour of the MCIT in respect of land which the MCIT may contribute to Romtelecom under privatisation legislation, OTE International has the right to subscribe concurrently for such number of additional shares as is required to maintain its percentage ownership of Romtelecom.
In 2003, Romtelecom continued its internal restructuring to reduce capital expenditure and operating expenses and restructure Romtelecom’s liabilities, including the rescheduling of U.S.$ 90.0 million of outstanding amounts due to Romtelecom’s fixed asset suppliers. Romtelecom’s restructuring plan is being carried out in line with the Guarantor’s strategy to accelerate value generation from its international investments. Romania has a population of 21.7 million people and fixed line penetration is currently at 19 per cent., offering substantial growth potential. On 31 December 2003, Romtelecom had approximately 4,326,400 lines in service compared to 4,197,000 lines in service in 2002. On 31 December 2003, approximately 73.2 per cent. of Romtelecom’s lines were connected to a digital exchange, compared to 71 per cent. on 31 December 2002.
97 The following table shows Romtelecom’s revenues, operating profit/(loss) and net income/(loss) for the two years ended 31 December 2003, based on Romtelecom’s U.S. GAAP consolidated financial statements:
For the Year ended 1111211111231 December 111122002 11112 2003 (Euro millions) Total Revenues ...... 958.7 797.4 Operating Profit(Loss) ...... (40.4) (8.8)(1) Net Income/(Loss) ...... (65.9) (12.9)(1) The Guarantor’s share in Romtelecom’s net income/(loss)...... (23.1) 27.9(2)
Notes (1) Romtelecom’s consolidated loss of Euro 12.9 million has been affected by the recognition of an impairment charge of Euro 60 million relating to the carrying value of Cosmorom’s fixed assets. (2) The Guarantor’s share in Romtelecom’s net results for 2003 consists of: (i) a loss of Euro 37.9 million representing its 35 per cent. share in Romtelecom’s net results for the two months ended 28 February 2003 and, (ii) income of Euro 65.8 million, representing its 54.01 per cent. share in Romtelecom’s net results for the ten-month period ended 31 December 2003, during which Romtelecom’s results were consolidated with the Guarantor’s results and fair value adjustments were made on Romtelecom’s acquired tangible and intangible assets as of March 2003.
Romtelecom’s net loss in 2002 is mainly attributable to operating losses incurred by Cosmorom. Dividend distributions from Romania, if any, are subject to a 10 per cent. withholding tax.
On 1 January 2003, the provision of certain telephony services in Romania, including voice telephony, leased lines and telex and telegraph services, was liberalised and a new regulatory body (Autoritatea Nationala de Reglementare in Comunicatii, the National Regulatory Authority for Communications) was established.
In 1998, prior to the liberalisation of the telecommunications market in Romania, the Romanian Government granted Romtelecom a licence authorising it to provide fixed line telephony services for a period of 15 years. Pursuant to applicable law, this licence, with the exception of certain provisions, expired on 24 December 2002 when Romtelecom was granted a new general authorisation entitling it to provide electronic communication networks and services. The provisions of the 1998 licence regarding the right to use numbering resources remained in force until 1 April 2003, when Romtelecom was granted a new numbering resources licence for a period of ten years by the National Regulatory Authority for Communications. The provisions of the 1998 licence relating to the right to use electronic radio frequencies continue to remain in force until a new licence is issued. Romtelecom has applied for such a licence to the Ministry of Communications and Information Technology.
Romtelecom is seeking to compete in the liberalised market through the exploitation of its current infrastructure and increases in the number of its subscribers.
On 4 September 2003, it was announced that Romtelecom had received approval from the National Regulatory Authority for Telecommunications to adjust its tariffs with effect from 2 October 2003 to reflect inflation, improvements in efficiency and its general policy of tariff rebalancing in response to the liberalisation of the provision of certain telephony services. In particular, the following changes took effect: • tariffs for calls to international fixed line networks were reduced by between 30 per cent. and 45 per cent.; • monthly subscription charges were increased by an average of 15.35 per cent.; • a volume-based discount scheme was introduced for international calls; and
98 • Romtelecom received approval to fix its tariffs in Euro, thereby reducing Romtelecom’s exposure to movements in exchange rates.
Romtelecom’s wholly owned subsidiary, Cosmorom, commenced commercial operations in the GSM 1800 frequency band in May 2000 under a licence transferred to it from Romtelecom. As of 31 December 2003, Cosmorom had approximately 81,000 active subscribers and had achieved population coverage of approximately 55 per cent.
Following the presentation of the results of Cosmorom for the six months ended 30 June 2002, the management of Cosmorom determined that there was a shortfall in the shareholders’ equity of Cosmorom. Thereafter, management estimated that cash and short-term investments held at the date of approval of the financial statements of Cosmorom for the year ended 31 December 2002 and future operating cash flows generated by Cosmorom were not sufficient to continue funding the trading activities of Cosmorom for a further twelve months from the date of the financial statements. As a result, OTE International and the MCIT, in their capacity as shareholders of Romtelecom, decided on the principles of a strategy relating to Cosmorom, which were incorporated in the Romtelecom Transaction documents pursuant to which OTE International obtained majority control of Romtelecom in March 2003.
Cosmorom’s management continues to estimate that cash, short-term investments and future operating cash flows generated by Cosmorom are not likely to be sufficient to continue funding the trading activities of Cosmorom. In addition, the Guarantor, Romtelecom, Cosmorom and OTE International are involved in arbitration proceedings before the International Court of Arbitration of the International Chamber of Commerce with Intracom S.A. and Intrarom S.A., which are seeking aggregate damages in excess of Euro 150 million. See “Description of the Guarantor – Legal Proceedings”.
Romtelecom engaged an international investment bank to consider and recommend options for the future of Cosmorom, which include a sale or merger of all or part of its assets, the liquidation of Cosmorom or the relaunch of commercial services. The respective boards of directors of Romtelecom and the Guarantor are expected to review the recommendations of the international investment bank and adopt resolutions regarding the future of Cosmorom before the end of 2004.
ArmenTel. In March 1998, the Guarantor invested approximately U.S.$ 142.5 million (Euro 120.3 million) to acquire a 90 per cent. equity stake in ArmenTel, the Armenian public telephony operator. ArmenTel has the exclusive right until 2013 to provide all telecommunications services in Armenia, including fixed line telecommunications services, mobile telephony, broadband, Internet and directory services. It also has a non-exclusive licence to provide broadcasting and cable services. As of 31 December 2003, ArmenTel had approximately 563,679 access lines in service and 111,188 mobile subscribers, compared to 542,851 access lines in service and 70,585 mobile subscribers as of 31 December 2002. Given the current relatively low penetration rate of mobile telephony in Armenia and evidence of growing demand, the Guarantor expects ArmenTel’s subscriber base to continue to increase and aims to reach 200,000 subscriber by the end of 2004.
In 1997, ArmenTel was granted a licence by the Government of Armenia authorising it to provide, on an exclusive basis, fixed and mobile telecommunications services. The licence was amended in 1998 and is valid for an initial period of 15 years from the amendment date. The licence can be renewed for an additional term of 15 years beyond the expiration date if, at the time of application, ArmenTel has established a record of material compliance with the terms of the licence and all other applicable rules, regulations and laws.
99 The following table shows ArmenTel’s revenues, operating profit and net income for the two years ended 31 December 2003, based on ArmenTel’s U.S. GAAP financial statements, on a stand- alone basis:
For the Year ended 1111211111231 December 111122002 11112 2003 (Euro millions) ArmenTel Total Revenues ...... 74.0 69.7 Operating Profit ...... 15.5 10.9 Net income...... 16.8 12.0 Net income attributed to the Guarantor’s consolidated net income ...... 15.1 10.8
Almost 26.9 per cent. of ArmenTel’s revenues in 2003 came from mobile telephony, as compared to 25.0 per cent. in 2002. In the second quarter of 2002, ArmenTel introduced a prepaid system for mobile telephony and, as of 31 December 2003, it had increased its customer base to 39,160 contract and 72,028 prepaid subscribers, as compared to 31,794 contract and 38,791 prepaid subscribers as of 31 December 2002.
Dividend distributions from Armenia, if any, are subject to a 10 per cent. withholding tax. ArmenTel did not pay any dividends during 2003.
The share purchase agreement pursuant to which the Guarantor acquired its interest in ArmenTel sets forth a long-term investment plan for ArmenTel, which the Guarantor has agreed to support. Pursuant to this agreement, the Guarantor was obligated to commit capital expenditures to this project of at least U.S.$ 200 million up to March 2004, and, as of 23 March 2004, the Guarantor had invested U.S.$ 216 million in ArmenTel. A January 2002 supplemental agreement between ArmenTel and the Armenian Minister of Justice extended the date by which the Guarantor is obliged to invest an additional U.S.$ 65.0 million to 2009 and confirmed that any such additional investment would only be required to the extent that ArmenTel reasonably believes that an adequate economic return for the investment will be achieved. The Guarantor will try to satisfy these capital commitments, if they are required, through third party financing. The Guarantor is currently in dispute with the Armenian Government in relation to ArmenTel and its associated investment obligations under the share purchase agreement. See “Description of the Guarantor – Legal Proceedings”.
ArmenTel separately invested approximately U.S.$ 26.9 million in 2002 and U.S.$ 36.8 in 2003. Investments in 2002 included principally U.S.$ 11.0 million allocated to the expansion of ArmenTel’s GSM network to increase geographic coverage and capacity, with the remainder applied to the expansion of ArmenTel’s trunk network and the installation of digital switching facilities in major urban centres. In 2003, ArmenTel’s investment program continued to focus on digitalisation and GSM expansion, in response to growing market share, especially in prepaid mobile telephony. As of 31 December 2003, ArmenTel had a total of 699,901 installed lines, approximately 25.1 per cent. of which were connected to digital exchanges, compared to 24.2 per cent. at 31 December 2002. In 2002 and 2003, ArmenTel funded its investment plan from its operating revenues, without support from the Guarantor, and management expects to continue to do so in 2004 and beyond. In 2004, ArmenTel expects to focus its expansion on mobile telephony, value-added services and VoIP services.
Telecom Serbia. In June 1997, the Guarantor invested DM 675.0 million (approximately Euro 312.0 million or U.S.$ 287.0 million) to acquire a 20 per cent. shareholding in Telecom Serbia, the national monopoly telecommunications operator in Serbia providing fixed line domestic and international telecommunications services. At the same time, Telecom Italia purchased a 29 per cent. stake in Telecom Serbia. The remaining 51 per cent. interest of Telecom Serbia’s share
100 capital is held by Serbian PTT, a Serbian state-owned company. The Guarantor has the right to appoint two of the nine members of the board of directors.
In 2002, Telecom Italia announced its intention to dispose of its investment.
On 28 December 2002, Telecom Italia forwarded to the Guarantor a copy of an offer made to Telecom Italia by the Serbian PTT, for the acquisition by the latter of Telecom Italia’s shareholding in Telecom Serbia, in order to give the Guarantor the opportunity to elect whether or not to exercise its right of first refusal to purchase Telecom Italia’s shareholding in Telecom Serbia. The Guarantor received notice from the Minister of Telecommunications of Serbia stating that the Serbian Government would seek to veto the Guarantor’s right to purchase Telecom Italia’s shareholding in Telecom Serbia if the Guarantor sought to exercise its right of first refusal to purchase Telecom Italia’s shareholding in Telecom Serbia.
The withdrawal of Telecom Italia from Telecom Serbia was completed in February 2003. In May 2003, the Guarantor commenced arbitration proceedings against Telecom Serbia, affiliates of Telecom Italia and the Serbian PTT, in order to protect its interests in Telecom Serbia. Furthermore, the Guarantor concluded that it does not exercise significant influence in Telecom Serbia and, consequently, effective 1 July 2003, the Guarantor accounts for its investment in Telecom Serbia at cost.
Telecom Serbia holds licences to provide a range of fixed line telecommunications and related services for a non-exclusive term of 20 years and enjoys monopoly status until June 2005. As of 31 December 2003, Telecom Serbia had approximately 2.4 million access lines in service, approximately 60 per cent. of which were connected to digital exchanges, and 1.8 million mobile subscribers of which approximately 97 per cent. were prepaid. As of 31 December 2003, Telecom Serbia had reached 92.6 per cent. in mobile telephony coverage of Serbia’s population of approximately 7.5 million people (excluding Kosovo).
The following table shows Telecom Serbia’s revenues, operating profit and net income for the two years ended 31 December 2003, based on its U.S. GAAP financial statements.
For the Year ended 1111211111231 December 111122002 11112 2003 (Euro millions) Telecom Serbia Total Revenue ...... 506.7 535.1 Operating Profit ...... 91.4 90.0 Net income...... 73.2 158.4 The Guarantor’s share in Telecom Serbia’s net income ...... 14.6 7.2
Dividend distributions from Serbia, if any, are subject to a 20 per cent. withholding tax. From the time of the acquisition to the date of this Information Memorandum, the Guarantor has received no dividends from Telecom Serbia.
In November 1997, the Guarantor granted a loan of DM 25.0 million (Euro 12.5 million) to Telecom Serbia to finance investments in its network. The amount outstanding under this loan as of 31 December 2003, inclusive of accrued interest and loan expenses, was Euro 25.6 million.
Pursuant to a Memorandum of Understanding dated 20 September 2004 and definitive agreements implementing the MoU between OTE, Serbian PTT and Telecom Serbia, Telecom Serbia undertook to repay in full the principal amount of the loan (12,491,620 Euro) and the associated stamp duty through December 31, 2003 (1,009,603 Euro).
101 Interest arrears covering the period from December 20, 1998 until September 30, 2004 have been calculated on the basis of six month EURIBOR and a margin of 10% and amount to Euro 9,772,949. The repayment schedule is as follows:
Euro 2,000,000, payable on September 30, 2004 Euro 2,000,000, payable on 15 January 2005, and Euro 5,772,949, payable no later than 31 March 2005.
OTE agreed to waive its management fees if certain conditions are met, including the execution and entry into effect of a new shareholders agreement and Articles of Association for Telecom Serbia.
Telecom Serbia has made payment to OTE of the principal amount, the stamp duty and the first installment as scheduled.
CosmoBulgaria Mobile. In January 2001, the Guarantor was awarded the second GSM mobile telephony licence in the Republic of Bulgaria for a price of U.S.$ 135.0 million. The Guarantor established CosmoBulgaria Mobile EAD (“Globul”), a wholly owned subsidiary, to hold its licence and operate as a mobile telephony provider. In November 2002, the Guarantor subscribed to a Euro 25.0 million capital increase in Globul. As of the date of this Information Memorandum, Globul’s share capital is BGN 490,664,220 (Euro 250.9 million) divided into 49,066,422 ordinary shares with a nominal value of BGN 10 (Euro 5.113) each.
On 17 September 2001, Globul launched its commercial activities. In November 2002, Globul was granted a licence for the construction, maintenance and exploitation of a public telecommunications network for data transmission and provision of public telecommunications services in the territory of Bulgaria. In February 2003, Globul’s licence was modified and supplemented with the right to use additional microwave frequencies and the right to provide leased lines. With effect from 1 January 2003, the telecommunications market of Bulgaria has been fully liberalised.
Globul has fulfilled the requirements of its public telecommunications licence in relation to geographic and population coverage since its first year of operation. As of 31 December 2003, Globul had 1,003,397 subscribers in total (compared to 466,014 as at 31 December 2002), representing a market share of approximately 31 per cent., comprised of 373,809 contract subscribers (compared to 214,809 as of 31 December 2002) and 629,588 prepaid subscribers (compared to 251,205 as of 31 December 2002).
The following table summarises Globul’s revenues, operating loss and net loss for the two years ended 31 December 2003, based on its U.S. GAAP financial statements:
For the Year ended 1111211111231 December 111122002 11112 2003 (Amounts in Euro millions)
Globul Revenues...... 46.5 99.4 Operating loss ...... (40.5) (17.6) Net loss ...... (31.5) (21.6)
In July 2002, Globul concluded a Euro 70.0 million syndicated bridge facility arranged by Bank Austria AG and United Bulgarian Bank to finance investments in infrastructure. The Guarantor issued a comfort letter to the lenders as support for this bridge facility.
102 In May 2004, Globul concluded a short-term Euro 30 million overdraft facility with Commercial Bank Biochim AD, as arranger, and Bulgarian Post Bank AD for financing its capital expenditure and working capital requirements.
In October 2002, the Guarantor, OTE International and COSMOTE entered into an agreement pursuant to which the management of Globul (and Cosmofon) was assumed by COSMOTE with effect from the end of 2002.
Within the framework of privatisation of Bulgarian Telecommunications Company (“BTC”), Bulgaria’s fixed telephony operator, the Communications Regulation Commission has granted a third mobile telephony licence to BTC. On 21 June 2004, Globul filed an appeal against the decision to grant such licence and requested suspension of the execution of such decision. On 15 July 2004, the Supreme Administrative Court of Bulgaria ordered the suspension of the execution of the decision to grant the licence to BTC, but on 5 November 2004, the same court revoked the suspension decision. A hearing date for the appeal has not yet been determined.
Albanian Mobile Communications. Albanian Mobile Communications Sh.a., or AMC, is a former Albanian state-owned mobile telephony company, 85 per cent. of the shares of which were acquired in 2000 for a purchase price of U.S.$ 85.6 million by COSMO-Holding Albania, a holding subsidiary in which COSMOTE holds a 97 per cent. stake and Telenor ASA holds the remaining 3 per cent. Vodafone is the only mobile competitor of AMC in Albania. AMC’s network operates in the GSM 900 and GSM 1800 frequencies in the Albanian territory. The fixed line operator, Albtelecom, enjoys monopoly status in the provision of fixed line telecommunications services.
Within the framework of the privatisation of the fixed telephony company, the Albanian Government granted to Albtelecom the right to obtain a third licence for the provision of mobile telecommunications services in the 900 and 1800 frequencies, under the condition that the mobile telecommunications services will be offered by a new company, wholly owned by Albtelecom. In March 2004, the telecommunications regulatory entity granted the third licence to Eagle Mobile Sha, a 100 per cent.-owned subsidiary of Albtelecom.
As of 31 December 2003, AMC had 592,804 customers, reflecting an increase of 18 per cent., as compared to its 501,147 customers as of 31 December 2002, and an estimated market share of 55 per cent. Of AMC’s customers as of 31 December 2003, 578,787, or 97.6 per cent., were prepaid and 14,017 were contract customers.
The following table summarises AMC’s revenues, operating profit and net income for the two years ended 31 December 2003, based on its U.S. GAAP financial statements:
For the Year ended 1111211111231 December 111122002 11112 2003 (Amounts in Euro millions)
AMC Revenues...... 101.3 106.8 Operating Profit ...... 52.3 43.0 Net income...... 29.1 32.3 Net income attributed to the Guarantor’s consolidated net income ...... 14.1 15.7
COSMOTE has issued letters of comfort in favour of AMC for amounts borrowed of up to Euro 36.0 million in aggregate. As of 31 December 2003, AMC’s total outstanding debt amounted to Euro 21.2 million.
103 COSMOTE has also given guarantees according to Greek civil law in respect of AMC’s payment obligations under two agreements between AMC and Nokia regarding the provision of equipment and services, in amounts of Euro 30 million and Euro 10 million, respectively.
In May 2004, the Regulatory Authority of Albania designated AMC and Vodafone as operators with significant market power in the public service of mobile terrestrial telephony (GSM Service). The decision is effective for the period from 15 May 2004 to 15 May 2005. The regulatory authority of Albania has also declared the interconnection agreements between Albtelecom and Vodafone to be partially invalid, has requested that Albtelecom and Vodafone review such agreements from 1 June 2004 and has suggested significant reductions of interconnection tariffs. AMC has challenged these actions of the regulator before the Ministry of Transport and Telecommunications.
Cosmofon Mobile Telecommunications Services AD Skopje. The Guarantor established a wholly owned subsidiary, MTS, in the Former Yugoslav Republic of Macedonia. In November 2001, MTS was awarded the second mobile telephony licence in the Former Yugoslav Republic of Macedonia for Euro 28.5 million (U.S.$ 25.0 million). In addition, the Guarantor established a wholly-owned Dutch-based special purpose vehicle, OTE MTS Holding B.V., to which its shares in MTS have been transferred. During 2003, MTS modified its Articles of Association and changed its corporate name to Cosmofon Mobile Telecommunications Services AD Skopje (“Cosmofon”).
As of 1 April 2004, Cosmofon’s share capital was Euro 65,130,566. Increases in the share capital in an aggregate amount of Euro 51 million have been approved by Cosmofon’s shareholders and are expected to be implemented subject only to regulatory approval.
In October 2002, the Guarantor, OTE International and COSMOTE entered into an agreement pursuant to which the management of Cosmofon (and CosmoBulgaria Mobile) has been assumed by COSMOTE with effect from the end of 2002.
On 12 June 2003, Cosmofon launched its commercial operations in the Former Yugoslav Republic of Macedonia; as of November 2003, its network covered half of the Former Yugoslav Republic of Macedonia. On 31 December 2003 its customer base had reached 84,363 customers.
