IMPORTANT NOTICE IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the attached offering circular (the ‘‘Offering Circular’’) and you are therefore advised to read this disclaimer page carefully before reading, accessing or making any other use of the attached Offering Circular. In accessing the attached Offering Circular, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from Bulgarian Telecommunications Company EAD (the ‘‘Issuer’’) or BTC Net EOOD, the guarantor as set forth in the attached Offering Circular (the ‘‘Guarantor’’) as a result of such access. Confirmation of Your Representation: In order to be eligible to view the attached Offering Circular or make an investment decision with respect to the securities, you must: (i) be a ‘‘qualified institutional buyer’’ (within the meaning of Rule 144A under the U.S. Securities Act of 1933, as amended (the ‘‘Securities Act’’)); or (ii) be a non-U.S. person (within the meaning of Regulation S under the Securities Act) and be outside the United States. You have been sent the attached Offering Circular on the basis that you have confirmed to each of the initial purchasers set forth in the attached Offering Circular (collectively, the ‘‘Initial Purchasers’’), being the sender or senders of the attached, that: (A) you and any customers you represent are either (i) ‘‘qualified institutional buyers’’ or (ii) not a U.S. person and the electronic mail (or e-mail) address to which it has been delivered is not located in the United States of America, its territories and possessions, any state of the United States and the District of Columbia; ‘‘possessions’’ include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands; and (B) you consent to delivery by electronic transmission. The materials relating to the offering contemplated by the attached Offering Circular do not constitute, and may not be used in connection with, an offer or a solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Initial Purchasers or any affiliate of the Initial Purchasers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the Initial Purchasers or such affiliate on behalf of the Issuer in such jurisdiction. Under no circumstances shall the attached Offering Circular constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The attached Offering Circular has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of transmission and, consequently, neither the Initial Purchasers nor any person who controls any Initial Purchasers nor the Issuer or the Guarantor nor any director, officer, employer, employee or agent of theirs, or affiliate of any such person, accepts any liability or responsibility whatsoever in respect of any difference between the Offering Circular distributed to you in electronic format and the hard copy version available to you on request from the Initial Purchasers. You are reminded that the attached Offering Circular has been delivered to you on the basis that you are a person into whose possession the attached Offering Circular may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not nor are you authorized to deliver this Offering Circular to any other person. You may not transmit the attached Offering Circular (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person except with the consent of the Initial Purchasers. Restrictions: Nothing in this electronic transmission constitutes an offer of securities for sale in the United States or any other jurisdiction. Recipients of the attached Offering Circular who intend to subscribe for or purchase securities are reminded that any subscription or purchase may only be made on the basis of the information contained in the attached Offering Circular. Any securities to be issued will not be registered under the Securities Act and may not be offered or sold in the United States or to or for the account or benefit of U.S. persons (as such terms are defined in Regulation S under the Securities Act) unless registered under the Securities Act or pursuant to an exemption from such registration. This communication is directed solely at persons who (i) are outside the United Kingdom; (ii) are investment professionals, as such term is defined in Article 19(5) of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the ‘‘Financial Promotion Order’’); (iii) are persons falling within Article 49(2)(a) to (d) of the Financial Promotion Order; or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 or ‘‘FSMA’’) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as ‘‘relevant persons’’). The attached Offering Circular must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which the attached Offering Circular relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on the attached Offering Circular or any of its contents. OFFERING CIRCULAR CONFIDENTIAL

7NOV201305271240 BULGARIAN TELECOMMUNICATIONS COMPANY EAD E400,000,000 65⁄8% Senior Secured Notes due 2018

Bulgarian Telecommunications Company EAD, a single-shareholder joint stock company, incorporated under the laws of Bulgaria (the ‘‘Issuer’’ or the ‘‘Company’’), is offering (the ‘‘Offering’’) A400,000,000 in aggregate principal amount of its 65⁄8% Senior Secured Notes due 2018 (the ‘‘Notes’’). The maturity date of the Notes is November 15, 2018. The Issuer will pay interest on the Notes semi-annually in arrears on May 15 and November 15 of each year, commencing on May 15, 2014. The Issuer may redeem the Notes in whole or in part at any time on or after November 15, 2015 at the redemption prices specified in this offering circular (the ‘‘Offering Circular’’). Prior to November 15, 2015 some or all of the Notes may be redeemed at any time at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest and additional amounts, if any, plus the applicable ‘‘make-whole’’ premium as described herein. Prior to November 15, 2015 the Issuer may redeem up to 10% of the Notes during each twelve- month period commencing on the Issue Date (as defined below) at a redemption price of 103% of the aggregate principal amount thereof plus accrued and unpaid interest and additional amounts, if any. Prior to November 15, 2015 the Issuer may also redeem up to 35% of the Notes using the proceeds of certain equity offerings at the redemption price specified herein. Additionally, the Issuer may redeem all, but not less than all, of the Notes upon the occurrence of certain changes in applicable tax law. In the event of a change of control or sale of certain of our assets, the Issuer may be required to make an offer to purchase the Notes. The Notes will be general obligations of the Issuer and will be guaranteed (the ‘‘Note Guarantee’’) on a senior secured basis by BTC Net EOOD, a limited liability company organized under the laws of Bulgaria (the ‘‘Guarantor’’). The Notes will rank equally in right of payment with all existing and future indebtedness of the Issuer that is not subordinated in right of payment to the Notes and will be senior in right of payment to all existing and future indebtedness of the Issuer that is subordinated in right of payment to the Notes. The Notes and the Note Guarantee will be secured as described in ‘‘Description of Notes—Security’’ (the ‘‘Collateral’’). The Collateral securing the Notes and the Note Guarantee also secures on a super priority basis the obligations of the Issuer and the Guarantor under the Revolving Credit Facility (as defined herein) and certain hedging obligations and may also secure additional debt in the future. The share capital of the Issuer will also secure on a junior priority basis obligations under the Equity Bridge (as defined herein) as more fully described elsewhere in this Offering Circular. The Note Guarantee and the security interests will be subject to contractual, legal and regulatory limitations and may be released under certain circumstances. This Offering Circular includes information on the terms of the Notes and the Note Guarantee, including redemption and purchase prices, security, covenants and transfer restrictions. This Offering Circular has been approved by the Central Bank of Ireland, as competent authority under Directive 2003/71/EC (the ‘‘Prospectus Directive’’) as amended (which includes the amendments made by Directive 2010/73/EU to the extent that such amendments have been implemented in a relevant Member State of the European Economic Area. The Central Bank of Ireland only approves this Offering Circular as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. This Offering Circular comprises a prospectus for the purposes of the Prospectus Directive. There is currently no public market for the Notes. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on its regulated market (the ‘‘Main Securities Market’’). Such approval only relates to Notes which are to be admitted to trading on a regulated market for the purposes of Directive 2004/39/EC and/or which are to be offered to the public in any Member State of the European Economic Area. References in this Offering Circular to the Notes being ‘‘listed’’ (and all related references) will mean that the Notes have been admitted to the Official List and have been admitted to trading on the Main Securities Market. The Main Securities Market is a regulated market for the purposes of Directive 2004/39/EC. The language of the Offering Circular is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law. The Notes will be in registered form in denominations of A100,000 and integral multiples of A1,000 in excess thereof. We expect that the Notes will be issued in the form of one or more global notes in registered form. Delivery of the notes in book-entry form through Euroclear Bank SA/NV (‘‘Euroclear’’) and Clearstream Banking, soci´et´e anonyme (‘‘Clearstream’’) will be made on or about November 22, 2013 (the ‘‘Issue Date’’). See ‘‘Book-Entry, Delivery and Form.’’ Investing in the Notes involves a high degree of risk. See ‘‘Risk Factors’’ beginning on page 25.

Price: 100.000% plus accrued interest, if any, from the Issue Date

The Notes and the Note Guarantee have not been, and will not be registered under U.S. federal securities laws or the securities laws of any other jurisdiction. The Notes are being offered and sold only to qualified institutional buyers in the United States in accordance with Rule 144A (‘‘Rule 144A’’) under the U.S. Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’) and to certain non-U.S. persons outside the United States in accordance with Regulation S (‘‘Regulation S’’) under the U.S. Securities Act. You are hereby notified that sellers of the Notes may be relying on the exemption from registration requirements of Section 5 of the U.S. Securities Act provided by Rule 144A. See ‘‘Transfer Restrictions’’ for additional information about eligible offerees and transfer restrictions. Joint Global Coordinators and Joint Bookrunners Credit Suisse VTB Capital Joint Bookrunners Barclays Deutsche Bank Co-Manager SOCIET´ E´ GEN´ ERALE´

The date of this Offering Circular is November 21, 2013. IMPORTANT INFORMATION The Issuer and the Guarantor have prepared this Offering Circular based on information they have or have obtained from sources they believe to be reliable. Summaries of documents contained in this Offering Circular may not be complete. We will make copies of certain actual documents available to you upon request. Save for the Issuer, no other party has made an independent verification of the information contained in this Offering Circular in connection with the issue or offering of the Notes and no representation or warranty, express or implied, is made by the Credit Suisse Securities (Europe) Limited, VTB Capital plc, Barclays Bank PLC, Deutsche Bank AG, London Branch and Societ´ e´ Gen´ erale´ (collectively, the ‘‘Initial Purchasers’’) with respect to the accuracy or completeness of such information. Nothing contained in this Offering Circular is to be construed as, or shall be relied upon as, a promise, warranty or representation, whether to the past or the future, by the Initial Purchasers or any of their respective directors, affiliates, advisers or agents in any respect. The contents of this Offering Circular are not to be construed as, and should not be relied on as, legal, business or tax advice and each prospective investor should consult their own legal, business, tax and other advisers regarding an investment in the Notes. No Initial Purchaser accepts any responsibility for the contents of this Offering Circular or for any other statement made or purported to be made by it, or on its behalf, in connection with the Issuer, the Guarantor, the Group (as defined herein), the Notes or the Note Guarantee. Each of the Initial Purchasers accordingly disclaims all and any liability whether arising in tort, contract or otherwise which it might otherwise have in respect of this Offering Circular or any such statement. You should base your decision to invest in the Notes solely on information contained in this Offering Circular. Neither the Issuer, the Guarantor nor the Initial Purchasers have authorized anyone to provide you with any different information. Neither the Issuer nor the Guarantor have authorized any dealer, salesperson or other person to give any information or represent anything to you other than the information contained in this Offering Circular. You must not rely on unauthorized information or representations. This Offering Circular does not offer to sell or ask for offers to buy any Notes in any jurisdiction where it is unlawful to do so, where the person making the offer is not qualified to do so, or to any person who cannot legally be offered the Notes. The information in this Offering Circular is current only as of the date on its cover, and our business or financial condition or other information in this Offering Circular may change after that date. For any time after the cover date of this Offering Circular, the Issuer and the Guarantor do not represent that their affairs are the same as described or that the information in this Offering Circular is correct, nor do they imply those things by delivering this Offering Circular or selling Notes to you. This Offering Circular may only be used for the purposes for which it has been published. The Issuer is offering the Notes and the Guarantor is issuing the Note Guarantee, in reliance on an exemption from registration under the U.S. Securities Act for an offer and sale of securities that does not involve a public offering. If you purchase the Notes, you will be deemed to have made certain acknowledgments, representations and warranties as detailed under ‘‘Transfer Restrictions.’’ You may be required to bear the financial risk of an investment in the Notes for an indefinite period of time. Neither the Issuer, the Guarantor, nor the Initial Purchasers are making an offer to sell the Notes in any jurisdiction where the offer and sale of the Notes is prohibited. Neither the Issuer, the Guarantor nor the Initial Purchasers make any representation to you that the Notes are a legal investment for you. No action has been, or will be, taken to permit a public offering in any jurisdiction where action would be required for that purpose. Each prospective purchaser of the Notes must comply with all applicable laws and rules and regulations in force in any jurisdiction in which it purchases, offers or sells the Notes and must obtain any consent, approval or permission required by it for the purchase, offer or sale by it of the Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers or sales, and neither the Issuer, the Guarantor nor the Initial Purchasers shall have any responsibility therefor. Neither the U.S. Securities and Exchange Commission, any U.S. state securities commission nor any non-U.S. securities authority nor other authority has approved or disapproved of the Notes, nor have any of the foregoing authorities determined if this Offering Circular is truthful or complete. Any representation to the contrary is a criminal offense.

i Each of the Issuer and the Guarantor accepts responsibility for the information contained in this Offering Circular. To the best of the knowledge and belief of the Issuer and the Guarantor (who have taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and does not omit anything likely to affect the import of such information. The Issuer and the Guarantor have prepared this Offering Circular solely for use in connection with the offer of the Notes and the Note Guarantee to qualified institutional buyers under Rule 144A under the U.S. Securities Act and to non-U.S. persons (within the meaning of Regulation S under the U.S. Securities Act) outside the United States under Regulation S under the U.S. Securities Act. You agree that you will hold the information contained in this Offering Circular and the transactions contemplated hereby in confidence. You may not distribute this Offering Circular to any person, other than a person retained to advise you in connection with the purchase of the Notes. The Issuer, the Guarantor and the Initial Purchasers may reject any offer to purchase the Notes in whole or in part, sell less than the entire principal amount of the Notes offered hereby or allocate to any purchaser less than all of the Notes for which it has subscribed. The information contained under the caption ‘‘Exchange Rate Information’’ includes extracts from information and data publicly released by official sources and Bloomberg. The Issuer and the Guarantor have accurately reproduced the information in relation to the exchange rate information and as far as the Issuer and the Guarantor are aware and able to ascertain, no facts have been omitted which would render the reproduced information inaccurate or misleading. The information set out in relation to sections of this Offering Circular describing clearing and settlement arrangements, including the section entitled ‘‘Book-Entry, Delivery and Form,’’ is subject to change in or reinterpretation of the rules, regulations and procedures of Euroclear Bank SA/NV (‘‘Euroclear’’) or Clearstream Banking, soci´et´e anonyme (‘‘Clearstream’’) currently in effect. The Issuer and the Guarantor have accurately reproduced the information in relation to Euroclear and Clearstream, and as far as the Issuer and the Guarantor are aware and able to ascertain, no facts have been omitted which would render the reproduced information inaccurate or misleading. The Issuer has applied to have the Notes admitted to the Official List of the Irish Stock Exchange and for trading on the Main Securities Market. The Issuer cannot guarantee that its application for the admission of the Notes to trading on the Main Securities Market and to listing of the Notes on the Official List of the Irish Stock Exchange, will be approved as of the settlement date for the Notes or at any time thereafter, and settlement of the Notes is not conditioned on obtaining this listing. The Notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the U.S. Securities Act and applicable securities laws of any other jurisdiction pursuant to registration or exemption therefrom. Prospective purchasers should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time. See ‘‘Transfer Restrictions.’’

STABILIZATION IN CONNECTION WITH THIS OFFERING CREDIT SUISSE SECURITIES (EUROPE) LIMITED (THE ‘‘STABILIZING MANAGER’’) (OR PERSONS ACTING ON BEHALF OF THE STABILIZING MANAGER) MAY OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILIZING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILIZING MANAGER) WILL UNDERTAKE STABILIZATION ACTION. ANY STABILIZATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE FINAL TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILIZATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE STABILIZING MANAGER (OR PERSON ACTING ON BEHALF OF THE STABILIZING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND REGULATIONS.

ii NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE 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 OF THE STATE OF NEW HAMPSHIRE 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 OF THE STATE OF NEW HAMPSHIRE 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.

NOTICE TO U.S. INVESTORS The Notes and the Note Guarantee have not been and will not be registered under the U.S. Securities Act or the securities laws of any state of the United States, and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act. Each purchaser of the Notes will be deemed to have made the representations, warranties and acknowledgements that are described in this Offering Circular under ‘‘Transfer Restrictions.’’ The offering of the Notes is being made only to ‘‘qualified institutional buyers’’ (as defined in Rule 144A under the U.S. Securities Act) and to certain non-U.S. persons (within the meaning of Regulation S) outside the United States in offshore transactions (as defined in Regulation S) in reliance on Regulation S. Prospective purchasers that are qualified institutional buyers are hereby notified that the Initial Purchasers of the Notes may be relying on an exemption from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A. For a description of certain further restrictions on resale or transfer of the Notes, see ‘‘Transfer Restrictions.’’ The Notes and the Note Guarantee described in this Offering Circular have not been registered with, recommended by or approved by the SEC, any state securities commission in the United States or any other securities commission or regulatory authority, nor has the SEC, any state securities commission in the United States or any such securities commission or authority passed upon the accuracy or adequacy of this Offering Circular. Any representation to the contrary is a criminal offense. The Notes and the Note Guarantee may not be offered to the public within any jurisdiction. By accepting delivery of this Offering Circular, you agree not to offer, sell, resell, transfer or deliver, directly or indirectly, any Note or Note Guarantee to the public.

NOTICE TO CERTAIN EUROPEAN INVESTORS European Economic Area. This Offering Circular has been prepared on the basis that all offers of the Notes will be made pursuant to an exemption under Article 3 of Directive 2003/71/EC (the ‘‘Prospectus Directive’’), as implemented in member states of the European Economic Area (the ‘‘EEA’’), from the requirement to produce a prospectus for offers of the Notes. Accordingly, any person making or intending to make any offer within the EEA of the Notes should only do so in circumstances in which no obligation arises for the Issuer, or any of the Initial Purchasers to produce a prospectus for such offer. Neither the Issuer nor the Initial Purchasers have authorized, nor do they authorize, the making of any offer of Notes through any financial intermediary, other than offers made by the Initial Purchasers, which constitute the final placement of the Notes contemplated in this Offering Circular. In relation to each Member State of the European Economic Area that has implemented the Prospectus Directive (each, a ‘‘Relevant Member State’’), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, the offer is not being made and will not be made to the public of any Notes which are the subject of the Offering contemplated by this Offering Circular in that Relevant Member State, other than: (a) to any legal entity which is a qualified investor as defined in the Prospectus Directive; (b) to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined

iii in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or (c) in any other circumstances falling within Article 3(2) of the Prospectus Directive. For the purposes of this provision, the expression an ‘‘offer of Notes to the public’’ in relation to the Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, the expression ‘‘Prospectus Directive’’ means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression ‘‘2010 PD Amending Directive’’ means Directive 2010/73/EU. Each subscriber for or purchaser of the Notes in the Offering located within a member state of the EEA will be deemed to have represented, acknowledged and agreed that it is a ‘‘qualified investor’’ within the meaning of Article 2(1)(e) of the Prospectus Directive. The Issuer, the Initial Purchasers and their affiliates, and others will rely upon the trust and accuracy of the foregoing representation, acknowledgement and agreement. Notwithstanding the above, a person who is not a qualified investor and who has notified the Initial Purchasers of such fact in writing may, with the consent of the Initial Purchasers, be permitted to subscribe for or purchase the Notes in the Offering. Austria. This Offering Circular has not been or will not be approved and/or published pursuant to the Austrian Capital Markets Act (Kapitalmarktgesetz) as amended. Neither this Offering Circular nor any other document connected therewith constitutes a prospectus according to the Austrian Capital Markets Act and neither this Offering Circular nor any other document connected therewith may be distributed, passed on or disclosed to any other person in Austria. No steps may be taken that would constitute a public offering of the Notes in Austria and the offering of the Notes may not be advertised in Austria. Any offer of the Notes in Austria will only be made in compliance with the provisions of the Austrian Capital Markets Act (Kapitalmarktgesetz) and all other laws and regulations in Austria applicable to the offer and sale of the Notes in Austria. Bulgaria. This Offering Circular does not constitute and has not been approved and/or published as a prospectus within the meaning of the Bulgarian Public Offering of Securities Act, promulgated in the Bulgarian State Gazette vol 114 dated December 30, 1999, as amended. Accordingly the offering of the Notes is not a public offering in the Republic of Bulgaria and the Notes may not be, directly or indirectly, sold or offered or advertised, as well as in this Offering Circular or any other information on the Offering may not be distributed or otherwise made available or published in Bulgaria except in circumstances which will not result in an offer of securities to the public. The Notes will not be admitted to trading on a regulated market in Bulgaria. France. This Offering Circular has not been prepared in the context of a public offering in France within the meaning of Article L. 411-1 of the Code Mon´etaire et Financier and Title I of Book II of the R`eglement G´en´eral of the Autorit´e des march´es financiers (the ‘‘AMF’’)and therefore has not been submitted for clearance to the AMF. Consequently, the Notes may not be, directly or indirectly, offered or sold to the public in France, and offers and sales of the Notes will only be made in France to providers of investment services relating to portfolio management for the account of third parties (personnes fournissant le service d’investissement de gestion de portefeuille pour le compte de tiers) and/or to qualified investors (investisseurs qualifi´es) and/or to a closed circle of investors (cercle restreint d’investisseurs) acting for their own accounts, as defined in and in accordance with Articles L. 411-2 and D. 411-1 to D. 411-4 of the Code of Mon´etaire et Financier. Neither this Offering Circular nor any other offering material may be distributed to the public in France. Germany. In the Federal Republic of Germany, the Notes will only be available to, and this Offering Circular and any other offering material in relation to the Notes is directed only at, persons who are qualified investors (qualifizierte Anleger) within the meaning of Section 2 No. 6 of the Securities Prospectus Act (Wertpapierprospektgesetz—WpPG). Any offer, sale, or resale of the Notes in Germany may only be made in accordance with the Securities Prospectus Act and other applicable laws. The Issuer has not, and does not intend to, file a securities prospectus with the German Federal Financial Supervisory Authority (Bundesanstalt fur¨ Finanzdienstleistungsaufsicht—BaFin) or obtain a notification to BaFin from another competent authority of a Member State of the European Economic Area, with which a securities

iv prospectus may have been filed, pursuant to Section 17 Para. 3 of the German Securities Prospectus Act (Wertpapierprospektgesetz—WpPG). Italy. The offering of the Notes has not been cleared by the Commissione Nazionale per le Societa` e la Borsa (the ‘‘CONSOB’’) pursuant to Italian securities legislation and, accordingly, no Notes may be offered, sold or delivered, directly or indirectly, nor may copies of this Offering Circular or of any other document relating to the Issuer, the Guarantor, the Notes or Note Guarantee be distributed in the Republic of Italy, except: (i) to qualified investors (‘‘investitori qualificati’’), as defined under Article 100 of the Legislative Decree No. 58 of February 24, 1998, as amended (the ‘‘Financial Services Act’’), as implemented by Article 26, paragraph 1(d) of Consob Regulation No. 16190 of October 29, 2007, as amended, pursuant to Article 34-ter, first paragraph, letter (b), of CONSOB Regulation No. 11971 of May 14, 1999, as amended; or (ii) in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the Financial Services Act and its implementing CONSOB Regulations including Regulation no. 11971. In any event, any offer, sale or delivery of the Notes or distribution of copies of this Offering Circular or any other document relating to the Notes in the Republic of Italy must be in compliance with all Italian securities, tax and exchange control and other applicable laws and regulations and must be: (a) made by investment firms, banks or financial intermediaries permitted to conduct such activities in the Republic of Italy in accordance with the relevant provisions of the Financial Services Act, Regulation No. 16190, Legislative Decree No. 385 of September 1, 1993 as amended (the ‘‘Banking Act’’) and any other applicable laws or regulation; (b) in compliance with Article 129 of the Banking Act and the implementing guidelines of the Bank of Italy, as amended, pursuant to which the Bank of Italy may request information on the offering or issue of securities in Italy or by Italian persons outside of Italy; and (c) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or the Bank of Italy or any other Italian authority. Luxembourg. The terms and conditions relating to this Offering Circular have not been approved by and will not be submitted for approval to the Luxembourg Financial Services Authority (Commission de Surveillance du Secteur Financier) for purposes of public offering or sale in Luxembourg. Accordingly, the Notes may not be offered or sold to the public in Luxembourg, directly or indirectly, and neither this Offering Circular nor any other circular, prospectus, form of application, advertisement or other material may be distributed, or otherwise made available in or from, or published in, Luxembourg except in circumstances which do not constitute a public offer of securities to the public, subject to prospectus requirements, in accordance with the Luxembourg Act of July 10, 2005 on prospectuses for securities, as amended, and implementing the Prospectus Directive. The Netherlands. The Notes (including rights representing an interest in each global note that represents the Notes) may not be offered or sold to individuals or legal entities in The Netherlands unless a prospectus relating to the offer is available to the public which is approved by the Dutch Authority for the Financial Markets (Autoriteit Financi¨ele Markten) or by the competent supervisory authority of another member state of the European Union (the ‘‘EU’’). Article 5:3 Financial Supervision Act (the ‘‘FSA’’) and article 53 paragraph 2 and 3 Exemption Regulation of the FSA provide for several exceptions to the obligation to make a prospectus available such as an offer to qualified investors within the meaning of article 1:1 FSA. Spain. This Offering has not been registered with the Comision´ Nacional del Mercado de Valores and therefore the Notes may not be offered in Spain by any means, except in circumstances which do not qualify as a public offer of securities in Spain in accordance with article 30 bis of the Securities Market Act (‘‘Ley 24/1988, de 28 de julio del Mercado de Valores’’) as amended and restated, or pursuant to an exemption from registration in accordance with article 41 of the Royal Decree 1310/2005 of 4 November (‘‘Real Decreto 1310/2005, de 4 de noviembre por el que se desarrolla parcialmente la Ley 24/1988, de 28 de julio, del Mercado de Valores, en materia de admision´ a negociacion´ de valores en mercados secundarios oficiales, de ofertas publicas´ de venta o suscripcion´ y del folleto exigible a tales efectos’’) and any regulations developing them or in substitution thereof which may be in force from time to time. Switzerland. The offering of the Notes is not a public offering in Switzerland. This Offering Circular, as well as any other material relating to the Notes which are the subject of the Offering contemplated by this Offering Circular, do not constitute an issue prospectus pursuant to article 652a and/or article 1156 of the Swiss Code of Obligations and may not comply with the Directive for Notes of Foreign Borrowers of the Swiss Bankers Association. The Notes will not be listed on the SIX Swiss Exchange Ltd., and therefore, the documents relating to the Notes, including, but not limited to, this Offering Circular, do not claim to

v comply with the disclosure standards of the Swiss Code of Obligations and the listing rules of the SIX Swiss Exchange Ltd. and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange Ltd. The Notes are being offered in Switzerland by way of a private placement (i.e., to a small number of selected investors only), without any public advertisement and only to investors who do not purchase the Notes with the intention to distribute them to the public. The investors will be individually approached directly from time to time. This Offering Circular, as well as any other material relating to the Notes, is personal and confidential and does not constitute an offer to any other person. This Offering Circular, as well as any other material relating to the Notes, may only be used by those investors to whom it has been handed out in connection with the Offering described herein and may neither directly nor indirectly be distributed or made available to other persons without the Issuer’s express consent. This Offering Circular, as well as any other material relating to the Notes, may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland. United Kingdom. The issue and distribution of this Offering Circular is restricted by law. This Offering Circular is not being distributed by, nor has it been approved for the purposes of section 21 of the Financial Services and Markets Act 2000 by, a person authorized under the Financial Services and Markets Act 2000. This Offering Circular is directed solely at persons who (i) are outside the United Kingdom or (ii) have professional experience in matters relating to investments (being investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the ‘‘Financial Promotion Order’’) (iii) are persons falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations etc.) of the Financial Promotion Order or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any Notes may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as ‘‘relevant persons’’). This Offering Circular must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this Offering Circular relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this Offering Circular or any of its contents. No part of this Offering Circular should be published, reproduced, distributed or otherwise made available in whole or in part to any other person without the prior written consent of the Issuer. The Notes are not being offered or sold to any person in the United Kingdom, except in circumstances which will not result in an offer of securities to the public in the United Kingdom within the meaning of Part VI of the Financial Services and Markets Act 2000. THIS OFFERING CIRCULAR CONTAINS IMPORTANT INFORMATION WHICH YOU SHOULD READ BEFORE YOU MAKE ANY DECISION WITH RESPECT TO AN INVESTMENT IN THE NOTES.

vi FORWARD-LOOKING STATEMENTS This Offering Circular includes forward-looking statements within the meaning of the securities laws of certain applicable jurisdictions. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this Offering Circular, including, without limitation, those regarding our future financial position and results of operations, our strategy, plans, objectives, goals and targets, future developments in the markets in which we participate or are seeking to participate or anticipated regulatory changes in the markets in which we operate or intend to operate. In some cases, you can identify forward-looking statements by terminology such as ‘‘aim,’’ ‘‘anticipate,’’ ‘‘believe,’’ ‘‘continue,’’ ‘‘could,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘forecast,’’ ‘‘guidance,’’ ‘‘intend,’’ ‘‘may,’’ ‘‘plan,’’ ‘‘potential,’’ ‘‘predict,’’ ‘‘projected,’’ ‘‘should,’’ or ‘‘will’’ or the negative of such terms or other comparable terminology. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and are based on numerous assumptions and that our actual results of operations, including our financial condition and liquidity and the development of the industries in which we and the members of our group operate, may differ materially from (and be more negative than) those made in, or suggested by, the forward-looking statements contained in this Offering Circular. In addition, even if our results of operations, including our financial condition and liquidity and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this Offering Circular, those results or developments may not be indicative of results or developments in subsequent periods. Important risks, uncertainties and other factors that could cause these differences include, but are not limited to: • high levels of competition in the markets in which we operate; • our ability to respond to rapid technological changes and corresponding changes in consumer preferences on a timely basis; • increasing competition from alternative modes of telecommunication; • our ability to limit customer churn; • the existence of a widespread ‘‘grey market’’ in the fixed broadband and pay-TV market in Bulgaria; • our ability to continuously upgrade our network, systems and operations and avoid equipment and network system failures; • the capital-intensive nature of our business; • our ability to maintain the reputation of our brand; • disruptions in the supply of our equipment and services from key suppliers and vendors; • the effects of new business models and our ability to adapt to them; • the dependence on third-party telecommunications providers for the provision of certain of our services; • our ability to recoup capital expenditures, including in relation to investments in UMTS and HSPA+ technologies; • our ability to avoid bad debt expenses; • our reliance on major business customers, leaving us vulnerable to various financial risks; • our ability to safeguard data we receive from our customers; • our ability to attract and retain key personnel; • our ability to protect our intellectual property and our potential infringement of the intellectual property rights of others; • the status and outcome of pending litigation, legal or regulatory actions, and impact of any new litigation, legal or regulatory actions we may become party to, or litigation, legal or regulatory actions to which we may be subject; • our ability to prevent labor disputes and work stoppages;

vii • the impact of decreased mobile communications usage, litigation or stricter regulation arising from alleged health risks or other problems; • exchange rate fluctuations; • changes in political, social, legal or economic conditions in Bulgaria; • our ability to maintain our permits for the key technologies underlying our services; • changes in the regulatory framework in which we operate, including regulatory developments with respect to termination rates and the designation of whether we have significant market power in the markets in which we operate; • our substantial leverage and debt service obligations; • financial covenants in our debt instruments; • our ability to raise additional financing; • our ability to generate sufficient cash to service our debt, to control and finance our capital expenditures and operations; • risks associated with the Offering, the Notes, the Note Guarantee or the Collateral; • risks associated with our shareholders; and • other factors discussed or referred to in this Offering Circular. We urge you to read the sections of this Offering Circular entitled ‘‘Risk Factors,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ ‘‘Industry and Market Overview,’’ ‘‘Business’’ and ‘‘Regulation’’ for a more complete discussion of the factors that could affect our future performance and the markets in which we operate. The telecommunications industry changes rapidly and, therefore, the forward-looking statements of expectations, plans and intent in this Offering Circular are subject to a significant degree of risk. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Offering Circular, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement or risk factors contained herein, to reflect new information, any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based. We disclose important factors that could cause our actual results to differ materially from our expectations in this Offering Circular. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business, financial and other conditions, results of operations and our ability to make payments on the Notes.

viii CERTAIN DEFINITIONS Unless indicated otherwise in this Offering Circular or the context requires otherwise: ‘‘Alcatel-Lucent Agreement’’ refers to an agreement dated February 12, 2010 between the Company and Alcatel-Lucent Bulgaria EOOD, Sofia for the supply of network operations services. ‘‘CCB Group’’ refers to Bromak Telecom Invest AD, a joint stock company, incorporated and existing under the laws of Bulgaria, and its affiliates, including its beneficial owner Bromak EOOD, a limited liability company organized under the laws of Bulgaria and the majority owner of Corporate Commercial Bank AD. ‘‘CPC’’ refers to the Bulgarian Commission for Protection of Competition. ‘‘CRC’’ refers to Bulgarian Communications Regulation Commission. ‘‘Equity Bridge’’ refers to the equity bridge loan agreement dated on or about the Issue Date among InterV Investment S.a` r.l., as borrower and VTBC, as arranger, as described in ‘‘Description of Certain Financing Arrangements—Equity Bridge.’’ ‘‘Equity Bridge Facility Agent’’ refers to VTBC. ‘‘EU’’ refers to the European Union. ‘‘EUR,’’ ‘‘euro,’’ or ‘‘E’’ refer to the single currency of the participating member states of the European and Monetary Union of the Treaty Establishing the European Community, as amended from time to time. ‘‘Existing Senior Facility’’ refers to the senior facility made available pursuant to the Senior Facilities Agreement. ‘‘Golden Share’’ refers to the preferential share that the Bulgarian government held in the Company that carried the right to veto certain decisions. The Golden Share was redeemed on October 15, 2013. ‘‘Guarantor’’ refers to BTC Net EOOD. ‘‘IAS 34’’ refers to International Accounting Standards 34, ‘‘Interim Financial Reporting,’’ as adopted by the European Union. ‘‘IFRS’’ refers to International Financial Reporting Standards as adopted by the European Commission for use in the European Union. ‘‘Indenture’’ refers to the indenture to be dated on or about the Issue Date between, among others, the Issuer, the Guarantor, the Trustee and the Security Agent for the Notes. ‘‘Initial Purchasers’’ refers to Credit Suisse Securities (Europe) Limited, VTB Capital plc, Barclays Bank PLC, Deutsche Bank AG, London Branch and Societ´ e´ Gen´ erale.´ ‘‘Intercreditor Agreement’’ refers to the intercreditor agreement dated on or about the Issue Date made between, among others, the Issuer, the Guarantor, the Security Agent, the Revolving Credit Facility Agent, the Equity Bridge Facility Agent, the Trustee and other parties named therein, as amended, restated or otherwise modified or varied from time to time. ‘‘Issue Date’’ refers to the date on which the Notes offered hereby are originally issued. ‘‘Issuer’’ refers to Bulgarian Telecommunications Company EAD. ‘‘Lev,’’ ‘‘BGN,’’ or ‘‘Leva’’ refers to Bulgarian Lev, the lawful currency of Bulgaria. ‘‘Management Board’’ refers to the management board of Bulgarian Telecommunications Company EAD. ‘‘Note Guarantee’’ refers to the guarantee issued by the Guarantor on a senior secured basis guaranteeing the Notes.