The Guarantor estimates that the total cost of the Guarantor’s investment in Cosmofon through 2005, including in respect of the acquisition of its licence and completion of its infrastructure, will be Euro 116 million.
Other International Equity and Infrastructure Investments. The Guarantor believes that it can further develop its position as a regional telecommunications hub, without making additional direct equity investments in other operators. To this end, the Guarantor participates in international projects that are helping to create a technologically advanced telecommunications network in Southeastern Europe. The Guarantor believes that this network will enhance its results of operations by extending its existing infrastructure and enabling the Guarantor to tap into the growing traffic flow in regions surrounding Greece. The Guarantor undertakes periodic review of its involvement in these projects. These projects include the following: • The Guarantor participates in the Black Sea Fibre Optic Cable System, which has been operational since September 2001, providing a link between Varna in Bulgaria, Novorossisk in Russia and Odessa in Ukraine, as well as various other fibre optic backbone networks in the Caucasus. • Through its subsidiary, Hellascom International, the Guarantor has undertaken various telecommunications projects in Lithuania, Armenia, Russia, Georgia, Serbia, Montenegro, Albania, Bosnia-Herzegovina, Bulgaria, Romania, Poland, the Former Yugoslav Republic of Macedonia and Qatar. • The Guarantor directly holds 40 per cent., and Hellascom International holds an additional 10 per cent. of Trans Jordan Telecommunication Services Company Ltd., a joint venture that was granted a licence to provide payphone services in Jordan for 15 years from May 1997.
104 At 31 December 2003, approximately 5,100 card-based payphones had been installed by Trans Jordan Telecommunications Services Company Ltd. This investment is fully provided for in the Guarantor’s consolidated financial statements. • The Guarantor owns capacity, on an indefeasible right of use basis, in the private cable networks FLAG (Mediterranean-North Europe) and New Med (a fibre optic ring in the Eastern Mediterranean). • The Guarantor decided to complement its international fibre optic network with a new wholly owned integrated terrestrial and undersea cable system linking Greece to Italy, which was constructed in 2003 and has been operational since April 2004. This system is connected to an existing European terrestrial fibre optic network to provide access from Greece to all main European cities. • The Guarantor has established seven nodes of its international wholly owned asynchronous transfer mode/Internet Protocol network, with a presence in Athens, London, New York, Bucharest, Tirana, Sofia and Nicosia. • Through its consolidated subsidiary, Hatwave Hellenic-American Telecommunications Wave Ltd, the Guarantor holds a 25.7 per cent. participation in Ukrainian Wave, a limited liability company established to install and operate a fixed wireless network in the L’viv region of Western Ukraine. As of the end of 2003, Ukrainian Wave had approximately 7,300 active subscribers, reflecting a year-on-year increase of 8.5 per cent. compared to the end of 2002. However, as it is faced with serious liquidity problems, the Guarantor has decided to dispose of its shareholding. The Guarantor has a total exposure of Euro 6.7 million in this investment, which is fully provided for in its consolidated financial statements. • The Guarantor directly holds 10 per cent., Hellascom International holds an additional 15 per cent. and Trans Jordan Communication Services Company Ltd holds 25 per cent., of the Yemen Payphone Company joint venture, which holds a licence to provide payphone services in Yemen. The Yemen Payphone Company has suspended its services and is no longer in business. This investment is fully provided for in the Group’s consolidated financial statements.
Hellas Sat Consortium Limited. Additionally, the Guarantor holds a majority shareholding in Hellas Sat Consortium Limited (incorporated in and operating under the laws of Cyprus), a consortium that is providing space segment capacity, telecommunications and broadcast services through its own satellite. The Guarantor has contributed U.S.$ 42.5 million in aggregate to the share capital of Hellas Sat Consortium Limited. On 23 August 2001, a concession agreement was signed between the Greek State (represented by the Ministry of Transport & Communications) and Hellas Sat Consortium Limited, for the granting of an individual licence to utilise the geostationary orbit (39° E) providing for the construction, orbit positioning and exploitation of a satellite system. In November 2001, Hellas Sat S.A., a company operating under the laws of Greece, was incorporated and the Greek Ministry of Transport & Communications allocated responsibility for the operation of the relevant satellite system to Hellas Sat S.A. Hellas Sat S.A. is owned 99.99 per cent. by Hellas Sat Consortium Limited and 0.01 per cent. by OTEGlobe.
On 22 January 2003, the Guarantor’s Board of Directors approved the short term financing of the Hellas Sat Consortium Limited program for the period up to the launch of the satellite in an amount of up to Euro 104.0 million. On 16 July 2003, the Board of Directors approved the extension of this financing up to 31 December 2004 and also approved additional financing in the amount of U.S.$ 2.3 million. On 1 March 2004, the Board of Directors approved the granting of an additional loan of Euro 20.3 million. The Guarantor expects that in due course this short-term financing will be refinanced through a long-term project finance facility to be entered into with a syndicate of financial institutions. The satellite, Hellas Sat-2, was successfully launched into orbit in May 2003. It has two fixed antennae through which it is expected to provide pan-European coverage and two steerable antennae providing coverage outside Europe. The total cost of the Hellas Sat program
105 up to and including launch of Hellas Sat-2 in May 2003 was approximately Euro 177.0 million. As at the end of June 2004, approximately 20 per cent. of Hellas Sat-2’s capacity was leased pursuant to long-term contracts. The Guarantor is engaged in discussions with other potential customers in relation to the leasing of additional capacity on the satellite. The Guarantor is also interested in selling minority shareholdings in Hellas Sat Consortium Limited to third parties and, accordingly, expects that its interest in Hellas Sat Consortium Limited will gradually decline in the future as external investors acquire interests in it.
Inmarsat Ventures plc. The Guarantor previously owned a minority interest in Inmarsat Ventures plc, which owns the Inmarsat cooperative satellite system. In December 2003, shareholders representing 97 per cent. of the issued share capital accepted an offer from a company called Grapelose Limited for the sale of shares in Inmarsat Ventures plc. As a result, the Guarantor disposed of its shareholding of 4,672,690 shares in Inmarsat Ventures plc, representing 4.68 per cent. of the issued share capital, for an aggregate consideration of Euro 56.1 million. The Guarantor realised a pre-tax gain of approximately Euro 31.6 million on this investment.
Investment Program 2004/Capital Expenditures
General
Over the last few years the Guarantor has been investing with a view to enhancing the capability of its telecommunications network. The Guarantor has implemented many of its plans, including near-100 per cent. digitalisation of its trunk and switching network by the end of 2001. Beginning in 2002, the Guarantor’s investments started to decline and the focus of its capital expenditure program shifted to mobile services, Internet services, broadband, Internet Protocol, capacity in trunk network using DWDM and the dimensioning of the network to maintain quality.
The planned capital expenditure of the Guarantor’s group on network infrastructure for 2004 is expected to be approximately Euro 920 million in aggregate (including employee labour costs). Of this amount, the Guarantor plans to spend Euro 399 million. The remaining Euro 521 million will be spent by its national and international subsidiaries.
The Guarantor regularly reviews its planned capital expenditures in order to be able to take advantage of the introduction of new technologies as well as to respond to changes in market conditions and customer demands.
European Union Subsidies
In prior years, the Guarantor has received subsidies mainly from the European Union in order to fund specific projects over a specific time period. Such subsidies have been accounted for on an accrual basis and reduce the acquisition cost of the subsidized asset. As of 31 December 2003, the Guarantor was owed subsidies of Euro 22.4 million. An amount of Euro 19.4 million has already been received. The Guarantor does not expect to receive any further subsidies from the European Union in the near future. The European Commission has informed the Ministry of Transport and Communications in writing that any suspension of European Union subsidies has been withdrawn.
Network Upgrading
The aim of the Guarantor’s capital expenditure program relating to network and relevant applications investments is to anticipate real market demands in order to be able to provide sufficient solutions and to satisfy future demand by its clients in the light of competition. The Guarantor also takes into account the rapid development of technology and the associated trends, in order to be able to timely implement any new applications when necessary.
Trunk network. The majority of the Guarantor’s investment in its trunk network in 2004 will be used to install fibre optic cables supplemented by digital microwave links and synchronous digital hierarchy transmission systems.
106 Switching. The Guarantor has completed the installation of a new international digital exchange in Thessaloniki. The Guarantor’s capital expenditures for switching relate to the digitalisation of lines primarily outside urban centres and for the upgrade and extension of digital exchanges for interconnection purposes, as well as for the purchase of sophisticated software that will enable it to offer new services that will rely on its digital lines.
Local access network. The Guarantor intends to continue investing in upgrading its local access network by implementing a variety of technologies, including optical fibre in the local loop to be used in more densely populated areas, point-to-point and point-to-multipoint links to be used in sparsely populated areas, high-speed digital subscriber loop and asymmetrical digital subscriber line, to enable data transmission over copper pairs.
The demand for shared access to telecom operators is expected to increase and the Guarantor expects to provide 200 shared access lines to telecommunications operators in 2004. The provision of shared access to telecommunications operators, however, does not affect the profitability of the Guarantor’s voice telephony service.
In 2003, the Guarantor provided 76 distant co-location facilities to telecommunications operators for the provision of unbundling services. Through these distant co-location facilities, telephone lines of alternative telecommunications operators that are within the Guarantor’s local exchange are transferred by the Guarantor to the premises of the other operator. The Guarantor expects that provision of distant co-location facilities will grow in 2004.
Mobile Telephony Investments
The mobile telephony investment program includes COSMOTE’s investment to upgrade and enhance its current 2G and 2.5G networks in Greece and Albania (AMC) and COSMOTE’s investment for the initial rollout of its 3G network. In addition, Globul’s and Cosmofon’s capital expenditures to upgrade their infrastructure and ArmenTel’s capital expenditures for the expansion of its GSM network are covered by the Guarantor’s program.
New Business Areas
Another important area of planned capital expenditure are new business areas where the Guarantor seeks to further exploit its data communications network in broadband technologies, such as ADSL, Internet Protocol and data communications.
New broadband technologies. The Guarantor has implemented a public ATM backbone network to serve as the basis for the nationwide broadband network, which will cover all of Greece. It has installed 46 points of presence, as well as all links between tandem and access nodes in the ATM network.
The Guarantor expects to install considerable additional quantities of fibre optic cable for the urban network in connection with its proposed development of the broadband network. These cables may be used for telephony, cable television and multimedia services.
The Guarantor has implemented an ADSL network for broadband services provisioning, consisting of 201 points of presence throughout Greece and 20,000 lines installed. In June 2003, the Guarantor introduced ADSL services and as of April 2004 it had 17,000 subscribers. The Guarantor plans to expand its ADSL network in 2004. New investments in ATM infrastructure were implemented in 2003 and to date in 2004 and further investments are planned by year-end 2004 in order to accommodate the increasing traffic of the ADSL network and large enterprise networks.
Internet Protocol investments. The Guarantor is moving ahead to address the evolving telecommunications needs of both the corporate and carrier markets, offering competitive integrated solutions. Its strategy is to expand services to cover the full Internet value chain and to focus on the corporate and consumer market segments. To implement this strategy, the Guarantor will be rolling out a data/Internet Protocol-based portfolio of services and solutions on a multi-
107 service (Internet Protocol+ATM) platform. Currently, the Guarantor’s nationwide network consists of Internet Protocol and ATM points of presence, which are interconnected over leading-edge synchronous digital hierarchy systems with overlapped rings of fibre optic cable across Greece. The Guarantor’s IP/MPLS network offers IP connectivity solutions to enterprise customers and “pay-as-you-go Internet” service to Internet subscribers. The Guarantor plans to upgrade these service offerings to include VoIP technology (and to offer these services at more competitive prices). The Guarantor also plans to offer more IP-Dial-Access-Platform Services to providers and other VoIP services in the near future. Moreover, the Guarantor has established 14 nodes in its international wholly-owned asynchronous transfer mode/Internet Protocol data network, with presences in Athens, London, New York, Bucharest, Tirana, Sofia, Nicosia, Skopje, Thessaloniki, Frankfurt, Brussels, Milan, Paris and Amsterdam.
The Guarantor has developed a satellite digital platform, which currently offers broadband-based services (unicast and multicast multimedia data services), direct-to-home broadcasting services and digital television and radio distribution and contribution services via the Hellas Sat-2 and Eutelsat satellites.
Internet Services Investments
In 2004, OTEnet plans to upgrade and enhance its network, to develop existing and introduce new IT systems.
Data communications network. Investments in the data communications network include the Guarantor’s investments through Hellaspac and Hellascom.
International Telecommunications Infrastructure
In order to develop its position and to enhance its international network, the Guarantor plans to invest in international telecommunications infrastructure during 2004 to expand the capacity of its existing international exchanges, international fibre optic cable systems and satellite earth stations, as well as its points of presence in Europe, North America and Australia. Moreover, ArmenTel will continue to invest in its fixed line network and to expand its trunk network and to install digital switching facilities in major urban centres.
Information Systems
The Guarantor’s capital investment program also includes investments in order to: • expand the implementation of its enterprise resource planning system, which assists the Guarantor’s logistics and procurement, as well as other operations; • expand the functionality of the customer relationship management system in order to support more business processes in marketing, sales, e-commerce and customer service and support, especially the corporate customers; • develop an interconnect billing system; • develop a fraud system based on CDR analysis; • develop a first approach into the business intelligence area; and • improve the hardware infrastructure (servers and peripherals).
Athens 2004 Summer Olympic Games
The Guarantor’s overall investment in domestic infrastructure for the Athens 2004 Olympic Games was 110.9 million Euro as of 30 September 2004. The Guarantor’s Olympic-related investments in 2004 were focused on capacity upgrades of its trunk network linking the cities that hosted the fifty-
108 nine Olympic venues (Athens, Thessaloniki, Patra, Herakleion, Volos and Ancient Olympia) and interconnections between its trunk network and telecommunications equipment rooms inside the venues.
Other Capital Expenditures
The Guarantor’s capital investment program also includes non-network expenditures related to investments in payphones, tools and instruments, research and advisory services, mechanical equipment and transportation.
Funding
The Guarantor and COSMOTE expect to fund their capital expenditures and investments, for the most part through internally generated funds, mainly cash from operating activities. Similarly, the Guarantor expects that capital expenditures and investments by OTE’s other domestic subsidiaries will be self-financed. OTEnet expects to finance its investments through cash flows from operations and, where necessary, through a term credit facility established in February 2003. With the exception of Romtelecom, the Guarantor’s investment program for international operations for 2004 is expected to be largely self-financed or funded through project finance borrowings.
Control of Guarantor
The Guarantor’s Shareholders
According to Law 2843/2000, the Greek State’s equity interest in the Guarantor’s voting securities may not fall below one third of the share capital of the company. This minimum threshold may only be amended following a change in the law.
The Greek State currently owns 37.69 per cent. of the Guarantor’s issued shares. Hellenic Exchangeable Finance S.C.A., a special purpose vehicle having its seat in the Grand Duchy of Luxemburg, holds 10.96 per cent. of the Guarantor’s shares, which were transferred to it on 2 August 2001 by the Greek State.
In order to reduce its participation in the Guarantor, the Greek State has issued bonds convertible into shares. The issuer of such convertible bonds was not the Greek State itself, but a special purpose vehicle, established under the laws of the Grand Duchy of Luxemburg, operating under the trade name “Hellenic Exchangeable Finance S.C.A.”. The Greek State sold and transferred to such latter company out of the shares it owned in the Guarantor, by virtue of a share transfer agreement dated 2 August 2001, a total of 53,841,600 registered shares, equivalent to 10.96 per cent. of the Guarantor’s issued share capital as at the date of this Information Memorandum. Following consummation of that transfer, the participation of the Greek State in the Guarantor’s share capital was reduced to approximately 42 per cent. (from an initial 52.4 per cent. prior to the transfer) and the purchaser, Hellenic Exchangeable Finance S.C.A., issued bonds in an aggregate face value of Euro 1.0 billion, exchangeable into the Guarantor’s shares. The exchangeable bonds bear interest at the rate of 2 per cent. per annum and mature in 2005. Upon maturity, bondholders may elect to either exchange their bonds for shares in the Guarantor (among those previously transferred by the Greek State to Hellenic Exchangeable Finance S.C.A.) or to redeem their bonds and collect principal and interest on the bonds.
Hellenic Exchangeable Finance S.C.A., now the legal owner of 53,841,600 registered shares in the Guarantor, representing in aggregate 10.96 per cent. of the Guarantor’s issued share capital, has created a pledge on such shares in favour of Bankers Trust Company Limited, a U.K. entity, which acts as trustee for the bondholders. Bankers Trust Company Limited has been authorised to vote such shares in the Guarantor’s general assemblies of shareholders.
109 Furthermore, in July 2000, Hellenic Finance (No2) S.C.A. purchased 14,971,222 of the Guarantor’s shares from DEKA S.A. (the privatisation company of the Greek State) and issued exchangeable bonds in an aggregate principal amount of Euro 481 million due July 2004. These bonds matured on 28 July 2004 and were redeemed for cash. Consequently, Hellenic Finance (No2) S.C.A. exercised its put option and resold all of its OTE shares to DEKA S.A.
As of 30 May 2004, 180 registered holders of ADSs in the United States held approximately 24.5 million ADSs, representing approximately 2.5 per cent. of the Guarantor’s outstanding shares.
The Greek State as Customer
The Greek State is the Guarantor’s largest customer for telecommunications services. As of 31 December 2003, the Guarantor’s accounts receivable from state entities and organisations totalled approximately Euro 137.9 million.
The commercial relationship between the Guarantor, as supplier, and the Greek State and other state-owned enterprises, as customers, is conducted on a normal, arm’s-length customer and supplier basis. The Guarantor does not give the Greek State preferential customer treatment on the grounds that it is the Guarantor’s largest shareholder or a sovereign state.
The Greek State as Sovereign
Under existing Greek legislation, the Guarantor is required, as a Greek telecommunications enterprise, to satisfy the country’s telecommunications needs, on the condition that it provides an “appropriate return” to its shareholders. This term is not defined by Greek statutory law and has otherwise not been officially interpreted by Greek courts or administrative authorities. Under Law 2867/2000 (the “Telecommunications Law”), each telecommunications operator may provide universal service, or telephony services at reasonable prices to any user, regardless of the cost of such services for the provider, with any additional cost arising from the provision of universal service in excess of charges to consumers being reimbursed by the EETT from contributions by other telecommunications operators. The Guarantor, however, is exclusively obliged, under the Telecommunications Law and in conjunction with a decision of the EETT dated 4 October 2002, to provide universal service until 31 December 2005. The Guarantor cannot reassure you that the State will not extend this obligation for a further period after 1 January 2006.
Indebtedness Guaranteed by the Greek State
None of the Guarantor’s obligations is guaranteed by the Greek State.
Telecommunication Services Regulation
Overview
Pursuant to European Union and Greek law, as of 1 January 2001, the Greek telecommunications market is open to competition. The Guarantor is now operating within a competitive environment and subject to the requirements of the Telecommunications Law and the supervision of the National Telecommunications and Post Commission, or the EETT.
As is the case within the European Union, the Greek telecommunications market is operating in accordance with European Union regulations and under the framework of the World Trade Organisation pursuant to the General Agreement on Trade in Services, discussed below. The global regulatory environment for telecommunications, including the regulatory framework in Greece, has been evolving rapidly in recent years and is expected to continue to evolve in the future.
110 European Union Regulation
Greece is a Member State of the European Union and, as such, is required to follow European Union regulations and enact domestic legislation to give effect to European Union legislation that is adopted in the form of directives and decisions. Regulations have general application, are binding in their entirety and are directly applicable to all Member States. Directives and decisions are binding, but individual Member States may choose the form and method of their implementation. Resolutions and recommendations of the European Union are not legally binding but have political impact.
The Greek State’s ownership of a significant interest in the Guarantor’s share capital does not contravene European Union legislation. There is no Greek law or European Union legislation currently in effect requiring the Greek State to reduce its ownership in the Guarantor’s share capital at any future date. In fact, Greek law requires that the Greek State own at least one-third of the Guarantor’s share capital.
Starting in 1990 the European Union issued a series of Directives, which lead to the abolition of existing monopolies on, and permitted the competitive provision of, all telecommunications services. At the end of 1999, the European Commission initiated a review of the European Union’s electronic communications regulatory framework. The new framework subsequently adopted by the European Union consists of the following set of directives: • Directive 2002/19/EC on access to and interconnection of electronic communications networks and associated facilities (the “Access Directive”); • Directive 2002/20/EC on the authorisation of electronic communications network and services (the “Authorisation Directive”); • Directive 2002/21/EC on a common regulatory framework for electronic communications network and services (the “Framework Directive”); • Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services (the “Universal Service Directive”); and • Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic commerce sector (the “Directive on Privacy and Electronic Communications”).
This framework has been complemented by the European Commission with a number of decisions, recommendations and guidelines including the following: • Directive 2002/77/EC on competition in the markets for electronic networks and services; • Decision 2002/676/EC on a regulatory framework for radio spectrum policy in the European Community (the “Radio Spectrum Decision”); • Decision 2002/627/EC establishing the European Regulators Group for Electronic Communications Networks and Services; • Recommendation C 497/11.02.2003 of the Commission for the identification of those product and service markets within the electronic communications sector; the characteristics of which may be such as to justify the imposition of regulatory obligations (the “Recommendation”); and • Guidelines of the Commission for market analysis and the assessment of the significant market power, according to article 15 of the Framework Directive (the “Commission Guidelines”).
The above-mentioned directives, recommendations and guidelines are intended to:
111 • establish the rights, responsibilities, decision making powers and procedures of National Regulatory Authorities and the European Commission; and • identify specific policy objectives that National Regulatory Authorities must achieve in carrying out their responsibilities (namely promoting open and competitive European markets for communication services, promoting the interests of European citizens and consolidating the European Union’s internal market in a converging technological environment).
The new European Union regulatory framework for electronic communications introduces a procedure for the taking of measures by National Regulatory Authorities (in Greece, the EETT), according to which, when a National Regulatory Authority concludes that a specific relevant market of products and services is not effectively competitive within a specific geographic area, it shall identify entities with significant market power on that market and shall impose on such entities appropriate specific regulatory obligations as provided for in the Access Directive and the Universal Services Directive.
In conducting this analysis of the relevant markets, the National Regulatory Authority shall take utmost account of the Commission Guidelines and the Recommendation, in collaboration, where appropriate, with the national competition authorities.
The following is a list of the other principal elements of the new European Union regulatory framework for electronic communications: • the establishment of a right of appeal against the decision of a National Regulatory Authority; • the establishment of a consultation and transparency mechanism regarding the taking of measures by the National Regulatory Authorities; • the encouragement of the co-operation of the National Regulatory Authorities with each other and with the European Commission; • the right of the European Commission to request a National Regulatory Authority to withdraw a measure where it concerns a decision of a relevant market different from those defined in the Recommendation, or the designation (or non-designation) of entities with significant market power, and where such decisions would create a barrier to the common market or would be incompatible with European Union Law and, in particular, with the policy objectives that National Regulatory Authorities are supposed to follow; and • the new definition that is given to the term of “significant market power”; previously the term significant market power was defined primarily by whether an entity had a market share over 25 per cent. in the relevant market, whereas the new definition is equivalent to the concept of dominance, as defined in the case law of the Court of Justice and the Court of First Instance of the European Community regarding competition; more specifically, the definition states that “an entity shall be deemed to have significant market power if, either individually or jointly with others, it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers”.
The European Commission issued a recommendation on relevant product and service markets in February 2003. The recommendation identifies certain markets having characteristics which may justify the imposition of regulatory obligations.
National Regulatory Authorities were obliged to carry out market analyses on all appropriate communications markets, including those identified in the above-mentioned European Union recommendation and take, where necessary, the appropriate measures in order to tackle any competition concerns in the said markets. The European Commission will regularly review its recommendations.
112 Whether the new regulatory framework will increase or reduce the Guarantor’s regulatory burden will largely depend on the manner in which the directives are implemented in Member States, how the new framework will be applied by the European Commission and National Regulatory Authorities and how the newly established European Regulators Group, a body composed of representatives of National Regulatory Authorities (including the Guarantor’s regulator, the EETT) will influence the National Regulatory Authorities’ decisions.
In the context of the new regulatory framework, pressure is also rising to regulate wholesale broadband access as the European Commission has identified wholesale broadband access as a separate market.
The European Commission has set a deadline for the implementation of the new framework. All Member States were required to adapt national legislation implementing the first four Directives (the Access Directive, the Authorisation Directive, the Framework Directive and the Universal Service Directive) by 24 July 2003 with the exception of the Data Protection Directive, for which the implementation deadline was 31 October 2003. Greece did not meet either deadline and has not yet implemented the new framework. Thus, the European Commission has started infringement proceedings against Greece. The case is pending.
Regulatory Framework in Greece
The Telecommunications Law, Ministerial Decisions and Presidential decrees implementing European Union Directives currently define the framework for the regulation of the telecommunications sector in Greece.
The Telecommunications Law and the Current Regulatory Framework
In December 2000, in the light of full liberalisation of the telecommunications market in Greece, Law 2867/2000, or the Telecommunications Law, was enacted, modifying its predecessor statute (Law 2246/1994). The Telecommunications Law is brief and defines the principles of the regulatory framework for telecommunications in Greece, although it contemplates in its transitional provisions that certain provisions and supplementary statutes of Law 2246/1994, regulating issues of interconnection, conditions of access to open network provisions, and conditions of granting of general and special authorisations, should remain in force.
The Telecommunications Law defines the general principles for the organisation and operation of the Greek telecommunications sector, the goals of which are: • the protection of the interests of the consumers; • the development of free competition; • the protection of users’ personal data; and • the development of the telecommunications sector. According to the Telecommunications Law, the main guidelines on the policy on telecommunications are drawn by the Minister of Transport and Communications.
The Telecommunications Law also refers to issues of regulation of the telecommunications sector. An extended reference is made to the National Telecommunications and Post Commission, or the EETT, which is characterised as an independent regulatory authority, enjoying administrative and financial independence. Its nine members are appointed by virtue of a decision of the Minister of Transport and Communications for a term of five years.
The Telecommunications Law deals with issues relating to the award, amendment, revocation and suspension of general and special authorisations and defines the types of telecommunications services for which each licence is required, as well as issues relating to the numbering plan and management of the radio spectrum. In addition, it defines the rights of customers, users of
113 telecommunications services, and the respective obligations of the telecommunications services providers. Special reference is made to the particular obligations towards the EETT and the consumers of telecommunications services providers with significant market power.
The Guarantor is required to provide access to, and use of, public telecommunications networks and services. The pricing policy of telecommunications companies must be based on costs and designed to maintain a healthy competitive environment that is non-discriminatory and based on the gradual elimination of cross-subsidization between services offered.
In June 2003, the Ministry of Transport and Communications published a draft parliamentary bill incorporating into Greek law the Access Directive, the Authorisation Directive, the Framework Directive and certain other European Commission directives and invited the submission of comments from interested parties until 30 June 2003. The draft law is intended to replace the provisions of the Telecommunications Law, with limited exceptions. According to the draft law existing licences will remain in force until they are adjusted to reflect the new provisions, which must take place within 12 months of the enactment of the draft law. While this draft was not presented to Parliament, a new draft bill is expected to be presented to Parliament before the end of 2004 as European Union infringement procedures against Greece for non-transposition of the new framework are under way.
The Greek National Telecommunications and Post Commission or the EETT
One of the most significant changes introduced by the Telecommunications Law is the delegation of legislative powers to the EETT. The Telecommunications Law delegates to the EETT, in addition to its existing supervisory, advisory and rule-making competence, specific regulatory powers for the issue of regulations of statutory force, published in the official Government Gazette, including the competence to issue special licences, which are licences awarded to operators for services involving the use of scarce resources such as number or frequencies. A general authorisation is required for the provision of telecommunication services of any type, except for specific activities requiring the award of a special licence.
Any person or entity may file a declaration of registration with the EETT for the provision of telecommunications services. A declaration of registration has the force of general authorisation, unless objected to within a specified time period by the EETT on the grounds of non-compliance with specific terms and conditions imposed by the Telecommunications Law and the rules and regulations adopted by the EETT.
Under the Telecommunications Law, the EETT is empowered to impose administrative sanctions on telecommunications services providers, which infringe the provisions of the applicable telecommunications laws and regulations. These administrative sanctions may only be imposed by means of a decision based on specific reasoning and pursuant to a hearing of the violator before the EETT, and may range from a mere caution, to temporary or definite revocation of the violator’s licence, as well as the imposition of fines.
The Guarantor and other providers of telecommunications services may bring before the EETT disputes arising out of the provision of such services. The Guarantor may also appeal against the decisions by the EETT before the Greek administrative courts and the Council of State, the supreme administrative court in Greece.
By virtue of its statutory authorisation under the Telecommunications Law, the EETT has, to date, issued a series of decisions regulating a range of issues relating to the Greek telecommunications market, such as licensing, numbering, frequencies, and tariffs.
As discussed above, the Greek State is delinquent in meeting its obligation to transpose the provisions of several European Union Directives into domestic national law and a new draft bill addressing these obligations is expected before the end of 2004. The EETT’s power and discretion
114 may witness significant changes under the new regulatory framework that is expected to come into existence when the draft bill is eventually enacted into law.
The Guarantor’s Licence
The Guarantor’s licence, in accordance with the Telecommunications Law, sets forth the terms for the exercise of its telecommunications activities. The Guarantor’s licence was issued pursuant to the EETT’s Decision No. 229/26 of 9 October 2001.
Mobile Telephony
The Telecommunications Law and the Guarantor’s licence permit it to develop and provide mobile telecommunications services including personal communications services using GSM 1800 technology. The 2G licence was initially granted to the Guarantor and subsequently transferred to COSMOTE, pursuant to Law 2465/97 by way of a contribution in kind by the Guarantor, valued at Euro 47,973,069. The 2G licence has a duration of 25 years starting from 29 November 1995 and can be renewed pursuant to a resolution of the EETT. In August 2001, following a tender initiated by the EETT for the award of 2G and 3G licences, COSMOTE was awarded one of the three 3G licences (the other two were awarded to Vodafone and TIM, respectively). See “Description of the Guarantor – Mobile Telephony – COSMOTE.”
In December 2001, the EETT harmonised all 2G Special Licences including COSMOTE’s, pursuant to resolution number 240/28.12.2001.
Moreover, in March 2002, the EETT approved the transfer to COSMOTE of the Guarantor’s fixed wireless access licence in the 25GHz frequency band for a price of Euro 9.5 million (which included both the price paid by the Guarantor for this licence in December 2000 and respective capitalised interest during that period). This transfer was also approved by the extraordinary general assembly of COSMOTE shareholders on 21 February 2002.
In August 2002, following a tender initiated by the EETT, COSMOTE was awarded the use of 2X5MHz of spectrum in the EGSM 900 spectrum band for 2G mobile telecommunications services (2G) for Euro 38.2 million, the reserve price for such GSM spectrum as set by the EETT in accordance with applicable regulations.
In October 2002, following an application of COSMOTE to the EETT, COSMOTE was granted a special authorisation for the use of spectrum zone 2.4GHz and the provision of W-LAN Public Mobile Communications Services.
As discussed in greater detail above, in October 2003, COSMOTE was granted the temporary right to use in Attica, additional spectrum 2x5 MHz in the DCS 1800 frequency band.
Television Law
The Guarantor’s satellite digital platform provides, among other services discussed above, digital television and radio distribution and contribution services via the Hellas Sat-2 and Eutelsat satellites; the following laws are applicable to the regulation of such services.
Law 2328/1995, or the Television Law, has been amended by a series of statutory provisions in order to implement European Union directives requiring the liberalisation of pay radio and pay television services in Greece. The amended Television Law abolished the exclusivity of the rights: • to develop, install, exploit and manage any microwave multipoint distribution systems, for radio and television signals, • to develop, install, exploit and manage any kind of transmission infrastructure for a cable television network, and
115 • to provide cable television services, including the distribution of television programs via cable, which right had previously been granted exclusively to the Guarantor and ERT, the Greek State television network.
Law 2644/1998 provides for subscriber television and radio television services.
World Trade Organisation
At the end of the Uruguay Round of negotiations in 1994, ministers of some 130 countries agreed to set up the World Trade Organisation, or WTO, covering both trade in goods and, for the first time, services. The result was the General Agreement on Trade in Services, which includes the telecommunications sector.
During the same year, several Member States of the WTO started negotiations on an agreement for the liberalisation of basic telecommunications services. On 15 February 1997, these negotiations resulted in the first multilateral agreement for the global telecommunications services market when 68 members of the WTO, including Greece, agreed to open their markets to competition in basic telecommunications services from specified dates. This agreement requires WTO members to allow foreign telecommunications service providers to offer their services in any member country as well as to buy shareholdings in telecommunications enterprises of that member country.
International Telecommunications Union
Greece is a member of the International Telecommunications Union, or ITU. The ITU is responsible for establishing the accounting and settlement regime within which member countries’ Telecommunications Organisations account to, and settle with, each other for the termination of international calls. The ITU is currently reconsidering the accounting rate regime to take into account developments in international telecommunications, which have resulted in disparities between the rates charged for the termination of international calls and the costs to the terminating operators of completing such calls. Nevertheless, certain member countries, including the United States, are pursuing unilateral changes to the accounting and settlement regime.
The Guarantor’s Regulatory Policy
In view of the evolving regulatory environment, the Guarantor seeks to: • lobby for the highest degree of regulatory certainty in the new draft bill with maximum importance given to the return of investments, as the Guarantor is the most significant player in this respect; • strengthen its relations with the European Union and international bodies such as ETNO (European Telecommunication Network Operators) and ETP (European Telecommunications Platform); and • improve its relations with the EETT.
Competition Law
The Guarantor is subject to the general European Union and Greek competition legal framework and to special provisions, regulations and directives relating specifically to telecommunications.
The main principles of the European Union competition rules are stipulated in Articles 81 and 82 of the EC Treaty. These European Union competition rules have the force of law in member states and are therefore applicable to the Guarantor’s operations in Greece. Article 81 prohibits collusive behaviour between competitors which may affect trade between member states and which restricts, or is intended to restrict, competition within the European Union. Article 82 prohibits any
116 abuse of a dominant market position within a substantial part of the European Union that may affect trade between Member States. These rules are enforced by the European Commission in cooperation with the national competition authorities, in the case of Greece, the Competition Committee together with the EETT for the telecommunications sector. In addition, the Greek national courts have jurisdiction to determine violations of European Union competition law.
The European Union has adopted further measures in order to protect competition in the telecommunications sector through the issuance of Directive 99/64/EC relating to the legal separation of the joint provision of telecommunication and cable television networks by a single operator.
The basic provisions of Greek competition law are set out under Law No. 703/77 for the “Monitoring of Monopolies and Oligopolies and Protection of Free Competition”, as amended, in order to implement relevant European Union regulations, and is referred to as the “Competition Law”.
The Competition Law prohibits collusive practices, including direct or indirect price fixing, restriction or control of production, distribution, technological development or investments, or market or supplies allocation, and the abuse of a corporation’s dominant position or financial dependence on it of another corporation. Such practices are prohibited, without requiring a prior decision of the competent administrative authority. The Competition Committee together with the EETT for the telecommunications sector are the independent administrative bodies responsible for monitoring and enforcing the application of the Competition Law, including through the imposition of fines.
The exclusive or concurrent jurisdiction and competency of the two above institutions to apply and enforce the provisions of the Competition Law, which are not clearly defined in the relevant legislation, have not yet been determined by any competent court. Currently, the Competition Committee, in applying the provisions of Competition Law, imposes fines expressed in lump sums. Although the application of a fine on a percentage basis computed on an infringer’s turnover, up to 15 per cent. of the annual turnover of the infringer in the relevant sector, is permissible by law, in one recent case, the Competition Committee imposed a penalty computed on the basis of an infringer’s entire annual turnover. However, even in that case, the imposed penalty represented only a small portion of the maximum percentage envisaged by Greek Competition Law.
In addition, the Greek administrative courts have jurisdiction over appeals lodged from decisions of both of the above-mentioned administrative bodies.
Greek Capital Market Regulation
The principal trading market for the Guarantor’s shares is currently the Athens Exchange. In operation since 1880, the Athens Exchange was upgraded as of 31 May 2001 from an emerging to a developed market status by the Morgan Stanley Composite Index. Initially a société anonyme fully owned by the Hellenic Republic, on 29 March 2000, the Athens Exchange was transferred to a holding company, “Greek Stock Exchange Holdings SA”, which also then held a controlling share in the Athens Derivative Exchange and the Athens Central Depositary. The Athens Exchange and the Athens Derivative Exchange merged in 2002. The Greek Stock Exchange Holdings SA has now been fully privatised, with several Greek banks and securities brokers each holding a substantial equity share, and the shares of these entities themselves have been listed on the Athens Exchange since 21 August 2000. As at 30 June 2004, 353 companies had their shares listed in the Main, Parallel and New markets of the Athens Exchange (the total number of listed issues including preferred shares was 382). Aggregate market capitalisation was Euro 83.3 billion. Transactions relating to shares listed on the Athens Exchange are carried out exclusively by its members. Greek law now allows remote members as well as companies other than securities brokerage firms to become members of the Athens Exchange. The outstanding regulatory functions of the Athens Exchange have been transferred to the Hellenic Capital Market Commission pursuant to Law 3152/2003.
117 Provision of brokerage services by Greek legal entities and membership in the Athens Exchange are subject to licensing by the Hellenic Capital Market Commission, an independent public entity operating under the supervision of the Ministry of National Economy. The Hellenic Capital Market Commission is also charged with supervision of all parties involved in the capital markets industry, including stock and derivative exchanges, securities brokers, mutual funds management companies and listed companies with the entire capital markets regulatory framework, established by a series of laws, a large proportion of which is actually transposition of European Union legislation in Greece, as well as regulations and resolutions issued by the Ministry of Economy and Finance, the Board of Directors of the Athens Exchange and the Capital Market Commission itself. Thus, apart from a licensing and supervision authority, the Capital Market Commission is also a decision-making body, whose main objective is to promote the establishment of sound conditions for the operation of the capital markets in Greece and to enhance public confidence both in the quality of supervision and in market behaviour. To this end, the Capital Market Commission is empowered to introduce binding rules, regulations and measures as well as to issue instructions and guidelines on compliance procedures applicable to all the parties involved in the capital markets industry, including comprehensive codes of conduct, in order to set the general terms and conditions governing the organisation and operation of Greek capital markets. Furthermore, the Capital Market Commission has the authority to impose administrative sanctions upon an infringement of capital markets law as well as to notify the prosecution authorities in cases where it considers that financial law violations, also punishable under criminal law, have been committed.
The Capital Market Commission issued Decision No. 5/204/14.11.2000, which determines the code of conduct of companies listed on the Athens Exchange. The aforesaid Decision 5/204/2000 regulates and sets the obligations of listed companies as well as those of their major shareholders, members of their Boards of Directors, other officers and related parties. Listed companies are under an obligation to timely inform the public of all events which had or expected to have a material effect on their business, financial condition or general prospects. All public statements must be addressed to the Athens Exchange and until such time the notifying listed company is under an obligation to keep the relevant information confidential. In accordance with the aforesaid Decision, major shareholders in listed companies are also under an obligation to inform the public of future acquisitions or disposals of company shares. Listed companies are also under an obligation: to inform the public of future acquisitions or disposals of company shares by its major shareholders; to incorporate an adequate system of internal regulatory by-laws; to set up and operate an internal regulatory department responsible for the supervision of the incorporation of such regulatory by-laws; to set up and operate a shareholder services and information department and an adequate information system on which notices and statements pertaining to the company are posted; and to issue an annual report, accessible to the public, with the aim of adequately informing the public and the supervision authorities about the company’s annual activities as well as any major changes that occurred in the relevant financial year.
Legal Proceedings
The Guarantor is party to various litigation and claims arising during the normal course of business. A reserve of Euro 37.1 million has been provided as of 31 December 2003 in relation to litigation and claims. The Guarantor does not expect that these outcomes, individually or in the aggregate, will have a material adverse effect on its results of operations and cash flows.
Regulatory Matters
On 14 February 2003, the EETT imposed a fine of Euro 0.3 million on COSMOTE (and Vodafone) pursuant to its decision of March 2002 designating COSMOTE and Vodafone as organisations with significant market power in the mobile market, according to the provisions of the Interconnection Directive. On 24 April 2003, COSMOTE applied to the Council of State seeking the annulment of this fine. A hearing is scheduled for 5 April 2005.
118 Furthermore, in February 2003 the EETT issued a decision designating COSMOTE, the Guarantor and Vodafone as organizations with significant market power in the interconnection market in Greece pursuant to the Interconnection Directive. The Guarantor has filed before the Council of State an application for the annulment of this decision. The hearing was scheduled for 16 March 2004, but was postponed until 5 April 2005. The case is pending.
The Guarantor has filed a petition before the Council of State against the EETT’s decision concerning the reference interconnection offer for 2002 and the hearing date has been set for 22 February 2005. The Guarantor has also filed a petition before the Council of the State against the EETT decision concerning the 2003 reference interconnection offer and a hearing is scheduled for 22 February 2005.
In January 1999, Forthnet filed a petition before the Athens Civil Court of First Instance against the Guarantor claiming approximately Euro 0.3 million for alleged damages incurred by it due to alleged tort liability, infringement of competition and telecommunications law and a policy of discrimination in favour of OTEnet. The decision on that civil suit has been postponed pending the decision of the Council of State on the Guarantor’s petition for annulment of the aforementioned EETT decision, by which the EETT imposed a fine of approximately Euro 0.2 million on the Guarantor. A hearing concerning this petition has been scheduled for 22 February 2005. Forthnet has also filed a civil claim before the Athens Civil Court of First Instance claiming the total sum of approximately Euro 26.7 million for alleged damages incurred by it due to loss of customers as a result of the Guarantor’s allegedly discriminatory policy in favour of OTEnet. The hearing of this application is currently scheduled for 11 November 2004.