‘‘Notes’’ refers to the A400,000,000 65⁄8% Senior Secured Notes due 2018 to be issued in this Offering. ‘‘Offering’’ refers to the offering of the Notes pursuant to this Offering Circular. ‘‘Revolving Credit Facility’’ refers to the revolving credit facility made available pursuant to the Revolving Credit Facility Agreement. ‘‘Revolving Credit Facility Agreement’’ refers to the super senior revolving credit facility agreement dated on or about the Issue Date between the Issuer, as borrower, the Guarantor, as co-debtor and Societe

ix Generale Expressbank AD, as lender, as described in ‘‘Description of Certain Financing Arrangements— Revolving Credit Facility.’’ ‘‘SEC’’ refers to the United States Securities and Exchange Commission. ‘‘Security Agent’’ refers to U.S. Bank Trustees Limited, as security agent under the Intercreditor Agreement and the Security Documents. ‘‘Security Documents’’ refers to the security and other documents and agreements that provide for security interests over the Collateral for the benefit of the holders of the Notes, as described in more detail under ‘‘Description of Notes—Security.’’ ‘‘Senior Facilities Agreement’’ refers to the senior facilities agreement, as amended and restated on October 31, 2012, among, inter alios, V Telecom Investment S.C.A., V2 Investment S.a` r.l., InterV Investment S.a` r.l., Viva Telecom Bulgaria EAD, and the Issuer as borrowers, and The Royal Bank of Scotland plc as agent and security agent. ‘‘Shareholders’ Agreement’’ refers to the shareholders’ agreement dated October 31, 2012 made between, among others, Crusher Investment Limited, Bromak EOOD, the former lenders to the Issuer and V Telecom Investment S.C.A., which provides for, among other things, the management of their relationship as shareholders in V Telecom Investment S.C.A. and the management and affairs of the Group. ‘‘Squeeze Out’’ refers to the acquisition of the ordinary shares of the Issuer by Viva Telecom Bulgaria EAD from the Issuer’s public shareholders in July 2013. ‘‘Supervisory Board’’ refers to the supervisory board of Bulgarian Telecommunications Company EAD. ‘‘Transactions’’ refers, collectively, to the Offering, the entering into of the Equity Bridge, the Purchase Agreement, the Indenture, the Intercreditor Agreement, the Revolving Credit Facility Agreement, the Security Documents and any other agreement in connection with the Offering and the further application of the proceeds therefrom as described under ‘‘Use of Proceeds.’’ ‘‘Trustee’’ refers to U.S. Bank Trustees Limited. ‘‘U.S. Exchange Act’’ refers to the United States Securities Exchange Act of 1934, as amended. ‘‘U.S. GAAP’’ refers to generally accepted accounting principles in the United States. ‘‘U.S. Securities Act’’ refers to the United States Securities Act of 1933, as amended. ‘‘United States’’ or the ‘‘U.S.’’ each refers to the United States of America. ‘‘USD,’’ ‘‘U.S. dollar,’’ or ‘‘$’’ each refers to the lawful currency of the United States. ‘‘Vivacom,’’ the ‘‘Company,’’ the ‘‘Group,’’ ‘‘we,’’ ‘‘us,’’ and ‘‘our’’ each refers only to Bulgarian Telecommunications Company EAD and its consolidated subsidiary, BTC Net EOOD, unless the context otherwise requires or such other meaning is clear from context. ‘‘VTB’’ refers to Crusher Investments Limited or in certain cases an affiliate thereof. ‘‘VTBC’’ refers to VTB Capital plc.

x PRESENTATION OF FINANCIAL AND OTHER INFORMATION Financial Information This Offering Circular includes the unaudited interim consolidated and separate financial statements of Bulgarian Telecommunications Company EAD, as at and for the nine months ended September 30, 2013, including the comparative data as at and for the nine months September 30, 2012, which have been reviewed by KPMG Bulgaria OOD, and the audited consolidated and separate financial statements of Bulgarian Telecommunications Company EAD as at and for the years ended December 31, 2010, December 31, 2011 and December 31, 2012, which have been audited by PricewaterhouseCoopers Audit OOD (together, the ‘‘Consolidated Financial Statements’’). Bulgarian Telecommunications Company EAD’s historical results do not necessarily indicate results that may be expected for any future period. In particular the unaudited interim consolidated and separate financial information as at and for the nine months ended September 30, 2013 is not necessarily indicative of the results that may be expected for the year ended December 31, 2013 and should not be used as the basis for or prediction of an annualized calculation. We are also presenting unaudited consolidated financial information for Bulgarian Telecommunications Company EAD for the twelve months ended September 30, 2013. The unaudited consolidated financial information for the twelve months ended September 30, 2013 is calculated by taking the results of operations for the nine months ended September 30, 2013 and adding to it the difference between the results of operations for the full year ended December 31, 2012 and the historical nine months ended September 30, 2012. The unaudited consolidated financial information for the twelve months ended September 30, 2013 has been prepared for illustrative purposes only and is not necessarily representative of our results of operations for any future period or our financial condition at any future date. Since the financial period beginning January 1, 2012, we have recorded revenue from value-added services, net of costs, whereas previously revenue from value-added services was recorded on a gross basis with the costs of value-added services included in other operating expenses, which could affect the comparability of our Consolidated Financial Statements. Our management believes that the impact of this change in presentation, amounting to less than 1% of total revenues, is not material. The Consolidated Financial Statements have been prepared based on a calendar year and are presented in Bulgarian Lev (‘‘BGN’’). The Consolidated Financial Statements presented herein have been prepared in accordance with International Financial Reporting Standards as adopted by the European Commission for use in the European Union (‘‘IFRS’’). The Consolidated Financial Statements in this Offering Circular are not intended to comply with the SEC’s reporting requirements and have been prepared in accordance with IFRS which differs in various significant respects from U.S. GAAP. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements are disclosed in those Consolidated Financial Statements. In making an investment decision, you should rely upon your own examination of the terms of the Offering and the financial information contained in this Offering Circular. You should consult your own professional advisors for an understanding of the differences between IFRS, on one hand, and U.S. GAAP on the other hand, and how those differences could affect the financial information contained in this Offering Circular.

Pro Forma Financial Information This Offering Circular also includes certain specified unaudited pro forma consolidated financial information of Bulgarian Telecommunications Company EAD as at September 30, 2013. The unaudited pro forma financial information has been prepared to illustrate the effect of the Transactions on certain consolidated financial information as at September 30, 2013. The information, which has been produced for illustrative purposes only, by its nature addresses a hypothetical situation and, therefore, does not represent the Company’s actual financial position or results, nor do they purport to project our financial position or results at any future date. The actual results may differ significantly from those reflected in the unaudited pro forma consolidated financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma consolidated financial information. The unaudited pro forma financial information is compiled on the basis set out in the notes in the statement of unaudited pro forma financial information appearing elsewhere in this Offering Circular (the

xi ‘‘Statement of Unaudited Pro Forma Consolidated Financial Information’’). The unaudited pro forma consolidated financial information has not been prepared in accordance with the requirements of Regulation S-X of the U.S. Securities Act or any generally accepted accounting standards, and accordingly, should not be relied on as if they had been carried out in accordance with those standards. The unaudited pro forma consolidated financial information should be read in conjunction with the information contained in ‘‘Selected Historical Financial Information and Other Information,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the Consolidated Financial Statements and the Statement of Unaudited Pro Forma Consolidated Financial Information appearing elsewhere in this Offering Circular.

Non-IFRS Financial Measures This Offering Circular contains non-IFRS measures and ratios, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA at constant termination rates, total revenue at constant termination rates, capital expenditures, net borrowings and leverage ratios that are not required by, or presented in accordance with, IFRS. As used in this Offering Circular, the following terms have the following meanings: • ‘‘EBITDA’’ refers to profit/(loss) for the period (prepared in accordance with IFRS) before income tax expense, finance costs, finance income and depreciation and amortization. • ‘‘Adjusted EBITDA’’ refers to EBITDA as calculated above excluding the effect of asset impairment and write-off, share of profit of joint ventures, other gains, net, fees payable under a management services agreement and technical services agreement entered into at the time of privatization and discontinued in 2010, provisions and penalties and other exceptional items, which we believe are not indicative of our underlying operating performance. • ‘‘Adjusted EBITDA margin’’ refers to Adjusted EBITDA as calculated above divided by total revenue in the applicable period. • ‘‘Adjusted EBITDA at constant termination rates’’ refers to Adjusted EBITDA as calculated above assuming that termination rates for the applicable period would have been the same as the termination rates applicable from July 1, 2013 onwards. For the three months ended September 30, 2013, no adjustments have been made in respect of contractually agreed upon rates for wholesale international inbound traffic. Termination rates refer to the tariff chargeable by operators for terminating calls on their networks as set forth by the CRC. • ‘‘Total revenue at constant termination rates’’ refers to the revenue calculated assuming that termination rates for the applicable period would have been the same as the termination rates applicable from July 1, 2013 onwards. For the three months ended September 30, 2013, no adjustments have been made in respect of contractually agreed upon rates for wholesale international inbound traffic. Termination rates refer to the tariff chargeable by operators for terminating calls on their networks as set forth by the CRC. • ‘‘Capital expenditures’’ refers to cash paid during the period for purchases of property plant & equipment and other non-current assets and the change in investing net working capital. • ‘‘Net borrowings’’ refers to borrowings after cash and cash equivalents for the relevant period. We present these non-IFRS measures mainly because we believe that, when considered in conjunction with related IFRS financial measures, these measures provide investors with important additional information to evaluate operating performance. We believe EBITDA-based measures are useful to investors because these measures (i) provide investors with financial measures on which management bases financial, operational, compensation and planning decisions; and (ii) present measurements that investors and other interested parties in our industry have indicated to management are useful to them in assessing a company and its results of operation. These measures, however, are not measures of financial performance under total comprehensive income as a measure of operating performance. Since EBITDA-based measures are not determined in accordance with IFRS and thus are susceptible to varying interpretations and calculations, the measures we present may not necessarily be comparable to similarly titled measures used by other companies, limiting their usefulness as comparative measures. These non-IFRS measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported

xii under IFRS. Non-IFRS measures and ratios such as EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA at constant termination rates, total revenue at constant termination rates, capital expenditures, net borrowings and leverage ratios are not measurements of performance or liquidity under IFRS and should not be considered as alternatives to IFRS measures of total comprehensive income or cash flows or any other performance measures derived in accordance with IFRS or any other generally accepted accounting principles or as alternatives to cash flow from operating, investing or financing activities as measures of our liquidity. The non-IFRS measures we present may also be defined differently than the corresponding terms under the Indenture. Some of the limitations of these non-IFRS measures are: • they do not reflect cash expenditures, or future requirements, for capital expenditures or contractual commitments; • they do not reflect changes in, or cash requirements for, working capital needs; • they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on debts; • although depreciation, amortization and impairment are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and these measures do not reflect any cash requirements that would be required for such replacements; • some of the exceptional items eliminated in calculating these measures reflect cash payments, such as termination costs and asset impairments and write-offs that were made, or will be made in the future; • they do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and • other companies in our industry may calculate such measures differently than we do, limiting their usefulness as a comparative measure.

Non-Financial Operating Data Certain key performance indicators and other non-financial operating data included in this Offering Circular are derived from management estimates, are not part of our financial statements or financial accounting records, and have not been audited or otherwise reviewed by outside auditors, consultants or experts. Our use or computation of these terms may not be comparable to the use or computation of similarly titled measures reported by other companies. Any or all of these terms should not be considered in isolation or as an alternative measure of performance under IFRS.

Rounding Certain numerical figures set out in this Offering Circular, including but not limited to financial data presented in millions or thousands and percentages describing market shares, have been subject to rounding adjustments and, as a result, the totals of the data in this Offering Circular may vary slightly from the actual arithmetic totals of such information. Percentages and amounts reflecting changes over time periods relating to financial and other data set forth in ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ are calculated using the numerical data in the consolidated financial statements of Bulgarian Telecommunications Company EAD or the tabular presentation of other data (subject to rounding) contained in this Offering Circular, as applicable, and not using the numerical data in the narrative description thereof.

Currency In this Offering Circular, all references to ‘‘BGN,’’ ‘‘Lev’’ or ‘‘Leva’’ are to the Bulgarian Lev, and all references to ‘‘euros,’’ ‘‘EUR’’ and ‘‘E’’ are to the lawful currency of the European Union.

xiii INDUSTRY, MARKET AND SUBSCRIBER DATA In this Offering Circular, we rely on and refer to information regarding our business and the market in which we operate and compete. The market data and certain economic and industry data and forecasts used in this Offering Circular were obtained from internal surveys, market research, governmental and other publicly available information, independent industry publications and reports prepared by industry consultants. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We believe that these industry publications, surveys and forecasts are reliable but we have not independently verified them and cannot guarantee their accuracy or completeness. The Issuer and the Guarantor have accurately reproduced the information in relation to these industry publications, surveys and forecasts, and as far as the Issuer and the Guarantor are aware and able to ascertain, no facts have been omitted which would render the reproduced information inaccurate or misleading. The sources of all third-party information included in this Offering Circular are cited where used. In addition, in many cases, we have made statements in this Offering Circular regarding the Bulgarian telecommunications industry and our position in the industry, based on our internal estimates, provided by our experience, our investigations of market conditions and our review of industry publications, including information made available to the public by our competitors. We cannot assure you that any of the assumptions underlying these statements are accurate or correctly reflect our position in the industry and none of our internal surveys or information has been verified by any independent sources. Neither we nor the Initial Purchasers make any representation or warranty as to the accuracy or completeness of this information. All of the information set forth in this Offering Circular relating to the operations, financial results or subscriber base of Mobiltel (also known as Mtel), Globul, Blizoo, Bulsatcom, Max Telecom and 4G Com have been obtained from information made available to the public in such companies’ publicly- available reports and independent research. Neither we nor the Initial Purchasers have independently verified this information and cannot guarantee its accuracy. The Issuer and the Guarantor have accurately reproduced the information in relation to the operations, financial results or subscriber base of MobilTel, Globul, Blizoo and Bulsatcom, and as far as the Issuer and the Guarantor are aware and able to ascertain, no facts have been omitted which would render the reproduced information inaccurate or misleading. The subscriber data included in this Offering Circular, including penetration rates, average revenue per user (‘‘ARPU’’), average minutes of use (‘‘AMOU’’), subscriber numbers and our market share are derived from management estimates, and are not part of our financial statements or financial accounting records and have not been audited or otherwise reviewed by outside auditors, consultants or experts. The use or computation of the terms ARPU, subscriber base or churn may not be comparable to the use or computation of similarly titled measures reported by other companies in the telecommunications industry. ARPU should not be considered in isolation or as an alternative measure of performance under IFRS. ARPU is a non-IFRS measure.

Market Share We calculate the market share for our mobile services by taking the total number of our subscribers as a percentage of the total number of subscribers in the Bulgarian market (which is calculated here by adding the total number of our subscribers to the number of subscribers disclosed by each of the mobile network operators in their publicly available reports as of a given date). We have excluded the market share represented by third-party mobile virtual network operators or ‘‘MVNOs.’’ MVNOs have limited penetration in Bulgaria. Market share as at September 30, 2013 is not available as at the date of this Offering Circular, as the subscriber numbers of our competitors are not yet publicly available. Therefore, market share as at June 30, 2013 is presented in this Offering Circular.

ARPU We believe that ARPU provides useful information concerning the appeal and usage patterns of our rate plans and service offerings and our performance in attracting and retaining high-value subscribers of mobile, fixed-line voice and fixed broadband subscribers. We define blended mobile ARPU as the sum of the monthly mobile services revenue in the period divided by the average number of mobile subscribers in the period, divided by the number of months in that period. The average number of mobile subscribers during a period is calculated by adding together the number of active mobile Subscriber Identity Module cards (‘‘SIM cards’’) at the beginning and end of each

xiv month during the period, dividing by two and then averaging the results from all months during the period. For purposes of calculating blended mobile ARPU, mobile services revenue (which differs from revenue from our mobile segment) consist of revenue generated from our monthly subscription fees, usage fees for services that are incremental to the services allocated with our monthly subscription fees and mobile interconnect revenue (from fees paid to us by other operators for calls terminated on our mobile network, including roaming charges by our customers) as well as the expired balance revenue for pre-paid SIM cards as part of non-recurring revenue, but does not include non-recurring revenue such as revenue generated from mobile handset sales and revenue from roaming charges incurred by customers of other operators using our network. We define pre-paid mobile ARPU as the sum of the monthly pre-paid mobile revenue in the period divided by the average number of pre-paid mobile subscribers in the period divided by the number of months in that period. The average number of mobile subscribers during a period is calculated by adding together the number of active mobile SIM cards at the beginning and end of each month during the period, dividing by two and then averaging the results from all months during the period. We define post-paid mobile ARPU as the sum of the monthly post-paid mobile revenue in the period divided by the average number of post-paid mobile subscribers in the period divided by the number of months in that period. The average number of mobile subscribers during a period is calculated by adding together the number of active mobile SIM cards at the beginning and end of each month during the period, dividing by two and then averaging the results from all months during the period. We define mobile data ARPU as the sum of the monthly mobile data revenue in the period divided by the average number of mobile subscribers in the period, divided by the number of months in that period. The average number of mobile subscribers during a period is calculated by adding together the number of active mobile SIM cards at the beginning and end of each month during the period, dividing by two and then averaging the results from all months during the period. For purposes of calculating mobile data ARPU, mobile data revenue consists of revenue generated from data and messaging services. We define fixed telephony ARPU as the sum of the monthly fixed telephony revenue in the period divided by the average number of fixed telephony subscribers in the period, divided by the number of months in that period. The average number of fixed telephony subscribers in a period is calculated by adding together the number of fixed telephony subscribers at the beginning and end of each month during the period, dividing by two and then averaging the results from all months during the period. For purposes of calculating fixed telephony ARPU, fixed telephony revenue includes revenue generated from monthly subscription fees, usage fees for services that are incremental to the services allocated with our monthly subscription fees and landline termination rates (i.e., fees paid to us by other operators for calls terminated on our landline network), but does not include revenue generated from wholesale voice and public payphone services. We define fixed broadband ARPU as the sum of the monthly fixed broadband revenue in the period divided by the average number of fixed broadband subscribers in the period, divided by the number of months in that period. The average number of fixed broadband subscribers in a period is calculated by adding together the number of fixed broadband subscribers at the beginning and end of each month during the period, dividing by two and then averaging the results from all months during the period. For purposes of calculating fixed broadband ARPU, fixed broadband revenue includes revenue generated from monthly subscription fees but does not include dial-up revenue, revenue from the sale of customer premises equipment, such as modems and initial set up charges and revenue generated from the provision of business data and connectivity solutions such as VPN and MAN services.

AMOU We define AMOU as the sum of the total traffic (in minutes) in a certain period divided by the average number of mobile subscribers for the period divided by the number of months in that period. The average number of mobile subscribers during a period is calculated by adding together the number of active mobile SIM cards at the beginning and end of each month during the period, dividing by two and then averaging the results from all months during the period.

Subscribers The number of subscribers in our mobile service is reported based on the number of active mobile SIM cards. In line with the prevailing methodology in Bulgaria for calculating post-paid mobile subscribers,

xv post-paid mobile subscribers are counted in our subscriber base as long as they have an active contract, have any active billing status (subscribers who regularly pay their bills) and have not been disconnected from our network, which includes machine-to-machine connections. However, prevailing methodology in the rest of Europe, is such that post-paid mobile subscribers are counted excluding machine-to-machine connections. Pre-paid mobile subscribers are counted in our subscriber base in line with the prevailing methodology for doing so in the Bulgarian mobile telecommunications market, whereby pre-paid mobile subscribers are counted in our subscriber base if they have had an activity event (such as outgoing and incoming customer generated usage or recharge) within the last twelve months. However, the prevailing methodology for calculating pre-paid mobile subscriber base in the rest of Europe, is such that pre-paid mobile subscribers are counted if they have had an activity event (such as a usage or a recharge) within the last three months. In our fixed telephony service, subscribers are counted in our subscriber base as long as they have an active billing status (subscribers who regularly pay their bills). In our fixed broadband service, we report fixed broadband subscribers based on technical installations and the number of subscribers who have an active billing status (subscribers who regularly pay their bills). Our subscriber data includes the number of main products in use by our residential and business customer units. An individual buying a VIVACOM Trio bundle could therefore be reported as a post-paid mobile subscriber, a fixed telephony subscriber and a fixed broadband subscriber, as each active service is reported separately based on the technology. Generally, each connection counts as one subscriber; however, this may vary depending on the circumstances and subscriber numbers should not be equated with the actual number of individuals or businesses using our services.

Penetration Rates Access to telecommunication services in the Bulgarian mobile market is referred to as ‘‘penetration’’ of the market. In this Offering Circular, penetration rate presented as at each period-end is calculated by dividing the total number of subscribers (excluding MVNOs) of all industry participants at such date (based upon market research reports and information made available by operators’ publicly available reports) by the Bulgarian population from figures obtained from the International Monetary Fund as at the applicable period end and expressing such calculation as a percentage of the population. Penetration rates as at September 30, 2013 are not available as at the date of this Offering Circular, as the subscriber numbers of our competitors are not yet publicly available. Therefore, penetration rates as at June 30, 2013 are presented in this Offering Circular. The Issuer and the Guarantor have accurately reproduced the information in relation to these market research and operators’ publicly available reports and Bulgarian population figures, and as far as the Issuer and the Guarantor are aware and able to ascertain, no facts have been omitted which would render the reproduced information inaccurate or misleading. The market share, ARPU, subscriber, penetration rate and related data contained in this Offering Circular is not part of our financial statements or financial accounting records and has not been audited or otherwise reviewed by outside auditors, consultants or independent experts. Figures, projections and market analysis from Analysys Mason which are contained in this Offering Circular are based on publicly available information only and are produced and published by the Research Division of Analysys Mason Limited independently of any client-specific work within Analysys Mason Limited. The opinions expressed in the Analysys Mason material cited herein are those of the relevant Analysys Mason report authors only. Analysys Mason Limited maintains that all reasonable care and skill have been used in the compilation of the publications and figures provided by Analysys Mason’s Research Division and cited in this Offering Circular. However, to the extent permitted by applicable law, Analysys Mason Limited shall not be under any liability for loss or damage (including consequential loss) whatsoever or howsoever arising as a result of the use of Analysys Mason publications, figures, projections or market analysis in this Offering Circular, by the Initial Purchasers, their servants, agents, or any recipient of this Offering Circular or any other third-party. The Analysys Mason figures and projections cited in this Offering Circular are provided for information purposes only and are not a complete analysis of every material fact respecting any company, industry, security or investment. Analysys Mason figures and projections in this Offering Circular are not to be relied upon in substitution for the exercise of independent judgment. Analysys Mason may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the Analysys Mason material cited in this Offering Circular. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and Analysys Mason is under no obligation to

xvi ensure that such other communications are brought to the attention of any recipient of this Offering Circular. The Analysys Mason material presented in this Offering Circular may not be reproduced, distributed or published by any recipient for any purpose without the written permission of Analysys Mason Ltd. Please note that when Analysys Mason material refers to Central and Eastern Europe (‘‘CEE’’), this includes Albania, Belarus, Bosnia, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey and the Ukraine. Unless otherwise noted, Analysys Mason material referring to Bulgaria or CEE is based on Central and Eastern Europe Telecoms Market: Trends and Forecasts 2013-2018 (with data updated July 2013). Please also note that when Analysys Mason material refers to Western Europe (‘‘WE’’), this includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. Unless otherwise noted, Analysys Mason material referring to WE is based on Western European Telecoms Market: Trends and Forecasts 2013-2018 (with data updated June 2013).

TRADEMARKS AND TRADE NAMES We own or have rights to use the trademarks, service marks and trade names that we use in conjunction with the operation of our business. Some of the more important trademarks that we own, have rights to use or have prospective rights to use that appear in this Offering Circular include ‘‘Vivacom,’’ and the ‘‘Vivacom’’ logo that appears as part of the ‘‘Vivacom’’ brand, each of which are registered in Bulgaria and some of which are registered in other jurisdictions, as appropriate to the needs of the relevant business. All other trademarks, trade names or service marks of any other company appearing in this Offering Circular are the property of their respective owner.

xvii EXCHANGE RATE INFORMATION We present our Consolidated Financial Statements in BGN. Under Bulgarian law, on July 1, 1997 the Lev was fixed to the German Mark (‘‘DEM’’) at a rate of 1 BGN for 1 DEM and full convertibility of the Lev was introduced. With the introduction of the euro on January 1, 1999, the Lev has been pegged to the euro at a rate of BGN 1.95583 to A1.00. The table below sets forth for the periods indicated, the pegged exchange rate, as reported by the Bulgarian National Bank.

Period End Average High Low BGN per E1.00 Year 2008 ...... 1.9558 1.9558 1.9558 1.9558 2009 ...... 1.9558 1.9558 1.9558 1.9558 2010 ...... 1.9558 1.9558 1.9558 1.9558 2011 ...... 1.9558 1.9558 1.9558 1.9558 2012 ...... 1.9558 1.9558 1.9558 1.9558 Month June 2013 ...... 1.9558 1.9558 1.9558 1.9558 July 2013 ...... 1.9558 1.9558 1.9558 1.9558 August 2013 ...... 1.9558 1.9558 1.9558 1.9558 September 2013 ...... 1.9558 1.9558 1.9558 1.9558 October 2013 ...... 1.9558 1.9558 1.9558 1.9558 November 2013 (through November 14) ...... 1.9558 1.9558 1.9558 1.9558 The following tables set forth for the periods indicated, the period end, period average, high and low Bloomberg Composite Rates expressed in BGN per $1.00 and U.S. dollars per A1.00. The Bloomberg Composite Rate is a ‘‘best market’’ calculation, in which, at any point in time, the bid rate is equal to the highest bid rate of all contributing bank indications and the ask rate is set to the lowest ask rate offered by these banks. The Bloomberg Composite Rate is a mid-value rate between the applied highest bid rate and the lowest ask rate. The rates below may differ from the actual rates used in the preparation of our consolidated financial statements and other financial information appearing in this Offering Circular. The average rate for a year means the average of the Bloomberg Composite Rates on the last day of each month during a year. The average rate for a month, or for a partial month, means the average of the daily Bloomberg Composite Rate during that month, or partial month, as the case may be. The Bloomberg Composite Rate of BGN on November 14, 2013 was BGN 1.4517 per $1.00. The Bloomberg Composite Rate of U.S. dollars on November 14, 2013 was $1.3472 per A1.00.

Period End Average High Low BGN per $1.00 Year 2008 ...... 1.4068 1.3357 1.5702 1.2217 2009 ...... 1.3647 1.4063 1.5584 1.2957 2010 ...... 1.4630 1.4773 1.6365 1.3479 2011 ...... 1.5091 1.4063 1.5130 1.3149 2012 ...... 1.4821 1.5221 1.6228 1.4528 Month June 2013 ...... 1.5041 1.4820 1.4594 1.5041 July 2013 ...... 1.4733 1.4951 1.5290 1.4728 August 2013 ...... 1.4812 1.4690 1.4812 1.4573 September 2013 ...... 1.4455 1.4648 1.4900 1.4455 October 2013 ...... 1.4384 1.4341 1.4488 1.4169 November 2013 (through November 14) ...... 1.4517 1.4539 1.4634 1.4460

xviii Period End Average High Low U.S. dollars per E1.00 Year 2008 ...... 1.3953 1.4709 1.5990 1.2452 2009 ...... 1.4331 1.3944 1.5094 1.2543 2010 ...... 1.3366 1.3266 1.4510 1.1952 2011 ...... 1.2960 1.3924 1.4874 1.2925 2012 ...... 1.3197 1.2859 1.3463 1.2053 Month June 2013 ...... 1.3005 1.3198 1.3402 1.3005 July 2013 ...... 1.3276 1.3083 1.3280 1.2792 August 2013 ...... 1.3204 1.3315 1.3420 1.3204 September 2013 ...... 1.3531 1.3354 1.3531 1.3127 October 2013 ...... 1.3599 1.3639 1.3804 1.3498 November 2013 (through November 14) ...... 1.3472 1.3454 1.3526 1.3367 The rates in each of the foregoing tables may differ from the actual rates used in the preparation of the Consolidated Financial Statements and other financial information appearing in this Offering Circular. We have provided these exchange rates solely for the convenience of potential investors. None of the Issuer, the Guarantor or the Initial Purchasers represents that BGN amounts could have been, or could be, converted into euro or U.S. dollars at the rates set forth herein or at any other rate, if at all.

xix CONTENTS

Page IMPORTANT INFORMATION ...... i NOTICE TO U.S. INVESTORS ...... iii NOTICE TO CERTAIN EUROPEAN INVESTORS ...... iii FORWARD-LOOKING STATEMENTS ...... vii CERTAIN DEFINITIONS ...... ix PRESENTATION OF FINANCIAL AND OTHER INFORMATION ...... xi INDUSTRY, MARKET AND SUBSCRIBER DATA ...... xiv OVERVIEW ...... 1 RISK FACTORS ...... 25 USE OF PROCEEDS ...... 53 CAPITALIZATION ...... 54 SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER INFORMATION . . . 55 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...... 61 INDUSTRY AND MARKET OVERVIEW ...... 96 BUSINESS ...... 109 REGULATION ...... 130 MANAGEMENT...... 141 PRINCIPAL SHAREHOLDERS ...... 144 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS ...... 146 DESCRIPTION OF CERTAIN FINANCING ARRANGEMENTS ...... 147 DESCRIPTION OF NOTES ...... 162 BOOK-ENTRY, DELIVERY AND FORM ...... 219 TRANSFER RESTRICTIONS ...... 223 CERTAIN TAX CONSIDERATIONS ...... 227 CERTAIN ERISA CONSIDERATIONS ...... 233 SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES ...... 235 LIMITATIONS ON VALIDITY AND ENFORCEABILITY OF THE GUARANTEE AND THE COLLATERAL AND CERTAIN INSOLVENCY LAW CONSIDERATIONS ...... 238 PLAN OF DISTRIBUTION ...... 244 LEGAL MATTERS ...... 247 INDEPENDENT AUDITORS ...... 247 WHERE YOU CAN FIND ADDITIONAL INFORMATION ...... 247 LISTING AND GENERAL INFORMATION ...... 249 APPENDIX A: GLOSSARY OF TECHNICAL TERMS ...... A-1 APPENDIX B: LIST OF BULGARIA’S DOUBLE TAXATION TREATIES WITH OTHER COUNTRIES ...... B-1 INDEX TO FINANCIAL INFORMATION ...... F-1

You should rely only on the information contained in this Offering Circular. Neither the Issuer, the Guarantor, nor any of the Initial Purchasers have authorized anyone to provide prospective investors with information different from the information contained herein, and you should not rely on any such information. The Issuer, the Guarantor and the Initial Purchasers are not making an offer of the Notes in any jurisdiction where such offer is not permitted. You should not assume that the information contained in this Offering Circular is accurate as at any date other than the date on the front of this Offering Circular.

xx OVERVIEW This overview highlights certain information about the Issuer, the Guarantor and the Offering contained in this Offering Circular. This overview is not complete and does not contain all of the information that you should consider before investing in the Notes. The following overview should be read in conjunction with, and the following overview is qualified in its entirety by, the more detailed information included in this Offering Circular, including the Consolidated Financial Statements and the related notes thereto. You should read carefully the Offering Circular in its entirety to understand the business of the Issuer and the Guarantor, the nature and terms of the Notes and the tax and other considerations which are important to your decision to invest in the Notes, including the sections entitled ‘‘Risk Factors,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ ‘‘Industry and Market Overview,’’ ‘‘Business,’’ and ‘‘Regulation.’’ Please see Appendix A of this Offering Circular for a glossary of technical terms used in this Offering Circular.

Overview of Our Business We are the leading telecommunications operator in Bulgaria, based on revenue for the six months ended June 30, 2013. (Source: Telekom Austria and Deutsche Telekom reports). We are the only operator that provides mobile, fixed telephony, fixed broadband and pay-TV (both DTH and IPTV) services nationwide to both residential and business customers. This integrated nationwide mobile and fixed-line network gives us a competitive advantage as we are able to offer bundled ‘‘dual-play,’’ ‘‘triple-play’’ and ‘‘quadruple-play’’ products that combine all these services on a nationwide basis. We provide our fixed-line services through our own fixed-line network and our mobile services through our own mobile network based on GSM/GPRS/EDGE and UMTS/HSPA+ technologies. As at September 30, 2013, we served 2.7 million mobile subscribers, 1.4 million fixed telephony subscribers and 0.3 million fixed broadband subscribers. For the twelve months ended September 30, 2013, we generated total revenue of BGN 812.9 million and had Adjusted EBITDA of BGN 327.2 million. During that period, our mobile and fixed-line businesses each comprised approximately 50.0% of our total revenue. We are currently the third largest mobile operator in Bulgaria, based on number of subscribers, with 2.7 million subscribers as at September 30, 2013, an increase of 58.8% from 1.7 million subscribers as at December 31, 2010. (Source: Telekom Austria and Deutsche Telekom reports). This is primarily due to the implementation of an ongoing successful market challenger strategy in the mobile market, which has led us to achieve an increase in our mobile market share, from a 16% subscriber market share as at December 31, 2010 to a 21% subscriber market share as at June 30, 2013, and to develop a solid market share position. (Source: Telekom Austria and Deutsche Telekom reports). A central part of the market challenger strategy has been our focus on features that allow us to differentiate ourselves from our competitors, such as what we believe to be our ‘‘best in class’’ mobile network, which we believe provides market leading coverage, fast download speeds and one of the lowest dropped call rates among the major network operators in Bulgaria. We are the incumbent in the fixed-line market and we believe we have the largest fixed-line network in Bulgaria. We offer fixed telephony, fixed broadband and pay-TV services to our residential and business customers. We provide fixed broadband services over ADSL and FTTx connections. Our ongoing FTTx network build-out enables us to benefit from the ongoing shift to FTTx from other broadband technologies as customers demand services at higher speeds. As at December 31, 2012 our subscriber market share in the fixed telephony and fixed broadband market was approximately 68% and 25%, respectively. (Source: CRC). We are the successor to the former state-owned monopoly in fixed-line services, which was privatized in 2004. We gained our GSM mobile license in 2004, our UMTS mobile license in 2005 and launched our mobile operations in 2005. In 2007, we were acquired by AIG Capital Partners, Inc. through a leveraged buyout. Financial obligations incurred due to this leveraged buyout resulted in a debt restructuring process. In 2012, we underwent a restructuring that included a change in our ownership. This restructuring process was completed in November 2012, when CCB Group and VTB acquired a majority stake in our business, while simultaneously restructuring our financial obligations.

Our Strengths We believe that the following competitive strengths will enable us to retain our customer base, capitalize on growth opportunities in the Bulgarian market and maintain and expand our current market share positions.

1 Integrated network telecommunications provider with a leading market position in the Bulgarian telecommunications industry. We operate as the only nationwide integrated telecommunications operator with an extensive network in Bulgaria, offering mobile, fixed telephony, fixed broadband and pay-TV services to residential and business customers. We have a leading market position in the Bulgarian telecommunications industry based on revenue for the six months ended June 30, 2013. (Source: Telekom Austria and Deutsche Telekom reports). We are the incumbent in the fixed telephony and fixed broadband market with a growing subscriber base in the mobile market. We believe that our nationwide footprint and distribution network provides us with larger scale cross-selling opportunities than our competitors. As at June 30, 2013, we had a 21% subscriber market share in the mobile market. As at December 31, 2012, we had a 68% subscriber market share and an 87% revenue market share in the fixed telephony market. (Source: CRC). As at December 31, 2012, we had a 25% subscriber market share in the fixed broadband market. (Source: CRC). The integrated nature of our network allows us to offer customers mobile, fixed telephony, fixed broadband and pay-TV product bundles. We believe this gives us a strong competitive advantage in Bulgaria, as our high quality products and services will increase customer loyalty and position us to successfully take advantage of convergent service and cross-selling opportunities. For example, we aim to provide additional and premium versions of our existing services to customers using only a single product or service, and as a result, improve profitability per subscriber. We currently offer our residential and business customers mobile, fixed telephony, fixed broadband and pay-TV services on a stand-alone basis and also in the form of ‘‘dual-play,’’ ‘‘triple-play’’ and ‘‘quadruple-play’’ packages. Our product bundles typically offer customers convenience and a discount on the aggregate price as compared to stand-alone products, which we believe makes the proposition attractive for customers. We anticipate greater demand for bundled product offerings from our customers, and therefore plan to continue to attract customers by developing and marketing a range of potential bundled offerings. For example, we recently launched our ‘‘Combine and Save’’ offering that offers customers the opportunity to custom-make their own bundled package. We believe that our ability to maintain a leading position in the Bulgarian telecommunications market in the face of competitive pressure reflects the underlying strength of our customer value proposition, our strong ‘‘Vivacom’’ brand and our breadth of product and service offerings, which caters to a broad set of customer demographics and usage profiles.

Resilient business model. We believe that our diversified business model, which offers mobile, fixed telephony, fixed broadband and pay-TV services on a wide variety of tariff plans with bundling options has reinforced the stability of our revenue. For example, we have been able to mitigate negative market trends such as customers’ fixed-to-mobile substitution, by increasing mobile revenue through growing our mobile subscriber base from 1.7 million as at December 31, 2010 to 2.7 million as at September 30, 2013. Our mobile revenue has steadily increased from BGN 332.8 million in for the year ended December 31, 2010 to BGN 397.3 million for the year ended December 31, 2012. For the first time in our history, our mobile revenue was higher than our fixed-line revenue for the nine months ended September 30, 2013. For the twelve months ended September 30, 2013, our mobile, fixed-voice (fixed telephony and other fixed-voice services), fixed-data (fixed broadband and other fixed-data services) and fixed other revenue comprised 50.0%, 29.7%, 12.8% and 7.5% of our total revenue, respectively. We believe that we have had strong overall revenue performance in the face of challenging market and regulatory conditions. We grew our share of the Bulgarian telecommunications market revenue by more than our two main competitors, Mobiltel and Globul, between 2009 and 2012. (Source: Telekom Austria and Deutsche Telekom reports). Our performance has been attributable to the strengths of our mobile and fixed broadband business, including up-selling value-added services (‘‘VAS’’), cross-selling by promoting bundling, and migrating our fixed broadband subscribers from ADSL to FTTx.

Improving regulatory environment to underpin future market stability. We believe that the Bulgarian telecommunications regulatory environment is currently more favorable to us than it has been in recent years. In the first three quarters of 2013, two key changes to the Bulgarian regulatory framework were implemented, which we currently anticipate will benefit us in the long term. The price that can be charged for calls that are placed from a fixed telephony line to a mobile line is no longer regulated, where previously we were required to decrease our prices proportionally with every MTR

2 decrease effected by the CRC. In addition, the CRC has lifted the pre-approval requirement of reviewing each of our bundled offers before they are released to the public, which allows us more flexibility in how we market our products and services. We also believe that the impact of regulatory changes on our revenue will stabilize, given that significant mobile termination rate (‘‘MTR’’) and fixed termination rate (‘‘FTR’’) reductions have taken place over the past several years and are now below the European average. As at July 1, 2013, Bulgarian MTRs and FTRs were BGN 0.023 and BGN 0.005 respectively. The European averages as at January 1, 2013 for MTRs and FTRs were A0.026 and A0.006 or the equivalent of BGN 0.051 and BGN 0.012, respectively. Now that the objectives of the EU telecommunications regulatory framework seemingly have been accomplished, by aligning termination rates across Europe, we anticipate that there will be minimal future decreases in MTR and FTR and therefore minimal impact on our revenue. See ‘‘Industry and Market Overview—Regulatory Environment.’’

‘‘Best-in-class’’ mobile network. We provide our mobile services through what we believe to be a high quality and reliable mobile telecommunications network. Our network is an integrated second generation/third generation (‘‘2G’’/‘‘3G’’) network based on GSM/EDGE/UMTS/HSPA+ technology through which we provide voice and data services, as well as a range of VAS. We believe that our network provides fast download speeds and one of the lowest dropped call rates among the major mobile network operators in Bulgaria with nearly 100% GSM and UMTS population coverage. Our 3G network is highly rated in coverage and data transfer speed and rated the best in speech quality. (Source: NSN Study 2011) As spending in mobile data increased along with an increased demand for faster network download speeds, we have been able to leverage our network quality to meet this demand and achieve rapid growth in mobile subscribers. In recent years, we have made substantial investments in our mobile network, which have resulted in the build out of our 3G network nationwide. Our aggregate network capital expenditure (including our spectrum permit payment) for the period from 2010 to 2012 was BGN 424.3 million, with the majority of these expenditures concentrated on improving and maintaining our mobile network. As at December 31, 2012 our GSM mobile network covered 99.99% of the Bulgarian population, and our UMTS mobile network covered 99.41% of the Bulgarian population. In 2012, we acquired additional UMTS spectrum of 5 MHz to enhance our capacity and user achievable peak data rates. We have also invested heavily in expanding our UMTS network and in the expansion of our HSPA+ technology in order to support our growth in line with demand. Compared to our two main competitors, we have the most paired spectrum per subscriber at 12.3 MHz per million subscribers, compared to MobilTel, which has 5.6 MHz per million subscribers and Globul, which has 6.9 MHz per million subscribers. (Source: Telekom Austria and Deutsche Telekom reports and CRC). Consequently, we believe that, we have ample capacity to support increased traffic volumes and that we will be able to continue to provide high quality and reliable mobile services to our customers. We have also been making the necessary technical preparations for the future launch of LTE services in Bulgaria as early as 2015, when the 800 MHz spectrum band may become available.

Strong fixed-line network, benefitting further from fiber build out. We believe that we have the most extensive fixed-line network in Bulgaria that is also a fully digitalized fixed telephony network. In order to position ourselves for future growth in the fixed broadband market, we have targeted potential new investments with strict return on investment criteria for the future. We have implemented a targeted FTTx build-out in the most affluent cities in Bulgaria, which due to a combination of our ownership of an extensive duct infrastructure and inexpensive labor costs in Bulgaria, has resulted in low build-out costs and a higher return on our investments in fiber. We maintain a disciplined approach to expanding our fiber network and adhere to stringent project acceptance criteria, maintaining a threshold of cost per household passed before committing to a fiber build-out. Our FTTx build-out consists of a mix of fiber to the building (‘‘FTTB’’) and fiber to the home (‘‘FTTH’’) technology. The technology that is ultimately implemented depends on economics and density of the area. We began our FTTx roll out in 2011 in Sofia and Varna and we have since achieved significant progress, with 570,000 fiber homes passed as at September 30, 2013. Our targeted fiber build-out is nearly two-thirds complete and has thus far been completed ahead of our estimated budget. Our ongoing FTTx network build-out enables us to benefit from the ongoing shift from other broadband technologies to FTTx as customers demand higher speed technologies. We also operate our own fiber backbone network, including

3 a ‘‘Dense Wavelength Division Multiplexing’’ fiber network that allows data from different sources to be carried together on an optical fiber on its own separate light wavelength, which allows for us to easily expand capacity on our network. We are able to route all of our internet traffic via this infrastructure. Given the relatively low fixed broadband penetration rates in Bulgaria as compared with other Central Eastern European countries, we anticipate that this is an area in which we will be able to attract new subscribers with our fixed broadband services and higher quality IPTV resulting from this investment, and will also enable us to up-sell these new products to our large existing subscriber base. A significant proportion of our total capital expenditure in recent years has been allocated to the roll-out of our fiber network and building our state of the art mobile network which we believe will decrease going forward. Assuming current business and industry conditions do not change, we expect our total capital expenditure in the year ending December 31, 2013 to be approximately 20% lower than the previous year. Our capital expenditure plans are subject to change depending, among other things, on the evolution of market conditions and the cost and availability of funds.

Strong and predictable cash flow generation. We believe that our market position and targeted approach to investment in our business, where we require a certain return on our investments and payback, is a proven business model that will provide us with strong revenue and cash flow. The vast majority of our subscribers are post-paid subscribers which typically generate stable monthly subscription revenue, with relatively low churn rates, thereby providing us with significant predictability in our cash flows. We had Adjusted EBITDA margins of 41.6%, 38.3% and 40.7% for the years ended December 31, 2010, 2011 and 2012, respectively (see ‘‘Presentation of Financial Information—Non-IFRS Financial Measures’’ for more information as to how Adjusted EBITDA margin is calculated). Due to our market position, quality network and strong base of post-paid subscribers, which includes all of our fixed-line subscribers and approximately 77% of our mobile subscribers as at September 30, 2013, we anticipate our strong cash flow to continue.

Improving macroeconomic environment. We currently operate exclusively in the Bulgarian markets. Despite the uncertain economic environment in Bulgaria during the recent global financial and economic crisis, Bulgaria is outperforming certain other economies within the European Union, with positive real GDP growth of 1.8% and 0.8% in 2011 and 2012, respectively. (Source: Eurostat). In 2013, Bulgaria’s real GDP is forecasted by Eurostat to increase by 0.9%, compared to an average negative growth forecast of 0.1% for the European Union, as a whole. (Source: Eurostat). As a result of historically effective fiscal policy, the Bulgarian economy also benefits from low public debt, amounting to 18.5% of real GDP in 2012, compared to an average of 85.3% for the European Union and moderate and decreasing inflation, equal to 2.4% at the end of 2012, as compared to 3.4% at the end of 2011. (Source: Eurostat). Bulgaria also has a favorable fiscal environment for business with a corporate tax rate of 10%, which is among the lowest in Europe. Bulgaria’s S&P credit rating is BBB and its Moody’s credit rating is Baa2 with a stable outlook. Furthermore, Bulgaria benefits from a relatively stable monetary regime based, in part, on the fact that the Lev is pegged to the euro.

Experienced management backed by supportive shareholders. Our management team of industry professionals has extensive experience in the mobile and fixed-line telecommunications sectors in Bulgaria, including significant experience developed within our organization itself. Between our Chief Executive Officer, Finance Director, Chief Technical Officer and Chief Marketing Officer, we have over 45 years of combined experience in the telecommunications industry. We believe that the experience of our management team has enabled us to develop products and services that have broad customer appeal, while managing our operations with a strong focus on cost discipline and profitability, which has been demonstrated by the growth of our business and increase in operational efficiency in challenging market conditions. We have recently overtaken our two main competitors, Mobiltel and Globul, and are now the leading telecommunications operator in Bulgaria based on revenues for the six months ended June 30, 2013. (Source: Telekom Austria and Deutsche Telekom reports). We believe that our management team is well prepared and has the relevant experience to successfully implement our growth strategy. We are backed by our majority shareholders, CCB Group and VTB, who support our management team and our long-term strategy. They provide a strong local presence, expertise in the technology, media and telecommunications sector and a working relationship with the Bulgarian government and the CRC.

4 Our Strategy We aim to build upon our existing market position to increase our revenue, enhance our profitability, increase our cash flow and service our indebtedness by pursuing the key strategies set forth below.

Build on strength in each product and leverage core offerings. We hold approximately 30% of the Bulgarian telecommunications market based on revenue as at December 31, 2012. (Source: CRC). Our strategy is to increase our market share in the coming years by continuing to offer products and services that are attractive to customers across the markets in which we operate, developing new products to meet consumer demand and keeping product offerings and solutions well diversified to enhance our revenue stability. We intend to continue to grow our mobile subscriber base by offering additional services within our current mobile offerings in an up-selling sales initiative to new and existing customers, as well as taking advantage of the revision to the mobile number portability process from a ‘‘two-stop shop’’ procedure to a ‘‘one-stop shop’’ procedure making it faster and easier for customers to keep their existing mobile phone number when they switch network providers. We are planning to increase our efforts on marketing our integrated ‘‘Vivacom’’ brand to increase customer perception and awareness and also to enhance the quality of our customer service to strengthen our brand. We also plan to increase the penetration rate and ARPU of smartphone and tablet users by developing an ecosystem of dedicated services and content for these devices as well as enlarging our portfolio of additional services that bring new technologies onto the market, such as location-based services, near field communication and mobile payments. As the incumbent in the fixed telephony market, our strategy is to compete on value rather than price. We intend to retain our existing fixed telephony subscribers through giving subscribers incentives to switch to our longer 24 month contracts that provide competitive value and through cross-selling bundled offerings. In the fixed-data market, we intend to continue the build-out of our fiber network in targeted areas in order to satisfy the demand for high broadband speeds and use the strength of our fiber network to enhance our bundled offerings. We also intend to continue to incentivize the migration of our customer base from ADSL to FTTx connections by maintaining similar pricing for ADSL connections and our higher speed fiber products. In areas where we are not yet able to migrate customers to FTTx connections, we plan on retaining these customers by offering them attractive pay-TV bundles. We plan to leverage our prominent presence in other markets to build up our pay-TV subscriber base by conducting marketing and promotional campaigns that highlight the picture and sound quality of our pay-TV services, promoting our varied bundled offerings and developing our pay-TV service portfolio further by adding more channels, interactive functions, such as video-on-demand and exclusive content. We also plan on leveraging our fiber build-out to provide IPTV services, for which we will maintain similar pricing across DTH and IPTV products in order to encourage customers to subscribe to IPTV.

Capitalize on bundled offerings. Our strategy is to capitalize on our bundling capabilities to continually benefit from growth in the mobile, fixed broadband and pay-TV lines of our business and reduce churn. Bundled offerings generally drive and support the sales of mobile, fixed telephony and fixed broadband products and services and reduce customer churn as compared with individually sold products and services. We believe that an integrated mobile and fixed-line service offering that provides higher quality and reliability than our competitors will enable us to sell additional as well as premium versions of existing services, such as bundled mobile, fixed broadband and pay-TV services to customers, while also reducing churn as customers often prefer bundled products due to the convenience and cost savings that are available when acquiring mobile, fixed telephony, fixed broadband and pay-TV services from a single provider for one price. Going forward, we anticipate greater demand for bundled offerings from our customers and therefore plan to continue to attract customers by continuing to refine and market our bundled offerings. We believe customers with only a single product or service present significant opportunities to sell additional as well as premium versions of existing services. In addition, we anticipate that our positioning as the only fully integrated telecommunications operator in Bulgaria with a nationwide footprint will enable us to take a greater advantage of the opportunities offered by the bundling trend than our competitors, many of whom are pursuing similar strategies.

5 Leverage strong position with business customers. We have positioned ourselves as a primary service provider for high-value business customers in the Bulgarian market, whereby we provide them with all of their business telecommunications services. We operate a large direct sales force for our business segment, including dedicated account managers for large business subscribers and a business pre-sales department for complex customized products and services. We intend to continue to increase our customer retention and maximize ARPU by offering customized products and services and subscription-based packages that include dedicated customer support. Such products include VIVAFleet, a GPS service that gives our business customers the ability to track all the routes of a vehicle in their fleet, VIVATeam, a service that gives customers the ability to monitor the mobile communications of their employees, and various other high quality mobile and fixed-line convergent services (such as IP-converged solutions), which are becoming the standard in the business sector in Bulgaria. We aim to deliver such cost effective and business oriented solutions to our customers at a breadth that our competitors cannot offer. We believe that we have a significant opportunity to increase our business mobile and fixed-line subscriber base as demonstrated by the success of our MegaBiz offering, which combines a variety of tariff plans that include up to 2000 monthly minutes for calls to all national fixed and mobile networks as well as calls to the European Union, United States and Canada. Additionally, we aim to grow our share of niche segments such as small and medium enterprises (‘‘SME’’) and small office/home offices (‘‘SOHO’’) by marketing services to SMEs and SOHOs as competitive in value rather than price, and by focusing on the provision of customer service that specifically caters to their business needs. We are able to do this easily by leveraging economies of scale, as we use our already existing infrastructure and dedicated personnel to provide tailored customer service for our business customers.

Identify and deploy cost optimization measures to increase efficiency. Our strategy is to maximize our profit margin by controlling operating costs within our business through a number of measures, such as extracting synergies by unifying our operational IT platforms and implementing industry standardized IT solutions, controlling our subscriber acquisition costs, reducing our upgrade and maintenance expenses and improving our debt collection function. We also plan on continuing to improve our operational efficiency, specifically in areas such as procurement, operations and customer care. In addition, we believe that we can further improve our profitability through the continued implementation of our targeted investment policy for capital expenditures. We plan to continue conducting a systematic review of our cost base at all levels and to implement operational efficiencies where appropriate, such as focusing on automation as a cost reduction initiative, for example through electronic invoicing. Our goal is to provide market-level services with above market- level efficiency.

Invest in network quality to capitalize on areas of market growth. We have a strong network infrastructure and have plans to further develop our networks to meet the growing demand for data services. We believe we provide superior mobile and fixed-line network quality and intend to consolidate this position further by completing the build-out of our 3G network, expanding the capacity of our BTS through targeted investments and completing our targeted fiber build-out. With respect to the mobile network, we recently acquired an additional paired 5 MHz in the UMTS 2100 spectrum band to enhance our network capacity and achievable peak rates, and subsequently invested a substantial portion of our annual network capital expenditures in coverage and quality improvement of our GSM and UMTS network. In order to leverage our network quality to capitalize on the trend of increased spending on mobile data, a market that has seen increased growth in recent years driven by increasing data network speeds and increasing smartphone and tablet penetration, we plan on continuing to invest in the UMTS network and in the expansion of our HSPA+ technology to increase coverage and performance levels. We also currently anticipate that we may participate in LTE spectrum auctions as early as 2015, when the 800 MHz spectrum band may become available. Finally, our plan to continue to build-out our fiber network in the largest cities in Bulgaria will set a foundation for future growth and allow us to continue to offer higher quality services, which require additional capacity.

Recent Developments In July 2013, the Company’s direct parent company, Viva Telecom Bulgaria EAD successfully completed its acquisition of all remaining common voting shares of the Company, pursuant to the Squeeze Out, which

6 was approved by the Bulgarian Financial Supervision Commission (the regulatory authority for the non-banking financial sector). The Bulgarian government’s Golden Share was not subject to the Squeeze Out. At the general meeting of shareholders of the Company on September 30, 2013, the resolution was passed to cancel the special rights of the Golden Share, such as the right to veto certain corporate actions. The Golden Share was then redeemed on October 15, 2013. The delisting of the Company from the Bulgarian stock exchange was completed as of October 31, 2013.

The Transactions As part of the Transactions, on or about the date of the issuance of the Notes, we will enter into a Revolving Facilities Agreement providing for a A35 million Revolving Credit Facility, which will be available on the terms set forth in the section entitled ‘‘Description of Certain Financing Arrangements— Revolving Credit Facility.’’ We expect to use the gross proceeds from the Offering to refinance our obligations under the Existing Senior Facility and to pay fees and expenses relating to the Transactions. See ‘‘Use of Proceeds.’’

Sources and Uses The expected estimated sources and uses of the funds necessary to consummate the Transactions are shown in the table below. Actual amounts will vary from estimated amounts depending on several factors, including differences between the amounts of cash held and debt outstanding and interest accreted and accrued thereon as at September 30, 2013 and as at the Issue Date, as well as the differences between estimated and actual fees and expenses payable in connection with the Transactions.

Sources of Funds (E in millions) Uses of Funds (E in millions) Notes offered hereby(1) ...... 400 Repayment of our drawings under the Existing Senior Facility(2) .... 451 Drawings under the Revolving Estimated Fees and Expenses(3) ... 13 Credit Facility ...... — Balance Sheet Cash Used ...... 64 Total sources ...... 464 Total uses ...... 464

(1) Represents the aggregate principal amount of the Notes. (2) Represents, as at September 30, 2013, amounts we have drawn on the Existing Senior Facility, including accrued interest. As part of the Transactions, our outstanding indebtedness under the Existing Senior Facility, including accrued and unpaid interest thereon, will be repaid on the Issue Date with the proceeds of the Offering. See ‘‘Capitalization.’’ (3) Represents the estimated transaction fees and expenses, including the Initial Purchasers’ commissions, other fees and commissions, financing fees, advisory fees and other transaction costs and professional fees relating to the Transactions.

7 Overview of Our Corporate and Financing Structure The following diagram shows a simplified summary of our corporate and financing structure after giving effect to the Offering and the application of the proceeds therefrom. The following is provided for indicative and illustration purposes only and should be read in conjunction with the information contained in this Offering Circular as a whole. For a summary of the debt obligations identified in this diagram, please refer to the sections entitled ‘‘Description of Notes,’’ Description of Certain Financing Arrangements,’’ and ‘‘Capitalization.’’

V Telecom Investment Shareholders(1) = Issuer General Partner S.A.

= Guarantor V Telecom Investment S.C.A.(2) = Restricted Group

V2 Investment S.à r.l.

Equity Bridge(3) InterV Investment S.à r.l.

Viva Telecom Bulgaria EAD

Bulgarian €400 million Senior €35 million Revolving Telecommunications Secured Notes offered Credit Facility(4)(5) Company EAD hereby(5)(6)(7) (“Issuer”)

BTC Net EOOD(8) (“Guarantor”) 7NOV201320514211

(1) Following the completion of the Squeeze Out, VTB, CCB Group and former lenders to the Issuer indirectly hold 33.3%, 43.3% and 23.4% of the Issuer’s ordinary share capital, respectively. See ‘‘Principal Shareholders.’’ (2) The issued share capital of V Telecom Investment S.C.A. is A40,000.01 consisting of one unlimited share held by V Telecom Investment General Partner S.A. and 4,000,000 limited shares held by the shareholders as described in note 1 above, with a nominal value of A0.01 each. V Telecom Investment S.C.A. is managed by its general partner V Telecom Investment General Partner S.A.. (3) InterV Investment S.a` r.l. entered into the Equity Bridge with VTBC as arranger on November 6, 2013, which will provide for A150 million of secured borrowings. It is intended that the Equity Bridge will be replaced by a capital increase at V Telecom Investment S.C.A. in the short term. The Equity Bridge will be secured inter alia, on a junior priority basis by the share capital of the Issuer. See ‘‘Description of Certain Financing Arrangements—Equity Bridge.’’ (4) In connection with the Offering, we will enter into the Revolving Credit Facility Agreement on or about the Issue Date, which will provide for drawings of up to A35 million, all of which will be available but undrawn at the Issue Date. The Revolving Credit Facility will be secured by the Collateral (as defined below), which also secures the Notes and the Note Guarantee. Pursuant to the terms of the Intercreditor Agreement, the Revolving Credit Facility and certain hedging obligations will be entitled to be repaid from the proceeds from enforcement in respect of the Collateral before any proceeds will be applied to repay obligations under the Notes. See ‘‘Description of Certain Financing Arrangements—Revolving Credit Facility.’’ (5) The obligations of the Issuer and the Guarantor under the Notes and the Revolving Credit Facility will be secured by a first ranking share security over the shares in the Issuer (in the form of a security financial collateral arrangement), an enterprise pledge granted by the Issuer (and which includes security over the shares in the Guarantor), an enterprise pledge granted by the Guarantor and the Issuer’s bank accounts’ and insurance policies’ receivables pledge (in the form of a special pledge combined with security financial collateral arrangement), as more specifically described under ‘‘Description of Notes—Security.’’ The share capital of the Issuer will also secure on a junior basis the obligations of Viva Telecom Bulgaria EAD, as an additional guarantor

8 under the Equity Bridge. As disclosed in this Offering Circular and pursuant to the terms of the Intercreditor Agreement, obligations under the Revolving Credit Facility (or any replacement facility) and certain hedging obligations that are permitted to be secured by the Collateral will receive priority with respect to any proceeds received upon any enforcement action over any Collateral or certain distressed disposals. See ‘‘Description of Certain Financing Arrangements—Revolving Credit Facility.’’ We have undertaken to cause the registration of the security interests in the Collateral within specified time periods. See ‘‘Description of Notes—Certain Covenants—Collateral.’’ However, there can be no assurances as to if and when registration will take place. See ‘‘Risks Related to the Notes and our Structure—The rights of the holders of the Notes may be adversely affected by the failure to perfect security interests in the Collateral.’’ (6) The A400 million in aggregate principal amount of Senior Secured Notes due 2018 offered hereby. The Notes will be guaranteed by BTC Net EOOD. (7) For the nine months ended September 30, 2013, the Guarantor would have represented 1% of our total assets, 4% of our total revenue and 2% of our EBITDA. For the years ended December 2011 and 2012, the Guarantor represented 0% and 2% of our net assets, respectively, and 0% and 3% of our EBITDA, respectively. (8) The Note Guarantee and the Collateral will be subject to certain limitations under applicable law, as described under ‘‘Risk Factors—Risks Related to the Notes and our Structure—The Note Guarantee and the Collateral will be subject to certain limitations on enforcement and may be limited by applicable laws or subject to certain defenses that may limit its validity and enforceability.’’