On 31 March 2003, the Guarantor adjusted its tariffs for leased lines and data communications and introduced a new discount package for its corporate customers. The EETT did not approve the proposed new tariffs for leased lines and data communications. However, in the interests of competition the EETT permitted the Guarantor to implement such new tariffs, notwithstanding that it did not provide sufficient proof regarding cost-orientation. If a third party disputes the cost- orientation of the new tariffs, the Guarantor would be obliged to provide sufficient proof of cost- orientation. By virtue of a decision dated 20 December 2002, the EETT imposed a penalty of Euro 1.5 million and sought to oblige the Guarantor to improve the leased lines costing system so that the total costs of leased lines (which are approved by the EETT) can be allocated to the individual lines in another way. The Guarantor has filed a petition before the Council of State seeking the annulment of this decision and the hearing in this matter is currently scheduled for 5 April 2005. The Administrative Court of First Instance did not accept the Guarantor’s petition to defer payment of this fine pending resolution of the issue by the Council of State and accordingly the Guarantor has paid this fine. In the meantime, the Guarantor has developed a more comprehensive costing methodology for leased lines, which, although submitted to EETT during the audit of the Guarantor’s old ECOS system (carried out during August-November 2003), was not considered by the auditors allegedly because of lack of time due to late submission by the Guarantor. The Guarantor has incorporated this methodology to its new ECOS system, improving the allocation of total leased lines cost to individual lines and satisfying more effectively the cost causation principle. The Guarantor considers that the tariff policy cost will be adjusted to reflect the finding of the leased lines costing system, since, based on its recent experience of leased lines costing systems, the cost of analogue lines was increasing while the cost of digital lines was falling.
In late December 2003 and January 2004, the EETT issued a number of decisions imposing new lower tariffs for retail services, wholesale leased lines and mandating the use of current rather than historic cost bases, effecting a radical change in the methodology of cost allocation on which the average costs for retail and wholesale leased lines are calculated. The Guarantor has filed a petition before the Council of State seeking the suspension and the annulment of these decisions. The hearing regarding the suspension of these decisions has not yet been scheduled and the hearing for their annulment has been set for 5 April 2005. In addition, on 5 July 2004 the Guarantor filed a complaint with the European Commission against the EETT for failing to comply with the
119 new European Union regulatory framework for electronic communications, European Commission competition rules and general principles of European Union Law.
On 27 March 2003, the Guarantor announced major reductions in tariffs for domestic long distance calls made on a Sunday and the introduction of tailored discount packages offering significant reductions on international call rates, in each case to take effect from 12 May 2003. As a result of effecting these reductions to such calls, the EETT instituted interim measures against the Guarantor to prohibit such reductions. The Guarantor has appealed this decision to the Administrative Court of Appeal. A hearing scheduled for 10 June 2004 was postponed and a new hearing date was scheduled for 20 January 2005. The EETT also imposed a fine of Euro 0.1 million against the Guarantor for offering the package without pre-approval. The Guarantor has filed a petition against this decision with the Council of State and a hearing is scheduled for 22 February 2005.
Vodafone has filed a formal complaint with the EETT alleging that the Guarantor infringes the provisions of the Interconnection Directive, to the extent that it does not treat them equally with COSMOTE in offering them co-locations in fixed facilities. A formal hearing has been held, and the Guarantor has requested time to submit written briefs after its Board of Directors has had an opportunity to discuss and adopt a resolution concerning co-locations in fixed facilities for unaffiliated mobile operators. By means of resolutions adopted in 2000 and 2001, the Board of Directors resolved to permit co-location for unaffiliated mobile operators, as well as fixed wireless access operators, under certain terms and conditions specified in these resolutions. No decision has been issued by the EETT in relation to this matter to date. In connection with this dispute, TIM has filed a complaint with the European Commission, which has not yet responded to such complaint.
Other Proceedings
The Romanian Competition Council imposed a fine on Romtelecom, which initially amounted to approximately Euro 23.6 million, for an alleged violation by Romtelecom of the provisions of the Romanian competition law. Romtelecom filed an appeal before the Competition Council and the fine was reduced to approximately Euro 11.8 million. As a procedural matter, a ruling in this type of case by the Romanian Competition Council has two separate elements; a ruling on the merits of the case itself, and if appropriate, a decision setting out the appropriate sanction. Romtelecom has appealed both the decision regarding the findings in relation to competition law and the decision regarding the fine levied. The status of the cases is as follows: • on 4 March 2003, the Romanian Supreme Court suspended the case concerning the fine (and any payment due there under) until such time as any appeals concerning the merits of the alleged violation of competition law have been decided; and • on 12 December 2002, the Romanian Court of Appeals rejected Romtelecom’s appeal on the merits of the alleged violation of competition law. Romtelecom appealed this decision to the Romanian Supreme Court. On 22 May 2003, the Romanian Supreme Court held its first hearing concerning the merits of the case. At that hearing, the case was postponed until 6 November 2003 in order to allow the Romanian Competition Council to file a defence. The High Court of Justice ruled on 11 March 2004 in favour of the Competition Council, thus rejecting Romtelecom’s appeal.
The High Court of Justice has not yet delivered a written decision with respect to its ruling on 11 March 2004 and therefore the Guarantor is not in a position to comment on the availability of any extraordinary means of appeal against this decision.
The fine of Euro 11.8 million has not been paid yet and the payment obligation remains suspended until such time when the Supreme Court makes a ruling regarding such fine. The next hearing of the Supreme Court was scheduled for 14 December 2004.
120 Piatra Neamt Local Council, a local authority in Romania, claimed that Romtelecom must pay approximately 2.5 million Euro as local taxes and penalties. Romtelecom challenged the decisions of this local authority and is awaiting for a response to its submission.
The District Attorney of Athens is conducting a preliminary inquiry in order to ascertain whether there are any grounds to press criminal charges against individuals with regard to the financing of the Guarantor’s international investments in Romania. The Guarantor will cooperate with the District Attorney in relation to this investigation and provide any information requested.
On 28 December 2002, Telecom Italia Spa (“Telecom Italia”) forwarded to the Guarantor a copy of an offer made to Telecom Italia by the Serbian PTT, for the acquisition by the latter of Telecom Italia’s shareholding in Telecom Serbia, in order to give the Guarantor the opportunity to elect whether or not to exercise its right of first refusal to purchase Telecom Italia’s shareholding in Telecom Serbia. In addition to the aforementioned letter, an announcement by the Minister of Telecommunications of Serbia was forwarded to the Guarantor stating that the Serbian Government was exercising a veto over the Guarantors right to purchase Telecom Italia’s shareholding in Telecom Serbia. In February 2003, Telecom Italia and the Serbian Government executed a share sale and purchase agreement. In response to these developments, on 26 May 2003 the Guarantor initiated international arbitration proceedings in accordance with UNCITRAL rules and served arbitration notices on: • Telecom Italia based on what the Guarantor views as breaches of the cooperation agreement entered into between Telecom Italia and the Guarantor dated 4 June 1997. The Guarantor’s arbitration statement of claim seeks to (i) declare null and void the transfer of Telecom Italia’s 29 per cent. stake in Telecom Serbia to PTT, (ii) place these shares in sequestration until definitive settlement of the dispute, and (iii) obtain compensation for the damages the Guarantor has incurred as a result of such breach; • PTT, Telecom Italia International N.V., Telecom Italia SpA and Telecom Serbia based on what the Guarantor views as breaches of the shareholders agreement between PTT, Telecom Serbia, Telecom Italia International N.V. and the Guarantor dated 9 June 1997. The Guarantor’s arbitration statement of claim seeks the same remedies as above; and • Telecom Serbia based on the outstanding liabilities owed to the Guarantor pursuant to a Euro 12.5 million shareholders loan agreement dated 19 November 1997, as amended on 15 August 1998 among Telecom Serbia, the Guarantor and Telecom International, which have not been discharged. The Guarantor’s arbitration statement of claim requests that Telecom Serbia be ordered to pay debts under this shareholders loan amounting to Euro 12,491,620, plus interest and penalties as well as management fees amounting to Euro 28.6 million.
Pursuant to an agreement among all of the above-mentioned arbitration parties, the above three arbitration claims shall be adjudicated before a single arbitration court, which shall consist of three arbitrators with the proceedings to be held in Zurich, Switzerland. The arbitrators have been appointed and the Guarantor expects that the proceedings will commence in 2005. On 20 September 2004, OTE, Serbian PTT and Telecom Serbia entered into an agreement providing, among other matters, that OTE agrees to suspend until 31 March 2005 the pending arbitrations against the defendants and subsequently withdraw them if certain conditions are met, including the execution and entry into effect of a new shareholders agreement and Articles of Association for Telecom Serbia and the repayment of all outstanding interest on the loan as rescheduled.
In addition, the District Attorney of Athens and respective authorities in Italy and Serbia have undertaken a preliminary inquiry in order to ascertain whether there were any grounds to press criminal charges against individuals with respect to the Guarantor’s and Telecom Italia’s investment in Telecom Serbia. The Guarantor will cooperate with the District Attorney and provide any information requested.
121 By virtue of a series of decisions of the Athens Administrative Court of Appeals, the Guarantor was discharged from liability for stamp duty, surcharges, penalties and interest amounting to approximately Euro 27.9 million that was assessed against it by the Greek tax authorities for the period 1982-1992. However, the competent tax authority has appealed against the decision before the Council of State. After a series of postponements, the Council of State held a hearing on 28 April 2004. At the hearing, the judge – rapporteur delivered his oral opinion in the Guarantor’s favour, but no written decision by the full court has been issued yet and no assurances can be given that the decision will be in the Guarantor’s favour.
Econophone (Hellas) S.A. and its parent Caesar Management Limited filed a petition before the Athens First Instance Court claiming approximately Euro 1.224 billion in damages and economic losses allegedly caused as a result of the Guarantor’s termination of interconnection agreements between the Guarantor and Econophone, the alleged refusal to perform certain duties under access agreements and the alleged overcharging of Econophone by the Guarantor. A hearing is scheduled for 10 February 2005. The Guarantor believes, and is so advised by its legal counsel, that Econophone’s claim is difficult to prove and, therefore, it is unlikely to be accepted in court and the Guarantor intends to contest this case vigorously. However, an adverse outcome to this case could have a material effect on the Guarantor’s business, financial condition and results of operations.
On 11 June 2004, Vitals, Inc. and Victor Shtatnov brought a lawsuit against Econophone, Equant, a French telecommunications company, and the Guarantor in the State of Philadelphia for compensatory damages in excess of US$50,000 plus interest, claiming breach of contract by Econophone and tortuous interference by the Guarantor with the Vitals/Shtatnov and Econophone contracts through termination of Econophone's access to telephone equipment, lines and switches. Econophone has asserted a cross claim against the Guarantor. The Guarantor has objected to the plaintiffs' claim and Econophone's cross claim and filed motions to dismiss the action on the grounds of lack of personal and subject matter jurisdiction.
The Guarantor is currently owed approximately Euro 7.29 million (exclusive of interest) by Econophone and expects to issue proceedings in the near future seeking the recovery of such amounts plus costs and interest.
The Guarantor and OTEGlobe filed a lawsuit against Greek Telecom claiming approximately Euro 1.56 million in unpaid leased line fees. A hearing for this case before the Court of First Instance has been set for 26 January 2006.
Subsequently, Greek Telecom filed a lawsuit against the Guarantor before the Athens First Instance Court claiming approximately Euro 45.39 million in damages, due to alleged breach of contractual obligations arising out of disconnection of telecommunications services. A hearing is currently scheduled for 20 January 2005.
In 2000, the Government of the Republic of Armenia (the “GoA”) commenced arbitration proceedings against the Guarantor before the International Court of Arbitration of the International Chamber of Commerce, in relation to the alleged non-fulfilment by the Guarantor of its investment obligations as these were prescribed in the share purchase agreement, which took effect in March 1998, pursuant to which the Guarantor purchased 90 per cent. of the shares in ArmenTel. (The GoA currently holds the remaining 10 per cent. of shares in ArmenTel.) The Guarantor has disputed the alleged non-compliance with its investment obligations and the GoA has stated that it is withdrawing its claims. The Guarantor has filed counterclaims against the GoA alleging, among other things, various breaches by the GoA of the terms of the share purchase agreement and a telecommunications licence issued by the GoA to ArmenTel within the framework of the share purchase agreement, under which ArmenTel was granted a 15-year monopoly for, among other things, the provision of fixed line and mobile telephony services in Armenia. Among other things, the Guarantor has alleged that the GoA, in breach of the terms of the licence, has allowed companies other than ArmenTel to provide services in respect of which ArmenTel was granted monopoly status, has prevented ArmenTel from implementing time-based tariffs for its fixed line
122 telephony services and has failed to protect ArmenTel’s property. The arbitration proceedings are currently pending and the hearing on the merits has been scheduled for March 2005.
On 16 December 2003, ArmenTel commenced separate arbitration proceedings against the GoA before the International Court of Arbitration of the International Chamber of Commerce, alleging breaches by the GoA of the terms and conditions of ArmenTel’s telecommunications licence, similar to those alleged by the Guarantor in its counterclaims against the GoA. The GoA has opposed ArmenTel’s claims. The arbitration proceedings are currently pending.
On 18 December 2003 the GoA filed a claim against ArmenTel in an Armenian court seeking to prevent ArmenTel from announcing the adoption of time-based tariffs for its fixed line telephony services. The Armenian court rendered a judgment in favour of the GoA, which judgment has been upheld on appeal. As a result, ArmenTel is currently unable to implement time-based tariffs for its fixed line telephony services. ArmenTel is currently considering further available courses of action, including the feasibility of lodging a complaint against the GoA with the European Court of Human Rights.
On 30 March 2004, the GoA made a decision to substantially amend ArmenTel’s licence with effect from 1 July 2004. Among other things, the proposed amendment would have deprived ArmenTel of its exclusivity in the Armenian mobile telecommunications sector, would have given the GoA the authority to grant fixed telephony licences to companies other than ArmenTel in respect of areas for which ArmenTel has been granted exclusivity if the GoA “decides” that ArmenTel has provided inadequate service and would have imposed on ArmenTel obligations which are difficult or impossible to comply with, including the obligation to digitalise a large number of villages by the end of 2004 and to fully satisfy demand for telecommunication services however high or unforeseeable such demand may be, within 30 days of such demand arising.
On 28 June 2004, the GoA, the Guarantor and ArmenTel jointly announced the commencement of negotiations with a view to settling all outstanding disputes between the parties and the GoA made a decision to suspend the amendment ArmenTel’s licence until 28 September 2004 to facilitate the conduct of the negotiations. Since then, the parties have mutually agreed to extend this deadline in order to continue the negotiations for a settlement.
During 2001, an Armenian bank, Haycap Bank, with which ArmenTel had deposited U.S.$ 4.8 million, was placed under a conservatorship program. It is uncertain whether ArmenTel’s funds will be recovered. This amount has been fully provided for in the Group’s consolidated financial statements. Nevertheless, in order to recover its funds, ArmenTel has initiated a series of actions, including discussions with Haycap Bank’s creditors and legal measures intended to help secure ArmenTel’s position within the framework of Haycap Bank’s conservatorship program proceedings.
The Guarantor is suing two of its suppliers, Intracom S.A. and Siemens, in disputes involving the supply of telecommunications equipment. In 1992 and 1993, the Guarantor invited tenders for the supply of telecommunications equipment. Because of various delays in finalizing the outcome of the tenders and the need to obtain equipment, the Guarantor ordered and received equipment from Intracom and Siemens. The Guarantor accepted and paid for the equipment on the understanding that, in the event that the tenders were awarded to these suppliers and the price agreed upon on award of the contract was lower than the price then being paid for the equipment, Intracom and Siemens would reimburse the Guarantor for any difference in price in free equipment and services. Tenders were in fact awarded to these suppliers and the contract price lower than the price for which the equipment was being supplied. The Guarantor sought to reclaim the difference, which amounted to approximately Euro 32.3 million, and when these suppliers refused to reimburse this amount in free equipment and services, the Guarantor initiated proceedings on 26 September 1994, in the Athens Civil Court of First Instance, seeking such reimbursement. Proceedings have reached the stage of witness examination but are not expected to be resolved in the near future.
123 On 4 December 2003, Intracom S.A. and Intrarom S.A. commenced arbitration proceedings before the International Court of Arbitration of the International Chamber of Commerce against the Guarantor, OTE International Investments Limited, Romtelecom and Romtelecom’s Romanian mobile subsidiary, Cosmorom. In these proceedings, the plaintiffs are seeking to recover from the respondents an amount in excess of Euro 156,358,968.8 (Euro 107,932,667.8 to Intracom S.A. and Euro 48,426,301 Euro to Intrarom S.A.) allegedly due to the plaintiffs pursuant to a 1999 contract made between the claimants and Ericsson Radio Systems AB (collectively, the “Union of Suppliers”) on the one hand, and Cosmorom on the other, pursuant to which the Union of Suppliers undertook to design and supply equipment for Cosmorom’s mobile telecommunications network in Romania. Cosmorom has disputed the amount of the claim, has made counterclaims against the plaintiffs and requested that Ericsson be joined as a party to the arbitration proceeding. The court has ruled in favour of Cosmorom on the latter request, ordering that Ericsson be joined as a party. The plaintiffs named as respondents Romtelecom, OTE International, and the Guarantor in the proceedings, despite the fact that none of those entities are signatories to the underlying agreement containing the arbitration clause, on the basis of a theory that all the respondents together constitute an “undivided economic reality”, and that the Guarantor allegedly had an obligation to fund Cosmorom but had failed to do so and that the Guarantor allegedly gave an “impression” to the Union of Suppliers that it guaranteed Cosmorom’s obligations under the contract. The Guarantor strenuously denies any liability to the plaintiffs and the jurisdiction of the ICC over them in this matter and will vigorously defend the claim. On 28 May 2004, the court ruled that proceedings shall proceed against the Guarantor, Cosmorom, Romtelecom and OTE International and that Ericsson Radio Systems AB be joined as a party to the arbitration. The arbitral tribunal, once it has been constituted, will have to make an independent determination as to whether it has jurisdiction, the issue being whether there is an agreement to arbitrate that binds the Guarantor, Cosmorom, OTE International, and Romtelecom. The proceedings are pending.
On 7 March 2000, the Guarantor entered into a memorandum of understanding with Alpha Digital Synthesis S.A., a Greek company licensed to provide subscriber television services in Greece, and Hellenic Radio and Television Broadcasting S.A., or ERT, the Greek publicly owned television radio broadcaster, for the creation of a jointly controlled entity in Greece that would operate as a subscriber television network supported by the Guarantor’s digital platform. On 3 January 2002, Alpha Digital Synthesis S.A., filed a law suit against the Guarantor before the Athens Court of First Instance, claiming the amount of Euro 55.5 million for alleged damages incurred by it due to an alleged breach by the Guarantor of the terms of the respective memorandum of understanding. Alpha Digital Synthesis S.A. has withdrawn this suit and, in accordance with the terms of the memorandum of understanding, it submitted a request for arbitration according to the Greek Civil Procedure Code on 7 May 2003 claiming an amount of approximately Euro 254.23 million. The arbitration proceedings commenced on 27 April 2004. Written submissions were made on 25 May 2004 with responses submitted by 8 June 2004. The Guarantor is awaiting the decision of the Court.
In addition to the claim of Alpha Digital Synthesis S.A., on 14 May 2002, ERT filed a separate law suit against the Guarantor before the Athens Court of First Instance, claiming the amount of Euro 42.9 million for alleged damages incurred by it, again due to an alleged infringement by the Guarantor of the terms of the same memorandum of understanding. The case is scheduled to be heard on 21 April 2005.
On 26 November 2002, ERT filed a second claim against the Guarantor claiming the amount of approximately Euro 1.467 million by way of damages allegedly suffered by ERT as a result of alleged interruption of service attributable to the Guarantor. The hearing is currently scheduled for 2 July 2007.
Based on a share purchase agreement dated 11 December 2001, the Guarantor sold and transferred to Piraeus Financial Leasing S.A., a member of the Piraeus Bank group, its shares in its subsidiary OTE Leasing S.A., a licensed financial leasing company operating in Greece. After the share purchase agreement had been signed, OTE Leasing S.A. changed its name to P.
124 Financial Leasing S.A. and Piraeus Financial Leasing S.A. and P. Financial Leasing S.A. merged. Pursuant to the terms of the share purchase agreement, the Guarantor assumed an undertaking to reimburse Piraeus Financial Leasing S.A. for revenue shortfalls arising out of credit defaults of the then existing customers of OTE Leasing S.A. at any time during the three years following execution of the share purchase agreement, up to a maximum amount of Euro 28.0 million, net of any amounts received by the Guarantor through collection of claims against debtors in cases where the Guarantor’s rights are subrogated to Piraeus Financial Leasing. The share purchase agreement provides a specific mechanism for the activation of the Guarantor’s undertaking and the identification of eligible delinquent payment cases. In addition, it has been agreed that in those cases where the Guarantor is under an obligation to make up for the credit losses of OTE Leasing S.A., it shall be subrogated to the rights of Piraeus Financial Leasing S.A. and may pursue debtors independently to recover its payments. Piraeus Financial Leasing S.A. has served various notices on the Guarantor, requesting payment of the aggregate amount of Euro 31.07 million with regard to unidentified credit losses. The Guarantor has reviewed the matter with counsel and, to date, has reimbursed Piraeus Financial Leasing S.A. a total amount of approximately Euro 26.9 million in final settlement of 107 out of the 173 cases cited in notices from Piraeus Financial Leasing S.A. 66 claims remain outstanding in respect of which the aggregate amount claimed by Piraeus Financial Leasing S.A. is approximately Euro 4.0 million.