9 The Offering The following is a brief description of the overview of certain terms of this Offering. Certain of the terms and conditions described below are subject to important limitations and exceptions. It may not contain all the information that is important to you. For a more complete description of the terms of the Notes, including certain definitions used in this overview, see ‘‘Description of Notes’’ and ‘‘Description of Certain Financing Arrangements—Intercreditor Agreement.’’

Issuer ...... Bulgarian Telecommunications Company EAD.

Notes Offered ...... A400 million aggregate principal amount of 65⁄8% Senior Secured Notes due 2018 (the ‘‘Notes’’). Issue Date ...... November 22, 2013 (the ‘‘Issue Date’’). Issue Price ...... 100.000% (plus accrued and unpaid interest from the Issue Date). Maturity Date ...... November 15, 2018.

Interest Payments ...... The interest rate of the Notes will be 65⁄8%. Interest on the Notes will be payable semi-annually in arrears on May 15 and November 15 of each year, commencing on May 15, 2014. Interest will accrue from the Issue Date. Form of Denomination ...... The Notes will be issued only in registered form and in denominations of A100,000 and any integral multiple of A1,000 in excess thereof. Notes in denominations of less than A100,000 will not be available. Note Guarantee ...... The Notes will be guaranteed on a senior secured basis on the Issue Date by BTC Net EOOD (the ‘‘Guarantor’’). The Note Guarantee will be subject to contractual, legal and regulatory limitations, and may be released under certain circumstances. See ‘‘Risk Factors—Risks Related to the Notes and our Structure’’ and ‘‘Description of Notes—Note Guarantee.’’ Ranking of the Notes ...... The Notes will be general obligations of the Issuer and will: • be secured as set forth under ‘‘Description of Notes— Security,’’ but will receive proceeds from enforcement of Collateral and certain distressed disposals only after any obligations secured on a super priority basis, including the Revolving Credit Facility and certain hedging obligations have been repaid in full; • be pari passu in right of payment with all existing and future indebtedness of the Issuer that is not subordinated in right of payment to the Notes, including Indebtedness incurred under the Revolving Credit Facility; • be senior in right of payment to all existing and future indebtedness of the Issuer that is subordinated in right of payment to the Notes; • be effectively subordinated to any existing and future indebtedness of the Issuer and its subsidiaries that is secured by property or assets that do not secure the Notes, to the extent of the value of the property and assets securing such indebtedness; • be effectively subordinated to any existing and future obligation of the Issuer’s subsidiaries that are not guarantors; and • be effectively subordinated to any existing and future indebtedness of the Issuer that is mandatorily preferred by law.

10 Ranking of the Note Guarantee ..... The Note Guarantee will be a general obligation of the Guarantor and will: • benefit from the security as set forth under ‘‘Description of Notes—Security,’’ but will receive proceeds from enforcement of Collateral and certain distressed disposals only after any obligations secured on a super priority basis, including the Revolving Credit Facility and certain hedging obligations have been repaid in full; • be pari passu in right of payment with all existing and future obligations of the Guarantor that is not subordinated in right of payment to the Note Guarantee, including its obligations under the Revolving Credit Facility; • be senior in right of payment to all existing and future indebtedness of the Guarantor that is subordinated in right of payment to the Note Guarantee; • be effectively subordinated to any existing and future indebtedness of the Guarantor that is secured by property or assets that do not secure the Note Guarantee, to the extent of the value of the property and assets securing such indebtedness; and • be effectively subordinated to any existing and future indebtedness of the Guarantor that is mandatorily preferred by law. Security ...... Upon the closing of the Offering, the Notes and the Note Guarantee are expected to be secured (subject to the terms of the Intercreditor Agreement and Security Documents) by the following: • first ranking share security over the shares in the Issuer (in the form of a security financial collateral arrangement); • enterprise pledge granted by the Issuer (and which includes security over the shares in the Guarantor); • enterprise pledge granted by the Guarantor; and • the Issuer’s bank accounts’ and insurance policies’ receivables pledge (in the form of a special pledge combined with security financial collateral arrangement). See ‘‘Description of Notes—Security’’. The security interests over the Collateral may be released under certain circumstances. See ‘‘Risk Factors—Risks Related to the Notes and our Structure— There are circumstances other than repayment or discharge of the Notes under which the Collateral or the Note Guarantee will be released automatically without your consent or the consent of the Trustee’’ and ‘‘Description of Notes—Security.’’ The Issuer has undertaken to cause the registration of certain Security Documents (other than those relating to real property) in the required registers within 20 business days of the Issue Date and has further undertaken to use commercially reasonable efforts to register real property liens under the Security Documents within 30 business days of the Issue Date. See ‘‘Description of Notes—Certain Covenants—Collateral.’’ Also see ‘‘Risks Related to the Notes and our Structure—The rights of the holders of the Notes may be adversely affected by the failure to perfect security interests in the Collateral.’’

11 Intercreditor Agreement ...... The Revolving Credit Facility and certain hedging obligations will also be secured by first-ranking security interests in the Collateral. In addition, the Indenture will permit certain other indebtedness to be secured by security interests in the Collateral. The lenders under the Revolving Credit Facility and the holders of certain other debt (including certain hedging counterparties) will receive priority with respect to the distribution of the proceeds of the Collateral in the event of an enforcement of the security interests over the Collateral and certain distressed disposals. The intercreditor relationships among the lenders under the Revolving Credit Facility, the holders of the Notes and the holders of certain other indebtedness (including hedging counterparties) will be governed by the Intercreditor Agreement. See ‘‘Description of Certain Financing Arrangements—Intercreditor Agreement.’’ Additional Amounts ...... All payments made by or on behalf of the Issuer under or with respect to the Notes (whether or not in the form of definitive registered notes) or the Guarantor with respect to the Note Guarantee will be made free and clear of and without withholding or deduction for, or on account of, any present or future tax, duty, levy, assessment or other governmental charge, including any related interest, penalties or additions to tax unless the withholding or deduction of such taxes is then required by law. If any deduction or withholding for, or on account of, such taxes imposed or levied by or on behalf of (i) any jurisdiction in which the Issuer or Guarantor are then incorporated or organized, engaged in business for tax purposes or resident for tax purposes or any political subdivision thereof or therein or (ii) any jurisdiction from or through which payment is made by or on behalf of the Issuer or Guarantor (including the jurisdiction of any paying agent for the Notes) or any political subdivision thereof or therein will at any time be required to be made from any payments made by or on behalf of the Issuer under or with respect to the Notes or the Guarantor under or with respect to the Note Guarantee, including payments of principal, redemption price, interest or premium, the Issuer or Guarantor, as applicable and subject to certain exceptions, will pay such additional amounts as may be necessary in order that the net amounts received in respect of such payments after such withholding, deduction or imposition (including any such withholding, deduction or imposition from such additional amounts) will equal the respective amounts that would have been received in respect of such payments in the absence of such withholding, deduction or imposition. See ‘‘Description of Notes—Additional Amounts.’’ Optional Redemption ...... Prior to November 15, 2015, the Issuer will be entitled at its option to redeem all or a portion of the Notes at a redemption price equal to 100% of the principal amount of the Notes plus the applicable ‘‘make-whole’’ premium described in this Offering Circular and accrued and unpaid interest, and additional amounts, if any, to the redemption date. See ‘‘Description of Notes—Optional Redemption.’’

12 Prior to November 15, 2015, the Issuer may also redeem up to 10% of the original principal amount of the Notes (including any additional Notes) during each twelve-month period commencing on the Issue Date at a redemption price equal to 103% of the aggregate principal amount of the Notes plus accrued and unpaid interest, and additional amounts, if any, to the applicable redemption date. See ‘‘Description of Notes—Optional Redemption.’’ On or after November 15, 2015, the Issuer will be entitled at its option to redeem all or a portion of Notes at the redemption prices set forth under the caption ‘‘Description of Notes— Optional Redemption’’ plus accrued and unpaid interest and additional amounts, if any, to the redemption date. Prior to November 15, 2015, the Issuer will be entitled at its option to redeem up to 35% of the aggregate principal amount of the Notes using the proceeds of certain equity offerings at the redemption price of 106.625% of the principal amount of the Notes redeemed, plus accrued and unpaid interest and additional amounts, if any, to the redemption date; provided that at least 65% of the Notes outstanding as of the Issue Date, remain outstanding after the redemption. See ‘‘Description of Notes—Optional Redemption.’’ Optional Redemption for Tax Reasons In the event of certain developments affecting taxation (with respect to the Notes), the Issuer may redeem the Notes, in whole, but not in part, at 100% of the principal amount thereof, plus accrued and unpaid interest, and additional amounts, if any, to the date of redemption. See ‘‘Description of Note— Redemption for Changes in Taxes.’’ Change of Control ...... Upon the occurrence of certain events constituting a ‘‘change of control,’’ the Issuer will be required to offer to repurchase all outstanding Notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase plus accrued and unpaid interest to the date of repurchase. See ‘‘Description of Notes—Repurchase at the Option of Holders— Change of Control.’’ Certain Covenants ...... The Indenture will contain covenants that, among other things will limit the ability of the Issuer and its restricted subsidiaries to: • incur or guarantee additional indebtedness and issue certain preferred stock; • layer debt; • create or incur certain liens; • make certain payments, including dividends or other distributions with respect to the shares of the Issuer or its restricted subsidiaries; • prepay or redeem subordinated debt or equity; • make certain investments; • create encumbrances or restrictions on the payment of dividends or other distributions, loans or advances to and on the transfer of assets to the Issuer or any of its restricted subsidiaries; • sell, lease or transfer certain assets including stock of restricted subsidiaries; • engage in certain transactions with affiliates; • enter into unrelated businesses or engage in prohibited activities;

13 • amend certain documents; • consolidate or merge with other entities; and • impair the security interests for the benefit of the holders of the Notes. Each of these covenants is subject to significant exceptions and qualifications. See ‘‘Description of Notes—Certain Covenants.’’ Transfer Restrictions ...... The Notes and the Note Guarantee have not been, and will not be, registered under the U.S. Securities Act or the securities laws of any other jurisdiction and are subject to restrictions on transferability and resale. Holders of the Notes will not have the benefit of any exchange or registration rights. Neither the Issuer nor the Guarantor have agreed to, or otherwise undertaken to, register the Notes (including by way of exchange offer). Amongst other restrictions, the Notes can only be offered or sold to persons who are legal entities within the meaning of the Bulgarian Corporate Taxation Act or natural persons established for tax purposes within a European Union Member State or a European Economic Area country. See ‘‘Transfer Restrictions.’’ No Prior Market ...... The Notes will be new securities for which there is no existing market. Although the Initial Purchasers have advised us that they intend to make a market in the Notes, they are not obligated to do so and they may discontinue market making at any time without notice. Accordingly, there can be no assurance that an active trading market will develop or be maintained for the Notes. Listing ...... Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on the Main Securities Market. Use of Proceeds ...... The gross proceeds from the Offering will be used to repay outstanding indebtedness under the Senior Facilities Agreement and to pay the fees and expenses related to the Offering. Any remaining proceeds may be used for general corporate purposes, including working capital and capital expenditures. See ‘‘Use of Proceeds.’’ Trustee ...... U.S. Bank Trustees Limited. Security Agent ...... U.S. Bank Trustees Limited. Paying Agent and Transfer Agent .... Elavon Financial Services Limited, UK Branch. Registrar ...... Elavon Financial Services Limited. Listing Agent ...... Arthur Cox Listing Services Limited. Governing Law ...... The Indenture, the Notes and the Note Guarantee will be governed by New York law. The Intercreditor Agreement will be governed by English law. The Revolving Credit Facility and the Security Documents are, or will be governed by Bulgarian law.

Risk Factors Investing in the Notes involves substantial risks. Please see the ‘‘Risk Factors’’ section for a description of certain of the risks you should carefully consider before deciding to invest in the Notes.

Additional Information The Issuer’s corporate seat and principal executive offices are located at 115i Tsarigradsko Shose Boulevard, 1784 Sofia, Bulgaria. Its telephone number is +359 2 949 43 31.

14 Certain Historical Consolidated Financial Information and Operating Data The tables below set forth certain of our historical consolidated financial and other data for the indicated periods, derived or extracted from (i) the audited consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for and as at the years ended December 31, 2010, 2011 and 2012, prepared in accordance with IFRS and (ii) the unaudited interim consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for the nine months ended September 30, 2013, including the comparative data for and as at the nine months September 30, 2012, prepared in accordance with best practice as derived from IAS 34. The unaudited consolidated financial information for the twelve months ended September 30, 2013 is calculated by taking the results of operations for the nine months ended September 30, 2013 and adding to it the difference between the results of operations for the full year ended December 31, 2012 and the historical nine months ended September 30, 2012. The unaudited consolidated financial information for the nine months ended September 30, 2013 and the twelve months ended September 30, 2013 has been prepared for illustrative purposes only and is not necessarily representative of our results of operations for any future period or our financial condition at any future date, including the results that may be expected for the year ended December 31, 2013 and should not be used as the basis for or prediction of an annualized calculation. Since the financial period beginning January 1, 2012, we have recorded revenue from value-added services, net of costs, whereas previously revenue from value-added services was recorded on a gross basis with the costs of value-added services included in other operating expenses, which could affect the comparability of our Consolidated Financial Statements. Our management believes that the impact of this change in presentation, amounting to less than 1% of total revenues, is not material. Our consolidated historical financial statements and the condensed consolidated historical financial information presented below were prepared on the basis of IFRS, which differs in certain respects from U.S. GAAP. The condensed financial information and other data below includes certain non-IFRS measures used to evaluate our operating and financial performance. These measures are not identified as accounting measures under IFRS and therefore should not be considered as an alternative measure to evaluate the performance of the Group. See ‘‘Presentation of Financial and Other Information.’’ The certain unaudited pro forma consolidated financial information presented in this section has been prepared to illustrate the effect of the Transactions on certain consolidated financial information as at and for the nine months ended September 30, 2013. The information, which has been produced for illustrative purposes only, by its nature addresses a hypothetical situation and, therefore, does not represent the Company’s actual financial position or results, nor do they purport to project our financial position or results at any future date. The actual results may differ significantly from those reflected in the unaudited pro forma consolidated financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma consolidated financial information. The unaudited pro forma consolidated financial information has not been prepared in accordance with the requirements of Regulation S-X of the U.S. Securities Act or any generally accepted accounting standards, and accordingly, should not be relied on as if they had been carried out in accordance with those standards. You should read this section in conjunction with, and this section is qualified in its entirety by reference to, our Consolidated Financial Statements and the notes thereto and the Statement of Unaudited Pro Forma Consolidated Financial Information appearing elsewhere in this Offering Circular and the sections entitled ‘‘Use of Proceeds,’’ ‘‘Capitalization,’’ ‘‘Selected Historical Financial Information and Other Information,’’ and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’

15 Selected Consolidated Statements of Comprehensive Income:

For the twelve For the nine months months ended For the year ended December 31, ended September 30, September 30, 2010 2011 2012 2012 2013 2013 (BGN thousands) Revenue ...... 896,387 895,870 857,717 650,433 605,646 812,930 Interconnect expenses ...... (119,488) (133,475) (112,665) (93,628) (44,450) (63,487) Other operating expenses ...... (253,926) (286,889) (309,967) (174,470) (176,971) (312,468) Materials and consumables expenses ...... (118,146) (104,167) (109,253) (75,495) (95,394) (129,152) Staff costs ...... (72,487) (65,051) (69,427) (50,813) (51,642) (70,256) Depreciation and amortization . . . (261,462) (276,585) (277,597) (209,317) (193,386) (261,666) Finance costs ...... (33,402) (41,305) (33,777) (24,007) (39,012) (48,782) Finance income ...... 9,624 9,095 8,201 7,063 4,362 5,500 Other gains, net ...... 37,371 8,271 10,190 6,891 2,635 5,934 Share of profit of joint ventures . . 2,017 2,272 — — — — (Loss) / Profit before tax ...... 86,488 8,036 (36,578) 36,657 11,788 (61,447) Income tax expenses ...... (11,466) (856) 3,336 (3,736) (1,538) 5,534 Profit after tax for the year from discontinued operations ...... 40,728 ———— — (Loss) / Profit for the period .... 115,750 7,180 (33,242) 32,921 10,250 (55,913) Other comprehensive income Loss on revaluation of land ..... (1,084) (559) (2,767) (37) — (2,730) Currency forward ...... (22) 629 (657) (595) (39) (101) Valuation of financial assets available for sale ...... ————7,688 7,688 Income tax effect ...... 111 (7) 343 63 4 284 Other comprehensive income for the year, net of tax ...... (995) 63 (3,081) (569) 7,653 5,141 Total comprehensive income for the year ...... 114,755 7,243 (36,323) 32,352 17,903 (50,772)

16 Selected Consolidated Statements of Financial Position:

As at December 31, As at September 30, 2010 2011 2012 2013 (BGN thousands) Cash and cash equivalents ...... 154,523 141,664 63,886 133,700 Trade receivables ...... 95,979 159,488 79,252 70,974 Current income tax receivables ...... 6 — 423 — Inventories ...... 34,630 25,734 31,987 41,338 Other assets ...... 28,810 16,970 14,687 15,525 Assets of disposal group held for sale ...... 6,648 1,892 2,127 1,825 Total current assets ...... 320,596 345,748 192,362 263,362 Goodwill ...... 3,706 3,706 2,049 2,049 Property, plant and equipment ...... 1,089,094 1,007,369 884,609 830,286 Intangible assets ...... 330,113 304,922 285,050 246,752 Investments ...... 58,093 335 335 8,023 Trade and other receivables ...... 18,013 4,642 6,161 — Trade receivables ...... ——— 8,346 Other non-current assets ...... ——— 1,384 Deferred tax assets, net ...... 79 73 14 2 Total non-current assets, net ...... 1,499,098 1,321,047 1,178,218 1,096,842 Total assets ...... 1,819,694 1,666,795 1,370,580 1,360,204 Total current liabilities ...... 1,263,795 1,283,194 172,021 166,243 Total non-current liabilities ...... 47,861 44,468 895,748 873,247 Total equity ...... 508,038 339,133 302,811 320,714 Total liabilities and equity ...... 1,819,694 1,666,795 1,370,580 1,360,204

Selected Consolidated Cash Flow Statements:

For the twelve For the nine months months ended For the year ended December 31, ended September 30, September 30, 2010 2011 2012 2012 2013 2013 (BGN thousands) Net cash from operating activities . 267,060 309,014 334,042 246,539 183,031 270,534 Net cash used in investing activities ...... (83,068) (159,833) (142,303) (81,315) (102,752) (163,740) Net cash used in financing activities ...... (167,744) (162,462) (269,518) (218,003) (10,405) (61,920) Net increase / (decrease) in cash and cash equivalents ...... 16,248 (13,281) (77,779) (52,779) 69,874 44,874

17 Other Financial Information:

As at and for the As at and for the twelve As at and for the year ended nine months ended months ended December 31, September 30, September 30, 2010 2011 2012 2012 2013 2013 (BGN thousands, except where indicated) (Euro thousands, except where indicated)(1) Fixed-line revenue ...... 563,625 519,789 460,429 354,666 300,922 406,685 207,935 Fixed-voice(2) ...... 402,433 361,667 301,353 235,794 176,088 241,647 123,552 Fixed-data(3) ...... 131,666 121,353 110,406 83,444 77,241 104,202 53,278 Fixed, other(4) ...... 29,525 36,769 48,670 35,428 47,593 60,836 31,105 Mobile revenue ...... 332,762 376,081 397,288 295,767 304,724 406,245 207,710 Mobile service ...... 268,215 324,296 338,967 258,061 248,262 329,168 168,301 Pre-paid ...... 30,003 34,196 30,856 24,825 17,552 23,583 12,058 Post-paid ...... 238,212 290,100 308,111 233,236 230,710 305,585 156,243 Mobile, other(5) ...... 64,548 51,785 58,321 37,706 56,462 77,077 39,409 Total revenue(6)(7) ...... 896,387 895,870 857,717 650,433 605,646 812,930 415,645 Fixed-line gross margin ...... 470,042 409,934 366,925 278,917 256,456 344,464 176,122 Mobile gross margin ...... 192,582 243,084 265,975 202,224 205,051 268,802 137,436 Total gross margin(8) ...... 662,624 653,018 632,900 481,141 461,507 613,266 313,558 EBITDA(9) ...... 371,728 316,831 266,595 262,918 239,824 243,501 124,500 Adjusted EBITDA(9) ...... 373,101 342,737 349,294 272,637 250,508 327,165 167,277 Adjusted EBITDA margin (%)(9) .... 41.6 38.3 40.7 41.9 41.4 40.2 40.2 Capital expenditures(10) ...... 162,939 178,233 203,569 125,839 97,939 175,670 89,818 Capital expenditure as a percentage of total revenue ...... 18.2 19.9 23.7 19.3 16.2 21.6 21.6 Ratio of Adjusted EBITDA to cash interest expense(9)(11) ...... 6.3x Ratio of pro forma net borrowings (excluding debt issuance costs) to Adjusted EBITDA(9)(12) ...... 2.4x

(1) Convenience translation in euro based on a pegged exchange rate of 1.95583 Lev per euro as at September 30, 2013. (2) Includes revenue from fixed telephony, wholesale voice and public telephone services. (3) Includes revenue from the provision of fixed broadband services over ADSL and FTTx connections, dial-up revenue, revenue from the sale of Customer Premises Equipment (‘‘CPEs’’), such as modems and initial set up charges and revenue generated from the provision of business data and connectivity solutions such as VPN and MAN services. (4) Other fixed revenue includes pay-TV and revenue generated from provision of wholesale access to our ducts amongst other services. (5) Includes non-recurring revenue, such as revenue from the sale of mobile handsets and accessories and revenue from roaming charges incurred by customers of other operators using our network, late payment and legal interception fees. (6) To aid in the evaluation of our underlying operating performance, we provide below certain financial data on an adjusted basis to exclude the impact of changes in termination rates during the periods under review by using constant termination rates,

18 which are calculated assuming that termination rates for the applicable period would have been the same as the termination rates applicable from July 1, 2013 onwards.

For the twelve For the nine months For the year ended months ended ended December 31, September 30, September 30, 2010 2011 2012 2012 2013 2013 (BGN in thousands, except where indicated) Total revenue ...... 896,387 895,870 857,717 650,433 605,646 812,930 (Decrease) over prior equivalent period (%) . (0.1) (4.3) (6.9) Total revenue at constant termination rates(a) . 791,135 768,490 762,105 566,794 589,557 784,868 Increase/(decrease) over prior equivalent period (%) ...... (2.9) (0.8) 4.0 Adjusted EBITDA ...... 373,101 342,737 349,294 272,637 250,508 327,165 Increase/(decrease) over prior equivalent period (%) ...... (8.1) 1.9 (8.1) Adjusted EBITDA at constant termination rates(a) ...... 342,359 304,544 320,878 248,287 245,366 317,957 Increase/(decrease) over prior equivalent period (%) ...... (11.0) 5.4 (1.2)

(a) Adjusted to reflect termination rates in effect as at July 1, 2013. For the three months ended September 30, 2013, no adjustments have been made in respect of contractually agreed upon rates for wholesale international inbound traffic. (7) Since the financial period beginning January 1, 2012, we have recorded revenue from value-added services, net of costs, whereas previously revenue from value-added services was recorded on a gross basis. VAS costs were previously included in other operating expenses. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Explanation of Key Income Statement Items—Revenue’’ for more information. (8) Gross margin is calculated by deducting cost of sales from revenue. Cost of sales is comprised of interconnection and content costs, subscriber acquisition and retention costs as well as costs of equipment. (9) The following table presents a reconciliation of EBITDA and Adjusted EBITDA from our profit/(loss) for the periods presented:

For the twelve For the nine months For the year ended months ended ended December 31, September 30, September 30, 2010 2011 2012 2012 2013 2013 (BGN in thousands) Profit / (loss) for the period ...... 75,022 7,180 (33,242) 32,921 10,250 (55,913) Income tax expense ...... 11,466 856 (3,336) 3,736 1,538 (5,534) Finance costs ...... 33,402 41,305 33,777 24,007 39,012 48,782 Finance income ...... (9,624) (9,095) (8,201) (7,063) (4,362) (5,500) Depreciation and amortization ...... 261,462 276,585 277,597 209,317 193,386 261,666 EBITDA ...... 371,728 316,831 266,595 262,918 239,824 243,501 Asset impairment and write-off(a) ...... 15,609 27,008 75,674 5,318 3,663 74,019 Share of profit of joint ventures ...... (2,017) (2,272) — — — — Other gains, net ...... (37,371) (8,271) (10,190) (6,891) (2,635) (5,934) MSA and TSA(b) ...... 19,235———— — Provisions and penalties(c) ...... 1,287 676 10,328 5,721 7,520 12,127 Other exceptional items(d) ...... 4,630 8,765 6,887 5,571 2,136 3,452 Adjusted EBITDA ...... 373,101 342,737 349,294 272,637 250,508 327,165

(a) Mainly impairment and write-off of old network equipment (decommissioned fixed network and exchanges, swapped equipment etc.). Does not include impairment of receivables and trading stock. (b) Fees payable to our previous owner (as a percentage of revenue) under a management services agreement and a technical services agreement that was entered into at the time of privatization and discontinued in 2010. (c) Includes mainly litigation provisions related to regulatory claims. (d) Includes cable extraction costs (both costs and revenue from sale of extracted copper cables), legalization costs for duct network (one-off expense for procuring all building documentation for our duct network, where missing), Alcatel-Lucent severance costs (the amount of the compensation of Alcatel-Lucent employees in the case of the termination of their labor contracts) as per the Alcatel-Lucent Agreement, steering committee fees related to restructuring in 2012, bank account management charges and the amount of the compensation of employees in the case of the termination of their labor contracts. Adjusted to exclude bank fees included in finance costs.

19 EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of our financial and operating performance used by management that are not required by, or prepared in accordance with IFRS. These measures are prepared by management because we believe they provide a view of our recurring operating performance that is unaffected by our capital structure and allows management to readily view operating trends and identify strategies to improve operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating these measures, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our use of each of these measures is as follows:

• We define EBITDA as starting from profit/(loss) for the period (prepared in accordance with IFRS) and adding back income tax expense, finance costs, finance income and depreciation and amortization.

• We define Adjusted EBITDA as EBITDA as calculated above, and adjusted to remove the effect of asset impairment and write-off, share of profit of joint ventures, other gains, net, fees payable under a management services agreement and technical services agreement entered into at the time of privatization and discontinued in 2010, provisions and penalties and other exceptional items which we believe are not indicative of our underlying operating performance.

• We define Adjusted EBITDA margin as Adjusted EBITDA divided by total revenue in the applicable period. The EBITDA measures presented may not be comparable to similarly titled measures used by other companies. We encourage you to review our financial information in its entirety and not to rely on a single financial measure. See ‘‘Presentation of Financial and Other Information—Non-IFRS Financial Measures’’ for an explanation of certain limitations to the use of these measures. (10) The following is a calculation of capital expenditures:

For the nine For the year ended months December 31, September 30, 2010 2011 2012 2012 2013 (BGN in thousands) Payments for purchases of property, plant & equipment ...... 124,288 118,484 143,142 105,590 89,440 Payments for purchases of other non-current assets(a) ...... 42,258 54,805 65,453 36,536 24,337 Change in investing net working capital ...... (3,607) 4,944 (5,026) (16,287) (15,838) Total capital expenditures ...... 162,939 178,233 203,569 125,839 97,939 Of which: Network capital expenditures(b) ...... 128,374 136,050 146,090 97,146 65,796 Payment for spectrum permit ...... — — 13,827 — — IT capital expenditures ...... 25,107 20,075 14,887 10,775 4,485 Other capital expenditures(c) ...... 9,458 22,107 28,765 17,918 27,658

(a) Includes payments for acquisition of intangible assets. (b) Excludes payment for spectrum permit for the use of a block of 5 MHz in the 1800 MHz spectrum band. (c) Includes commercial capital expenditure, such as the renovation and reconstruction of our retail locations, CPEs to support our growing pay-TV and fiber subscriber base and other capital expenditures, such as capitalized sales commissions. (11) Cash interest expense is calculated as the sum of annual interest payments due on the Notes in aggregate principal amount of A400 million using the actual interest rate on the Notes and the commitment fees for the non-utilized amount under the Revolving Credit Facility (assuming no cash drawings thereunder). This calculation of cash interest expense does not purport to represent what our interest expense would have actually been for the period, nor does it purport to project our interest expense for any future period. (12) This ratio is calculated by adding pro forma net borrowings of BGN 750.4 million and fees and expenses relating to the Transactions of BGN 25.2 million and dividing the sum thereof by Adjusted EBITDA. For more detail on the calculation of pro forma net borrowings as at September 30, 2013, see note 3 to the table in ‘‘—Certain Unaudited Pro Forma Consolidated Financial Information.’’

20 Operational Data: The following sets forth selected subscriber information relating to our mobile and fixed-line businesses for the periods indicated:

As at and for the nine As at and for the year months ended ended December 31, September 30, 2010 2011 2012 2012 2013 Mobile: Number of subscribers at period end (in thousands) ...... 1,701 2,168 2,541 2,488 2,676 % post-paid at period end ...... 75 74 75 75 77 % pre-paid at period end ...... 25 26 25 25 23 Blended ARPU (BGN)(1) ...... 14.9 13.8 12.0 12.4 10.6 Mobile data as % of blended mobile ARPU(2) ...... 9 11 14 13 17 Fixed: Fixed telephony subscribers at period end (in thousands) ...... 1,787 1,610 1,460 1,500 1,358 Fixed telephony ARPU (BGN)(3) ...... 15.8 14.8 13.6 13.8 12.3 Fixed broadband subscribers at period end (in thousands) ..... 343 335 322 322 323 Fixed broadband ARPU (BGN)(4) ...... 16.0 14.2 13.1 13.2 12.1 The following sets forth selected market data relating to our mobile business for the period indicated:

As at and for the six As at and for the months year ended ended December 31, June 30(6), 2010 2011 2012 2012 2013 Mobile: Penetration rate at period end (%)(5) ...... 145 163 174 168 174 Market share based on number of subscribers at period end (%) ..... 16 18 20 19 21

Source: Telekom Austria and Deutsche Telekom reports and penetration rate based on IMF population figures. (1) Blended mobile ARPU for our mobile business is calculated as described in ‘‘Industry, Market and Subscriber Data.’’ (2) We define mobile data ARPU as the sum of the mobile data revenue in the period divided by the average number of mobile subscribers in the period (the average of each month’s average number of subscribers) divided by the number of months in the period. We calculate mobile data ARPU as a percentage of blended ARPU by dividing mobile data revenue (including revenue from SMS, MMS and VAS messaging services) during the period by mobile services revenue during the same period as used in the calculation of blended mobile ARPU. See ‘‘Industry, Market and Subscriber Data.’’ (3) ARPU for our fixed telephony business is calculated as described in ‘‘Industry, Market and Subscriber Data.’’ (4) ARPU for our fixed broadband business is calculated as described in ‘‘Industry, Market and Subscriber Data.’’ (5) Penetration rates are calculated as described in ‘‘Industry, Market and Subscriber Data.’’ (6) Market share and penetration rate as at September 30, 2013 is not available as at the date of this Offering Circular, as the subscriber numbers of our competitors are not yet publicly available. Therefore, market share and penetration rate as at June 30, 2013 is presented in this Offering Circular.