Telepassport, a Greek fixed-line telephony services provider, filed a lawsuit against the Guarantor before the Athens First Instance Court claiming an amount of 28.5 million Euro, because of the Guarantor's delay in providing leased lines to Telepassport. A hearing is scheduled for 8 December 2004.
The Guarantor is involved in three disputes relating to franchise agreements for its retail telecommunications equipment outlets. Helias Koutsokostas & Company Limited Partnership filed a lawsuit against the Guarantor claiming alleged damages in the amount of Euro 7.8 million. The hearing is scheduled for 23 October 2005. The Guarantor has terminated the franchise agreement and intends to file a new lawsuit against this company. In another franchise case, K. Prinianakis S.A. filed a lawsuit against the Guarantor alleging Euro 10.9 million in damages. The hearing is scheduled for 27 January 2005. A payment order in favour of the Guarantor and against K Prinianakis S.A. has been issued for the amount of Euro 361,419. K. Prinianakis S.A. has filed proceedings against the payment order. The Guarantor has terminated the franchise agreement intends to file a new lawsuit against this company. In the third case, DEP INFO LTD has filed a lawsuit against the Guarantor, alleging Euro 6.9 million in damages. The Guarantor has filed its own lawsuit against this company claiming Euro 1.7 million in damages. Both hearings are scheduled for 9 March 2006.
On 6 November 2001, the Holy Cross and Patriarchical Monastery of the Prophet Elijah filed a petition before the Athens Court of First Instance against the Guarantor and COSMOTE claiming approximately Euro 1.05 million for alleged damages caused to real estate owned by it. A hearing is currently scheduled for 1 June 2006.
In June 2002, the Albanian Government requested from AMC, the distribution to it of dividends in the amount of Leke 500,347,322 (Euro 3.7 million) regarding the period from 1 January 2000 until 22 August 2000. The General Meeting of the Shareholders of AMC of 31 May 2001 had resolved not to distribute dividends for the fiscal year 2000. According to the legal opinion of the Legal Counsel of AMC, the decision of the General Meeting of AMC regarding the non-distribution of dividends is valid. The Albanian Government through the “Directorate of the Biggest Taxpayers” taxed AMC on the above non-distributed dividends the amount of 88 million Leke (Euro 0.6 million). AMC has taken before the competent Albanian courts the above-mentioned tax levied. The Court of Appeal ruled to accept AMC’s claim. The Albanian Government has presented recourse to the High Court. The case is still pending.
On 19 June 2003, Mobimak, Cosmofon’s competitor in the mobile telephony market in the Former Yugoslav Republic of Macedonia, filed a claim for damages in the Former Yugoslav Republic of
125 Macedonia courts against Cosmofon on the alleged grounds that 24 of Cosmofon’s base stations have been installed illegally and cause interference to the radio signals emitted by Mobimak’s base stations as a result of their close proximity. In February 2004, the court issued a ruling rejecting the claim and Mobimak subsequently filed an appeal of this decision.
In November 2003, the Guarantor was informed that the board of directors of the Pension Fund of the Personnel of Newspapers in Athens and Thessaloniki had made a decision that the Guarantor would no longer be exempt from paying a social duty for advertisement, amounting to a tax of approximately 20 per cent. of the value of all newspaper, magazine, radio and television advertisements placed by the Guarantor. On 15 January 2004, the Guarantor filed proceedings against this decision. A hearing was held on 27 September 2004 and court decision is pending.
The Guarantor regularly faces a large number of claims by employees for increased pay or other benefits. The Guarantor believes that its provisions are adequate to cover the aggregate outcome of such cases.
In addition to the foregoing, the Guarantor is party to routine litigation incidental to the normal conduct of its business. The Guarantor does not believe that liabilities related to such proceedings, individually or in the aggregate, are likely to be material to its financial condition or results of operations.
Employees
The following table shows the number of the Guarantor’s full-time personnel at the end of each of the two years ended 31 December 2003:
11112111112At 31 December (1) (1) 111122002 111122003 Management Utilisation ...... 4,654 4,641 Finance ...... 937 912 Technical ...... 10,389 10,254 Support Staff ...... 1,316 961 Specialists ...... 332 327 Total Permanent Staff ...... 17,628 17,169 Personnel on temporary contracts...... 11112 82 11112 74 Total...... 17,710 17,169 Change (%) ...... (4.5) (3.1)% Access lines in service per employee(2) ...... 306 367
Notes: (1) Includes employees currently working with the Guarantor or transferred or seconded to its subsidiaries. (2) Access lines in service includes the Guarantor’s fixed line telephone network access lines in service at the end of respective period; employees includes the Guarantor’s employees currently working with it or seconded or transferred to its subsidiaries.
The Guarantor continues to restructure its workforce and reduce headcount. Since January 2002, the Guarantor has been exempted from the obligation to recruit personnel under the supervision of the State Supreme Council for Personnel Selection and, accordingly, now hires its personnel in accordance with its business needs and management decisions and policies. In order to attract and retain talent, the Guarantor is pursuing the following personnel policies: • the Guarantor is continuing its early retirement incentives in order to reduce staffing overall, together with its policies to recruit only specialised personnel, to retrain employees whose skills have become obsolete and to outsource certain activities;
126 • the Guarantor believes that the quality of its newly recruited employees is as important to its future efficiency and success as is the reduction in the numbers of employees overall; accordingly, the Guarantor is actively recruiting personnel with the necessary specialised and technical knowledge; recruitment efforts are particularly geared to meet the Guarantor’s present and future needs for employees trained in telecommunications engineering, economics, finance and accounting, sales and marketing and information technology; • the Guarantor is training existing employees to perform in a customer-oriented manner; for example, it has instituted several customer service-training programs for its technicians and, in 2003, 5,256 of the Guarantor’s employees attended 488 seminars on topics chosen to improve the quality and efficiency of their performance; • the Guarantor has streamlined its management structure, delegating decision-making responsibility to lower levels in order to accelerate its response to customer demands; and • the Guarantor is rationalizing and simplifying its compensation arrangements with a goal that all employees be paid a fair market wage and receive further incentives for meeting and surpassing performance targets and so that it can recruit and retain the skilled and motivated workforce that the telecommunications market demands; particularly, in an effort to enhance the employees’ feeling of security, the Guarantor has effected supplementary insurance policies with a private insurance company since 1 January 2002.
The following table presents the geographic distribution of the Guarantor’s employees in Greece as of 31 December 2003:
Number of Regional Division111112 Employees Sterea Hellas ...... 838 Thessaly ...... 780 Western Macedonia ...... 339 Central Macedonia ...... 2,281 Eastern Macedonia and Thrace ...... 794 Epirus ...... 672 Western Greece ...... 1,248 Peloponese...... 1,021 Northern Aegean ...... 359 Islands ...... 534 Crete...... 930 Attica Services ...... 111112 7,373 TOTAL ...... 17,169 111112
The average age of the Guarantor’s employees is approximately 47 years, while the average number of years of service is 21. The number of employees has been steadily decreasing over the past five years at an average annual rate of 4.3 per cent., mainly by means of natural attrition and early retirement schemes. The effects of the Guarantor’s early retirement scheme, together with its policies to recruit only specialised personnel, to retrain employees whose skills have become obsolete and to outsource certain activities currently undertaken by its personnel have resulted in personnel numbers falling to approximately 17,169 employees by the end of 2003. In 2003, a total of 944 employees left the Guarantor, 776 of which accepted an early retirement plan, as compared to 2002, when a total of 856 employees left the Guarantor, 699 of which had accepted early retirement incentives. The current early retirement program is in effect until 31 December 2004. For the year 2004, it is expected that 950 employees will leave the Guarantor of which 740 are expected to accept early retirement incentives.
127 Under existing Greek legislation, the tenure of the Guarantor’s personnel is governed by the provisions of its general personnel regulations, which may be amended only by collective agreement.
Employee Insurance Funds
The TAP-OTE fund is the principal personnel insurance fund for the Guarantor’s employees and is divided into a pension division and a health division. Members of this fund also include employees of the Hellenic Railway Organisation and the Hellenic Postal Services. The pensions division pays all members who joined the fund prior to 1993 a pension equal to approximately 80 per cent. of the salary they received at the time of retirement. For employees who joined after 1993, a pension equal to 60 per cent. of the final salary is paid after 35 years of service at age 65. For employees who joined the Guarantor prior to 1993, the Guarantor’s contributions are 25.0 per cent. and employee contributions are 11 per cent. of salary. For employees who joined the Guarantor after 1993, the Guarantor’s contributions are 13.3 per cent. and employee contributions are 6.7 per cent. The health division provides hospital and pharmaceutical care on a daily basis. For all employees, the Guarantor’s current contributions are 5.1 per cent. of salary, and employee contributions are 2.55 per cent. of salary. In recent years and at present, the fund’s health division had a surplus, while its pension division had a deficit.
Until December 1993, the Guarantor made advances to the TAP-OTE fund in excess of the maximum sum required to cover deficits in order to counter the financial difficulties faced by the fund. In March 1995, TAP-OTE agreed to pay the Guarantor approximately Euro 19.7 million of this debt in monthly instalments of Euro 0.3 million. The amount was fully collected through 31 December 2000. In addition, during 1997 a dispute between the TAP-OTE fund and the Guarantor concerning a further amount of Euro 27.6 million was resolved in the Guarantor’s favour by the Legal Counsel of the State. The Legal Counsel of the State ruled that the 1990 law requiring the Guarantor to cover the deficits of the TAP-OTE fund took effect when published in late 1990 and not at the beginning of that year. Pursuant to a letter sent to TAP-OTE dated 25 February 1999, from the Guarantor, the Guarantor was to net Euro 2.9 million against the contribution owed to TAP-OTE each year beginning in 1999, for as long as this receivable remains outstanding. In 1999 the Guarantor proceeded to withhold this amount and, accordingly, the receivable amount as of 31 December 2000, was Euro 24.6 million. Additional withholdings, which took place in 2001 from the monthly contributions to TAP-OTE, reduced the receivable amount to Euro 21.4 million as of 31 December 2001. Although TAP-OTE did not object to the above mentioned withholdings, in February 2002, it refused to provide the Guarantor with a confirmation that it was not in default with its monthly social security payments, on the grounds that monthly social security contributions must be paid in full and withholdings from such contributions are not permitted. In order to resolve this issue, in May 2002, the Guarantor agreed to refund all withholdings made from contributions to TAP-OTE, and as a result the receivable amount increased to Euro 24.7 million as at 31 December 2002. By letter dated 24 May 2002, TAP-OTE officially accepted the Guarantor’s claim for the above mentioned amount but, simultaneously, raised an issue of a possible legal right to write-off this claim. Both parties agreed to request a legal opinion on this issue from mutually acceptable legal counsel. Such counsel has issued an opinion favourable to the Guarantor, based on which on 24 January 2004, the Guarantor advised TAP-OTE that it has netted off the full amount of the readjusted receivable of Euro 24.7 million against social security amounts payable to TAP-OTE.
According to Law 2257/94, the Guarantor was responsible for contributions to fund TAP-OTE’s operating deficits up to a maximum annual amount of Euro 32.3 million per year, to be annually adjusted for inflation by a joint decision of the Ministers of National Economy and Finance by the percentage change in the Consumer Price Index for the relevant year.
Pursuant to legislation enacted in 1999, a separate fund came into operation on 12 January 2001, in the form of a société anonyme under the name EDEKT-OTE S.A., in order to finance the TAP- OTE deficit through contributions by the Guarantor, the Greek State and the Employee Auxiliary
128 Pension Fund, and the return generated on those contributions. The Guarantor holds a 40 per cent. equity interest in EDEKT-OTE, while the Greek State holds 5 per cent., the Auxiliary Pension Fund 35 per cent., TAP-OTE holds 15 per cent. and OME-OTE holds 5 per cent.
In 2000, 2001 and 2002 the Guarantor paid TAP-OTE Euro 33.4 million, Euro 32.3 million and Euro 41.3 million, respectively by way of contributions. In addition, the Guarantor paid an amount of Euro 82.5 million in 2000 and 2001 to TAP-OTE. In the fourth quarter of 2001, pursuant to Law 2937/2001 which finalised the arrangements regarding the Guarantor’s obligations to contribute to TAP-OTE and to EDEKT-OTE, the Guarantor incurred an additional charge of Euro 50.2 million related to past pension obligations of the Guarantor to TAP-OTE.
The aforementioned law also provided that the Guarantor should, in addition, make a payment of Euro 352.2 million to EDEKT-OTE as prepayment, equal to the present value of the Guarantor’s obligations to cover the annual deficit of TAP-OTE for a period of ten years starting from 1 January 2002. This amount, which was paid on 3 August 2001, will be amortised over this ten-year period. The Greek State and the Auxiliary Pension Fund are also required to make contributions of approximately Euro 264.1 million and Euro 410.9 million, respectively, to EDEKT-OTE.
Pursuant to Law 3029/2002, a portion of TAP-OTE’s Pension Fund and certain other pension funds are to be merged with IKA ETAM, the main social security fund in Greece by 1 January 2008 at the latest. In accordance with the provisions of this law, matters in relation to employees’ and employers’ contributions of TAP-OTE’s pension fund and the other pension funds concerned and the term of the obligation to meet the operating deficits of the fund (as defined by Law 2084/1992) will be subject to determination by ministerial decision. The enactment of Law 3029/2002 may require the Guarantor to partially cover future operating deficits of TAP-OTE.
The Guarantor expects that up to 35 per cent. of the money in the EDEKT-OTE fund will eventually be invested in Greek mutual funds, shares of Greek companies, including up to 25 per cent. in the Guarantor’s shares, and at least 40 per cent. in fixed income securities. Approximately 80 per cent. of the fund’s assets are managed by an independent investment company, and approximately 20 per cent. are managed by the fund’s Board of Directors. Income from the fund’s investments will be used to finance a guaranteed return on the Euro 410.9 million contributed by the Auxiliary Pension Fund, which return may be adjusted to correspond to a formula fixed by the Greek Central Bank. The remainder of the fund’s income from investment will remain available for TAP-OTE.
The Employee Auxiliary Pension Fund provides pensions equal to 20 per cent. remuneration after 30 years of service to employees who were members before 1993. Law 2084/92 set minimum contribution levels and maximum pensions after 35 years of service for new members from 1993 onwards. The Employee Auxiliary Pension Fund also provides a lump sum to the Guarantor’s employees on retirement or in the case of death. Under Law 2084/92, the maximum sum to be granted under this plan is Euro 0.03 million for 35 years of service and is readjusted annually. Currently, the Guarantor’s employees’ contributions are 4 per cent.
The Employee Auxiliary Pension Fund is currently in surplus, but may operate in deficit in the future. The Guarantor is not liable by law to cover such deficit. However, the Guarantor may be liable to pay higher contributions to such fund in the future, especially in view of its early retirement scheme.
Staff Retirement Indemnities and Other Benefits
Under Greek labour law, all employees are entitled to termination payments in the event of dismissal or retirement. The Guarantor offers additional benefits such as the Youth Account, which pays employees’ children a lump sum on marriage, entry to university or reaching a certain age. This benefit is funded by employee contributions, interest accrued on these contributions and the Guarantor’s contributions. The Guarantor’s contributions may total up to ten average monthly salaries depending on the length of time for which employees make contributions to this account. The annual provisions and the related liability for such benefits are reflected in the Guarantor’s
129 financial statements at the present values of the estimated liability based on an independent actuarial study.
Relationship with the Union
More than 99 per cent. of the Guarantor’s full-time employees are members of the OME-OTE trade union. The Guarantor believes that its relations with its employees and with the OME-OTE union are good and expect this situation to continue in the future.
The Guarantor’s management works with the OME-OTE union to foster stable labour relations. Wage increases are set pursuant to a specific collective labour agreement within the framework and subject to the minimums set by a national collective labour agreement. The Guarantor’s specific collective labour agreement is usually for one or two-year terms. Negotiations between the Guarantor and OME-OTE commence prior to the expiration of the current collective labour agreement and, once concluded, the new collective labour agreement enters into force immediately upon signing.
In 2002 and 2003, salary and employee benefit expenses increased slightly compared to 2001 and 2002 levels, respectively, because of increases in salaries due to collective labour agreements with OME- OTE, as well as the hiring of 400 new customer relations staffers in 2003, were partially offset by decreases in salary and benefits costs resulting from the early retirement and cost reduction measures that the Guarantor implemented in 2002 and 2003. On 19 May 2004, the Guarantor concluded a collective labour agreement with OME-OTE which provides for wage increases of approximately 4.54 per cent. on average for 2004.
In recent years, there have been strikes and other disruptions, which stemmed from employees’ concerns principally as to the Guarantor’s future shareholding structure and the use of the proceeds of offerings in the course of its privatisation. In September 2000, a seven-day strike also took place as a reaction against the intention of the Greek State to decrease its shareholding below 51 per cent. Also, two one-day strikes took place on 18 April and 1 May 2002, as well as a one- day strike on 18 June 2002, as part of a strike organised by all Greek labour unions, as a reaction to a bill proposed by the government on the reorganisation of the Greek insurance and pension funds system. Due to the nature of the strikes involved, they did not have any material effect upon the Guarantor’s business. No strikes occurred during 2003 or to date in 2004.
Guarantor’s Stock Option Plan
The extraordinary general assembly of 4 September 2001 approved a stock option plan to be offered to the Guarantor’s top management and specifically to the Managing Director, the Executive Vice Chairman, General Directors, the Chief Legal Affairs Officer and the Section Managers and Management Advisors (in total, 267 persons). Under this stock option plan, the Board of Directors issued 4,881,000 options rights (approximately 1 per cent. of the Guarantor’s share capital) at the exercise price of Euro 17.07 per share. This is a three-year plan, which vests as follows: 40 per cent. on the first anniversary of the date of the grant, 30 per cent. during the second year after the date of the grant and the remaining 30 per cent. during the third year after the date of the grant. The rights which vest during the second and third years after the date of the grant are conditional upon the achievement of revenue growth and EBITDA targets as set forth by the annual budgets for the respective years. Specifically, the Managing Director was granted 100,000 options, the Executive Vice Chairman was granted 75,000 options, the Chief Legal Affairs Officer was granted 60,000 options and the General Directors were granted 60,000 options each. The financial targets for 2002 and 2003 were not met, and consequently the respective option rights could not be exercised and were cancelled.
The extraordinary general assembly of shareholders of 28 January 2002, approved the extension of the stock option plan previously approved in September 2001. Under the extended plan, the Guarantor’s Board of Directors issued 8,920,000 option rights for the Guarantor’s employees over a two-year period and 500 shares per person irrespective of business/financial performance. Also,
130 the Guarantor’s Board of Directors issued 720,000 option rights to be granted to the top management of the Guarantor’s non-listed subsidiaries (specifically to the Managing Directors and General Directors of the Guarantor’s non-listed subsidiaries, 15 persons) under the same terms and conditions applicable to the stock option plan previously approved for the Guarantor’s senior management, including the requirement to meet specific targets. The exercise price is set at Euro 17.07 per share, the price of the stock options offered to the Guarantor’s top management. The Managing Director of each non-listed subsidiary was granted 60,000 options while the General Directors were granted 40,000 options each. Including these options, the shares allocated to the plan will not exceed 2 per cent. of the Guarantor’s share capital.
Directors and Officers of the Guarantor
The Guarantor is currently managed by the Board of Directors and the Managing Director.
Board of Directors
The Guarantor’s current Board of Directors consists of 11 members. The Guarantor’s Articles of Incorporation, as amended by virtue of a resolution of the ordinary general assembly of shareholders of 17 June 2004, provide that the Board of Directors consists of 9 or 11 members. In the case of a 9-member Board of Directors, the term of one-third of the directors ends each year on the date of the ordinary general assembly of shareholders for the respective year. In the case of an 11-member Board of Directors, as is the case currently, three directors are elected for a one- year term, three directors are elected for a two-year term and five directors are elected for a three- year term. The ordinary general assembly of shareholders on 17 June 2004 elected all of the members of the current Board of Directors, of whom three members were elected for a one-year terms, three members were elected for a two-year term and five members were elected for three- year terms.
On 4 September 2001, the extraordinary general assembly of shareholders resolved on a number of significant changes to the Guarantor’s Articles of Incorporation, as a result of the reduction of the participation of the Greek State in the Guarantor’s share capital to less than 51 per cent. Following such amendments, no special interest groups or shareholders, including the Greek State, minority shareholders, majority-owned subsidiaries or the Guarantor’s Financial and Social Committee, are entitled to nominate any members of the Board of Directors or designate senior management and all members of the Board of Directors are now freely appointed by the general assembly of shareholders. In addition, following such amendments to the Articles of Incorporation, the Board of Directors may be constituted as a body corporate and elect its officers following internal consultations, without any of the Guarantor’s shareholders being entitled or empowered to designate the persons assuming executive functions. The extraordinary general assembly of shareholders of 4 September 2001, also approved changes to the Articles of Incorporation fully aligning the Guarantor to the Greek Companies Law. The ordinary general assembly of shareholders of 17 June 2004 further amended the Articles of Incorporation to enhance the flexibility and accountability of the Guarantor’s management. The main amendments include the reduction of the number of directors from 15 to 9 or 11, the reduction of their term from five to three years and the abolition of the Executive Committee of Corporate Governance.