21 Certain Quarterly Operational Data and Other Financial Information:

For the three months ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, 2012 2013 (BGN in thousands, except where indicated) Fixed-line revenue .... 124,524 121,473 108,669 105,763 102,487 100,152 98,283 Mobile revenue ...... 92,789 102,685 100,293 101,521 92,866 103,462 108,396 Total revenue ...... 217,313 224,158 208,962 207,284 195,353 203,614 206,679 Total revenue at constant termination rates(1) ...... 183,620 187,580 195,594 195,311 187,211 195,667 206,679 Adjusted EBITDA(2) ... 87,189 97,318 88,130 76,657 79,526 81,734 89,248 Adjusted EBITDA at constant termination rates(1) ...... 78,024 87,667 82,595 72,591 76,843 79,275 89,248 Capital expenditures . . 23,851 39,844 62,144 77,730 33,152 32,669 32,118 Mobile: Number of subscribers at period end (in thousands) ...... 2,281 2,345 2,488 2,541 2,586 2,624 2,676 % post-paid at period end ...... 75 76 76 75 76 76 77 % pre-paid at period end...... 25 24 24 25 24 24 23 Blended ARPU (BGN)(3) ...... 12.7 13.1 11.4 10.7 10.2 10.8 10.7 Mobile data as % of blended mobile ARPU(4) ...... 13 13 15 16 17 17 18 Fixed: Fixed telephony subscribers at period end (in thousands) . . 1,572 1,536 1,500 1,460 1,423 1,392 1,358 Fixed telephony ARPU (BGN)(5) ...... 14.4 14.0 13.0 12.9 12.6 12.4 12.0 Fixed broadband subscribers at period end (in thousands) . . 326 323 322 322 323 321 323 Fixed broadband ARPU (BGN)(6) .... 13.3 13.2 13.0 12.7 12.3 12.1 11.8

(1) Adjusted to reflect termination rates in effect as at July 1, 2013. For the three months ended September 30, 2013, no adjustments have been made in respect of contractually agreed upon rates for wholesale international inbound traffic.

22 (2) The following table presents a reconciliation of Adjusted EBITDA from our profit/(loss) for the periods presented:

For the three months ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, 2012 2013 (BGN in thousands) Profit / (loss) for the period . 10,237 17,318 5,366 (66,163) 3,752 3,554 2,944 Income tax expense ...... 1,171 2,158 407 (7,072) 495 670 373 Finance costs ...... 8,916 7,760 7,331 9,770 12,991 12,958 13,063 Finance income ...... (2,631) (2,403) (2,029) (1,138) (1,151) (1,458) (1,753) Depreciation and amortization ...... 67,814 67,219 74,284 68,280 62,927 65,103 65,356 EBITDA ...... 85,507 92,052 85,359 3,677 79,014 80,827 79,983 Asset impairment and write-off(a) ...... 1,126 2,318 1,874 70,356 1,180 869 1,614 Other gains, net ...... (1,754) (2,742) (2,395) (3,299) (1,428) (38) (1,169) Provisions and penalties(b) . . 1,674 3,268 779 4,607 251 (143) 7,412 Other exceptional items(c) . . . 636 2,421 2,514 1,316 510 219 1,407 Adjusted EBITDA ...... 87,189 97,318 88,130 76,657 79,526 81,734 89,248

(a) Mainly impairment and write-off of old network equipment (decommissioned fixed network and exchanges, swapped equipment etc.). Does not include impairment of receivables and trading stock. (b) Includes mainly litigation provisions related to regulatory claims. (c) Includes cable extraction costs (both costs and revenue from sale of extracted copper cables), legalization costs for duct network (one-off expense for procuring all building documentation for our duct network, where missing), Alcatel-Lucent severance costs (the amount of the compensation of Alcatel-Lucent employees in the case of the termination of their labor contracts) as per the Alcatel-Lucent Agreement, steering committee fees related to restructuring in 2012, bank account management charges and the amount of the compensation of employees in the case of the termination of their labor contracts. Adjusted to exclude bank fees included in finance costs. EBITDA and Adjusted EBITDA are supplemental measures of our financial and operating performance used by management that are not required by, or prepared in accordance with IFRS. These measures are prepared by management because we believe they provide a view of our recurring operating performance that is unaffected by our capital structure and allows management to readily view operating trends and identify strategies to improve operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating these measures, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our use of each of these measures is as follows:

• We define EBITDA as starting from profit/(loss) for the period (prepared in accordance with IFRS) and adding back income tax expense, finance costs, finance income and depreciation and amortization.

• We define Adjusted EBITDA as EBITDA as calculated above, and adjusted to remove the effect of asset impairment and write-off, share of profit of joint ventures, other gains, net, fees payable under a management services agreement and technical services agreement entered into at the time of privatization and discontinued in 2010, provisions and penalties and other exceptional items which we believe are not indicative of our underlying operating performance. The EBITDA measures presented may not be comparable to similarly titled measures used by other companies. We encourage you to review our financial information in its entirety and not to rely on a single financial measure. See ‘‘Presentation of Financial and Other Information—Non-IFRS Financial Measures’’ for an explanation of certain limitations to the use of these measures. (3) Blended mobile ARPU for our mobile business is calculated as described in ‘‘Industry, Market and Subscriber Data.’’ (4) We define mobile data ARPU as the sum of the mobile data revenue in the period divided by the average number of mobile subscribers in the period (the average of each month’s average number of subscribers) divided by the number of months in the period. We calculate mobile data ARPU as a percentage of blended ARPU by dividing mobile data revenue (including revenue from SMS, MMS and VAS messaging services) during the period by mobile services revenue during the same period as used in the calculation of blended mobile ARPU. See ‘‘Industry, Market and Subscriber Data.’’ (5) ARPU for our fixed telephony business is calculated as described in ‘‘Industry, Market and Subscriber Data.’’ (6) ARPU for our fixed broadband business is calculated as described in ‘‘Industry, Market and Subscriber Data.’’

23 Certain Unaudited Pro Forma Consolidated Financial Information The certain unaudited pro forma consolidated financial information presented in the table below has been prepared to illustrate the effect of the Transactions on certain consolidated financial information as at and for the nine months ended September 30, 2013. The information, which has been produced for illustrative purposes only, by its nature addresses a hypothetical situation and, therefore, does not represent the Company’s actual financial position or results, nor do they purport to project our financial position or results at any future date. The actual results may differ significantly from those reflected in the unaudited pro forma consolidated financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma consolidated financial information. The unaudited pro forma consolidated financial information has not been prepared in accordance with the requirements of Regulation S-X of the U.S. Securities Act or any generally accepted accounting standards, and accordingly, should not be relied on as if they had been carried out in accordance with those standards. The unaudited pro forma consolidated financial information should be read in conjunction with and is qualified in its entirety by, the information contained in ‘‘Selected Historical Financial Information and Other Information,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the Consolidated Financial Statements and the Statement of Unaudited Pro Forma Consolidated Financial Information appearing elsewhere in this Offering Circular. The table below presents certain pro forma combined financial information, prepared in accordance with the basis of preparation as described in detail in the Statement of Unaudited Pro Forma Consolidated Financial Information appearing elsewhere in this Offering Circular, which include the pro forma adjustments.

Pro forma as at September 30, 2013 (BGN in thousands) Cash and cash equivalents(1) ...... 8,184 Total borrowings(2)(4) ...... 758,540 Net borrowings(3)(4) ...... 750,356

(1) Pro forma cash and cash equivalents is calculated by giving pro forma effect to the Transactions, as if they had occurred on September 30, 2013. See ‘‘Use of Proceeds.’’ (2) Total borrowings is calculated as the sum of current borrowings and non-current borrowings. Pro forma total borrowings is calculated by adding pro forma current borrowings and pro forma non-current borrowings and reflects the principal amount of the Notes and certain existing indebtedness as if the Transactions had occurred on September 30, 2013. See ‘‘Use of Proceeds’’ and ‘‘Capitalization.’’ (3) Net borrowings is calculated by deducting cash and cash equivalents from total borrowings. Pro forma net borrowings is calculated by deducting pro forma cash and cash equivalents from pro forma total borrowings and reflects the principal amount of the Notes and certain existing indebtedness as if the Transactions had occurred on September 30, 2013. See notes 1 and 2 above. See ‘‘—Certain Historical Consolidated Financial Information and Operating Data—Other Financial Information’’ for a ratio of pro forma net borrowings to Adjusted EBITDA for the twelve months ended September 30, 2013. (4) Total borrowings and net borrowings have been reflected at their aggregate principal amount less fees and expenses relating to the Transactions which, in accordance with IFRS will be amortized to interest expense over the life of the relevant borrowings. Pro forma total borrowings and net borrowings, excluding fees and expenses relating to the Transactions, would be BGN 783.7 million and BGN 775.5 million, respectively.

24 RISK FACTORS An investment in the Notes to be issued in the Offering involves significant risks, including the risks described below and elsewhere in this Offering Circular. You should carefully consider the risks described below as well as the other information contained in this Offering Circular before making an investment decision. The risks and uncertainties we describe below are not the only ones we face. Additional risks and uncertainties of which we are not aware or that we currently believe are immaterial may also materially and adversely affect our business, results of operations or financial condition. If any of the events described in the risk factors below occurs, our business results of operations or financial condition could be materially adversely affected, which in turn could adversely affect our ability to pay all or part of the interest or principal on the Notes when due and you could lose all or part of your investment. This Offering Circular also contains ‘‘forward-looking’’ statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, the risks described below and elsewhere in this Offering Circular. See ‘‘Forward-Looking Statements.’’

Risks Related to our Industry and our Business The Bulgarian telecommunications industry is characterized by high levels of competition and we expect the market to remain highly competitive. If we are not able to successfully compete, our financial performance and business prospects may be materially adversely affected. The telecommunications industry in Bulgaria is characterized by high levels of competition among mobile, fixed telephony, fixed broadband and pay-TV service providers. Competitors include mobile network operators, cable network operators, LAN operators, fiber network operators and DTH platform operators. We expect the markets in which we operate to remain competitive and this competition may be exacerbated by further consolidation of or strategic alliances amongst our competitors, in addition to potential new market entrants in the Bulgarian telecommunications industry. We compete in these markets on the basis of competitive pricing, extensive network coverage, network quality, speed and reliability, superior bundling capabilities, the ability to provide ‘‘quadruple-play’’ offerings and our ability to provide superior customer service and support. In the Bulgarian mobile telecommunications market, our competitors MobilTel and Globul (which was recently acquired by Telenor) have well-established positions, each having a greater market share than we do. MobilTel, as the incumbent in the mobile telecommunications market, has the advantage of long-standing relationships with Bulgarian customers. Globul is well-positioned in the pre-paid segment of the market and has a strong distribution network with competitive pricing. In addition, Globul is now the operating company of a major global telecommunication company with superior economies of scale and available resources, which could be channeled into its operations to create substantial differences between its operations and ours in network, coverage, promotion and advertising spend, services and/or price. Max Telecom, a WiMAX network operator, offers nationwide mobile data services and has announced plans to launch LTE services by the end of 2013. We do not anticipate offering LTE services until after 2015 at the earliest, when the 800 MHz band spectrum may become available. Bulsatcom, traditionally a DTH television provider, is a new market entrant to the mobile telecommunications market and GSM services may be available to their customers by the end of 2013, which could introduce a new round of aggressive price competition in this market. The launch of such mobile services by Max Telecom, Bulsatcom or another new entrant could in turn materially impact our market share and number of customers, and affect our revenue and results of operations. In addition, as at December 31, 2012, the Bulgarian mobile market had a penetration rate of approximately 174%. (Source: Telekom Austria and Deutsche Telekom reports and IMF). This level of saturation and the highly consolidated nature of the mobile market in Bulgaria have resulted in significant pricing pressure in recent years, and our competitiveness will depend on our ability to introduce new technologies, convergent services and attractive bundled products at competitive prices, as further growth of our subscriber base in this mature market will be primarily driven by our ability to acquire other operators’ subscribers and our ability to retain existing subscribers. See ‘‘—Customer churn may increase, and revenues and margins could be significantly lower than expected if we fail to offer customer propositions that respond to customer demand.’’ According to the CRC, for the year ending December 31, 2012, we were the incumbent fixed telephony provider with a revenue market share of 87%. Our main competitors in this market are MobilTel and Globul, which each employ aggressive pricing strategy tactics and capitalize on their large mobile customer base by offering fixed-line bundling with mobile services.

25 In the Bulgarian fixed-data market, we compete primarily with Blizoo, MobilTel and Bulsatcom and a significant number of small scale LAN operators. Blizoo has national coverage and offers bundled fixed broadband services to their significant television customer base. The smaller LAN operators are quick to deploy, price aggressively, respond quickly to customer problems and offer a competitive product. A significant number of these LAN operators operate in the ‘‘grey market’’ as they do not pay taxes or license fees and build aerial cables in violation of construction laws or use our ducts for free to deliver their services, which gives them an unfair advantage over us in terms of offering low price fixed broadband products. See ‘‘—The continued existence of a widespread ‘‘grey market’’ in fixed broadband and pay-TV services may adversely affect our business.’’ In the Bulgarian pay-TV market, we compete with Bulsatcom, Blizoo, MobilTel and a significant number of analog cable operators. Bulsatcom is the leading DTH platform operator with exclusive content. Blizoo is the largest cable operator in the country. MobilTel has recently launched its IPTV offering. The analog cable operators compete primarily on price, as they lack capital to continue to invest in infrastructure. However, a significant number of these analog cable operators are not licensed and tend to understate their subscriber numbers in order to reduce their tax liability and the fees they pay to content providers, which gives them an unfair advantage over us in terms of offering low price pay-TV products. See ‘‘—The continued existence of a widespread ‘‘grey market’’ in fixed broadband and pay-TV services may adversely affect our business.’’ Our primary competitors have pursued aggressive marketing and pricing strategies to retain and expand their market share, which if pursued in the future, could reduce our margins, cause us to increase our marketing and promotional expenses in response to such strategies and result in increased customer churn. In addition, the competitive nature of our market may be exacerbated by new market entrants or the consolidation of some of our primary competitors. There can be no assurance that we will be able to maintain our current market share, nor can there be any assurance that the costs associated with maintaining our market share in the face of competition from the market participants will not have an adverse effect on our results of operations. As a result of the above, or as a result of increasing competitive pressure due to factors beyond our control, our business, results of operations or financial condition could be materially adversely affected.

The telecommunications industry is subject to rapid and significant changes in technology, and we may not be able to effectively anticipate or react to these changes and we may have difficulty competing successfully. The telecommunications industry is characterized by rapid and significant changes in technology, customer demand and behavior, resulting in a constantly changing competitive environment. The telecommunications industry is experiencing continuous structural changes, including new revenue models introduced by our competitors and new market entrants. These structural changes, together with any accompanying products, or other technological developments have the potential to exert substantial pricing pressure on our products and services, and may increase our subscriber acquisition and retention costs. Recently, the market has witnessed the emergence of, or increased demand for, new technologies. In particular, voice over Internet Protocol (‘‘VoIP’’) over fixed and mobile technologies, mobile instant messaging, Wi-Fi or IPTV for retail customers and cloud computing for business customers have had and are expected to have a continued effect on the telecommunications industry and on our business. These technological developments are shortening product life cycles and may fail to complement each other by substituting or decreasing demand for each other. Our success and competitive position depends, in a large part, on our ability to keep pace with technological developments. However, at the time we select and advance one technology over another, it may not be possible to accurately predict which technology may prove to be the most economical, efficient or capable of attracting subscribers or stimulating usage and we may develop or implement a technology that does not achieve widespread commercial success, has technical difficulties or that is not compatible with other newly developed technologies. Our competitors or potential new market entrants may introduce new or technologically superior telecommunications services before us. Alternatively, we may not be able to obtain funding on reasonable terms or at all in order to finance capital expenditures required to successfully develop or implement such new technologies. In addition, we may not recover the investments we have made or may make to deploy these technologies, services and products and we cannot assure you that we will be able to do so in a cost effective manner, which would also reduce our profitability. We may also not receive the necessary licenses to provide services based on these new technologies in Bulgaria, or may be negatively impacted by unfavorable regulation regarding the usage of these technologies. If we are unable to effectively anticipate or react to technological changes in the telecommunications market or to

26 otherwise compete effectively, we could lose subscribers, fail to attract new subscribers, experience lower ARPU or incur substantial or unanticipated costs and investments in order to maintain our subscriber base, all of which could have a material adverse effect on our business, results of operations or financial condition.

Our fixed telephony and mobile voice market may continue to decrease due to increasing competition from alternative modes of telecommunication, in particular customer use of mobile and fixed-data services in place of voice services. Our fixed telephony market is facing increasing competition from declining mobile service charges due to increased competition in the mobile telecommunications market, which could increase the rate of fixed-to-mobile substitution and accelerate the reduction of our fixed telephony subscriber base. If we are unable to address this competition adequately, this trend could have a material adverse effect on our business, results of operations or financial condition. The fixed telephony market along with mobile voice services, is also facing increasing competition from non-traditional voice and data services, based on new voice and messaging over internet technologies, in particular Over-The-Top (‘‘OTT’’) applications, such as Skype, Google Talk, FaceTime, WhatsApp and Facebook Messenger, which are capable of providing mobile data-only users with mobile voice and video services and providing fixed broadband-only users with fixed telephony and video services. These applications are often free of charge, aside from data usage fees, accessible via smart phones, tablets and computers and allow their users to have access to potentially unlimited messaging and voice services over the internet, bypassing more expensive traditional voice and messaging services, which have historically been a source of significant revenue for us. With a growing share of smart phones, tablets and computers, there will be an increasing number of customers who use OTT applications as alternatives to traditional voice and messaging services, jeopardizing our voice revenue. Moreover, many devices can access the internet via Wi-Fi connections, as opposed to over a mobile network, further limiting the fees we can charge for our products and services. Such services benefit from a number of advantages. For example, because many of these services leverage existing infrastructures, their proprietors are often not required to implement capital-intensive business models associated with traditional providers like us. OTT application service providers have recently become more sophisticated competitors, and technological developments have led to a significant improvement in the quality of service, in particular speech quality, delivered via data communications applications. In addition, players with strong brand capability and financial strengths, such as Apple, Google and Microsoft, have turned their attention to the provision of OTT applications. In the long term, if non-traditional voice and data services or similar services continue to increase in popularity, as they are expected to do, they could contribute to declines in fixed telephony and mobile ARPU and in our subscriber base across our fixed telephony and mobile voice services, among other material adverse effects.

Customer churn may increase, and revenues and margins could be significantly lower than expected if we fail to offer customer propositions that respond to customer demand or if there is an accelerated decline in our fixed telephony business, which is a profitable albeit declining product line. One of our primary revenue drivers is our number of customers. The success of our business and our ability to limit rates of subscriber turnover, referred to in the telecommunications industry as customer churn, by retaining existing customers or to win new customers depends upon the introduction of new or enhanced products and services, flexible pricing models, high quality customer service, and improved network capabilities in response to evolving customer expectations, new technologies, or the offerings of our competitors. Any of the new or enhanced products, services or pricing models we introduce may fail to achieve market acceptance, or products or services introduced by our competitors may prove more appealing to customers, who may discontinue using our services, either of which would, in turn, increase our customer churn. Any increase in customer churn may lead to a reduced number of total customers, increased subscriber acquisition and retention costs, the need to reduce other costs to preserve margins, or lower overall revenue and margins. The various measures we have taken and plan to take to manage churn and to increase customer loyalty may not be successful in managing our churn rate. We believe customers purchasing bundled services are less likely to switch to a different operator for all or part of their bundled services. As a result, our ability to offer attractive and competitively priced product bundles, including integrated fixed and mobile packages, is important to our ability to compete and to reduce churn by retaining existing customers and by winning new customers. Certain of our competitors, such as MobilTel and Blizoo, increasingly offer bundled

27 products to retail customers that combine fixed telephony, mobile, fixed broadband or pay-TV. Bundled services, already a significant component of our product offering, are expected to become increasingly important to retail customers and small business customers and to grow in popularity. However, this anticipated increase in demand for bundled products may fail to materialize or to reduce churn among our existing subscriber base. Our efforts to retain customers and reduce churn may also require additional upgrades to our network infrastructure, and failure to successfully maintain and improve network performance could contribute to increased customer churn. These efforts may not be as effective if there is an accelerated decline in our fixed telephony business, which is a profitable, albeit declining product line. This accelerated decline could be caused by numerous market trends, such as an increase in the rate of fixed-to-mobile substitution and the increased use of OTT applications. See ‘‘—Our fixed telephony and mobile voice market may continue to decrease due to increasing competition from alternative modes of telecommunication, in particular customer use of mobile and fixed-data services in place of voice services.’’ If we fail to communicate effectively the quality, reliability or other benefits of our network through marketing and advertising efforts, or to successfully market our brand as having a reputation for network quality and reliability, we may not be able to attract new subscribers or reduce churn, and our marketing and advertising efforts may cost more than the incremental revenue attributable to such efforts, which in turn, may decrease operating margins. Similarly, our efforts to increase pricing flexibility by offering bundles across various business segments, may fail to achieve the expected benefits, attract new subscribers, or reduce churn. In addition, our competitors may improve their ability to attract new subscribers, for example by offering products and attractive price plans that we currently do not offer, or offering their products or services at lower prices, which would make it more difficult for us to retain our current subscribers or to acquire new subscribers.

The continued existence of a widespread ‘‘grey market’’ in fixed broadband and pay-TV services may adversely affect our business. A ‘‘grey market’’ in fixed broadband and pay-TV services exists in Bulgaria. There are a significant number of LAN operators in the Bulgarian fixed broadband market that do not pay taxes or license fees and build aerial cables in violation of construction laws or use our ducts for free to deliver their services. Analog cable television operators do not pay license fees and pay reduced taxes as they often understate their number of subscribers. This gives them an unfair advantage over us, as they are able to offer lower priced fixed broadband and pay-TV products. Neither the national and local Bulgarian government nor the CRC have historically focused on curbing this ‘‘grey market,’’ primarily because the existence of these operators has allowed urban consumers to receive high-speed fixed broadband and pay-TV services at very attractive prices and curbing the market would mean disconnecting a large number of consumers from their fixed broadband and pay-TV services. While there have been recent cases across the country in which local Bulgarian authorities have taken action and cut illegal aerial cables, these were shortly reconnected by the LAN operators. While both the national and local government are expected to intensify efforts to enforce existing laws and to reduce the size of the ‘‘grey market,’’ there is no assurance that these efforts will be successful. If the national and local government’s efforts to clean up the ‘‘grey market’’ are not successful and if the size of the ‘‘grey market’’ grows, our business, results of operations or financial condition could be materially adversely affected.

Our failure to maintain and continuously upgrade our existing networks, systems and operations may adversely affect our business. We must continue to upgrade our existing mobile and fixed-line networks in a timely manner in order to retain and expand our subscriber base in each of our segments and to successfully implement our strategy. The maintenance and improvement of our existing networks and infrastructure depend on our ability to: • enhance the functionality or upgrade the technology of our existing networks to allow for the increased customization of services to our customers; • increase our UMTS coverage in rural areas; • simplify, modify and improve customer service, network management and administrative systems; and • upgrade older systems and networks to adapt them to new technologies. We are making significant investments to upgrade our networks. In particular, we are investing in completing and improving the capacity of our 3G network, expanding the capacity of BTS, and building

28 out our fiber network in Bulgaria’s largest cities. However, due to rapid changes in the telecommunications industry, our network investments may prove to be inadequate or may be superseded by new technological changes. See ‘‘—The telecommunications industry is subject to rapid and significant changes in technology, and we may not be able to effectively anticipate or react to these changes and we may have difficulty competing successfully.’’ Our network investments may also be limited by market uptake and customer acceptance. We currently anticipate that we may participate in LTE spectrum auctions for the 800 MHz spectrum band (or other form of frequency allocations) as early as 2015, which could result in our incurrence of significant and unexpectedly high capital expenditures, if the sum of interest from various parties has exceeded the available spectrum. See ‘‘—Our permits to provide telecommunications services have finite terms and any inability to renew any of these permits upon termination or any inability to obtain new permits for new technologies or any excessive prices charged for renewing or obtaining permits could adversely affect our business.’’ Many of these commitments, which could create additional financial strain on our business and financial condition, are not entirely under our control and may be affected by applicable regulation. If we fail to execute them successfully, our services and products may be less attractive to new subscribers and we may lose existing subscribers to our competitors, which would adversely affect our business, results of operations or financial condition.

We operate in a capital intensive environment and we may not have sufficient liquidity to fund our capital expenditure programs or our ongoing operations in the future. Our business is capital intensive and has always required significant amounts of cash to improve and maintain our networks and add customers, including expenditures for equipment and related labor costs. We have an extensive capital expenditure program that will continue to require significant capital outlays in the foreseeable future, including the continued optimization of our GSM network, expansion of our UMTS network and HSPA+ coverage, the continued build-out of our fiber network and IPTV service, and it may take us significant time to recoup our investment costs depending on customer demand for these services See ‘‘—Our failure to maintain and continuously upgrade our existing networks, systems and operations may adversely affect our business.’’ We may also need to invest in new networks and technologies in the future, such as LTE technology, which could require significant capital expenditures, and if network usage develops faster than we anticipate, we may require greater capital investments in shorter time frames than originally anticipated and we may not have the resources to make such investments. In addition, costs associated with the licenses that we need to operate our existing networks and technologies and those that we may develop in the future, and costs and rental expenses related to their deployment, could be significant. We can provide no assurance that our business will generate sufficient cash flows from operations to enable us to fund our capital expenditures or investments. The amount and timing of our future capital requirements may differ materially from our current estimates, as forces over which we have little or no control, such as competition, technological innovation or regulatory changes, could require additional capital expenditures. General market conditions impact our operating performance, and therefore the cash we have available to fund these expenditures. We may also be required to raise additional debt or equity financing in amounts that could be substantial. The type, timing and terms of any future financing will depend on our cash needs and the prevailing conditions in the financial markets. We cannot assure you that we would be able to accomplish any of these measures on a timely basis or on commercially reasonable terms, if at all. We cannot assure you that we will generate sufficient cash flows in the future to meet our capital expenditure needs, sustain our operations or meet our other capital requirements, which may have a material adverse effect on our business, results of operations or financial condition. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Expenditures and Investments.’’

Equipment and network systems failures, or other natural disasters or unforeseen circumstances, could significantly disrupt our operations, which could negatively affect our reputation, reduce our customer base and result in lost revenue. Our technological infrastructure and other property, including our network infrastructure for mobile telecommunications and fixed-line services are vulnerable to damage or disruptions from numerous events. These include fire, flood, windstorms or other natural disasters, power outages, terrorist acts, equipment or system failures, human errors or intentional wrongdoings, including breaches of our network or information technology security. Unanticipated problems at our facilities, network or system failures,

29 hardware or software failures, computer viruses, or the occurrence of such unanticipated problems at the facilities, network or systems of third-party-owned networks on which we rely upon for the provision of interconnection and roaming services could result in reduced user traffic and revenue, due to subscriber dissatisfaction with poor performance and reliability, or could result in regulatory penalties or unanticipated capital expenditures. The occurrence of network or system failures could also harm our reputation or impair our ability to retain current subscribers or attract new subscribers, which could have a material adverse effect on our business, results of operations or financial condition. In addition, our business is dependent on certain sophisticated critical systems, including exchanges, switches, other key network elements and our billing and customer service systems. The hardware supporting those systems is housed in a relatively small number of locations. We have a modern back up disaster recovery center, but if damage were to occur to these locations simultaneously, or if those systems were to develop other problems, it could have a material adverse effect on our business, results of operations or financial condition. We believe that the insurance we currently have in place, including business interruption insurance and coverage of almost all of our assets, protects against the risk of loss in many of these scenarios, but it may not be sufficient to protect against the risk of all loss as a result of such failures.

Our business depends on the strength and visibility of the Vivacom brand. Failure to promote and reinforce customer trust in our brand would have a material adverse effect on our business, results of operations or financial condition. Since the launch of our integrated Vivacom brand in 2009, the Vivacom brand has become increasingly well-recognized in Bulgaria. As a means of protecting and increasing market share, reducing customer churn, and growing our revenue, we intend to continue to pursue a strategy of promoting our brand throughout Bulgaria. We seek to protect and grow our market position against our competitors and potential new entrants by maintaining the Vivacom brand, and as a result, may have to increase marketing expenses in the future. We also intend to continue to invest in the Vivacom brand in order to increase customer awareness. We may not be able to successfully increase customer awareness of the Vivacom brand, or strengthen brand recognition, and our efforts to do so may not prove to be cost-effective. There can be no assurance that the Vivacom brand will retain its current recognition levels or that the strength of, or investment in, the Vivacom brand will lead to a measurable increase in net adds (the number of new subscribers minus customer churn for the applicable period), reduce customer churn, or increase our revenue. Any damage to the Vivacom brand or reputation could have a material adverse impact on our business, results of operations or financial condition.

We depend on key suppliers and vendors who may choose to discontinue their services or products, seek to charge prices that are not competitive or choose not to renew contracts with us, which may cause significant disruptions to our business. We have important relationships with several suppliers of hardware, software, content and related services that we use to operate our mobile, fixed telephony, fixed broadband and pay-TV services. Our ability to grow our subscriber base depends in part on our ability to source adequate supplies of mobile and fixed network equipment, mobile handsets, content, software and hardware, such as modems and set-top boxes in a timely manner from, and by maintaining our existing relationships with, these suppliers. Suppliers of network equipment have limited resources which may impact the rapidity of our network expansion. In addition, suppliers of mobile handsets are at times subject to supply constraints, particularly when there is high demand for a particular handset or during the winter holiday season, during which there may be a shortage of components. We do not have direct operational or financial control over our key suppliers and have limited influence with respect to the manner in which these key suppliers conduct their businesses. For example, if a supplier of maintenance services in the field fails to respond adequately to a problem with our network, we will receive customer complaints. If any of the third parties that we rely on becomes unable to or refuses to provide to us the services, facilities and equipment that we depend on in a timely and commercially reasonable manner or at all, we may experience temporary service interruptions or service quality problems. In the event that hardware or software products or related services are defective, it may be difficult or impossible to enforce recourse claims against suppliers, especially if warranties included in contracts with suppliers have expired or if the suppliers are insolvent. We cannot guarantee that these or other risks to the reputation of, and value associated with, the Vivacom brand will not materialize.

30 The success of our pay-TV services depends on the quality and variety of the television and other content we deliver to our customers. As we do not produce our own content, we depend on agreements, relationships and cooperation with broadcasters and other distributors. If we are unable to obtain or retain attractively priced competitive content on our network, demand for our existing and future pay-TV services could decrease, thereby limiting our ability to maintain or increase revenue from these services, which could have a material adverse effect on our business, results of operations or financial condition. In addition, we cannot assure you that our suppliers will continue to provide content, equipment and services to us at attractive prices or that we will be able to obtain such content, equipment and services in the future from these or other providers on the scale and within the time frames we require, if at all. If our key suppliers are unable to provide us with adequate content, equipment and supplies, or provide them in a timely manner, our ability to attract subscribers or offer attractive product offerings could be negatively affected, which in turn could materially adversely affect our business, results of operations or financial condition.