Law 3016/2002 on corporate governance has established a new set of rules concerning transparency of operation and avoidance of conflicts of interest within Greek corporations having shares listed on the Athens Exchange. This law took effect from May 2002, although the application of certain provisions was deferred until 30 June 2003. Law 3016/2002 is intended to enhance and extend the regulatory framework on corporate conduct and governance that had been introduced in 2000 by the Capital Market Commission, which issued a legally binding Code of Conduct for Companies having shares listed on the Athens Exchange. The law provides that at least 1/3 of the directors of affected companies, which term includes the Guarantor, shall be “non- executive”, i.e. they will not be involved in the day-to-day business affairs of the listed company. Among the “non-executive” members of the Board, at least two shall be “independent”, i.e. shall
131 be persons who have neither a significant share holding in, nor any other “relation of dependence” with, the company or any affiliated companies thereof. In view of the aforementioned matters, applicable to the process for the nomination of the members of the Board of Directors, the Guarantor, which currently has an 11-member Board is under an obligation to include in the Board of Directors at least four non-executive members, of which at least two must be independent. Ten members of the current Board of Directors are non-executive, of which four are independent. The general assembly of shareholders is solely responsible for appointing the independent non- executive members of the Board of Directors, while the Board of Directors is responsible for defining the capacities of the other members of the Board of Directors as executive or non- executive.
The Board has the power to decide on any issue, which does not fall within the exclusive competence of the general assembly of shareholders. Matters that fall within the exclusive competence of the general assembly of shareholders include increasing the Guarantor’s authorised share capital in certain circumstances, approving the financial statements, paying dividends, authorising the issuance of debt securities under certain circumstances, approving a merger, dissolution or reorganisation in which the Guarantor is involved and certain other matters specified in the Articles of Incorporation.
The quorum for a meeting of the Board of Directors is one-half of all directors plus one with any fraction rounded down. In addition, the Guarantor’s Articles of Incorporation provide that the resolutions of the Board of Directors shall be adopted by affirmative vote of an absolute majority of the members present at the relevant meeting. The Board may delegate certain of its powers to its members, the Managing Director, the company’s executives, third parties or any committee comprised thereof.
The members of the Guarantor’s Board of Directors are not entitled to any form of compensation upon termination of their appointment as members of the Board of Directors, for any reason.
As at the date of this Information Memorandum, the Guarantor’s Board of Directors is comprised as follows:
1111Name 11111Position 11111Capacity 111111Appointed 1111Expiry Panagis Vourloumis Chairman/ Managing Director Executive 17 June 2004 16 June 2007 Iakovos Georganas Vice-Chairman Non-Executive 17 June 2004 16 June 2005 Panagiotis Tambourlos Director Independent 17 June 2004 16 June 2007 Nikolaos Stefanou Director Non-Executive 17 June 2004 16 June 2007 Georgios Tzovlas Director Non-Executive 17 June 2004 16 June 2007 Ilias Gounaris Director Independent 17 June 2004 16 June 2007 Xeni Skorini – Paparrigopoulou Director Independent 17 June 2004 16 June 2006 Georgios Bitros Director Non-Executive 17 June 2004 16 June 2006 Charalambos Dimitriou Director Non-Executive 1 Sept 2004 16 June 2006 Georgios Linardatos Director Independent 17 June 2004 16 June 2005 Theodoros Veniamis Director Non-Executive 17 June 2004 16 June 2005
Panagis Vourloumis. Mr. Vourloumis is a graduate of the London School of Economics and the Economic Development Institute. He headed the Southeast Asia division of the International Finance Corporation from 1966 to 1973, was CEO of the Commercial Bank of Greece Group from 1979 to 1981 and Chairman and CEO of ALPHA Finance, ALPHA Mutual Funds and ALPHA Bank Romania from 1988 to 2000 while at the same time serving as Executive Director of ALPHA Bank. From 2000 until recently, Mr. Vourloumis was Chairman of Frigoglass and of the Aegean Baltic Bank. He has been President of the Association of Institutional Investors and member of the Board of the Federation of Greek Industries.
Iakovos Georganas. Mr. Georganas holds a degree in Economics from the School of Economics and Trade of Athens (ASOEE); he also attended the Advanced Management Program of the Harvard University Business School. He worked with the Greek Bank for Industrial Development (ETBA) from 1958 to 1991 and served from 1989 to 1991 as Vice-President and Member of the
132 Hellenic Capital Market Commission. Since 1991, he has served as Executive Vice-Chairman of the board of directors of Piraeus Bank and since June 2000 he has been President of the Bank of Piraeus Audit Committee. He is Chairman of the Board of Directors of Hellenic Exchanges Holding S.A. He also serves as a non-executive member of the Board of Directors of several financial, commercial and industrial companies. Since 2000, he has been a member of the Board of Directors of the Guarantor and since May 2004 he has been its Vice-Chairman.
Panagiotis Tambourlos. Mr. Tambourlos is a graduate of the Piraeus University of Economics and holds a Master’s degree in Business Administration from McGill University (Montreal, Canada). He worked as Financial Manager in various corporations, including Milchem International, Hilti SA, American Express and ICI. From 1990 to 2003 worked for Warner Lambert SA, an affiliate of Pfizer where immediately prior to his departure he held the position of Regional Financial Manager for Europe, Middle East and Africa. From June 2003 until April 2004 he held the position of Chief Financial Officer of the Guarantor. Since then he has been Financial Director of the Frigoglass Group. He is the Chairman of the Guarantor’s Audit Committee and the “audit committee financial expert.”
Georgios Tzovlas. Mr. Tzovlas holds a Bachelor’s degree in Mathematics from the University of Athens and a Master of Science in Operational Research, as well as a PhD from the School of Production Studies, from the Cranfield Institute of Technology (UK). He worked as advisor at the Ministry of Transport and Communications and as expert of communications-informatics at the General Staff of the Ministry of National Defence. He is a member of the Guarantor’s Audit Committee.
Ilias Gounaris. Mr. Gounaris (Honorary Ambassador) has a Law Degree from the University of Athens. He has served with the Greek Ambassador in Bonn, Moscow and London. In 1999, he was appointed Permanent Representative of Greece at the UN headquarters in New York, where he represented Greece in the negotiations with the Former Yugoslav Republic of Macedonia on the official denomination of the latter. In May 2002, he was appointed Chair of the Foreign Ministry’s Committee for the Environment and Sustainable Development.
Xeni Skorini-Paparrigopoulou. Ms Skorini-Paparrigopoulou holds a Law Degree from the University of Athens. She has done postgraduate studies (DESE) at the Centre des Études Europeennes of the University of Nancy (France) and she holds a Ph.D. in Common Law from the University of Athens. Since 2000 she has been teaching common law at the same university and since 2002 she has been Chair of the CJFA of the Council of Europe.
Georgios Bitros. Mr. Bitros is Professor of Economics and Chair of the Faculty of Economic Sciences at the Economic University of Athens. He holds a Batchelor’s degree from ASOEE and a PhD from the University of New York. He has specialised in microeconomics, industrial organisation and cost-benefit theories. He has authored a number of books, monographs and papers, published in journals and magazines of international repute by both foreign and Greek publishers.
Charalambos Dimitriou. Mr Dimitriou is a graduate of the Law School of Athens University and also holds graduate degree (LLM) from the London School of Economics. He was admitted to the Athens Bar in 1981 and has been admitted to the Athens Court of Appeals and the Supreme Court of Greece. He has served as legal advisor to numerous companies and organizations. Currently, he also serves as special Legal Advisor to the Minister of Finance.
Georgios Linardatos. Mr. Linardatos holds a Bachelor’s degree in civil engineering from the National Technical University of Athens. He has worked on large public construction projects since 1967. He also is a D Class Contractor Licensee (top class for natural persons) and until 1998 he was a 50 per cent. shareholder of a Z Class Public Works Société Anonyme. He is a member of the Guarantor’s Audit Committee.
133 Theodoros E. Veniamis. Mr. Veniamis is a ship owner and a graduate of the School of Economics and Trade of Athens. He has worked in different shipping businesses in London and Piraeus. He is the founder and Chairman of the Golden Union Group of Companies. He is a member of the Board of Directors of the Union of Greek Shipowners, a member of the Board of Directors of London Steamship Owners Mutual Insurance Association (P&I) and Vice President of the Greek Committee of Det Norske Veritas. He actively contributes in committees and unions. He has been Chairman of the Board of Directors of Maritel since July 1999.
Nikolaos Stefanou. Mr Stefanou holds a degree in Business Administration and Financial Analysis from Piraeus University with Post-graduate studies. From 1990 to 1993, he was financial councillor to the Minister of Finance and Vice-President of the Deposit and Loans Fund as well as a member of various governmental commissions. From 1994 to 2004, he was founder and General Manager of the consulting firms TAXCO and M.W., specializing in consulting services at financial analysis, taxation, developmental legislation and marketing. Since March 2004, he has been General Secretary of the Ministry of Development. He has also been a member of the boards of directors of various private firms.
Audit Committee
The Guarantor established an Audit Committee in April 1999. The Audit Committee operates in accordance with regulations approved by the Board of Directors and consists of three non- executive members of the Board, one of whom is designated as chairman. The chairman and the other members of the Audit Committee are designated following a decision of the Board of Directors. At least one member of the Audit Committee must be a financial expert. For the selection of all the members of the Audit Committee the Board of Directors takes into account the specifications and the restrictions imposed by the laws and regulations that govern the function of the company. The Audit Committee may delegate to its members the exercise of particular competences. To facilitate this the Audit Committee gives specific, written authorisations to its members.
The Audit Committee holds at least four ordinary meetings each year and may also hold extraordinary meetings when deemed necessary. Decisions of the Audit Committee must be unanimous. The Audit Committee’s regulations are necessarily reviewed annually by the Board following a recommendation by the Audit Committee .
The Audit Committee functions as a supervisory and consultative body. The Audit Committee is responsible for (among other things): • examining and evaluating the efficiency and the effectiveness of the Guarantor’s internal disclosure controls and procedures, with emphasis on the procedures that the Guarantor applies for the evaluation of material risks and the measures taken to administer these risks safely and informing the Board of its conclusions in respect thereof; • supervising the internal audit function and being mindful of the independent and effective function of the internal auditors, including, amongst other matters, examining and evaluating the formation procedure of the activity programs of the internal audit division’s organisational units and recommending their approval to the Board of Directors, monitoring the implementation of the annual activity programs of the internal audit division’s organisational units and evaluating the progress and the effectiveness of the internal audit work; • examining the Guarantor’s quarterly, semi-annual and annual financial statements prior to their publication; • evaluating the completeness and consistency of the financial statements, pursuant to the information that is known to its members; • advising the Board regarding the selection of external auditors;
134 • examining, following the completion of the annual audit, all issues that have arisen during the audit, the results of the audit, and any issues raised by the external auditors during the execution of their work; • examining with the external auditors the framework and methodology of the annual audit, evaluating their performance and recommending to the Board their release from any liability to the Guarantor; • pre-approving all services and fees that may be rendered by the external auditors; and • examining and evaluating the independence of the external auditors and suggesting to the Board measures to be taken in order to maintain their independence.
As of the date of this Information Memorandum, the members of the Audit Committee are as follows: Panagiotis Tambourlos (Chairman), Georgios Linardatos and Georgios Tzovlas. The Board of Directors has determined that Mr. Tambourlos is an “audit committee financial expert”.
Remuneration and Human Resources Committee
On 21 July 2004, the Board of Directors established the Remuneration and Human Resources Committee, consisting of three members of the Board of Directors. The members of the committee are Iakovos Georganas (Chairman), Xeni Skorini – Paparrigopoulou and Ilias Gounaris.
Managing Director
The Managing Director is the Guarantor’s highest ranking executive. The Managing Director is one of the 11 members of the Board of Directors elected by the general assembly of shareholders. The Board of Directors in turn elects the Managing Director, who is also an executive member of the Board of Directors. The Managing Director has certain constitutional powers granted to him under the Guarantor’s Articles of Incorporation and other powers delegated to him by the Board, including the authority to make proposals to the Board of Directors, to conclude contracts on behalf of the Board of Directors up to a certain value as determined by the Board (currently fixed by decision of the Board in May 2004 at Euro 7,337,000), to represent the Guarantor before courts, public authorities and third parties and to decide on certain matters pertaining to personnel and the Guarantor’s internal organisation.
Management Committee
On 2 August 2004, the Guarantor established a Management Committee. The Management Committee is comprised of the Managing Director (Chairman) and the Guarantor’s eight General Managers. Other officers of both the Guarantor and its subsidiaries may participate in meetings of the Management Committee at the invitation of the Chairman. The Management Committee’s purpose is to coordinate activities between the Guarantor and its subsidiaries, promote synergies within the Group and provide a forum for discussing potential problems that the Guarantor or its subsidiaries may encounter.
Senior Management
The following is a list of the Guarantor’s senior managers, their current areas of responsibility and a brief description of their backgrounds.
Panagis Vourloumis: Chairman and Managing Director of the Guarantor. See above.
Evangelos Martigopoulos: Managing Director of COSMOTE. Mr. Martigopoulos has been the Managing Director of COSMOTE since June 2000 and since July 2002 he has been in charge of the Guarantor’s mobile business unit. Moreover, since August 2000 he has been the Chairman of the Board of Directors of AMC. Between March 1998 and February 2000, Mr. Martigopoulos was
135 Sales & Marketing Director of COSMOTE. In February 2000, he assumed the functions of General Commercial Manager of COSMOTE. Prior to that, he was Sales Manager at Databank, syNET and NCR Hellas, as well as Sales Account Manager at Digital. He has also worked as a Systems and Communications Analyst at Bull. Mr. Martigopoulos holds a M.Sc. in Power Electronics from Brunel University, UK and a B.Sc. in Electronics from the University of London.
Yorgos Ioannidis: Chief Technical Officer of the Guarantor and Managing Director of OTEnet. Mr. Ioannidis has been the Chief Technical Officer of the Guarantor since September 2004 and Managing Director of OTEnet since June 2000. Since June 2002, he has been the Chairman of the Board of Directors of Voice@net and since July 2002, the head of the Guarantor’s Internet business unit (OTEnet, InfOTE, CosmoONE, Multicom, Voice@net). Since April 2003 he has been the Chairman of the Board of Directors of CosmoONE and since June 2003 Chairman of the Board of Directors of InfOTE. He is also a non-executive member of COSMOTE’s Board of Directors. He worked with the Guarantor as a Telecommunications Engineer from 1975 to 1993 and then worked for five years with Panafon-Vodafone as the Engineering Switching and Software Manager. In November 1997, he was appointed COSMOTE’s Engineering Director and in January 2000 he was appointed to the position of General Technical Director. Mr. Ioannidis holds a degree in Electrical Engineering from the Bosporus University of Istanbul and performed graduate studies at Lowell Technological Institute in the United States.
James Hubley: Managing Director of Romtelecom. Mr. Hubley, after receiving an Bachelor of Science Degree in Mathematics and an MBA, joined AT&T as an engineer holding various positions with Bell Laboratories and Western Electric Company in the fields of software development and equipment maintenance. Subsequently, he moved to AT&T where held various management positions with increasing levels of responsibility in marketing and product management. In 1987 he was appointed the Chief Operating Officer of AT&T’s Japanese joint venture in Tokyo, Japan eventually becoming its President and Chairman. In 1994 he was appointed Business Development Vice President at AT&T’s Multimedia Services Group. In 1995 he assumed the position of Executive Vice President of Czech Telecom, the national telecommunications operator in the Czech Republic, responsible for Czech Telecom’s telephone sales, service, operations, construction and operating support systems. After five years at Czech Telecom, Mr. Hubley was appointed the CEO of Bell Canada’s subsidiary responsible for the development and operation of Bell Canada’s fixed line, mobile, Internet and Cable TV billing operations. In 2003 Mr. Hubley was appointed the CEO of the Romanian national telephone operator, Romtelecom.
Iordanis Aivazis: Chief Financial Officer of the Guarantor. Mr. Aivazis holds a degree in Economics from Athens University, a Master of Arts (M.A.) in Marketing and Finance from Lancaster University, UK, as well as a Postgraduate Diploma in Industrial Economics from the same university. He speaks English and French in addition to his native Greek. He worked at the Greek Bank for Industrial Development (ETBA) from 1980 to 1983, at the Greek Industry of Ammonia S.A. as member of the Board of Directors from 1982 to 1983, at Bank of America (1983 to 1986), at Midland Bank (1986-1994), at ABN-AMRO Bank as General Manager of the Corporate Banking Unit from 1994 to 1995. He has also been a Vice President and Executive Director at Chios Securities (1998-1999), as well as Director of Corporate Banking and Risk Management at Chios Bank (1995-1999). From March 1999 to November 1999, he was Risk Management Manager as well as Manager of Investments & Capital Market of the Piraeus Group. From November 1999 until February 2001 he was General Manager at Egnatia Bank SA, Vice President of the Board of Directors of Egnatia Mutual Funds and Chairman and Managing Director of Egnatia Leasing SA. Since February 2001, he has been member of the Board of Directors and Executive Vice President of OTE International Investments Ltd. Since March 2003, he has held the position of Chief Officer for Group Financial Affairs and since April 2004 he has held the position of Chief Financial Officer of the Guarantor.
Soula Evans: Chief Officer for Business and Residential Customers of the Guarantor. Ms. Evans holds a first class degree in Economics from the University of Thessaloniki, Greece and a Masters
136 degree in Economics from the University of Birmingham, UK. She started her career as an academic and has carried out research in Business Strategy at the London Business School and also taught Economics at the City University of London. In 1987 she joined a management consulting company in London specializing in marketing and in 1992 she joined British Telecommunications plc where for eight years she held a number of senior positions (in product management, planning, regulation and pricing, marketing and strategy). In 1999 she joined Eircom, Ireland´s leading Telecoms operator, where she ran Consumer and Business Markets, responsible for developing and implementing Eircom’s commercial strategy for residential and SME (small medium enterprise) customers. In September 2002, she was appointed Chief Officer for Business and Residential Customers at the Guarantor’s Domestic Wireline business unit.
Legal Counsel
Andreas Kalogeropoulos: Legal Counsel of the Guarantor. Mr. Kalogeropoulos is former judge of the Court of First Instance of the European Communities (1992-1998). He is an honors graduate of the University of Paris and holds a Ph.D. in law from the same university. He has been a member of the Athens Bar Association since 1976. He has served as charge de cours at the Athens University (1977-1980), Legal Counsel to the Greek government (1978-1980 and 1988- 1990), as First Legal Secretary to the Court of Justice of the European Communities (1981-1987), First Legal Secretary to the Court of Auditors of the European Communities (1990-1992), charge des cours at the University of Paris (1995-1996). Since 2000, he has been President of the Adjudication Panel of the European Investment Bank (E.I.B.) and from 2001 to 2002 he was President of the European Lawyers Association. He was appointed as the Guarantor’s Chief Legal Counsel in November 2000 and from August 2002 until July 2004 he held the position of Chief Legal Affairs Officer of the Guarantor. From July 2002 until October 2003 he also served as Chief Officer for Group Legal Affairs. As from 9 July 2004 he is the Legal Counsel of the Guarantor.
Dimitris Tzouganatos: Special Counsel on Regulatory Matter of the Guarantor. Mr. Tzouganatos is a graduate of the Law School of the University of Athens, 1976, received an L.L.M. from the University of Michigan and a Dr.iur (doctorate) from the Eberhard – Karls Universität Tübingen. He was admitted in 1982 in Athens Bar, Athens Court of Appeals and Supreme Court of Greece and is currently an Associate Professor of Commercial Law at the University of Athens Law School. From June 2000 to October 2003 he was President of the Hellenic Competition Commission (National Competition Authority). He was appointed by the Guarantor as its Chief Officer for Group Legal Affairs in October 2003. As from 9 July 2004 he is the Guarantor’s Special Counsel on Regulatory Matters.
137 CAPITALISATION OF THE GUARANTOR
The following table sets out the capitalisation of the Guarantor as of 31 December 2003 and as of 30 June 2004, as extracted from the Guarantor's audited annual consolidated U.S. GAAP financial statements as of and for the year ended 31 December 2003 and condensed consolidated unaudited management accounts as of and for the six months ended 30 June 2004, respectively and in each case should be read in conjunction with the financial statements which are included in this Information Memorandum. Except as disclosed in this Information Memorandum, there has been no material change in the capitalisation of the Guarantor since 30 June 2004.