Our business depends on our ability to effectively implement our business strategy, which might be affected by new business models and lines, and failure to adapt to internal or external changes might have a negative impact on our business, results of operations or financial condition. The success of our business depends, to a large extent, on our ability to effectively implement our business strategy. Our ability to implement our strategy depends on a number of factors, many of which may be unforeseen or are beyond our control. We cannot assure you that we will be able to implement our business strategy fully or within our estimated budget and on time, or that the implementation of our strategy will bring the anticipated results. Any inability on our part to implement our strategy effectively could have a material adverse effect on our business, results of operations or financial condition. For example, our ability to effectively target the underpenetrated Bulgarian fixed broadband market, capitalize on what we believe to be our ‘‘best-in-class’’ 3G network and leverage our pay-TV services to create attractive bundled offerings, which are important elements of our business strategy, depends to a significant extent on our ability to complete our targeted fiber network build-out and expand the capacity of our 3G network. Furthermore, since we operate in a highly dynamic industry, we continuously face internal and external changes, often in the form of new business models and lines, and our strategy may have to be modified substantially. New business models and lines may increase the rate of decline of our existing products. For example, VoIP and OTT applications might displace fixed telephony revenue and cause additional revenue migration from voice to data or new revenue models might be introduced by mobile handset companies, or even other industries (such as mobile advertising). See ‘‘—Our fixed telephony and mobile voice market may continue to decrease due to increasing competition from alternative modes of telecommunication, in particular customer use of mobile and fixed-data services in place of voice services.’’ Additionally, new business models and lines could increase network costs substantially, leading to a material increase in capital expenditure. For example, our recently introduced DTH and IPTV pay-TV offerings and fiber fixed broadband offerings may require us to invest significant time and money into capturing market share or may even fail to achieve market acceptance. If market demand for these new products fails to increase, it will limit our ability to recoup the cost of our significant investment in our fiber network, which could adversely affect our business, results of operations or financial condition. In connection with the launch of new business lines, we also have to integrate our legacy services into these new business models and lines, such as migrating our current ADSL subscribers to fiber services, which may result in customers discontinuing the use of our services altogether, should we fail to integrate successfully. Failure to modify our business strategy, when and as required, may have a material adverse effect on our business, results of operations or financial condition.

Deterioration in the quality of the network of our third-party telecommunications providers, over which we have no direct control may adversely affect our business and profitability. Our ability to provide high quality mobile and fixed-line telecommunications services depends on our ability to interconnect with the telecommunications networks and services of other mobile and fixed-line operators, particularly those of our competitors. We also rely on third-party operators for the provision of international roaming services for our mobile subscribers. While we have interconnection and roaming agreements in place with other operators, we do not have direct control over the quality of their networks and the interconnection and roaming services they provide. See ‘‘Business—Certain Contracts Relating to the Operation of our Business.’’ Any difficulties or delays in interconnecting with other networks and

31 services, or the failure of any operator to provide reliable interconnection or roaming services to us on a consistent basis, could result in a loss of subscribers or a decrease in voice traffic, which would reduce our revenues and adversely affect our business, results of operations or financial condition.

Market demand for UMTS- and HSPA+-based services, including mobile Internet, in Bulgaria may not increase, limiting our ability to recoup the cost of our investment in our UMTS license and network and our HSPA+ technology, respectively, which could adversely affect our business, results of operations or financial condition. Our UMTS license cost BGN 42 million and is valid until 2025. In 2012, we were awarded an additional 5 MHz block of UMTS spectrum to support data growth. We plan to make substantial investments in our UMTS network during the next several years. Currently, mobile data services (based on UMTS technology with a download capability of 21 Mbps and an upload capability of 5.74 Mbps) are implemented throughout our nationwide network. We also plan to roll out HSPA+ configurations, which will allow data to be transmitted at speeds of up to a maximum of 42 Mbps, in selected locations, which will require additional substantial investments. Our ability to recoup our UMTS-related expenditures will depend largely upon continued and increasing customer demand for UMTS-based mobile services. Although there have been signs of widespread demand for UMTS services in recent years, the size of the market is still unknown and may fall short of industry expectations and UMTS technology may not prove more attractive to subscribers than other existing technologies and services. If UMTS-based mobile services do not, or are slower than anticipated to, gain sufficiently broad commercial acceptance in Bulgaria, or if we derive a smaller percentage of our total revenue than expected from our UMTS-related services or if third-party application service providers fail or are slow to develop services for UMTS-based mobile services, or if we cannot obtain reasonably priced UMTS mobile handsets, technologically proven network equipment or software with sufficient functionality or speed, we may not be able to adequately recoup our investment in our UMTS license and network or profit from such investment, which could have a material adverse effect on our business, results of operations or financial condition. In addition, our ability to recoup HSPA+-related expenditures will depend largely upon implementing a competitive pricing strategy that appeals to consumers while recouping our investment in HSPA+ technology. Further, Europe continues to face an economic slowdown, resulting in a general contraction in consumer spending, including in Bulgaria, which could affect demand for value-added services, such as mobile data. If subscribers use mobile data services offered by our competitors, increase their usage of our mobile data services at a rate slower than anticipated, reduce their usage of our mobile data services or cease to use mobile data services at all, we may not be able to profit from our build-out of HSPA+ coverage at the levels we anticipated, or at all, which, in turn, could have a material adverse effect on our business, results of operations or financial condition.

We may incur bad debt expenses which could be detrimental to our business in the future. We have experienced bad debt expenses in previous years. Our ability to screen applicants for creditworthiness is limited due to the lack of common credit history databases in Bulgaria. Given that most of our subscribers are post-paid customers, we undertake a wide range of bad debt management activities to control our bad debt levels. For example, we install a credit limit on post-paid accounts, require a credit limit deposit to be made in certain cases, such as for customers that we consider high-risk, where there has been an increase of the credit limit and when there has been activation of roaming services. We also offer customers installment payments for the purchase of mobile handsets only if they meet certain predefined requirements intended to ascertain creditworthiness. See ‘‘Business—Credit Management and Billing.’’ We maintain a provision for estimated credit losses and we believe that our provisions are sufficient. Any increase in the amount of bad debt could materially and adversely affect our business, results of operations and financial condition.

Our reliance on major business customers leaves us vulnerable to various financial risks. Unlike our residential subscribers, some of our larger business customers individually, such as certain Bulgarian ministries and state-owned companies, provide large revenue streams. As such, the loss of several of these business customers over the same financial period could lead to a material decline in revenue. Further, our contracts with business customers may hold us financially liable for service outages or delays in delivering product. Each of these risks could have a material adverse effect on our business, results of operations or financial condition.

32 We collect and process subscriber data as part of our routine business operations and the leakage of such data may violate laws and regulations which could result in fines, loss of reputation and subscriber churn and materially adversely affect our business, results of operations or financial condition. We collect, store and use data in the ordinary course of our operations that is protected by data protection laws. Although we take precautions to protect subscriber data in accordance with the privacy requirements provided for under applicable laws, we may fail to do so and certain subscriber data may be leaked as a result of human error or technological failure or otherwise be used inappropriately. We work with independent and third-party suppliers, partners, sales agents, service providers and call center agents, and we cannot eliminate the risk that such third parties could also experience system failures involving the storing or the transmission of proprietary information. Violation of data protection laws or regulations by us or one of our partners or suppliers may result in fines, reputational harm and subscriber churn and could have a material adverse effect on our business, results of operations or financial condition.

We may not be able to attract and retain key personnel, without whom we may not be able to manage our business effectively. Our success and growth strategy depends in large part on our ability to attract and retain key management, marketing, finance and operating personnel. There can be no assurance that we will continue to attract or retain the qualified personnel needed for our business. The loss of any members of our senior management or our key employees could significantly impede our financial plans, product development, network completion, marketing and other plans. If one or more of our key personnel are unable or unwilling to continue in their present positions, including for health, family or other personal reasons, we may not be able to replace them easily or at all. Competition for qualified senior managers in our industry is intense and there is limited availability of persons with the requisite knowledge of the telecommunications industry and relevant experience in Bulgaria. Furthermore, integration of new senior management would require additional time and resources, which could adversely affect our ability to successfully implement our strategy. Our failure to recruit and retain key personnel or qualified employees could have a material adverse effect on our business, results of operation or financial condition.

The loss of important intellectual property rights, including our key trademarks and domain names as well as third- party claims that we have infringed on their intellectual property rights could significantly harm our financial condition, and defending intellectual property claims may be expensive and could divert valuable company resources. Our current portfolio of intellectual property rights consists of registered trademarks relating to our brand. Although we do not own any patents that we consider material for our business, our key trademarks and domain names, which enjoy a high level of recognition and visibility in the Bulgarian telecommunications market, are important to our business. We consider the brand name ‘‘Vivacom’’ to be material to our business. See ‘‘Business—Intellectual Property.’’ If we are unable to maintain the reputation of and value associated with our ‘‘Vivacom’’ brand name, which is essential to our marketing strategy, we may not be able to successfully retain and attract subscribers. Any damage to our reputation or to the value associated with our ‘‘Vivacom’’ brand name could have a material adverse effect on our business, results of operations or financial condition. We rely on a combination of trademark and copyright laws, database protections and contractual arrangements, where appropriate, to establish and protect our intellectual property rights. We may be required to bring claims against third parties in order to protect our intellectual property rights, and we may not succeed in protecting such rights. As a result, we may not be able to use intellectual property that is material to the operation of our business. As the number of convergent product offerings and overlapping product functions increases, the possibility of intellectual property infringement claims against us may correspondingly increase. In developing such new product offerings, we may not adequately identify third-party intellectual property rights or assess the scope and validity of these third-party rights, which may lead to claims of intellectual property rights infringement by third parties. Any such claims or lawsuits, whether with or without merit, could be expensive and time consuming to defend, could cause us to cease offering or licensing services and products that incorporate the challenged intellectual property, or could require us to develop non-infringing products or services, if feasible, which could divert the attention and resources of our technical and management personnel. We cannot assure you that we would prevail in any litigation related to infringement claims against us. A successful claim of infringement against us could result in us being required to pay significant damages, cease the development or sale of certain products and services that incorporate the challenged intellectual property, obtain licenses from the holders of such intellectual

33 property which may not be available on commercially reasonable terms, or otherwise redesign those products to avoid infringing upon others’ intellectual property rights, any of which could materially adversely affect our business, results of operations or financial condition.

We are subject to risks from legal and similar proceedings, including disputes and legal proceedings relating to the regulatory, competition and tax authorities, competitors, the Bulgarian Privatization and Post Privatization Control Agency and other parties, which when concluded, could have a material adverse effect on our business, results of operations or financial condition. We are continuously involved in disputes and legal proceedings with civil, regulatory, competition and tax authorities as well as with competitors and other parties, including relating to the Bulgarian Privatization and Post Privatization Control Agency, as more fully described in ‘‘Business—Legal Proceedings—Bulgarian Privatization and Post Privatization Control Agency.’’ Any such disputes or legal proceedings, whether with or without merit, could be expensive and time consuming, could divert the attention of our senior management and, if resolved adversely to us, could harm our reputation and increase our costs, all of which could result in a material adverse effect on our business, results of operations or financial condition. We cannot assure you what the ultimate outcome of any particular dispute or legal proceeding will be. For a description of our existing material legal proceedings, see ‘‘Business—Legal Proceedings.’’

Labor disruptions could lead to work stoppages, reputational damage or increased costs. If we experience a material labor disruption, strike or material dispute with trade unions established by our employees, or significantly increased labor costs at one or more of our facilities, we may not be able to timely or cost effectively meet customer demands and provide our standard level of customer care, which could reduce our profitability. In addition, we have been in the past and we are currently a party to labor disputes with some of our employees on an individual basis. We cannot assure you that these disputes or future disputes with employees, individually or in the aggregate, will not have an adverse effect on our business, results of operations or financial condition.

Our business may be adversely affected by any alleged health risks relating to mobile telecommunications transmission equipment and devices, which could lead to decreased mobile communications usage, litigation or stricter regulation. The alleged health risks of mobile telecommunications devices, press reports about such risks or consumer litigation relating to such risks could adversely affect the size or growth rate of our subscriber base and result in decreased mobile usage, increased litigation or other liabilities, increased difficulty in obtaining sites for transmitters, or increased costs resulting from potential new regulations addressing these perceived health risks. In addition, these alleged health risks may cause authorities in the European Union and Bulgaria to impose more onerous regulations on the construction of base stations or other telecommunications network infrastructure. In particular, public concern over alleged health effects related to electromagnetic radiation may result in increased costs related to our networks, which may hinder the completion or increase the cost of network deployment, reduce the coverage of our network and hinder the commercial availability of new services. If these alleged health risks were to result in decreased mobile usage, increased consumer litigation or stricter regulation, our business, results of operations or financial condition could be materially adversely affected.

Our financial results could be adversely affected by changes in foreign currency exchange rates. Our business is exposed to fluctuations in currency exchange rates. Our financial statements are expressed in BGN and our functional currency is BGN. Our long term borrowings, interest expenses and part of our capital expenditure are denominated in euro. However, on July 1, 1997, the Lev was fixed to the German Mark at a rate of 1 BGN for 1 DEM, and since the introduction of the euro on January 1, 1999, the Lev has been pegged at a rate of at BGN 1.95583 to A1.00, which reduces currency exchange risk with respect to the euro. In addition, since its introduction, the currency peg has enjoyed very high levels of support among Bulgarian political parties and the public. However, a potential free floating of the Lev or the devaluation of the Lev would significantly affect our business, financial condition or results of operations. We have some exposure to U.S. dollars, mainly from committed purchases of certain network equipment. Therefore, a depreciation of either the Lev or the euro against the U.S. dollar would increase our costs and decrease our profitability. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of

34 Operations—Quantitative and Qualitative Disclosures about Market Risks—Foreign Exchange Rate Risk.’’ In an attempt to reduce the impact of currency fluctuations and the volatility of returns that may result from our currency exposure, we hedge our currency risks with foreign exchange forward contracts. However, there can be no assurance that such hedging will be fully effective or beneficial in protecting us from adverse foreign currency exchange rate movements.

Risks Related to Bulgaria We operate exclusively in the Bulgarian market and as a result our operations and financial condition depend on economic, political and social conditions in Bulgaria. We operate exclusively in the Bulgarian market and our success is therefore closely tied to the economic, political and social conditions in Bulgaria. The Bulgarian economy may be adversely affected in a number of ways by weakening economic conditions and turmoil in the global financial markets. A decline in the economic growth of Bulgaria’s major export partners, such as the European Union, which accounted for more than 50% of all Bulgarian exports in 2012, according to Eurostat, could have a significant adverse impact on Bulgaria’s exports and hence affect Bulgaria’s economic growth. According to Eurostat, in 2011 and 2012, Bulgaria’s real GDP increased by approximately 1.8% and 0.8%, respectively, and in 2013, Bulgaria’s real GDP is forecasted to increase by 0.9%, compared to an average negative growth forecast of 0.1% for the European Union. Irrespective of forecasts, global markets and economies continue to be volatile and forecasted growth may fail to materialize. Negative developments in, or the general weakness of, the Bulgarian economy may have a direct negative impact on the financial condition of our customers, which in turn, will affect their spending patterns and the willingness of business customers to make further investments in Bulgaria, which could adversely affect our revenue and profitability. For example, Bulgarian consumers have recently been seeking lower monthly recurring charges on their fixed telephony services, as consumers rely primarily on mobile services and view landlines as an expendable discretionary expense. Consumers may also spend less on an incremental basis, such as by placing fewer calls. In addition, recessionary conditions may continue to weigh on the growth prospects of the Bulgarian telecommunications market in terms of the penetration of new value- added services, mobile data, traffic, ARPU, number of subscribers and the volume of business subscribers. Further, a weakening economy may lead to a higher number of non-paying customers or generally result in a higher number of service disconnections. Therefore, if unemployment rates increase, if there is a fall in exports, or if the Bulgarian economy does not grow as expected or weakens, our ability to increase, or, in certain cases, maintain the revenue, ARPUs, operating cash flow, operating cash flow margins and liquidity of our business segments may be materially adversely affected. In addition, the recent political and social unrest in Bulgaria may also impact our business, results of operations or financial condition. Challenging economic conditions, combined with the increasing cost of living, dissatisfaction and frustrations over corruption and crime have resulted in street demonstrations and labor unrest. In February 2013, protests took place in over 30 cities in Bulgaria. The protests had initially started as demonstrations against high electricity and heating tariffs and eventually turned into a mass movement against the government and the political system, resulting in the resignation of the center- right government of Boyko Borisov. Elections were held in May, which resulted in a hung parliament, which narrowly approved the appointment of Plamen Oresharski as Prime Minister. Starting in June 2013, demonstrators have been taking to the streets daily to protest official corruption amidst calls for Oresharski to resign. Any intensification of the political and social unrest could trigger difficulties or disruption for business subscribers and generally harm the national economy, which in turn could have a material adverse effect upon our business, results of operations or financial condition.

Crime and corruption could disrupt our ability to conduct our business. Organized criminal activity and corruption is widespread and prevalent in Bulgaria. The Bulgarian and international press have reported high levels of official corruption in Bulgaria, which has been the subject of daily protests since June 2013. The European Union has consistently called on Bulgaria to take urgent action to combat organized crime and corruption and produce more concrete evidence of such efforts, and has in the past, suspended aid worth hundreds of millions of euros, until the Bulgarian government has tackled these issues effectively. As the Bulgarian telecommunications industry is subject to extensive regulation, it is more susceptible to corruption, such as the bribery of government officials. The proliferation of organized or other crime, corruption and other illegal activities that disrupt our ability to conduct our business effectively, or any claims that we have been involved in corruption, or illegal activities

35 (even if false) that generate negative publicity, could have an adverse effect on our business, results of operations or financial condition.

Developments in the Bulgarian legal system could materially affect our business, results of operations or financial condition. Bulgarian law has been brought substantially in line with that of the European Union. However, Bulgarian laws still do not always correspond to the rationale of the EU rules and could still be subject to material improvements. The practice of the local judiciary and administration is still developing and parties seeking to rely on the Bulgarian courts or other authorities for any relevant legal assistance, (including in relation to enforcement of secured claims), may find it difficult to obtain such assistance in a prompt and timely manner. As a result, ambiguities and inconsistencies continue to exist within the Bulgarian legal framework, which renders investing in securities, including the Notes, issued or guaranteed by Bulgarian entities and secured by Bulgarian law governed collateral more risky than investing in securities issued or guaranteed in a jurisdiction with a more developed legal system. For example, the validity and enforceability of the Security Documents may be challenged in Bulgaria See ‘‘—Risks Related to the Notes and our Structure— Due to imperfections in the Bulgarian legal system, the rights of holders of the Notes may be adversely affected by claims of invalidity of security interests in the Collateral,’’ ‘‘—Risks Related to the Notes and our Structure— The rights of holders of the Notes may be adversely affected by the failure to perfect security interests in the Collateral’’ and ‘‘—Risks Related to the Notes and our Structure—The grant of Collateral to secure the Notes might be challenged or voidable in an insolvency proceeding.’’

Risks Related to Regulatory and Legislative Matters Our permits to provide telecommunications services have finite terms and any inability to renew any of these permits upon termination or any inability to obtain new permits for new technologies or any excessive prices charged for renewing or obtaining permits could adversely affect our business. We are currently licensed to provide telecommunications services in Bulgaria. We have a permit to use, operate and develop the fixed-line communications network that expires in 2019. We also have mobile permits to operate on both 2G and 3G networks that expire in 2024 and 2025, respectively. If the technology that is the subject of one of these permits continues to be important for the provision of mobile telecommunications services, we expect that we would seek to renew such permit upon expiration. There can be no assurances, however, that any application for the renewal of one or more of these permits upon expiration of their respective terms will be successful or would be renewed on equivalent or satisfactory terms. Moreover, as we expand our network and services we will need to obtain additional permits. In particular, we currently anticipate that we may participate in LTE frequency allocations (via auction or otherwise) for the 800 MHz spectrum band as early as 2015, which could result in us incurring significant and unexpected investments. Given that in the past, the sum of interest from various parties has exceeded the available spectrum, these frequency allocations may require us to incur significantly greater investments than planned. In addition, our mobile network is supported by numerous base station transmission systems (‘‘BTS’’). Given the multitude of regulations that govern such equipment and the various permits required to operate our BTS, we cannot be certain that our right to use a portion of our transmission system will not be challenged. While we do not generally believe that the lack of any single permit or approval with respect to our BTS would have a material adverse effect on our network, the prohibition of the use of a material number of BTS or any strategically located BTS that cannot be easily replaced, by a competent authority could have a disruptive effect on our transmission to certain areas, which could result in a material adverse effect on our business. Additional permits may also be needed for the provision of mobile services using new technologies that may be developed or deployed in the future and we are likely to face competition for any such permits. In the event that we are unable to renew a permit or obtain a new permit for any technology that is important for the provision of our product and service offerings, we could be forced to discontinue use of that technology or we may be unable to use an important new technology, and our business, financial condition or results of operations could be materially adversely affected.

36 In addition, the terms of certain of our permits require us to meet certain conditions established by the CRC, including, for example, meeting minimum quality, service and network coverage standards. If we fail or are unable to comply with the conditions on our permits or with the legal and regulatory regime requirements of Bulgaria more generally, we may be subject to fines and/or other administrative actions or may have one or more of our permits suspended or revoked. The suspension or revocation of any of our permits could have a material adverse effect on our business, financial condition or results of operations.

The telecommunications industry is subject to significant government regulation and supervision, which may increase our costs and otherwise adversely affect our business, results of operations or financial condition. Our operations are subject to extensive regulation and supervision requirements by various Bulgarian state authorities, in particular the Communications Regulation Commission (‘‘CRC’’) and the Commission for Protection of Competition (‘‘CPC’’). The CRC has broad regulatory and supervisory powers concerning regulation of the provision of all electronic communications services, radio frequency spectrum management, orbital resources and numberings as well as the terms and conditions of our permits and the CPC has broad regulatory and supervisory powers in the area of competition law. Furthermore, there is a Consumer Protection Commission that is entrusted with safeguarding consumer rights. However, the regulatory practice of each of these commissions is not always concerted and can provoke conflicting decisions, which could result in market uncertainty, lack of clear criteria and excessive regulations applicable to our business. In addition, our ability to provide our mobile services is dependent on obtaining and maintaining the relevant permits. These permits are limited in time and subject to renewal. While we are confident in our ability to obtain renewals upon request, we may not reliably predict the financial and other conditions at which such renewals will be granted. See ‘‘—Our permits to provide telecommunications services have finite terms and any inability to renew any of these permits upon termination or any inability to obtain new permits for new technologies or any excessive prices charged for renewing or obtaining permits could adversely affect our business.’’ In addition to local laws and regulations, our business is also subject to EU regulations and proposed EU regulations with respect to the use and sharing of spectrum, and where adopted, these regulations could affect our business and competitive position. Examples of such regulations include roaming regulation on retail and wholesale roaming charges for calls made or received from destinations within the European Union and the European Economic Area and roaming charges for SMS and mobile data services and regulation that sets maximum termination rates. See ‘‘Regulation—International Roaming’’ and ‘‘Industry and Market Overview—Regulatory Environment.’’ In addition, in 2009, the European Commission introduced a set of significant directives: the Framework Directive, Access Directive, Authorization Directive, Universal Service Directive and the e-Privacy Directive (known as the ‘‘Telecom Package Directives’’). The Telecom Package Directives have been implemented in Bulgaria and have had a direct impact on our business operations. The most prominent reforms within the scope of the Telecom Package Directives relate to the European Commission’s power to oversee national regulators’ decisions, number portability and customer related reforms, such as a maximum initial duration of a contract no longer than 24-months; possibility to agree to a contract with a maximum duration of 12-months; and transparency of information to consumers, including information on supply conditions and on tariffs. See ‘‘Regulation.’’ We are unable to predict the impact of any adopted, proposed or potential changes in the regulatory environment in which we operate, which is subject to continuous review by the CRC and the CPC, as well as further changes in the EU regulatory framework. In particular, our ability to compete effectively in existing or new markets could be adversely affected if regulators decide to expand the restrictions and obligations to which we are subject, or extend such restrictions and obligations to new services and markets, or otherwise withdraw or adopt regulations. For example, we are currently required to provide wholesale access to and use of specific network facilities, such as our ducts, and may be subject to additional obligations in the future, such as providing wholesale access to our fiber network, if we are found to have significant market power in this particular market. See ‘‘—We have been found in the past, and in the future may be found again to have significant market power in the markets in which we operate, the regulation of which may adversely affect our business.’’ Furthermore, our ability to introduce new products and services may also be affected if we do not accurately predict how existing or future laws, regulations or policies would apply to such products and services, which could prevent us from realizing a return on our investment in their development. Complying with existing regulations is burdensome, and future changes may increase our operational and administrative expenses and limit our revenue, which in turn could have a material adverse effect on our business, results of operations or financial condition. See ‘‘Regulation.’’

37 We may be subject to increased costs or pressure on our revenue as a result of additional decreases in fixed and mobile termination rates and from increased regulation of international roaming charges. In Bulgaria, the fees for access and interconnection that fixed and mobile operators charge for calls and SMS terminating on their respective networks are determined ex ante by the CRC. As Bulgaria is a member of the European Union and is subject to EU telecommunications legislation, there has been an aggressive decline in mobile termination rates (‘‘MTRs’’) and fixed termination rates (‘‘FTRs’’), driven by directives of the European Commission. In particular, as at July 2013, MTRs had been significantly reduced, bringing them in line with the 2009 recommendations from the European Commission, and are now below current EU averages. This has created an asymmetric international MTR and FTR regime, whereby telecommunications companies outside of the European Union benefit at our expense as they are able to charge higher fees for terminating calls on their own networks, and we experience losses on traffic exchanged with such operators. Because termination rates are a component of our revenue (for calls and SMS that terminate on our networks) and of our access and interconnection expenses (for calls and SMS that terminate on the network of other network operators), the decrease in FTRs and MTRs will have a direct impact on our revenue and other income and costs, and a subsequent impact on our profitability. For example, if permissible FTRs and MTRs had been at the level that they were at as at July 1, 2013, this would have created an adverse impact on our revenue of BGN 105.3 million, BGN 127.4 million and BGN 95.6 million for the years ended December 31, 2010, 2011 and 2012, respectively. A further reduction in fixed and mobile termination rates will likely result in further reduced revenue in the future, which could have a material adverse effect on our business, results of operations or financial condition. Roaming charges, or fees charged for calls and SMS initiated outside the subscriber’s home country, are subject to increasingly stringent fee caps for voice, SMS and data in the wholesale and retail customer markets throughout the European Union, and consequently in Bulgaria. As a result, the roaming charges we may charge our wholesale customers for voice, SMS and data roaming are expected to decline. Permissible roaming charges and other price caps may be reduced further by future regulation, and the roaming services or the extent of network access that we are required to provide to our competitors could be extended. Such regulatory change may increase pressure on our revenue and could have a material adverse effect on our business, results of operations or financial condition.

We have been found in the past, and in the future may be found again to have significant market power in the markets in which we operate, the regulation of which may adversely affect our business. The CRC imposes measures on entities deemed to have significant market power in any of the markets in which they operate. Following market analysis procedures that have been carried out by the CRC since 2008, we have been recognized as a telecommunications provider with significant market power on the following markets: (i) access to the public telephone network at a fixed location for residential and non-residential customers, (ii) call origination on the public telephone network provided at a fixed location, (iii) call termination on individual public telephone networks provided at a fixed location, (iv) wholesale (physical) network infrastructure access (including shared or fully unbundled access) at a fixed location, (v) wholesale fixed broadband access, (vi) wholesale terminating segments of leased lines, irrespective of the technology used to provide leased or dedicated capacity; and (vii) voice call termination on individual mobile networks. See ‘‘Regulation—Significant Market Power.’’ Regulatory changes in relation to the evaluation of which companies have significant market power in certain markets are ongoing, the results of which could adversely affect our competitive position and margins in the future. As a result, there is a risk that we could be found to have significant market power in one or more additional markets in which we operate in the future. In addition, should the CRC opt to extend findings of significant market power into new markets, and if we were to be deemed to have significant market power in such a market, additional regulatory restrictions could have a material adverse effect on our business, results of operations or financial condition. A finding that we have significant market power in a given market subjects us to heightened regulatory monitoring and review and could require us to provide other service providers access to our network for purposes of providing competing services at regulated prices, as well as impose other restrictions on how we operate our networks and market our services. For example, the CRC has imposed certain requirements on us, such as regulating our prices in the markets described above, requiring us to have and officially publish standard offers for interconnection, and providing wholesale line rental, bitstream, leased

38 lines, duct rental and collocation of equipment, all of which could have an adverse impact on the way we conduct our business operations. As a finding of significant market power impacts how we are permitted to operate our network, price and market our products, any finding that we have significant market power in one or more of the additional markets in which we operate could have a material adverse effect on our business, results of operations or financial condition.

Frequent changes to tax regulations may have an adverse effect on our financial condition and results of our operations. The Bulgarian tax system is in the process of aligning itself more closely with the EU legal framework, which may result in the inconsistent application of existing laws and regulations, and uncertainty as to the application and effect of new laws and regulations on our business. Some provisions of Bulgarian tax law are ambiguous and there is often no unanimous or uniform interpretation or practice of the law by the tax authorities and the courts. In certain cases tax authorities could have a high degree of discretion, for instance in relation to transfer pricing tax legislation, and at times may exercise their powers arbitrarily and selectively enforce tax laws and regulations, which could be in a manner that is contrary to the law. In addition, Bulgaria’s relatively ineffective tax collection system and continuing budgetary funding requirements may increase the likelihood that more onerous tax refunding procedures and penalties might be imposed and certain taxes increased. The above conditions may impose additional burdens and costs on our operations, including management resources. We cannot provide assurance that the Bulgarian tax authorities will not take a different, unfavorable interpretation of the tax provisions we have implemented and that the effective tax burden on our business will not increase. We may also be subject to additional tax liabilities. If a withholding tax amendment with regards to bonds issued and admitted to trading on a regulated market within the European Union is not passed by the Bulgarian parliament and does not become effective, in particular, we will be obliged to pay to the Bulgarian tax authorities, the tax withheld from the interest due to the Noteholders. In addition, this tax payment will be grossed-up. See ‘‘Certain Tax Considerations—Bulgarian Tax Considerations—Non-Resident Noteholders: Bulgarian tax treatment.’’ Additional tax liabilities may also arise as a result of an audit by the Bulgarian tax authorities, as the last period audited by the Bulgarian tax authorities was in 2006. These uncertainties complicate our tax planning and related business decisions, potentially exposing our business to significant fines, penalties and enforcement measures, which may have a material adverse effect on our business, results of operations or financial condition.

Risks Related to our Financial Profile Our substantial leverage and debt service obligations could adversely affect our business and prevent us from fulfilling each of our obligations with respect to the Notes and the Note Guarantee. We are, and following the issuance of the Notes will continue to be, highly leveraged. As at September 30, 2013, after giving effect to the Offering, our total borrowings would have been approximately BGN 758.5 million, or the equivalent of approximately A387.8 million. In addition, we will be permitted to incur additional indebtedness, subject to certain limitations under the Indenture. The degree to which we will be leveraged following the Offering could have important consequences to holders of the Notes, including, but not limited, to: • making it difficult for us to satisfy our obligations with respect to the Notes or other indebtedness; • increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions; • requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, joint ventures, product research and development, subscriber acquisition costs or other general corporate purposes; • limiting our flexibility in planning for, or reacting to, changes in our business and the competitive environment and the industry in which we operate; • placing us at a competitive disadvantage as compared to our competitors, to the extent that they are not as highly leveraged; and • limiting our ability to borrow additional funds and increasing the cost of any such borrowing.