31 30 30 December June June 111112003 11111 2004 11111 2004 Euro U.S.$(1) (in millions) Current Debt: Short-term borrowings ...... 51.6 28.5 35.1 Current maturities of long-term debt ...... 74.8 65.8 81.1 1111126.4 1111 94.3 1111 116.2 Long-Term Liabilities: Long-term debt, net of current maturities ...... 3,154.6 3,147.1 3,877.2 Reserve for staff retirement indemnities...... 292.6 295.8 364.4 Reserve for Youth Account...... 331.5 332.3 409.4 Other long-term liabilities ...... 1111 252.6 1111 207.4 1111 255.5 11114,031.3 1111 3,982.6 1111 4,906.5 Minority Interests ...... 992.6 1,006.2 1,239.6
Shareholders’ Equity: Share capital...... 1,204.7 1,174.1 1,446.5 Paid-in surplus ...... 505.7 487.5 600.6 Treasury stock ...... (276.6) (15.1) (18.60) Legal reserve ...... 256.7 256.7 316.3 Retained earnings ...... 1,957.2 1,666.0 2,052.5 Unaccrued compensation...... (0.1) – – Accumulated other comprehensive income/(loss) ...... 1111 (57.3) 1111 (52.2) 1111 (64.31) Total shareholders‘ equity...... 1111 3,590.3 1111 3,517.0 1111 4,333.0 Total capitalization ...... 8,740.6 8,600.1 10,595.3 1111 1111 1111
Notes (1) Translated at Euro 1.00 = U.S.$1,232, the noon buying rate on 30 June 2004.
138 SUMMARY FINANCIAL INFORMATION RELATING TO THE GUARANTOR
HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
1111111111231111131 December 111112002 11111 2003 11111 2003 Euro Euro U.S.$(1) (in millions) ASSETS Current Assets: Cash and cash equivalents ...... 447.5 601.3 757.5 Accounts receivable, net of allowance for doubtful accounts of Euro 143.7 million and Euro 173.1 million as of 31 December 2002 and 2003 respectively...... 1,164.5 1,154.1 1,453.8 Due from related parties...... 200.2 137.9 173.7 Advances to pension funds ...... 31.8 62.3 78.5 Loans and advances to employees ...... 28.4 22.8 28.7 Subsidies receivable...... 22.4 22.4 28.2 Materials and supplies ...... 66.5 150.2 189.2 Deferred income taxes ...... 8.6 12.3 15.5 Other current assets...... 1111 154.1 1111 153.6 1111 193.5 Total current assets ...... 1111 2,124.0 1111 2,316.9 1111 2,918.6 Other assets: Investments ...... 561.2 202.2 254.7 Available-for-sale marketable securities...... 12.4 26.6 33.5 Advances to pension funds ...... 305.5 239.0 301.0 Loans and advances to employees, net of current portion .... 51.2 76.5 96.4 Deferred income taxes ...... 131.0 126.3 159.1 Other long-term receivables ...... 59.1 47.5 59.9 Intangible assets...... 1111 - 1111 43.4 1111 54.7 Total other assets...... 1111 1,120.4 1111 761.5 1111959.3 Telecommunication property, plant and equipment ...... 8,734.5 11,224.2 14,139.1 Less: Accumulated depreciation...... 1111 (3,470.0) 1111 (4,350.8) 1111 (5,480.8) 11115,264.5 1111 6,873.4 1111 8,658.3 Telecommunication licences...... 431.1 443.1 558.1 Less: Accumulated amortisation...... 1111 (23.5) 1111 (40.7) 1111 (51.2) 1111407.6 1111 402.4 1111 506.9 Goodwill resulting from consolidated subsidiaries ...... 76.8 77.7 97.9 Less: Accumulated amortisation...... 1111 (7.0) 1111 (7.0) 1111 (8.8) 111169.8 1111 70.7 1111 89.1 TOTAL ASSETS...... 8,986.3 10,424.9 13,132.2 1111 1111 1111
Note (1) Translated at Euro 1.00 = U.S.$ 1.2597, the noon buying rate on 31 December 2003.
139 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
1111111111231111131 December 111112002 11111 2003 11111 2003 Euro Euro U.S.$(1) (in millions, except share and per share data) LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Short-term borrowings ...... 292.8 51.6 65.0 Current maturities of long-term debt ...... 41.6 74.8 94.2 Accounts payable ...... 816.9 922.3 1,161.8 Accrued and other liabilities ...... 355.7 450.8 567.9 Deferred revenue ...... 137.8 146.9 185.0 Income taxes payable ...... 170.2 155.7 196.2 Dividends payable ...... 1111 7.7 1111 8.6 1111 10.8 Total current liabilities ...... 1111 1,822.7 1111 1,810.7 1111 2,280.9 Long-Term Liabilities: Long-term debt, net of current maturities ...... 2,576.2 3,154.6 3,973.8 Reserve for staff retirement indemnities...... 263.2 292.6 368.6 Reserve for Youth Account...... 352.8 331.5 417.6 Other long-term liabilities ...... 1111 143.3 1111 252.6 1111 318.2 11113,335.5 1111 4,031.3 1111 5,078.2 Minority Interests ...... 1111 332.1 1111 992.6 1111 1,250.4 Shareholders’ Equity: Share capital, nominal value Euro 2.39 each at 31 December 2002 and 2003 respectively (504,054,199 shares authorised, issued and outstanding at 31 December 2002 and 2003) ...... 1,204.7 1,204.7 1,517.5 Paid-in surplus ...... 506.9 505.7 637.0 Treasury stock (13,471,320 and 13,903,810 shares at 31 December 2002 and 2003, respectively) ...... (272.6) (276.6) (348.4) Legal reserve ...... 246.2 256.7 323.4 Retained earnings ...... 1,900.1 1,957.2 2,465.5 Accumulated other comprehensive income/(loss) ...... (85.7) (57.3) (72.2) Unaccrued compensation...... 1111 (3.6) 1111 (0.1) 1111 (0.1) Total shareholders’ equity ...... 1111 3,496.0 1111 3,590.3 1111 4,522.7 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY ...... 8,986.3 10,424.9 13,132.2 1111 1111 1111
Notes (1) Translated at Euro 1.00 = U.S.$ 1.2597, the noon buying rate on 31 December 2003.
140 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
111111111111123111112331 December 1111112002 111111 2003 111111 2003 Euro Euro U.S.$(1) (in millions, except share and per share data) Revenues: Domestic Telephony...... 2,120.5 2,349.5 2,959.7 International telephony...... 349.9 375.5 473.0 Mobile telephony services ...... 950.3 1,228.8 1,547.9 Other revenues ...... 111111 888.2 111111 960.5 111111 1,209.9 Total revenues ...... 111111 4,308.9 111111 4,914.3 111111 6,190.5 Operating Expenses: Payroll and employee benefits...... (873.5) (1,083.6) (1,365.0) Charges from international operators ...... (204.4) (185.2) (233.3) Charges from mobile telephony operators ...... (559.6) (609.9) (768.3) Depreciation and amortisation ...... (700.2) (909.7) (1,145.9) Other ...... 111111 (951.2) 111111 (1,107.0) 111111 (1,394.5) Total operating expenses ...... 111111 (3,288.9) 111111 (3,895.4) 111111 (4,907.0) Operating income ...... 111111 1,020.0 111111 1,018.9 111111 1.283.5 Other income/(expense): Interest expense ...... (118.4) (143.1) (180.4) Interest income...... 63.1 47.6 60.0 Foreign exchange (losses)/gains, net ...... (17.7) 14.2 17.9 Write down of investments...... (116.4) – – Earnings/(Losses) in equity-method investments (20.1) (30.2) (38.0) Gain on sale of investments ...... – 31.6 39.8 Other expense, net ...... 111111 (22.3) 111111 (2.8) 111111 (3.5) 111111(231.8) 111111 (82.7) 111111 (104.2) Income before provision for income taxes and minority interests...... 788.2 936.2 1,179.3 Income taxes ...... 111111 (304.4) 111111 (377.9) 111111 (476.0) Income before minority interests ...... 483.8 558.3 703.3 Minority interests ...... 111111 (97.7) 111111 (147.1) 111111 (185.3) Net income before cumulative effect of accounting change ...... 386.1 411.2 518.0 Cumulative effect of accounting change for SFAS No. 142 (2002) and SFAS No. 143 (2003), net of income taxes ...... 111111 (40.3) 111111 (0.5) 111111 (0.6) Net income ...... 111111 345.8 111111 410.7 111111 517.4
141 111111111111123111112331 December 1111112002 111111 2003 111111 2003 Euro Euro U.S.$(1) (in millions, except share and per share data) Amounts per common share Income per share before cumulative effect of accounting change for SFAS No. 142 (2002) and SFAS No. 143 (2003) (earnings per share basic and diluted)...... 0.79 0.84 1.06 Cumulative effect of accounting change for SFAS No. 142 (2002) and SFAS No. 143 (2003), net of income taxes ...... (0.08) (0.001) (0.001) 111111 111111 111111 Earnings per share (basic and diluted in Euro) .. 0.71 0.84 1.06 111111 111111 111111 Weighted average number of shares outstanding (basic and diluted) ...... 490,582,879 490,241,524 490,241,524 111111 111111 111111
Notes (1) Translated at Euro 1.00 = U.S.$ 1,2597, the noon buying rate on 31 December 2003.
142 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumu- lated Other Un- Compre- Compre- accrued hensive hensive Share Paid-in Treasury Legal Compen- Retained Income/ Income Capital Surplus Stock Reserve sation Earnings (Loss) Total 11112 11112 11112 11112 11112 11112 11112 11112 11112 Euro (in millions)
Balance, 31 December 2001 1,108.9 596.3 (272.6) 229.8 (4.4) 1,916.3 (45.2) 3,529.1 11112 11112 11112 11112 11112 11112 11112 11112 Net Income ...... 345.8 –––––345.8 – 345.8 Transfer to legal reserve ...... – – – 16.4 – (16.4) – 0.0 Dividends declared ...... –––––(345.6) – (345.6) Issuance of share capital...... 95.8 (95.8) –––––0.0 Additional minimum liability for Youth Account, net of e17.7 tax ...... (32.9) ––––––(32.9) (32.9) Deferred compensation ...... – 6.4 – – 0.8 – – 7.2 Other comprehensive income: Other than temporary impairment on available- for-sale securities, net of e1.1 tax ...... (2.1) ––––––(2.1) (2.1) Foreign currency translation (5.5) ––––––(5.5) (5.5) 11112 Comprehensive income...... 305.3 11112 11112 11112 11112 11112 11112 11112 11112 11112 Balance, 31 December 2002 1,204.7 506.9 (272.6) 246.2 (3.6) 1,900.1 (85.7) 3,496.0 11112 11112 11112 11112 11112 11112 11112 11112 Net Income ...... 410.7 –––––410.7 – 410.7 ...... Transfer to legal reserve ...... – – – 10.5 – (10.5) – 0.0 Dividends declared ...... –––––(343.1) – (343.1) Treasury Stock acquired ...... – – (4.0) ––––(4.0) Additional minimum liability for Youth Account, net of e10.2 tax ...... 18.8 ––––––18.818.8 Deferred compensation ...... – (1.2) – – 3.5 – – 2.3 Other comprehensive income: Unrealised gain from available for-sale securities, net of e4.1 tax ...... 7.8 7.8 7.8 Foreign currency translation 1.8 ––––––1.81.8 11112 Comprehensive income...... 439.1 11112 11112 11112 11112 11112 11112 11112 11112 11112 Balance, 31 December 2003 1,204.7 505.7 (276.6) 256.7 (0.1) 1,957.2 (57.3) 3,590.3 11112 11112 11112 11112 11112 11112 11112 11112
143 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
11111111112311111Year ended 31 December 111112002 11111 2003 11111 2003 Euro Euro U.S.$(1) (in millions) Cash Flows from Operating Activities: Net Income ...... 345.8 410.7 517.4 Adjustments to reconcile to net cash provided by operating activities Depreciation and amortisation ...... 700.2 909.7 1,145.9 Deferred income taxes ...... (59.6) 37.0 46.6 Provision for doubtful accounts ...... 89.8 99.9 125.8 Provision for staff retirement indemnities and youth account 78.9 79.0 99.6 Provision for additional payments to pension funds...... – – – Amortisation of payments to pension funds ...... 36.0 38.2 48.1 Minority interests ...... 97.7 147.1 185.3 Deferred compensation ...... 7.2 3.4 4.3 (Gain)/Loss on sale of investments ...... – (31.6) (39.8) (Gains)/losses on investments ...... 20.1 30.2 38.0 Write down of investment ...... 178.4 – – Cumulative effect of change in accounting principle for SFAS No. 143, net of tax ...... – 0.5 0.6 Reversal of voluntary retirement contributions...... – (54.6) (68.8) (Increase)/decrease in: Accounts receivable ...... (255.9) 20.9 26.3 Due from related parties...... (34.1) – – Materials and supplies ...... 39.9 27.6 34.8 Other current assets...... (21.9) 15.8 19.9 Increase/(decrease) in: Accounts payable ...... 94.4 (214.1) (269.7) Accrued and other liabilities ...... (9.6) (82.1) (103.4) Deferred revenue ...... 15.6 9.1 11.5 Income taxes payable ...... (74.2) (14.4) (18.1) Loans and advances to employees ...... (33.4) (38.4) (48.4) Repayment of loans and advances to employees ...... 16.2 18.7 23.6 Advances and payments to pension funds ...... (1.7) (1.1) (1.4) Payment of staff retirement indemnities and youth account, net of employees’ contributions ...... (69.7) (67.0) (84.4) Other long-term receivables ...... 1111 (17.4) 1111 11.6 1111 14.6 Net Cash provided by Operating Activities...... 1111 1,142.7 1111 1,356.1 1111 1,708.3
144 11111111112311111Year ended 31 December 111112002 11111 2003 11111 2003 Euro Euro U.S.$(1) (in millions) Cash Flows from Investing Activities Capital expenditures...... (1,112.9) (972.7) (1,225.3) Telecommunications licences fees...... (49.9) (3.4) (4.3) Payment for purchase of subsidiary, net of cash acquired .... – 12.9 16.3 Minority interest on previously equity accounted investment.. 7.8 – – Investments in and advances to associates and available for sale marketable securities...... (7.5) (2.3) (2.9) (Decrease)/Increase in restricted cash...... 12.8 – – Proceeds from sale of investments ...... 1111 – 1111 56.0 1111 70.5 Net Cash used in Investing Activities ...... 1111 (1,149.7) 1111 (909.5) 1111 1,145.7 Cash Flows from Financing Activities: Treasury stock acquired ...... – (4.0) (5.0) Net change in short-term borrowings ...... 169.4 (300.0) (377.9) Increase in long-term debt ...... 734.7 1,521.4 1,916.5 Repayment of long-term debt...... (437.1) (1,124.0) (1,415.9) Proceeds from issuance of minority shareholders ...... – 0.9 1.1 Dividends paid ...... (338.2) (335.9) (423.1) Dividends paid to minority shareholders ...... 1111 (20.4) 1111 (47.5) 1111 (59.8) Net Cash provided by (used in) Financing Activities ...... 1111 108.4 1111 (289.1) 1111 (364.1) Effect of exchange rate changes on cash ...... 1111 (0.7) 1111 (3.7) 1111 (4.7) Net Increase in Cash and Cash Equivalents ...... 100.7 153.8 193.8 Cash and Cash Equivalents at beginning of year ...... 1111 346.8 1111 447.5 1111 563.7 Cash and Cash Equivalents at end of year ...... 447.5 601.3 757.5 1111 1111 1111 Supplemental disclosures of Cash Flow Information: Cash paid for: – interest, net of amounts capitalised...... 113.3 127.3 160.4 – income taxes ...... 1111 416.5 1111 350.7 1111 441.8 529.8 478.0 602.2 1111 1111 1111
Notes (1) Translated at Euro 1.00 = U.S.$ 1.2597, the noon buying rate on 31 December 2003.
145 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
As of 30 June 2004 and 31 December 2003, prepared under U.S. GAAP (g million) 31 30 December June 111212003 11121 2004 Unaudited Current Assets Cash and cash equivalents ...... 601.3 754.7 Accounts receivable...... 1,292.0 1,119.4 Materials and supplies ...... 150.2 143.7 Deferred income taxes...... 12.3 4.2 Other current assets ...... 11121 261.1 11121 259.5 111212,316.9 11121 2,281.5 Other assets Investments ...... 228.8 227.2 Advances to pension funds ...... 239.0 222.0 Deferred Income taxes...... 126.3 103.6 Other long-term receivables...... 11121 167.4 11121 155.3 11121761.5 11121 708.1 Telecommunication property, plant and equipment, net of accumulated depreciation ...... 11121 6,873.4 11121 6,839.8 Telecommunication licenses, net of amortization ...... 11121 402.4 11121 392.7 Goodwill resulting from consolidated subsidiaries, net of amortization ...... 11121 70.7 11121 70.7 10,424.9 10,292.8 11121 11121
146 31 30 December June 111212003 11121 2004 Unaudited Liabilities and Shareholders’ Equity
Current Liabilities Short-term borrowings ...... 51.6 28.5 Current maturities of long-term debt ...... 74.8 65.8 Accounts payable...... 922.3 733.8 Accrued and other liabilities...... 597.7 600.6 Income taxes payable ...... 155.7 180.6 Dividends payable ...... 11121 8.6 11121 177.7 ...... 11121 1,810.7 11121 1,787.0 Long-Term Liabilities Long-term debt, net of current maturities ...... 3,154.6 3,147.1 Reserve for staff retirement indemnities ...... 292.6 295.8 Reserve for Youth Account ...... 331.5 332.3 Other long-term liabilities ...... 11121 252.6 11121 207.4 111214,031.3 11121 3,982.6 Minority interests ...... 11121 992.6 11121 1,006.2 Shareholders’ Equity Share capital ...... 1,204.7 1,174.1 Paid-in-surplus ...... 505.7 487.5 Treasury stock ...... (276.6) (15.1) Legal reserve ...... 256.7 256.7 Retained earnings ...... 1,957.2 1,666.0 Unaccrued compensation ...... (0.1) 0.0 Accumulated other comprehensive income/(loss) ...... 11121 (57.3) 11121 (52.2) 111213,590.3 11121 3,517.0 10,424.9 10,292.8 11121 11121
147 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended 30 June, 2004 and 2003 (g million)
30 June 30 June 111212003 11121 2004 Unaudited Unaudited Operating Revenues: Domestic Telephony...... 1,147.8 1,135.2 International Telephony ...... 175.4 193.1 Mobile telephony services ...... 551.5 727.6 Other ...... 11121 453.2 11121 472.0 Total Operating Revenues: ...... 11121 2,327.9 11121 2,527.9 Operating Expenses: Payroll and employee benefits...... (546.6) (630.7) Voluntary retirement costs ...... (25.5) (27.7) Reversal of reserve for retirement contributions ...... 54.6 Charges from international operators ...... (89.6) (84.0) Charges from domestic telephony operators...... (289.5) (315.8) Depreciation and amortization ...... (440.3) (506.4) Other operating expenses ...... 11121 (507.4) 11121 (604.6) Total Operating Expenses...... 11121 (1,844.3) 11121 (2,169.2) Operating Income ...... 483.6 358.7 Other Income/(expense), net: Interest income ...... 21.6 24.6 Interest expense ...... (63.2) (75.4) FX gain...... 63.9 23.0 FX loss ...... (46.3) (25.2) Financial net ...... (24.0) (53.0) Earnings/(Losses) in equity method investments ...... (11.3) 2.9 Other, net ...... 11121 (6.6) 11121 (0.4) Total Other income/(expense), net ...... 11121 (41.9) 11121 (50.5)
Income before provision for Income taxes and minority interests ....11121 441.7 11121 308.2 Provision for Income taxes ...... 11121 (170.2) 11121 (141.6) Income before minority interests ...... 271.5 166.6 Minority Interests ...... 11121 (61.2) 11121 (73.5) Net Income ...... 210.3 93.1 11121 11121
148 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2004 (g million)
30 11111June 2004 Unaudited Cash Flows from Operating Activities: Net Income ...... 93.1 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization...... 506.4 Provision for doubtful accounts ...... 54.1 Provision for staff retirement indemnities and youth account ...... 41.3 Minority interests ...... 73.5 Working capital movement and other related movements ...... 11111 (31.5) Net Cash provided by Operating Activities ...... 11111 736.9 Cash Flows from Investing Activities: Capital expenditures ...... 11111 (473.1) Net Cash used in Investing Activities ...... 11111 (473.1) Cash Flows from Financing Activities: Net change in short-term and long-term debt ...... (39.6) Dividends paid...... (2.5) Dividends paid to minority shareholders ...... 11111 (68.3) Net Cash used in Financing Activities ...... 11111 (110.4) Net Increase in Cash and Cash Equivalents ...... 153.4 Cash and Cash Equivalents at beginning of period ...... 11111 601.3 Cash and Cash Equivalents at end of period...... 754.7 11111
149 HELLENIC TELECOMMUNICATIONS ORGANIZATION S.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
30 11111June 2004 Unaudited Movement in Shareholders’ equity Shareholders’ equity, 1 January ...... 11111 3,590.3 Net Income for the period ...... 93.1 Dividends declared ...... (171.6) Accumulated other comprehensive income ...... 5.1 Unaccrued compensation ...... 11111 0.1 11111(73.3) Shareholders’ equity, 30 June...... 3,517.0 11111
150 TAXATION
The Hellenic Republic
The following is a summary of the principal Greek taxation consequences of the purchase, ownership and disposal of Notes and in relation to the Guarantee, is of a general nature and is based on the provisions of tax laws currently in force in Greece. The summary below does not constitute a complete analysis and therefore, potential investors should consult their own tax advisers as to the tax consequences of such purchase, ownership and disposal, including the effect or availability of any double tax treaty concluded between Greece and the U.K., or any other relevant country.