39 The occurrence of any of these events could have a material adverse effect on our business, results of operations, financial condition, prospects and ability to satisfy our obligations under the Notes or the Note Guarantee. Moreover, we may incur substantial additional indebtedness in the future, including indebtedness in connection with any future acquisition. Although the Indenture will contain restrictions governing the incurrence of additional indebtedness, the restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If we or our subsidiaries incur new debt or other obligations, the related risks that we now face, as described above and elsewhere in these ‘‘Risk Factors,’’ could intensify. For further information regarding our substantial leverage and for more information about our outstanding indebtedness, see also ‘‘Description of Notes’’ and ‘‘Description of Certain Financing Arrangements.’’

We are subject to restrictive debt covenants that may limit our ability to finance our future operations and capital needs and to pursue business opportunities and activities. The Indenture will contain covenants, which will restrict, among other things, our ability to: • incur or guarantee additional indebtedness and issue certain preferred stock; • create or incur certain liens; • layer debt; • make certain payments, including dividends or other distributions, with respect to the shares of the Issuer or its restricted subsidiaries; • prepay or redeem subordinated debt or equity; • make certain investments; • undertake certain activities by the Issuer; • create encumbrances or restrictions on the payment of dividends or other distributions, loans or advances to and on the transfer of assets to the Issuer or any of its restricted subsidiaries; • sell, lease or transfer certain assets, including stock of restricted subsidiaries; • engage in certain transactions with affiliates; • consolidate or merge with other entities; and • impair the security interests for the benefit of the holders of the Notes. All of these limitations will be subject to significant exceptions and qualifications. See ‘‘Description of Notes—Certain Covenants.’’ The covenants to which we are subject could limit our ability to finance our future operations and capital needs and our ability to pursue business opportunities and activities that may be in our interest. The restrictions contained in the Indenture could affect our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise.

We may incur additional indebtedness, including at the level of our subsidiaries, which could increase our risk exposure from debt and could decrease your share in any proceeds. Subject to restrictions in the Indenture, we may incur additional indebtedness, which could increase the risks associated with our already substantial indebtedness. Our subsidiaries may also be able to incur substantial indebtedness in the future, further increasing the risks associated with our substantial leverage. Any indebtedness that we incur in the future at a non-Guarantor subsidiary level would be structurally senior to the Notes. Additionally, we could raise additional debt that could be secured or could mature prior to the Notes. Although the Indenture will contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with those restrictions could be substantial. In addition, the Indenture will not prevent us from incurring obligations that do not constitute indebtedness under those agreements.

40 We will require a significant amount of cash to service our debt and sustain our operations. Our ability to generate sufficient cash depends on many factors beyond our control, and we may be forced to take other actions to satisfy our debt obligations, which may not always be successful. Our ability to make payments on and to refinance our debt, and to fund working capital and capital expenditures, will depend on our future operating performance and ability to generate sufficient cash. This depends, to some extent, on the success of our business strategy and on general economic, financial, competitive, market, legislative, regulatory and other factors, as well as the other factors discussed in these ‘‘Risk Factors,’’ many of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future debt and equity financing will be available to us in an amount sufficient to enable us to pay our debts when due, including the Notes, or to fund our other liquidity needs. If our future cash flow from operations and other capital resources are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to: • reduce or delay our business activities and capital expenditures; • sell assets; • obtain additional debt or equity capital; or • restructure or refinance all or a portion of our debt, including the Notes, on or before maturity. We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on commercially reasonable terms, if at all. In particular, our ability to restructure or refinance our debt will depend in part on our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business, financial condition and results of operations. Furthermore, we may be unable to find alternative financing, and even if we could obtain alternative financing it might not be on terms that are favorable or acceptable to us. If we are unable to satisfy our obligations through alternative financing, we may not be able to satisfy our debt obligations, including under the Notes. In that event, borrowings under other debt agreements or instruments that contain cross acceleration or cross default provisions, including the Notes, may become payable on demand, and we may not have sufficient funds to repay all our debts, including the Notes. Any failure to make payments on the Notes on a timely basis would likely result in a reduction of our credit rating, which could also harm our ability to incur additional indebtedness. In addition, the terms of our debt, including the Notes and any future debt may limit our ability to pursue any of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The terms of our debt, including under the Indenture, restrict our ability to transfer or sell assets. In addition, there can be no assurance that any assets which we could be required to dispose of can be sold or that, if sold, the timing of such sale and the amount of proceeds realized from such sale will be acceptable. If we are unsuccessful in any of these efforts, we may not have sufficient cash to meet our obligations.

Risks Related to the Notes and our Structure Creditors under the Revolving Credit Facility and certain hedging liabilities are entitled to be repaid with the proceeds of the Collateral sold in any enforcement sale or as a result of certain distressed disposals in priority to the Notes. The obligations under the Notes and Note Guarantee are secured on a first-ranking basis with security interests over Collateral which also secures our obligations under the Revolving Credit Facility and certain hedging obligations. The Indenture will also permit the same Collateral to be pledged on a pari passu basis with the Notes to secure additional indebtedness in accordance with the terms thereof and the Intercreditor Agreement. Pursuant to the Intercreditor Agreement, the liabilities under the Revolving Credit Facility, certain priority hedging obligations and certain future indebtedness permitted under the Indenture (subject to the Intercreditor Agreement and any Additional Intercreditor Agreement), if any, will have priority over any amounts received from the sale of the Collateral pursuant to an enforcement action taken with respect to the Collateral or as a result of certain distressed disposals. As such, in the event of a foreclosure or distressed disposal of the Collateral, you may not be able to recover on the Collateral if the then

41 outstanding claims under the Revolving Credit Facility and such amount in respect of such priority hedging obligations and certain future indebtedness permitted under the Indenture (subject to the Intercreditor Agreement and any Additional Intercreditor Agreement), if any, are greater than the proceeds realized. Any proceeds from an enforcement sale or distressed disposal of the Collateral by any creditor will, after all obligations under the Revolving Credit Facility and such amount in respect of such priority hedging obligations and certain future indebtedness permitted under the Indenture (subject to the Intercreditor Agreement and any Additional Intercreditor Agreement), if any, have been discharged from such recoveries, be applied pro rata in repayment of the Notes, certain other hedging obligations and any other obligations secured by the Collateral on a pari passu basis with the Notes. The Intercreditor Agreement provides that a common Security Agent, who will also serve as the security trustee for the lenders under the Revolving Credit Facility, the hedging counterparties and the providers of any additional secured debt permitted to be incurred by the indenture governing the Notes, will act only as provided for in the Intercreditor Agreement. In general, the facility agent under the Revolving Credit Facility and any agent with respect to any permitted future secured debt will have, subject to certain restrictions in connection with, among others, the ability to provide enforcement instructions to the Security Agent, the right to enforce the shared Collateral. The Intercreditor Agreement provides that where there is an inconsistency between enforcement instructions provided by the holders of 662⁄3% of the aggregate of all outstanding liabilities under the Revolving Credit Facility, the priority hedging liabilities and any liabilities permitted to rank pari passu with them (the ‘‘Majority Super Senior Creditors’’) and the holders of 50% of the aggregate of all outstanding liabilities under the Notes, certain other hedging obligations and certain future indebtedness (the ‘‘Majority Senior Creditors’’) following a consultation period, the instructions of the Majority Senior Creditors will prevail. However, if and to the extent the obligations under the Revolving Credit Facility, certain priority hedging obligations and certain classes of debt permitted to rank pari passu with them under the terms of the Intercreditor Agreement have not been discharged within six months of such enforcement instructions first being issued or if no steps have been taken in relation to the commencement of enforcement of security over the Collateral within three months of such enforcement instructions first being issued, the enforcement instructions provided by the Majority Super Senior Creditors will prevail. The lenders under the Revolving Credit Facility, certain priority hedging counterparties or lenders of any other future class of debt that ranks pari passu with the indebtedness under the Revolving Credit Facility may have interests that are different from the interests of holders of the Notes and they may, subject to the terms of the Intercreditor Agreement, elect to pursue their remedies under the security documents at a time when it would be disadvantageous for the holders of the Notes to do so.

The Notes will be secured only to the extent of the value of the Collateral that has been granted as security for the Notes and the Note Guarantee, and given the considerations below, such security may not be sufficient to satisfy the obligations under the Notes and the Note Guarantee. If there is an event of default on the Notes, the holders of the Notes will be secured only by the Collateral and the satisfaction of the claims of the holders of the Notes will be subject to the mandatory ranking of claims under any applicable law. The claims secured by the Collateral (if the security interests therein are properly perfected as first-ranking) will be preferential under Bulgarian law, although these claims may be effectively subordinated to any existing and future indebtedness of the collateral provider that is mandatorily preferred by Bulgarian law or any other applicable law. For example, certain types of claims of a competing creditor/s against the collateral provider under relevant Bulgarian law enforcement proceedings, such as claims for certain judicial expenses; claims for taxes on a specific real estate or motor vehicle, which is part of the Collateral, will by law rank prior to the claims of the holders of the Notes. Furthermore, to the extent that the claims of the holders of the Notes exceed the value of the Collateral securing the Notes and other obligations, these claims will rank equally with the claims of the holders of all other existing and future senior unsecured indebtedness ranking pari passu with the Notes and the Note Guarantee (again save for indebtedness mandatorily preferred by law). As a result of the above, the rights of holders of the Notes to the Collateral may be diluted by any increase in the first ranking debt secured by the Collateral. There is no guarantee that the value of the Collateral will be sufficient to enable us to satisfy our obligations under the Notes. The proceeds of any sale of the Collateral following an event of default with respect to the Notes may not be sufficient to satisfy, and may be substantially less than, amounts due on the Notes. No appraisals have been prepared by or on behalf of the Issuer or the Guarantor in connection with the issue of the Notes. The fair market value of the Collateral may be subject to fluctuations based on factors that include, among others, general economic conditions, industry conditions and similar factors. The

42 amount to be received upon an enforcement of such Collateral will depend upon many factors, including, among others, the ability to sell the Collateral in an orderly sale, and the availability of buyers, whether or not our business is sold as a going concern, the jurisdiction in which the enforcement action or sale is completed, the ability to readily liquidate the Collateral and the fair market value and condition of the Collateral. Further, there may not be any buyer willing and able to purchase our business as a going concern, or willing to buy a significant portion of our assets in the event of an enforcement action. The book value of the Collateral should not be relied on as a measure of realizable value for such assets. All or a portion of the Collateral may be illiquid and may have no readily ascertainable market value. Likewise, we cannot assure you that there will be a market for the sale of the Collateral, or, if such a market exists, that there will not be a substantial delay in our liquidation. We conduct our business after we have received the required permit from the relevant regulatory authority. According to the applicable Bulgarian law, the transfer of the permit (which would be necessary in case of the transfer of the business as a going concern in an enforcement procedure) may be made only after prior approval of the CRC. Therefore, it may be practically difficult to sell our business as a going concern without the relevant prior approval, or obtaining such an approval may further delay the realization of the value of the Collateral upon enforcement. To the extent that security interests and other rights granted to other parties encumber assets owned by the Issuer or the Guarantor, those parties have or may exercise rights and remedies with respect to the property subject to their security interests or other rights that could adversely affect the value of that Collateral and the ability of the Security Agent, Trustee or investors as holders of the Notes to realize or enforce that Collateral. Furthermore, unsecured third-party creditors (even though ranking junior to the holders of the Notes) may direct enforcement actions in respect of the Collateral, thus prompting the untimely disposal of the Collateral or parts thereof, which in turn may again have an adverse effect on the its value. If the proceeds of any sale of Collateral are not sufficient to repay all amounts due on the Notes and the Note Guarantee, investors (to the extent not repaid from the proceeds of the sale of the Collateral) would have only an unsecured claim (if the relevant guarantee has not been released) against the Issuer’s and the Guarantor’s remaining assets. Each of these factors or any challenge to the validity of the Collateral or the Intercreditor Agreement could reduce the proceeds realized upon enforcement of the Collateral.

The security interests in the Collateral will not be granted directly to the holders of the Notes and the holders of the Notes may be limited in their ability to take enforcement action in respect of the Collateral. The security interests in the Collateral that will secure the obligations of the Issuer under the Notes and the obligations of the Guarantor under the Note Guarantee will not be granted directly to the holders of the Notes, but will be granted only in favor of the Security Agent. The Indenture and the Intercreditor Agreement will provide that, to the extent permitted by applicable law, only the Security Agent has the right to enforce the Security Documents relating to the Collateral on behalf of the Trustee and the holders of the Notes. As a consequence of such contractual provisions, holders of the Notes will not have direct security interests in the Collateral and be barred from taking enforcement action in respect of the Collateral securing the Notes, except through the Trustee who will (subject to the provisions of such Indenture) provide instructions to the Security Agent in respect of the Collateral. For the purpose of certain jurisdictions, including Bulgaria, due to the laws and other jurisprudence governing the creation and perfection of security interests and the enforceability of such security interests, the Intercreditor Agreement, governed by English law, will provide for the creation of ‘‘parallel debt’’ obligations in favor of the Security Agent (‘‘Parallel Debt’’) mirroring the obligations of the Issuer and the Guarantor towards holders of the Notes under or in connection with the Indenture (‘‘Principal Obligations’’). The pledges in such jurisdictions will be granted to the Security Agent as security interests for the Parallel Debt and to the extent the Security Agent will be viewed by applicable law as acting on behalf of the holders of the Notes, and will not directly secure the Principal Obligations. The Parallel Debt will be at all times in the same amount and payable at the same time as the Principal Obligations. Any payment in respect of the Principal Obligations shall discharge the corresponding Parallel Debt and any payment in respect of the Parallel Debt shall discharge the corresponding Principal Obligations. In respect of the security interests granted to secure the Parallel Debt, the holders of the Notes will not have direct security interests and will not be entitled to take enforcement actions in respect of such security interests except through the Security Agent. Therefore, the holders of the Notes will bear the risk of insolvency or bankruptcy of the Security Agent. In addition, the Parallel Debt construct has not been tested before the courts in certain of these jurisdictions and to the extent that the security interests in the Collateral created

43 under the Parallel Debt construct are not validly granted or are successfully challenged by other parties, holders of the Notes will not receive any proceeds from an enforcement of such security interests in the Collateral. See ‘‘Limitations on Validity and Enforceability of the Guarantee and the Collateral and Certain Insolvency Law Considerations—Bulgaria—Limitations on Enforcement of the Note Guarantee and Security Interests—Use of Security Agent and Parallel Debt.’’

The value of the Collateral may decrease because of obsolescence, impairment or certain casualty events. The value of the assets that the Issuer and the Guarantor own or lease may be adversely affected by depreciation and normal wear and tear or because of certain events that may cause damage to these assets. Although the Security Documents may contain certain covenants in relation to the maintenance and preservation of assets, the Issuer and the Guarantor will not be required to improve the Collateral. The Issuer and the Guarantor may be obligated under the Security Documents to maintain insurance with respect to certain Collateral, but the proceeds of such insurance may not be sufficient to replace such properties or to restore such properties to their original condition prior to the occurrence of the events that caused the insured damages. Any such insurance policies will not likely cover all the events that may conceivably result in damage to the Collateral.

The Issuer and the Guarantor will have control over certain of the Collateral, and the operation of the business or the sale of particular assets could reduce the pool of assets securing the Notes. The Security Documents allow the Issuer and the Guarantor to remain in possession of, retain exclusive control over, freely operate, and collect, invest and dispose of any income from, certain of the Collateral. So long as no default or event of default under the Indenture would result therefrom, the Issuer and the Guarantor, may, among other things, subject to the terms of the Security Documents, without any release or consent by the applicable Trustee or the Security Agent, conduct ordinary course activities with respect to the Collateral such as selling, modifying, factoring, abandoning or otherwise disposing of the Collateral and making ordinary course cash payments, including repayments of indebtedness. Any of these activities could reduce the value of the Collateral, which could reduce the amounts payable to you from the proceeds of any sale of the Collateral in the case of an enforcement of the liens on the Collateral.

It may be difficult to realize the value of the Collateral. The Collateral will be subject to exceptions, defects, encumbrances, liens, loss of legal perfection, challenges as to validity and other imperfections permitted under the Indenture and the Intercreditor Agreement and accepted by other creditors that have the benefit of first ranking liens in the Collateral from time to time, whether on or after the date the Notes are first issued. The existence of any such exceptions, defects, encumbrances, liens, loss of legal perfection challenges as to validity and other imperfections could adversely affect the value of the Collateral, as well as the ability of the Security Agent to realize or foreclose on such Collateral or obtain satisfaction under the secured claims. Furthermore, the first ranking liens can be affected by a variety of factors, including, among others, the timely satisfaction of registration or perfection requirements, statutory liens or recharacterization under Bulgarian law. The security interests of the Security Agent will be subject to practical problems generally associated with the realization of security interests in collateral. For example, the Security Agent may need to obtain the consent of a third-party (including, without limitation, relevant governmental agencies, e.g., relevant competition or telecommunications regulatory authorities, like the CPC or CRC, in the case of an enterprise sale) to enforce a security interest. We cannot assure you that the Security Agent will be able to obtain any such consents. We also cannot assure you that the consents of any third parties will be given when required to facilitate a foreclosure on such assets. Accordingly, the Security Agent may not have the ability to foreclose upon those assets, and the value of the Collateral may significantly decrease. The value of properties of the Issuer or Guarantor may decrease because of obsolescence, impairment or certain casualty events. In addition, we are in the process of lifting mortgages in favor of the Bulgarian Privatization and Post Privatization Control Agency off some of our real property assets, which form part of the Collateral. There is no certainty that all such mortgages will be deregistered by the time of registering the security interests in the Collateral, which is to occur within specified time periods. See ‘‘Description of Notes—Certain Covenants—Collateral’’ and ‘‘Business—Legal Proceedings—Bulgarian Privatization and Post Privatization Control Agency.’’

44 The rights of holders of the Notes may be adversely affected by the failure to perfect security interests in the Collateral. Under Bulgarian law, a security interest in certain tangible and intangible assets, or in a going concern (enterprise) can only be properly perfected, and its priority retained, through certain actions undertaken by the secured party and/or the grantor of the security, such as registrations in the appropriate public registers and serving of notices to debtors under pledged receivables. The liens in the Collateral may not be perfected with respect to the claims of the Notes if we fail or are unable to take the actions we are required to take to perfect any of these liens or if pre-existing liens in the same assets are not properly lifted. The Security Agent will have no obligation to perfect or take actions required to perfect any of these liens. In addition, Bulgarian law requires that a security interest over certain property and rights acquired after the grant of a general security interest, such as real property, equipment subject to a certificate and certain proceeds, can only be perfected at or promptly following the time such property and rights are acquired and identified. Under Bulgarian law, a special pledge has to be recorded in the Central Register of Special Pledges and/or the Business Register (Companies Register) with the Registry Agency and/or the Central Depository, and/or in other relevant public registers in order to be perfected as regards to third parties. Such recordations, which are necessary for the perfection of the security interest or the lifting of a prior security interest, would usually occur timely, but no guarantee may be given that delays will not occur, or that the respective public register will not deny (even without legal merit) a recordation altogether. The security interests in the Collateral are expected to be registered in Bulgaria within specified time periods. See ‘‘Description of Notes—Certain Covenants—Collateral.’’ However, there can be no assurances as to if and when registration will take place. The Trustee and the Security Agent will not monitor, and we may not comply with our obligations to inform the Trustee or Security Agent of, any future acquisition of property and rights by us, and the necessary action may not be taken to properly perfect the security interest in such after acquired property or rights. Such failure may result in the invalidity of the relevant security interest in the Collateral or adversely affect the priority of such security interest in favor of the Notes against third parties, including a trustee in bankruptcy and other creditors who claim a security interest in the same Collateral.

Due to imperfections in the Bulgarian legal system, the rights of holders of the Notes may be adversely affected by claims of invalidity of security interests in the Collateral. The validity and enforceability of the Security Documents may be challenged in Bulgaria, whether in the context of insolvency proceedings against any of the Guarantor or Viva Telecom Bulgaria EAD, or outside such proceedings, see ‘‘—The Note Guarantee and the Collateral will be subject to certain limitations on enforcement and may be limited by applicable laws or subject to certain defenses that may limit its validity and enforceability’’ and ‘‘—The grant of Collateral to secure the Notes might be challenged or voidable in an insolvency proceeding.’’ Such challenges may be premised on different legal theories, and the risk of such challenge being successful is exacerbated by several factors, including misinterpretation of the law or fact by courts or other public institutions, inexperience, overload or improper influences. There is a statutory rule in Bulgarian securities law, which prohibits debt securities in an initial public offering or listing to be secured by a going concern (enterprise) pledge, or non-first ranking collateral. We believe that this rule should be read as only relevant to cases when the Bulgarian Financial Supervision Commission (the regulatory and supervisory authority for the non-banking financial sector) is the competent authority for the purposes of the Prospectus Directive and the securities are being publicly offered or listed in Bulgaria and the debt securities are governed by Bulgarian law. However, because of imprecise drafting surrounding this rule, it is susceptible to misinterpretation. The Business Register may refuse to register the a going concern (enterprise) pledge and appeal of such denial may be unsuccessful, as a Bulgarian court may resolve that due to the implied protective nature of this restriction and imperative wording, it is to be interpreted broadly and it overrides foreign legal orders, such that the restriction also covers off-shore securities offerings of Bulgarian entities, where the securities are governed by foreign law and collateralized by a going concern pledge governed by Bulgarian law, like the Notes. Given the underdeveloped state of the capital markets in Bulgaria, insufficient investor education, lack of administrative guidelines and case law in respect of securities laws, challenges to the validity of the enterprise pledge on the basis of misinterpretation of the above rules cannot be excluded. While we believe that such a challenge should be devoid of merits (as it would misinterpret the law), the practical risks of a Bulgarian court invalidating the enterprise pledge cannot be excluded. See also ‘‘—Risks Related to Bulgaria—Developments in the Bulgarian legal system could materially affect our business, results of operations or financial condition’’ and ‘‘—Risks Related to Bulgaria—Crime and corruption could disrupt our ability to conduct our business.’’

45 If any such challenge to the validity of the Security Documents and hence the Collateral causes delay in enforcement, or is successful, it will adversely affect the rights and the ability of the holders of the Notes to be satisfied through enforcement of the Collateral.

The transfer of the Notes may invoke the payment of Bulgarian capital gains tax, however, the procedures for payment of this tax are not fully clear. Capital gains realized on disposal of the Notes received by a legal entity, or an individual, which is not a Bulgarian tax resident, are subject to a one-time tax in Bulgaria at the rate of 10%, unless reduced or exempted under a double tax treaty. The tax is payable and subject to reporting by the recipient of the income and any payments made by the Issuer will not be grossed up as a result of any such capital gains tax. Reporting and payment is due on a quarterly basis, in arrears, until the end of the month following the calendar quarter. Reporting is due to the Sofia Territorial Office of the Bulgarian National Revenue Agency. The relevant reporting form, which may only be available in the Bulgarian language, encompasses different types of one-time taxes, among which is the capital gains tax. The non-resident payer of this tax may also request a certificate to demonstrate that the tax has been paid. The relevant tax laws are not entirely clear on the matter, however, it seem not possible for non-resident investors to off-set capital gains against capital losses. Double tax treaty clearance is not automatic in Bulgaria and a procedure involving the submission of a certain documents to the Bulgarian tax authorities may need to be followed so that the latter recognize the applicability of a capital gains tax exemption. Many practical questions may arise as to how in practice this tax is to be calculated, reported, and paid, including how the foreign tax resident recipient can most efficiently communicate with the relevant Bulgarian tax office. Therefore, you should consult your tax advisor concerning the tax consequences to you of realizing capital gains on the Notes. See ‘‘Certain Tax Considerations—Bulgarian Tax Considerations.’’

The granting of the security interests in connection with the issuance of the Notes and the Note Guarantee or the incurrence of permitted debt in the future may create or restart hardening periods. The granting of security interests to secure the Notes and the Note Guarantee may create hardening periods for such security interests in Bulgaria. The granting of shared security interests to secure future indebtedness permitted to be secured on the Collateral may restart or reopen such hardening periods in particular, as the Indenture will permit the release and retaking of security granted in favor of the Notes in certain circumstances including in connection with the incurrence of future indebtedness. The applicable hardening period for these new security interests can run from the moment each new security interest has been granted, perfected or recreated. At each time, if the security interest granted, perfected or re-created were to be enforced before the end of the respective hardening period applicable in such jurisdiction, it may be declared void or ineffective and/or it may not be possible to enforce it. If the grantor of such security interest were to become subject to a bankruptcy or winding up proceeding after the Issue Date, any security interest in Collateral delivered after the Issue Date would face a greater risk than security interests in place on the Issue Date of being avoided by the grantor or by its trustee, receiver, liquidator, administrator or similar authority, or otherwise set aside by a court, as a preference under insolvency law. To the extent that the grant of any security interest is voided, holders of the Notes would lose the benefit of the security interest. See ‘‘Limitations on Validity and Enforceability of the Guarantee and the Collateral and Certain Insolvency Law Considerations.’’ The same rights and risks also will apply with respect to future security interests granted in connection with the accession of further subsidiaries as additional guarantors and the granting of security interests over their relevant assets and equity interests for the benefit of holders of the Notes. See ‘‘Description of Notes—Security.’’

There are circumstances other than repayment or discharge of the Notes under which the Collateral or the Note Guarantee will be released automatically without your consent or the consent of the Trustee. Under various circumstances, the Collateral will be released automatically, including: • in connection with any sale, assignment, transfer, conveyance or other disposition of such property or assets to a person that is not (either before or after giving effect to such transaction) the Issuer or any of the restricted subsidiaries, if the sale or other disposition does not violate the ‘‘Asset Sale’’ provisions of the Indenture;

46 • in the case of a Guarantor that is released from its Note Guarantee pursuant to the terms of the Indenture, the release of the property and assets and capital stock of such guarantor; • if the Issuer designates any restricted subsidiary to be an unrestricted subsidiary (each as defined in ‘‘Description of Notes’’ in accordance with the applicable provisions of the Indenture, the release of the property and assets of such restricted subsidiary; • upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as provided below under the captions ‘‘Description of Notes—Legal Defeasance and Covenant Defeasance’’ and ‘‘Description of Notes —Satisfaction and Discharge’’; • in connection with certain enforcement actions taken by the creditors under certain of our secured Indebtedness in accordance with the Intercreditor Agreement or any additional intercreditor agreement as described below under ‘‘Description of Notes—Intercreditor Agreement’’; • upon the full and final payment of the Notes and performance of all Obligations of the Issuer and the Guarantor under the Indenture and the Notes; • in accordance with the Security Documents; or • as described under ‘‘Description of Notes—Amendment, Supplement and Waiver’’ and ‘‘Description of Notes—Certain Covenants—No Impairment of Security Interests.’’ In addition, under various circumstances, any guarantee of the Notes (including the Note Guarantee) will be fully and unconditionally released, including but not limited to: • in connection with any sale or other disposition of all or substantially all of the assets of that guarantor (including by way of merger, consolidation, amalgamation or combination) to a person that is not (either before or after giving effect to such transaction) the Issuer or a restricted subsidiary, if the sale or other disposition does not violate the ‘‘Asset Sale’’ provisions of the Indenture; • in connection with any sale or other disposition of capital stock of that guarantor (or capital stock of any parent holdco of such guarantor (other than the Issuer)) to a person that is not (either before or after giving effect to such transaction) the Issuer or a restricted subsidiary, if the sale or other disposition does not violate the ‘‘Asset Sale’’ provisions of the Indenture and the Guarantor ceases to be a restricted subsidiary as a result of the sale or other disposition; • if the Issuer designates any restricted subsidiary that is a guarantor to be an unrestricted subsidiary in accordance with the applicable provisions of the Indenture; • in connection with certain enforcement actions taken by the creditors under certain of our secured Indebtedness in accordance with the Intercreditor Agreement as described below under ‘‘Description of Notes—Intercreditor Agreement;’’ • upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as provided under ‘‘Description of Notes—Legal Defeasance and Covenant Defeasance’’ and ‘‘Description of Notes— Satisfaction and Discharge’’; • upon the full and final payment of the Notes and performance of all Obligations of the Issuer and the Guarantor under the Indenture and the Notes; or • as described under ‘‘Description of Notes—Amendment, Supplement and Waiver.’’ See ‘‘Description of Certain Financing Arrangements—Intercreditor Agreement’’ and ‘‘Description of Notes.’’

The interests of our principal shareholders may conflict with your interests. The Issuer is a single-shareholder joint stock company, which is indirectly majority owned by CCB Group and VTB. The interests of our principal shareholders, in certain circumstances, may conflict with your interests as holders of the Notes. As at the date of this Offering Circular, the majority shareholders of Issuer’s ultimate parent entity, own stakes of 43.3% and 33.3%, respectively. See ‘‘Principal Shareholders.’’ As a result, these shareholders have, and will continue to have, directly or indirectly, the power, among other things, to affect our legal and capital structure and our day-to-day operations, as well as the ability to elect and change our management and to approve any other changes to our operations. For example, the shareholders could vote to cause us to incur additional indebtedness or to sell certain material assets, in each case, so long as the Indenture and the Intercreditor Agreement so permits. Incurring additional indebtedness would increase our debt service obligations and selling assets could reduce our ability to

47 generate revenues, each of which could adversely affect holders of the Notes. In addition, our principal shareholders own interests in businesses that directly compete with our business.

We may not have the ability to raise the funds necessary to finance an offer to repurchase Notes upon the occurrence of certain events constituting a change of control as required by the Indenture. Upon the occurrence of certain events constituting a change of control (as defined in the Indenture) we will be required to offer to repurchase all outstanding Notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid interest, if any, to the date of purchase. If a change of control were to occur, we cannot assure you that we would have sufficient funds available at such time to pay the purchase price of the outstanding Notes or that the restrictions in the Intercreditor Agreement or our other then-existing contractual obligations would allow us to make such required repurchases. A change of control may result in an event of default and/or mandatory prepayment obligation under, or acceleration of, the Notes and other indebtedness. The repurchase of the Notes pursuant to such an offer could cause a default under our other indebtedness, even if the change of control itself does not. Our ability to receive cash from our subsidiaries to allow it to pay cash to the holders of the Notes following the occurrence of a change of control may be limited by our then existing financial resources. Sufficient funds may not be available when necessary to make any required repurchases. In addition, we expect that we would require third-party financing to make an offer to repurchase the Notes upon a change of control. We cannot assure you that we would be able to obtain such financing. Any failure by us to offer to purchase the Notes would constitute a default under the Indenture which would, in turn, constitute a default under certain other indebtedness. See ‘‘Description of Notes—Change of Control.’’ The change of control provisions contained in the Indenture may not necessarily afford you protection in the event of certain important corporate events, including a reorganization, restructuring or other similar transactions involving us that may adversely affect you, because such corporate events may not involve a shift in voting power or beneficial ownership or, even if they do, may not constitute a ‘‘change of control’’ as defined in the Indenture. Except as described under ‘‘Description of Notes—Repurchase at the Option of Holders—Change of Control,’’ the Indenture will not contain provisions that would require us to offer to repurchase or redeem the Notes in the event of a reorganization, restructuring, recapitalization or similar transaction. The definition of ‘‘change of control’’ in the Indenture will include a disposition of all or substantially all of the assets of the Issuer and its restricted subsidiaries, taken as a whole, to any person. Although there is a limited body of case law interpreting the phrase ‘‘all or substantially all,’’ there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances, there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of ‘‘all or substantially all’’ of the Issuer’s assets and its restricted subsidiaries taken as a whole. As a result, it may be unclear as to whether a change of control has occurred and whether the Issuer is required to make an offer to repurchase the Notes.