Under Greek tax laws as of the date hereof:
(a) no Greek withholding tax shall be imposed on payments of principal, interest or on payments of an interest nature to Noteholders, whether individuals or legal entities, who/which do not reside in Greece or maintain a permanent establishment therein in respect of Notes issued by the Issuer; and
(b) Greek withholding tax at a rate of 20 per cent, shall be imposed on payments of interest or of an interest nature to Noteholders, whether individuals or legal entities, residing in Greece or maintaining a permanent establishment therein in respect of the Notes issued by the Issuer. Such tax is withheld by the person effecting the relevant interest payment (for instance a bank) in Greece at the time such payment is made. This withholding tax would not exhaust the overall tax liability of Noteholders in respect of the relevant income so acquired.
Under Greek tax laws as of the date hereof:
(a) no Greek withholding tax shall be imposed on payments of interest or on payments of an interest nature made by the Guarantor under the Deed of Guarantee to Noteholders, whether individuals or legal entities, who/which do not reside in Greece or maintain a permanent establishment therein in respect of Notes issued by the Issuer, provided that such Noteholders:
(i) are tax residents of a country with which Greece has executed a bilateral tax treaty for the avoidance of double taxation providing for no withholding tax on such payments (the “Tax Treaty”); and
(ii) present to the Guarantor a duly signed and stamped “claim” for the application of the Tax Treaty supported by a tax residence certificate issued at a date not later than one year before such claim is so presented.
(b) Greek withholding tax at a rate of 20 per cent, shall be imposed on payments of interest or of an interest nature made by the Guarantor under the Deed of Guarantee to Noteholders, whether individuals or legal entities, residing in Greece or maintaining a permanent establishment therein in respect of Notes issued by the Issuer. This withholding tax would not exhaust the overall tax liability of Noteholders in respect of the relevant income so acquired.
Under Greek tax laws as of the date hereof, capital gains from the sale of Notes issued by the Issuer:
(a) will not be subject to Greek income tax if realised by Noteholders, whether individuals or legal entities, who/which do not reside in Greece or maintain a permanent establishment therein; and
151 (b) will be subject to Greek withholding tax at a rate of 20 per cent, if realised by Noteholders residing in Greece or maintaining a permanent establishment therein.
The United Kingdom
The following is a summary of the United Kingdom withholding taxation treatment at the date hereof in relation to payments of principal and interest in respect of the Notes. The comments do not deal with other United Kingdom tax aspects of acquiring, holding or disposing of Notes. The comments relate only to the position of persons who are absolute beneficial owners of the Notes. Prospective Noteholders should be aware that the particular terms of issue of any series of Notes as specified in the relevant Pricing Supplement may affect the tax treatment of that and other series of Notes. The following is a general guide and should be treated with appropriate caution. Noteholders who are in any doubt as to their tax position should consult their professional advisers.
Noteholders who may be liable to taxation in jurisdictions other than the United Kingdom in respect of their acquisition, holding or disposal of the Notes are particularly advised to consult their professional advisers as to whether they are so liable (and if so under the laws of which jurisdictions), since the following comments relate only to certain United Kingdom taxation aspects of payments in respect of the Notes. In particular, Noteholders should be aware that they may be liable to taxation under the laws of other jurisdictions in relation to payments in respect of the Notes even if such payments may be made without withholding or deduction for or on account of taxation under the laws of the United Kingdom. The comments assume that no security will be provided for the benefit of the Notes as contemplated by Condition 6 or otherwise.
UK Withholding Tax on UK Source Interest
UK Notes listed on a recognized stock exchange
The Notes which carry a right to interest will constitute “quoted Eurobonds” provided they are and continue to be listed on a recognised stock exchange. On the basis of the United Kingdom Inland Revenue’s published interpretation of the relevant legislation, securities which are to be listed on a stock exchange in a country which is a member state of the European Union or which is a member of the European Free Trade Association which has ratified the European Economic Area Agreement will satisfy this requirement if they are listed by a competent authority in that country and are admitted to trading on a recognised stock exchange in that country; securities which are to be listed on a stock exchange in any other country will satisfy this requirement if they are admitted to trading on a recognised stock exchange in that country. The Luxembourg stock exchange is a recognised stock exchange for these purposes. Whilst the Notes are and continue to be quoted Eurobonds, payments of interest on the Notes may be made without withholding or deduction for or on account of United Kingdom income tax.
In all cases falling outside the exemption described in 1.1 above, interest on the Notes may fall to be paid under deduction of United Kingdom income tax at the lower rate (currently 20 per cent.) subject to such relief as may be available under the provisions of any applicable double taxation treaty or to any other exemption which may apply. However, this withholding will not apply if the relevant interest is paid on Notes with a maturity date of less than one year from the date of issue and which are not issued under arrangements the effect of which is to render such Notes part of a borrowing with a total term of a year or more.
Payments by Guarantor
If the Guarantor makes any payments in respect of interest on Notes (or other amounts due under such Notes other than the repayment of amounts subscribed for the Notes) such payments may be subject to United Kingdom withholding tax at the basic rate (currently 22 per cent.) subject to such relief as may be available under the provisions of any applicable double taxation treaty or to
152 any other exemption which may apply. Such payments by the Guarantor may not be eligible for the exemptions described in 1 above.
Payments made under Deed of Covenant
Any payments made by the Issuer under the Deed of Covenant may not qualify for the exemptions from UK withholding tax described in 1. above.
Provision of Information
Noteholders should note that where any interest on Notes is paid to them (or to any person acting on their behalf) by the Issuer or any person in the United Kingdom acting on behalf of the Issuer (a “paying agent”), or is received by any person in the United Kingdom acting on behalf of the relevant Noteholder (other than solely by clearing or arranging the clearing of a cheque) (a “collecting agent”), then the Issuer, the paying agent or the collecting agent (as the case may be) may, in certain cases, be required to supply to the United Kingdom Inland Revenue details of the payment and certain details relating to the Noteholder (including the Noteholder’s name and address). These provisions will apply whether or not the interest has been paid subject to withholding or deduction for or on account of United Kingdom income tax and whether or not the Noteholder is resident in the United Kingdom for United Kingdom taxation purposes. Where the Noteholder is not so resident, the details provided to the United Kingdom Inland Revenue may, in certain cases, be passed by the United Kingdom Inland Revenue to the tax authorities of the jurisdiction in which the Noteholder is resident for taxation purposes.
For the above purposes, “interest” should be taken, for practical purposes, as including payments made by a guarantor in respect of interest on Notes.
With effect from 6 April 2003, the provisions referred to above may also apply, in certain circumstances, to payments made on redemption of any Notes where the amount payable on redemption is greater than the issue price of the Notes.
EU Savings Directive
On 3 June 2003 the EU Council of Economic and Finance Ministers adopted a new directive regarding the taxation of savings income. The directive is scheduled to be applied by Member States from 1 July 2005, provided that certain non-EU countries adopt similar measures from the same date. Under the directive each Member State will be required to provide to the tax authorities of another Member State details of payments of interest or other similar income paid by a person within its jurisdiction to, or collected by such a person for, an individual resident in that other Member State; however, Austria, Belgium and Luxembourg may instead apply a withholding system for a transitional period in relation to such payments, deducting tax at rates rising over time to 35 per cent. The transitional period is to commence on the date from which the directive is to be applied by Member States and to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to the exchange of information relating to such payments.
Other Rules Relating to United Kingdom Withholding Tax
Notes may be issued at an issue price of less than 100 per cent, of their principal amount. Any discount element on any such Notes will not be subject to any United Kingdom withholding tax pursuant to the provisions mentioned in 1 above but may be subject to reporting requirements as outlined above.
Where Notes are to be, or may fall to be, redeemed at a premium, as opposed to being issued at a discount, then any such element of premium may constitute a payment of interest. Payments of interest are subject to United Kingdom withholding tax and reporting requirements as outlined above.
153 Where interest has been paid under deduction of United Kingdom income tax, Noteholders who are not resident in the United Kingdom may be able to recover all or part of the tax deducted if there is an appropriate provision in any applicable double taxation treaty.
The references to “interest” in 1-5 above mean “interest” as understood in United Kingdom tax law. The statements in 1-5 above do not take any account of any different definitions of “interest” or “principal” which may prevail under any other law or which may be created by the terms and conditions of the Notes or any related documentation.
The above description of the United Kingdom withholding tax position assumes that there will be no substitution of the Issuer pursuant to Condition 22 (Substitution) of the Notes and does not consider the tax consequences of any such substitution.
154 SUBSCRIPTION AND SALE
Notes may be sold from time to time by the Issuer to any one or more of Deutsche Bank AG London, Alpha Bank A.E., Citigroup Global Markets Limited, Credit Suisse First Boston (Europe) Limited, Dresdner Bank Aktiengesellschaft, EFG Eurobank Ergasias S.A., Goldman Sachs International, J.P. Morgan Securities Ltd., Merrill Lynch International, Morgan Stanley & Co. International Limited and NBG International (the “Dealers”). The arrangements under which Notes may from time to time be agreed to be sold by the Issuer to, and purchased by, Dealers are set out in a Dealership Agreement dated 24 February 2003 (the “Dealership Agreement”) and made between the Issuer, the Guarantor and the Dealers. Any such agreement will, inter alia, make provision for the form and terms and conditions of the relevant Notes, the price at which such Notes will be purchased by the Dealers and the commissions or other agreed deductibles (if any) payable or allowable by the Issuer in respect of such purchase. The Dealership Agreement makes provision for the resignation or termination of appointment of existing Dealers and for the appointment of additional or other Dealers either generally in respect of the Programme or in relation to a particular Tranche of Notes.
United States of America: Regulation S Category 2; TEFRA D or TEFRA C as specified in the relevant Pricing Supplement or neither if TEFRA is specified as not applicable in the relevant Pricing Supplement.
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S.
The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the United States Internal Revenue Code and regulations thereunder.
Each Dealer has agreed that, except as permitted by the Dealership Agreement, it will not offer, sell or deliver Notes of any identifiable Tranche, (i) as part of their distribution at any time or (ii) otherwise until 40 days after the completion of the distribution of the Notes comprising the relevant Tranche, as certified to the Fiscal Agent or the Issuer by such Dealer (or, in the case of a sale of a Tranche of Notes to or through more than one Dealer, by each of such Dealers as to the Notes of such Tranche purchased by or through it, in which case the Fiscal Agent or the Issuer shall notify each such Dealer when all such Dealers have so certified) within the United States or to, or for the account or benefit of, U.S. persons, and such Dealer will have sent to each dealer to which it sells Notes during the distribution compliance period relating thereto a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons.
In addition, until 40 days after the commencement of the offering of Notes comprising any Tranche, any offer or sale of Notes within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.
Each issue of Index-Linked Notes and Dual Currency Notes shall be subject to additional U.S. sales restrictions.
United Kingdom
Each Dealer has represented, warranted and agreed that:
(a) No offer to public: in relation to Notes which have a maturity of one year or more, it has not offered or sold and, prior to the expiry of a period of six months from the Issue Date of such Notes will not to offer or sell any such Notes to persons in the United Kingdom except to
155 persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995;
(b) No deposit-taking: in relation to any Notes having a maturity of less than one year:
(i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business; and:
(ii) it has not offered or sold and will not offer or sell any Notes other than to persons:
(A) whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses; or
(B) who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses,
where the issue of the Notes would otherwise constitute a contravention of Section 19 of the FSMA by the Issuer;
(c) Financial promotion: it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which section 21 (1) of the FSMA does not apply to the Issuer or the Guarantor; and
(d) General compliance: it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.
The Hellenic Republic
Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not offered or sold and will not offer or sell the Notes by any form of general solicitation or general advertising to the public in the Hellenic Republic. The offering or sale of the Notes has not been submitted to the approval procedure of the Hellenic Capital Market Commission (“CMC”) provided by Presidential Decree 52/1992 and article 10 of Law 876/1979. Consequently, no advertisement of any kind, notifications, statements or other actions are permitted to be taken in the Hellenic Republic with a view to attracting the public therein to acquire any of the Notes. Pursuant to the exceptions of article 4 of Presidential Decree 52/1992, the approval procedure set by it is not required if the Notes are to be offered or sold in Greece only to a restricted number of investors (not exceeding one hundred (100)) and/or persons professionally engaged in the investment business. In addition, to the extent that the Notes are listed on the Luxembourg Stock Exchange, the offering for sale of the Notes in Greece by an “investment firm” (as defined in the European Council Directive 93/22/EEC) which (i) under the laws of its home jurisdiction and operating licence is authorised to trade over-the- counter securities which are listed on any organised market, and (ii) lawfully operates in Greece through either an establishment therein or the provision of investment services cross border would be required to (x) make the latest Information Memorandum and the latest two semi-annual financial statements of the Issuer available to Greek investors in the Greek language, (y) announce its intention to offer the Notes for sale at least ten (10) business days prior to the commencement of the offering, and (z) submit the Information Memorandum and such financial statements to the CMC within the same period of time.
156 Japan
The Notes have not been and will not be registered under the Securities and Exchange Law of Japan (the “Securities and Exchange Law”) and each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not offered or sold and will not offer or sell any Notes, directly or indirectly, in Japan or to, or for the benefit of, any Japanese Person (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a Japanese Person except under circumstances which will result in compliance with all applicable laws, regulations and guidelines promulgated by the relevant Japanese governmental and regulatory authorities in effect at the relevant time.
Each Dealer has agreed to provide any necessary information on the Yen Notes to the Issuer (which shall not include the names of clients) so that the Issuer may (through its designated agent) make any required reports to the Ministry of Finance of Japan.
General
Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that (to the best of its knowledge and belief) it has complied and will comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Notes or possesses or distributes the Information Memorandum and has obtained any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and neither the Issuer nor the Guarantor and any other Dealer shall have any responsibility therefor.
Without prejudice to the obligations of the Dealers set out above, neither the Issuer nor the Guarantor nor any of the Dealers represents that Notes may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale.
With regard to each Tranche, the relevant Dealer will be required to comply with such other additional restrictions as the Issuer and the relevant Dealer shall agree and as shall be set out in the applicable Pricing Supplement and/or the Syndication Agreement or, as the case may be, the Purchase Agreement.
157 GENERAL INFORMATION
Listing
Application has been made to list Notes issued under the Programme on the Luxembourg Stock Exchange and, in connection therewith, the Luxembourg Stock Exchange has assigned registration number 12559 to the Programme. Prior to the listing of any Notes, the constitutional documents of the Issuer and the legal notice relating to the issue will be registered with the Trade and Companies Register (Registre de Commerce et des Societes) in Luxembourg, where copies of these documents may be obtained upon request.
However, Notes may be issued pursuant to the Programme which will not be listed on the Luxembourg Stock Exchange or any other stock exchange or which will be listed on such stock exchange as the Issuer and the relevant Dealer(s) may agree.
Authorisations
The establishment of the Programme was authorized by a resolution of the Board of Directors of the Issuer passed on 7 September 2001. The giving of the guarantee contained in the Deed of Guarantee was authorized by the resolutions of the Guarantor passed on 27 September 2001, 19 February 2003 and 16 September 2003. Each of the Issuer and the Guarantor has obtained or will obtain from time to time all necessary consents, approvals and authorisations in connection with the issue and performance of the Notes and the giving of the guarantee relating to them.
Clearing of the Notes
The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The appropriate common code and the International Securities Identification Number in relation to the Notes of each Tranche will be specified in the Pricing Supplement relating thereto. The relevant Pricing Supplement shall specify any other clearing system as shall have accepted the relevant Notes for clearance together with any further appropriate information.
Use of proceeds
The net proceeds of the issue of each Tranche of Notes will be applied by the Issuer to meet part of its general financing requirements and/or the financing requirements of the members of the Guarantor’s group.
Litigation
Save as disclosed in this Information Memorandum, there are no litigation or arbitration proceedings against or affecting the Issuer, the Guarantor, any of their respective subsidiaries or any of their respective assets or revenues, nor is the Issuer or the Guarantor aware of any pending or threatened proceedings of such kind, which are or might be material in the context of the Programme or the issue of the Notes thereunder.
No significant change
Save as disclosed in this Information Memorandum and since the last day of the financial period in respect of which the most recent audited financial statements of the Guarantor have been prepared (i.e., 31 December 2003), there has been no adverse change, or any development reasonably likely to involve an adverse change, in the condition (financial or otherwise) or general affairs of the Issuer or, as the case may be, the Guarantor or any of its subsidiaries that is material in the context of the Programme or the issue of the Notes thereunder.
158 Documents available for inspection
For so long as the Programme remains in effect or any Notes shall be outstanding, copies and, where appropriate, English translations of the following documents may be inspected during normal business hours at the specified office of the Fiscal Agent and the Paying Agent in Luxembourg, namely:
(a) the Agency Agreement (which contains the forms of the Notes in global and definitive form);
(b) the Deed of Guarantee;
(c) the Deed of Covenant;
(d) the Dealership Agreement; and
(e) the Operating and Administrative Procedures Memorandum.
Copies of any Pricing Supplement relating to Notes which are listed on any stock exchange may be inspected at and are obtainable from the specified office of the Fiscal Agent and the Paying Agent in Luxembourg during normal business hours. (In the case of any Notes which are not listed on any stock exchange, copies of the relevant Pricing Supplement will only be available for inspection by the relevant Noteholders.)
Financial statements available
For so long as the Programme remains in effect or any Notes shall be outstanding, copies and, where appropriate, English translations of the following documents may be obtained during normal business hours at the specified office of the Fiscal Agent and the Paying Agent in Luxembourg, namely:
(a) the most recent publicly available audited financial statements of the Issuer prepared in accordance with applicable United Kingdom law and accounting standards, beginning with such financial statements for the year ended 31 December 2003, and the most recent publicly available audited, consolidated U.S. GAAP financial statements of the Guarantor, beginning with such financial statements for the year ended 31 December 2003; and
(b) the most recent publicly available unaudited, consolidated quarterly and semi-annual U.S. GAAP management accounts of the Guarantor, beginning with such management accounts for the six months ended 30 June 2004.
The Guarantor does not produce any unconsolidated financial statements.
159 REGISTERED OFFICE OF THE ISSUER
OTE PLC Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ
REGISTERED OFFICE OF THE GUARANTOR
Hellenic Telecommunications Organization S.A. 99 Kifissias Avenue GR 151 81 Amaroussion Athens
DEALERS
Alpha Bank A.E. EFG Eurobank Ergasias S.A. 40 Stadiou Street 8 Othonos Street GR-102 52 Athens 105 57 Athens Greece Greece
Citigroup Global Markets Limited Goldman Sachs International Citigroup Centre Peterborough Court Canada Square 133 Fleet Street Canary Wharf London EC4A 2BB London E14 5LB
Credit Suisse First Boston J.P. Morgan Securities Ltd. (Europe) Limited 125 London Wall One Cabot Square London EC2Y 5AJ London E14 4QJ
Deutsche Bank AG London Merrill Lynch International Winchester House Merrill Lynch Financial Centre 1 Great Winchester Street 2 King Edward Street London EC2N 2DB London EC1A 1HQ
Dresdner Bank Aktiengesellschaft Morgan Stanley & Co. Juergen-Ponto-Platz 1 International Limited D-60301 Frankfurt am Main 25 Cabot Square London E14 4QA
NBG International Old Change House 128 Queen Victoria Street London EC4V 4HR
160 FISCAL AGENT
The Bank of New York One Canada Square London E14 5AL
PAYING AGENTS
The Bank of New York The Bank of New York Dexia Banque One Canada Square Corporate Trust Department Internationale à London E14 SAL 21st West Luxembourg société 101 Barclay Street anonyme New York 69, route d’Esch New York 10286 L-2953 Luxembourg
REGISTRAR AND EXCHANGE AGENT
The Bank of New York Corporate Trust Department 21st West 101 Barclay Street New York New York 10286
TRANSFER AGENTS
The Bank of New York Dexia Banque Internationale à Corporate Trust Department Luxembourg société anonyme 21st West 69, route d’Esch 101 Barclay Street L-2953 Luxembourg New York New York 10286
LEGAL ADVISERS
To the Dealers as to English Law: To the Issuer and Guarantor as to English and U.S. law: Clifford Chance Limited Liability Partnership Dewey Ballantine 10 Upper Bank Street One London Wall London E14 5JJ London EC2Y 5EZ
To the Dealers as to Greek Law: M&P Bernitsas 5 Lykavittou Street GR-106 72 Athens
161 LISTING AGENT
The Bank of New York Europe Limited One Canada Square London E14 5AL
AUDITORS TO THE ISSUER
Ernst & Young LLP 1 More London Place London SE1 2AF England
AUDITORS TO THE GUARANTOR
SOL S.A. Ernst & Young 3 Fokionos Negri Street 11th klm National Rd 11257 Athens Athens-Lamia, Gr-144 51 Metamorphosi
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