The Note Guarantee and the Collateral will be subject to certain limitations on enforcement and may be limited by applicable laws or subject to certain defenses that may limit its validity and enforceability. As at the Issue Date, the Guarantor will guarantee the payment of the Notes on a senior secured basis. The Note Guarantee will provide the relevant holders of the Notes with a direct claim against the relevant Guarantor. However, the Indenture will provide that enforcement of the Note Guarantee and security interests will be subject to certain generally available defenses. These laws and defenses include those that relate to corporate benefit, fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally. If one or more of these laws and defenses are applicable, a Guarantor may have no liability or decreased liability under its Note Guarantee or security interest depending on the amounts of its other obligations and applicable law. Limitations on the enforceability of judgments obtained in New York courts in such jurisdictions could limit the enforceability of any Note Guarantee or security interest against any Guarantor or security provider. Further, under Bulgarian law, limited liability companies are prohibited from distributing the quotas of their shareholders prior to the liquidation of the company. Based on a similar provision, the courts in other jurisdictions such as Austria and Germany have ruled that guarantees granted for the benefit of a parent for an amount that exceeds the distributable reserves of the limited liability company breach the capital maintenance requirement. While that position is not currently supported by Bulgarian courts or existing

48 legal doctrine, the courts of Bulgaria may reverse their position in the future and assume a similar interpretation of the capital maintenance requirements for limited liability companies. See ‘‘Limitations on Validity and Enforceability of the Guarantee and the Collateral and Certain Insolvency Law Considerations.’’ Although laws differ among various jurisdictions, in general, under fraudulent conveyance and other laws, a court could (i) subordinate or void all or a portion of a Guarantor’s or security provider’s obligations under the Note Guarantee or security interest, (ii) if payment had already been made under the relevant Note Guarantee or security interest, require that the recipient return the payment to the relevant Guarantor or security provider or (iii) take other action that is detrimental to you, typically if the court found that: • the relevant Note Guarantee or security interest was incurred with actual intent to hinder, delay or defraud creditors or shareholders of the Guarantor or, in certain jurisdictions, even when the recipient was simply aware that the Guarantor was insolvent when it granted the relevant Note Guarantee or security interest. See also ‘‘Limitations on Validity and Enforceability of the Guarantee and the Collateral and Certain Insolvency Law Considerations—Bulgaria—Limitations on Enforcement of the Note Guarantee and Security Interests—General Invalidation Rules’’; • the Guarantor or security provider did not receive fair consideration or reasonably equivalent value for the relevant Note Guarantee and the Guarantor was: (i) insolvent or rendered insolvent because of the relevant Note Guarantee; (ii) undercapitalized or became undercapitalized because of the relevant Note Guarantee; or (iii) intended to incur, or believed that it would incur, indebtedness beyond its ability to pay at maturity; • the granting of the relevant Note Guarantee and/or security interest was held to exceed the corporate objects of the Guarantor or not to be in the best interests or for the corporate benefit of the Guarantor; or • the aggregate amounts paid or payable under the relevant Note Guarantee or enforcement proceeds was in excess of the maximum amount permitted under applicable law. The liability of each Guarantor under its Note Guarantee or security provider under the relevant security document will be limited to the amount that will result in such Note Guarantee not constituting a preference, fraudulent conveyance or improper corporate distribution or otherwise being set aside. However, there can be no assurance as to what standard a court will apply in making a determination of the maximum liability of each Guarantor. There is a possibility that the entire Note Guarantee may be set aside, in which case the entire liability may be extinguished. If a court decided that the issuance of the Notes or a Note Guarantee or security interest was a preference, fraudulent transfer or conveyance and voided such Note Guarantee or security document, or held it unenforceable for any other reason, you may cease to have any claim in respect of the relevant guarantor or security provider and would be a creditor solely of the Issuer, the guarantor or security provider and, if applicable, of any other guarantor under the relevant Note Guarantee that has not been declared void. In the event that any Note Guarantee or security interest is invalid or unenforceable, in whole or in part, or to the extent the agreed limitation of the Note Guarantee obligations apply, the Notes would be effectively subordinated to all liabilities of the Guarantor, and if we cannot satisfy our obligations under the Notes or the Note Guarantee is found to be a preference, fraudulent transfer or conveyance or is otherwise set aside, we cannot assure you that we can ever repay in full any amounts outstanding under the Notes.

Bulgarian insolvency laws may not be as favorable to you as the U.S. bankruptcy laws or the bankruptcy laws of other EU states and may preclude holders of the Notes from recovering payments due on the Notes. The Issuer and the Guarantor are organized under the laws of Bulgaria. Consequently, in the event of the insolvency of either the Issuer or the Guarantor, insolvency proceedings would be likely to proceed under, and be governed by Bulgarian insolvency law. The insolvency laws of Bulgaria may not be as favorable to your interests as creditors as the laws of the United States or other jurisdictions with which you may be familiar, in particular with respect to priority of creditors, ability to obtain post-petition interest and the duration of the insolvency proceedings. The application of these laws could adversely affect your ability to enforce your rights under the Note Guarantee or the Collateral in these jurisdictions and limit any amounts that you may receive. See also ‘‘Limitations on Validity and Enforceability of the Guarantee and the Collateral and Certain Insolvency Law Considerations’’ for additional information on the insolvency laws of the European Union and Bulgaria.

49 The grant of Collateral to secure the Notes might be challenged or voidable in an insolvency proceeding. The grant of collateral in favor of the security agent may be voidable by the grantor or by an insolvency trustee, liquidator, receiver or administrator or by other creditors, or may be otherwise set aside by a court, or be unenforceable if certain events or circumstances exist or occur, including, among others, if the grantor is deemed to be insolvent at the time of the grant, or if the grant permits the secured parties to receive a greater recovery than if the grant had not been given and an insolvency proceeding in respect of the grantor is commenced. See also ‘‘Limitations on Validity and Enforceability of the Guarantee and the Collateral and Certain Insolvency Law Considerations.’’

You may not be able to recover in civil proceedings for U.S. securities or English law violations. The Issuer and the Guarantor are organized outside the United States and the United Kingdom, and our business is conducted entirely outside the United States and the United Kingdom. All of the directors and executive officers of the Issuer are non-residents of the United States and the United Kingdom. Although the Issuer will submit to the jurisdiction of certain New York and English courts in connection with any action under U.S. securities or English laws, you may be unable to effect service of process within the United States or the United Kingdom on these directors and executive officers. In addition, as all the assets of the Issuer and the Guarantor and those of its directors and executive officers are located outside of the United States and the United Kingdom, you may be unable to enforce judgments obtained in the U.S. or English courts against them. Moreover, in light of recent decisions of the U.S. Supreme Court, actions of the Issuer may not be subject to the civil liability provisions of the federal securities laws of the United States. The United States is not currently bound by a treaty providing for reciprocal recognition and enforcement of judgments, other than arbitral awards, rendered in civil and commercial matters with Bulgaria, for example, the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards. However, actual enforcement in Bulgaria of arbitral awards might be difficult due to a number of factors, including the inexperience of the local courts in international commercial transactions. Special judgment recognition and enforcement proceedings before a Bulgarian court need to be successfully completed first before enforcement of a judgment under such U.S. securities or English law proceedings may be enforced in Bulgaria. There is, therefore, no certainty as to the enforceability of civil liabilities based upon U.S. securities or English laws in an action to enforce a U.S. or English judgment in Bulgaria. In addition, the enforcement in Bulgaria of any judgment obtained in a U.S. or English court based on civil liabilities, whether or not predicated solely upon U.S. federal securities laws, will be subject to certain conditions under the provisions of the Bulgarian Private Law Code. As a result, it may be difficult for holders of the Notes to enforce, in original actions brought in courts in jurisdictions outside the United States and the United Kingdom, liabilities predicated upon U.S. securities or English laws. The recognition and enforcement in Bulgaria of a judgment rendered by an English court will be subject to the provisions of the European Community, in particular the Council Regulation (EC) No 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial matters of 22 December 2000, as amended. In certain circumstances the Bulgarian court is empowered to refuse to recognize or to revoke declaration of enforceability of a judgment made by a U.S. or English court, including but not limited to cases where such recognition or enforcement is manifestly contrary to the Bulgarian public policy. These limitations may result a lengthy, bureaucratic, costly and not entirely predictable process in order to receive legal recourse for claims related to the Notes. See ‘‘—Risks Related to Bulgaria—Developments in the Bulgarian legal system could materially affect our business, results of operations or financial condition’’ and ‘‘Service of Process and Enforcement of Civil Liabilities—Bulgaria.’’

Credit ratings may not reflect all risks, are not recommendations to buy or hold securities and may be subject to revision, suspension or withdrawal at any time. One or more independent credit rating agencies may assign credit ratings to the Notes. The ratings may not reflect the potential impact of all risks related to the structure, market, additional risk factors discussed herein and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal by the rating agency at any time. No assurance can be given that a credit rating will remain constant for any given period of time or that a credit rating will not be lowered or withdrawn entirely by the credit rating agency if, in its judgment, circumstances in the future so warrant. A suspension, reduction or withdrawal at any time of the credit rating assigned to the Notes by one or more of the credit rating agencies may adversely affect the

50 cost and terms and conditions of our financings and could adversely affect the value and trading of the Notes.

Certain covenants may be suspended upon the occurrence of a change in the Group’s ratings. The Indenture will provide that, if at any time following the date of the Indenture, the Notes receive a rating of ‘‘Baa3’’ or better by Moody’s and a rating of ‘‘BBB’’ or better by S&P and no default or event of default has occurred and is continuing, then beginning that day and continuing until such time, if any, at which such Notes cease to have such ratings, certain covenants will cease to be applicable to such Notes. See ‘‘Description of Notes—Certain Covenants—Suspension of Certain Covenants When Notes Rated Investment Grade.’’ If these covenants were to cease to be applicable, the Group would be able to incur additional debt or make payments, including dividends or investments, which may conflict with the interests of holders of the Notes. There can be no assurance that the Notes will ever achieve an investment grade rating or that any such rating will be maintained.

There may not be an active trading market for the Notes, in which case your ability to sell the Notes may be limited. We cannot assure you as to: • the liquidity of any market in the Notes; • your ability to sell your Notes; or • the prices at which you would be able to sell your Notes. Future trading prices for the Notes will depend on many factors, including, among other things, prevailing interest rates, our operating results and the market for similar securities. Historically, the market for non-investment grade securities has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Notes. The liquidity of a trading market for the Notes may be adversely affected by a general decline in the market for similar securities and is subject to disruptions that may cause volatility in prices. The trading market for the Notes may attract different investors and this may affect the extent to which the Notes may trade. It is possible that the market for the Notes will be subject to disruptions. Any such disruption may have a negative effect on you, as a holder of the Notes, regardless of our prospects and financial performance. As a result, there is no assurance that there will be an active trading market for the Notes. If no active trading market develops, you may not be able to resell your holding of the Notes at a fair value, if at all. Although an application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on the Main Securities Market, we cannot assure you that the Notes will become or remain listed. Although no assurance is made as to the liquidity the Notes as a result of the admission to trading on the Main Securities Market, failure to be approved for listing or the delisting of the Notes, as applicable, from the Official List of the Irish Stock Exchange may have a material effect on a holder’s ability to resell the Notes in the secondary market. In addition, subject to certain limitations, the Indenture will allow us to issue additional notes in the future which could adversely impact the liquidity of the Notes.

The transfer of the Notes is restricted, which may adversely affect their liquidity and the price at which they may be sold. The Notes and the Note Guarantee have not been, and will not be, registered under the U.S. Securities Act or the securities laws of any state or any other jurisdiction and, unless so registered, may not be offered or sold except pursuant to an exemption from, or a transaction not subject to, the registration requirements of the U.S. Securities Act and any other applicable securities laws of any state or any other jurisdiction. The Notes are not being offered for sale in the United States except to ‘‘qualified institutional buyers’’ in accordance with Rule 144A. See ‘‘Transfer Restrictions.’’ We have not agreed to or otherwise undertaken to register the Notes or the Note Guarantee with the U.S. Securities and Exchange Commission (including by way of exchange offer). It is the obligation of holders of Notes to ensure that their offers and sales of the Notes within the United States and other countries comply with applicable securities laws.

51 The Notes will initially be held in book-entry form, and therefore you must rely on the procedures of the relevant clearing systems to exercise any rights and remedies. Unless and until Notes in definitive registered form, or definitive registered Notes are issued in exchange for book-entry interests (which may occur only in very limited circumstances), owners of book-entry interests will not be considered owners or holders of Notes. The common depository (or its nominee) for Euroclear and Clearstream will be the sole registered holder of the Global Notes. Payments of principal, interest and other amounts owing on or in respect of the relevant Global Notes representing the Notes will be made to Elavon Financial Services Limited, UK Branch, as Paying Agent, which will make payments to Euroclear and Clearstream. Thereafter, these payments will be credited to participants’ accounts that hold book-entry interests in the Global Notes representing the Notes and credited by such participants to indirect participants. After payment to the common depositary for Euroclear and Clearstream, we will have no responsibility or liability for the payment of interest, principal or other amounts to the owners of book-entry interests. Accordingly, if you own a book-entry interest in the relevant Notes, you must rely on the procedures of Euroclear and Clearstream and if you are not a participant in Euroclear and/or Clearstream on the procedures of the participant through which you own your interest, to exercise any rights and obligations of a holder of the Notes under the Indenture. Unlike the holders of the Notes themselves, owners of book-entry interests will not have any direct rights to act upon any solicitations for consents, requests for waivers or other actions from holders of the Notes. Instead, if you own a book-entry interest, you will be permitted to act only to the extent you have received appropriate proxies to do so from Euroclear and Clearstream or, if applicable, from a participant. There can be no assurance that procedures implemented for the granting of such proxies will be sufficient to enable you to vote on any matters or timely basis. Similarly, upon the occurrence of an event of default under the Indenture, unless and until the relevant definitive registered Notes are issued in respect of all book-entry interests, if you own a book-entry interest, you will be restricted to acting through Euroclear and Clearstream. We cannot assure you that the procedures to be implemented through Euroclear and Clearstream will be adequate to ensure the timely exercise of rights under the Notes.

You may face foreign exchange risks by investing in the Notes. The Notes will be denominated and payable in euros. If you measure your investment returns by reference to a currency other than euros, an investment in the Notes will entail foreign exchange related risks due to, among other factors, possible significant changes in the value of the euro relative to the currency by reference to which you measure the return on your investments because of economic, political and other factors over which we have no control. Depreciation of the euro against the currency by reference to which you measure the return on your investments could cause a decrease in the effective yield of the Notes below their stated coupon rates and could result in a loss to you when the return on the Notes is translated into the currency by reference to which you measure the return on your investments. There may be tax consequences for you as a result of any foreign exchange gains resulting from an investment in the Notes. You should consult your tax advisor concerning the tax consequences to you of acquiring, holding and disposing of the Notes. See ‘‘Certain Tax Considerations.’’

52 USE OF PROCEEDS We estimate that the gross proceeds from the Offering will be A400 million. The Issuer intends to use the gross proceeds from this Offering to repay and discharge the indebtedness outstanding under the Senior Facilities Agreement and to pay fees and expenses related to the Transactions. Any remaining proceeds may be used for general corporate purposes, including working capital and capital expenditures. The following table contains the estimated sources and uses of funds for the Transactions as if the Transactions had occurred on September 30, 2013. Actual amounts will vary from estimated amounts depending on several factors, including differences between the amounts of cash held and debt outstanding and interest accreted and accrued thereon as at September 30, 2013 and as at the Issue Date, as well as the differences between estimated and actual fees and expenses payable in connection with the Transactions.

Sources of Funds (E in millions) Uses of Funds (E in millions) Notes offered hereby(1) ...... 400 Repayment of our drawings under the Existing Senior Facility(2) .... 451 Drawings under the Revolving Estimated Fees and Expenses(3) ... 13 Credit Facility ...... — Balance Sheet Cash Used ...... 64 Total sources ...... 464 Total uses ...... 464

(1) Represents the aggregate principal amount of the Notes. (2) Represents, as at September 30, 2013, amounts we have drawn on the Existing Senior Facility, including accrued interest. As part of the Transactions, our outstanding indebtedness under the Existing Senior Facility, including accrued and unpaid interest thereon, will be repaid on the Issue Date with the proceeds of the Offering. See ‘‘Capitalization.’’ (3) Represents the estimated transaction fees and expenses, including the Initial Purchasers’ commissions, other fees and commissions, financing fees, advisory fees and other transaction costs and professional fees relating to the Transactions.

53 CAPITALIZATION The following table sets forth our total capitalization (i) as at September 30, 2013 on an actual basis and (ii) pro forma, as adjusted to give effect to (a) the issuance of the Notes in this Offering and (b) the application of the proceeds of the Offering and cash on our balance sheet to repay amounts outstanding under our Senior Facilities Agreement on our borrowings as at the twelve months ended September 30, 2013. The unaudited pro forma financial information below has been prepared to illustrate the effect on certain consolidated financial information for the Company (on a consolidated basis) as at September 30, 2013 as if the Transactions had occurred on September 30, 2013. The information, which has been produced for illustrative purposes only, by its nature addresses a hypothetical situation and, therefore, does not represent the Company’s actual financial position or results, nor does it purport to project our financial position or results at any future date. The actual results may differ significantly from those reflected in the unaudited pro forma consolidated financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma consolidated financial information. The unaudited pro forma financial information is compiled on a basis consistent with the accounting policies of the Group set out in the Consolidated Financial Statements and on the basis set out in the notes below. The unaudited pro forma consolidated financial information has not been prepared in accordance with the requirements of Regulation S-X of the U.S. Securities Act or any generally accepted accounting standards, and accordingly, should not be relied on as if they had been carried out in accordance with those standards. You should read the following table in conjunction with ‘‘Use of Proceeds,’’ ‘‘Selected Historical Financial Information and Other Information,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ ‘‘Description of Certain Financing Arrangements’’ and our Consolidated Financial Statements and related notes and the Statement of Unaudited Pro Forma Financial Information included elsewhere in this Offering Circular. Except as set forth below, there have been no material changes to our capitalization since September 30, 2013. Pro forma as at As at September 30, 2013 Pro forma adjustments September 30, 2013 (unaudited) (BGN in (in (BGN in (in (BGN in (in millions)* E millions)(1) millions) E millions)(1) millions) E millions)(1) Cash and cash equivalents ..... 133.7 68.4 (125.5)(2) (64.2) 8.2 4.2 Borrowings Existing Senior Facility ...... 882.3 451.1 (882.3)(3) (451.1) — — Financial lease ...... 1.4 0.7 — — 1.4 0.7 Notes offered hereby ...... — — 782.3(4) 400.0 782.3 400.0 Fees and expenses relating to the Transactions(5) ...... — — (25.2) (12.9) (25.2) (12.9) Drawings under the Revolving Credit Facility(6) ...... — — — — — — Total borrowings ...... 883.6 451.8 (125.1) (64.0) 758.5 387.8 Total equity ...... 320.7 164.0 (0.4) (0.2) 320.3 163.8 Total capitalization(7) ...... 1,204.3 615.8 (125.5) (64.2) 1,078.8 551.6

(1) Convenience translation in euro based on a pegged exchange rate of 1.95583 Lev per euro as at September 30, 2013. (2) The adjustment has been made to reflect the pro forma impact of the Offering and the application of the proceeds from the Offering and cash on hand to repay our drawings under the Existing Senior Facility and the accrued interest as well as to pay the estimated transaction fees and expenses relating to the Transactions based on the assumed sources and uses as reflected in the table set out under ‘‘Use of Proceeds.’’ (3) The adjustment has been made to reflect the pro forma impact of the Offering and the application of the proceeds from the Offering and cash on hand to repay our drawings under the Existing Senior Facility. (4) The adjustment reflects the issuance of the Notes in aggregate principal amount of A400 million. (5) In accordance with IFRS, fees and expenses relating to the Transactions will be deducted from total borrowings and amortized to interest expense over the life of the bond/relevant borrowings. (6) In connection with the Offering, we will enter into the Revolving Credit Facility Agreement on or about the Issue Date, which will provide for drawings of up to A35 million, all of which will be available but undrawn at the Issue Date. (7) Total capitalization is the sum of total borrowings and total equity. * The financial information as at September 30, 2013 has been extracted without adjustment from our consolidated statement of financial position as at September 30, 2013, which is included in the Consolidated Financial Statements appearing elsewhere in this Offering Circular.

54 SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER INFORMATION The tables below set forth our summary financial and other data for the indicated periods, derived or extracted from (i) the audited consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for and as at the years ended December 31, 2010, 2011 and 2012, prepared in accordance with IFRS and (ii) the unaudited interim consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for the nine months ended September 30, 2013, including the comparative data for and as at the nine months September 30, 2012, prepared in accordance with best practice as derived from IAS 34. The unaudited consolidated financial information for the twelve months ended September 30, 2013 is calculated by taking the results of operations for the nine months ended September 30, 2013 and adding to it the difference between the results of operations for the full year ended December 31, 2012 and the historical nine months ended September 30, 2012. The unaudited consolidated financial information for the nine months ended September 30, 2013 and the twelve months ended September 30, 2013 has been prepared for illustrative purposes only and is not necessarily representative of our results of operations for any future period or our financial condition at any future date, including the results that may be expected for the year ended December 31, 2013 and should not be used as the basis for or prediction of an annualized calculation. Since the financial period beginning January 1, 2012, we have recorded revenue from value-added services, net of costs, whereas previously revenue from value-added services was recorded on a gross basis with the costs of value-added services included in other operating expenses, which could affect the comparability of our Consolidated Financial Statements. Our management believes that the impact of this change in presentation, amounting to less than 1% of total revenues, is not material. Our consolidated historical financial statements and the summary consolidated historical financial information presented below were prepared on the basis of IFRS, which differs in certain respects from U.S. GAAP. The summary financial information and other data below includes certain non-IFRS measures used to evaluate our operating and financial performance. These measures are not identified as accounting measures under IFRS and therefore should not be considered as an alternative measure to evaluate the performance of the Group. See ‘‘Presentation of Financial and Other Information.’’ You should read this section in conjunction with, and this section is qualified in its entirety by reference to our Consolidated Financial Statements and the notes thereto contained elsewhere in this Offering Circular and the sections entitled ‘‘Use of Proceeds,’’ ‘‘Capitalization,’’ ‘‘Overview—Overview of Our Historical and Pro forma Consolidated Financial Information and Operating Data,’’ and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’

55 Selected Consolidated Statements of Comprehensive Income:

For the twelve months For the nine months ended For the year ended December 31, ended September 30, September 30, 2010 2011 2012 2012 2013 2013 (BGN thousands) Revenue ...... 896,387 895,870 857,717 650,433 605,646 812,930 Interconnect expenses ...... (119,488) (133,475) (112,665) (93,628) (44,450) (63,487) Other operating expenses ...... (253,926) (286,889) (309,967) (174,470) (176,971) (312,468) Materials and consumables expenses ...... (118,146) (104,167) (109,253) (75,495) (95,394) (129,152) Staff costs ...... (72,487) (65,051) (69,427) (50,813) (51,642) (70,256) Depreciation and amortization . . . (261,462) (276,585) (277,597) (209,317) (193,386) (261,666) Finance costs ...... (33,402) (41,305) (33,777) (24,007) (39,012) (48,782) Finance income ...... 9,624 9,095 8,201 7,063 4,362 5,500 Other gains, net ...... 37,371 8,271 10,190 6,891 2,635 5,934 Share of profit of joint ventures . . 2,017 2,272 — — — — (Loss) / Profit before tax ...... 86,488 8,036 (36,578) 36,657 11,788 (61,447) Income tax expenses ...... (11,466) (856) 3,336 (3,736) (1,538) (5,534) Profit after tax for the year from discontinued operations ...... 40,728 ———— — (Loss) / Profit for the period .... 115,750 7,180 (33,242) 32,921 10,250 (55,913) Other comprehensive income Loss on revaluation of land ..... (1,084) (559) (2,767) (37) — (2,730) Currency forward ...... (22) 629 (657) (595) (39) (101) Valuation of financial assets available for sale ...... ————7,688 7,688 Income tax effect ...... 111 (7) 343 63 4 284 Other comprehensive income for the year, net of tax ...... (995) 63 (3,081) (569) 7,653 5,141 Total comprehensive income for the year ...... 114,755 7,243 (36,323) 32,352 17,903 (50,772)

56 Selected Consolidated Statements of Financial Position:

As at December 31, As at September 30, 2010 2011 2012 2013 (BGN thousands) Cash and cash equivalents ...... 154,523 141,664 63,886 133,700 Trade receivables ...... 95,979 159,488 79,252 70,974 Current income tax receivables ...... 6 — 423 — Inventories ...... 34,630 25,734 31,987 41,338 Other assets ...... 28,810 16,970 14,687 15,525 Assets of disposal group held for sale ...... 6,648 1,892 2,127 1,825 Total current assets ...... 320,596 345,748 192,362 263,362 Goodwill ...... 3,706 3,706 2,049 2,049 Property, plant and equipment ...... 1,089,094 1,007,369 884,609 830,286 Intangible assets ...... 330,113 304,922 285,050 246,752 Investments ...... 58,093 335 335 8,023 Trade and other receivables ...... 18,013 4,642 6,161 — Trade receivables ...... ——— 8,346 Other non-current assets ...... ——— 1,384 Deferred tax assets, net ...... 79 73 14 2 Total non-current assets, net ...... 1,499,098 1,321,047 1,178,218 1,096,842 Total assets ...... 1,819,694 1,666,795 1,370,580 1,360,204 Total current liabilities ...... 1,263,795 1,283,194 172,021 166,243 Total non-current liabilities ...... 47,861 44,468 895,748 873,247 Total equity ...... 508,038 339,133 302,811 320,714 Total liabilities and equity ...... 1,819,694 1,666,795 1,370,580 1,360,204

Selected Consolidated Cash Flow Statements:

For the twelve For the nine months months ended For the year ended December 31, ended September 30, September 30, 2010 2011 2012 2012 2013 2013 (BGN thousands) Net cash from operating activities . 267,060 309,014 334,042 246,539 183,031 270,534 Net cash used in investing activities ...... (83,068) (159,833) (142,303) (81,315) (102,752) (163,740) Net cash used in financing activities ...... (167,744) (162,462) (269,518) (218,003) (10,405) (61,920) Net increase / (decrease) in cash and cash equivalents ...... 16,248 (13,281) (77,779) (52,779) 69,874 44,874

57 Other Financial Information:

As at and for the nine As at and As at and for the year ended months ended for the twelve December 31, September 30, months ended 2010 2011 2012 2012 2013 September 30, 2013 (BGN thousands, except where indicated) (Euro thousands, except where indicated)(1) Fixed-line revenue ...... 563,625 519,789 460,429 354,666 300,922 406,685 207,935 Fixed-voice(2) ...... 402,433 361,667 301,353 235,794 176,088 241,647 123,552 Fixed-data(3) ...... 131,666 121,353 110,406 83,444 77,241 104,202 53,278 Fixed, other(4) ...... 29,525 36,769 48,670 35,428 47,593 60,836 31,105 Mobile revenue ...... 332,762 376,081 397,288 295,767 304,724 406,245 207,710 Mobile service ...... 268,215 324,296 338,967 258,061 248,262 329,168 168,301 Pre-paid ...... 30,003 34,196 30,856 24,825 17,552 23,583 12,058 Post-paid ...... 238,212 290,100 308,111 233,236 230,710 305,585 156,243 Mobile, other(5) ...... 64,548 51,785 58,321 37,706 56,462 77,077 39,409 Total revenue(6)(7) ...... 896,387 895,870 857,717 650,433 605,646 812,930 415,645 Fixed-line gross margin ...... 470,042 409,934 366,925 278,917 256,456 344,464 176,122 Mobile gross margin ...... 192,582 243,084 265,975 202,224 205,051 268,802 137,436 Total gross margin(8) ...... 662,624 653,018 632,900 481,141 461,507 613,266 313,558 EBITDA(9) ...... 371,728 316,831 266,595 262,918 239,824 243,501 124,500 Adjusted EBITDA(9) ...... 373,101 342,737 349,294 272,637 250,508 327,165 167,277 Adjusted EBITDA margin (%)(9) ..... 41.6 38.3 40.7 41.9 41.4 40.2 40.2 Capital expenditures(10) ...... 162,939 178,233 203,569 125,839 97,939 175,670 89,818 Capital expenditure as a percentage of total revenue ...... 18.2 19.9 23.7 19.3 16.2 21.6 21.6

(1) Convenience translation in euro based on a pegged exchange rate of 1.95583 Lev per euro as at September 30, 2013. (2) Includes revenue from fixed telephony, wholesale voice and public telephone services. (3) Includes revenue from the provision of fixed broadband services over ADSL and FTTx connections, dial-up revenue, revenue from the sale of Customer Premises Equipment (‘‘CPEs’’), such as modems and initial set up charges and revenue generated from the provision of business data and connectivity solutions such as VPN and MAN services. (4) Other fixed revenue includes pay-TV and revenue generated from provision of wholesale access to our ducts amongst other services. (5) Includes non-recurring revenue, such as revenue from the sale of mobile handsets and accessories and revenue from roaming charges incurred by customers of other operators using our network, late payment and legal interception fees. (6) To aid in the evaluation of our underlying operating performance, we provide below certain financial data on an adjusted basis to exclude the impact of changes in termination rates during the periods under review by using constant termination rates,

58 which are calculated assuming that termination rates for the applicable period would have been the same as the termination rates applicable from July 1, 2013 onwards.

For the twelve For the nine months For the year ended months ended ended December 31, September 30, September 30, 2010 2011 2012 2012 2013 2013 (BGN in thousands, except where indicated) Total revenue ...... 896,387 895,870 857,717 650,433 605,646 812,930 (Decrease) over prior equivalent period (%) . (0.1) (4.3) (6.9) Total revenue at constant termination rates(a) . 791,135 768,490 762,105 566,794 589,557 784,868 Increase/(decrease) over prior equivalent period (%) ...... (2.9) (0.8) 4.0 Adjusted EBITDA ...... 373,101 342,737 349,294 272,637 250,508 327,165 Increase/(decrease) over prior equivalent period (%) ...... (8.1) 1.9 (8.1) Adjusted EBITDA at constant termination rates(a) ...... 342,359 304,544 320,878 248,287 245,366 317,957 Increase/(decrease) over prior equivalent period (%) ...... (8.5) 0.3 (1.2)

(a) Adjusted to reflect termination rates in effect as at July 1, 2013. For the three months ended September 30, 2013, no adjustments have been made in respect of contractually agreed upon rates for wholesale international inbound traffic. (7) Since the financial period beginning January 1, 2012, we have recorded revenue from value-added services, net of costs, whereas previously revenue from value-added services was recorded on a gross basis. VAS costs were previously included in other operating expenses. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Explanation of Key Income Statement Items—Revenue’’ for more information. (8) Gross margin is calculated by deducting cost of sales from revenue. Cost of sales is comprised of interconnection and content costs, subscriber acquisition and retention costs as well as costs of equipment. (9) The following table presents a reconciliation of EBITDA and Adjusted EBITDA from our profit/(loss) for the periods presented:

For the For the nine twelve months months For the year ended ended ended December 31, September 30, September 30, 2010 2011 2012 2012 2013 2013 (BGN in thousands) Profit / (loss) for the period ...... 75,022 7,180 (33,242) 32,921 10,250 (55,913) Income tax expense ...... 11,466 856 (3,336) 3,736 1,538 (5,534) Finance costs ...... 33,402 41,305 33,777 24,007 39,012 48,782 Finance income ...... (9,624) (9,095) (8,201) (7,063) (4,362) (5,500) Depreciation and amortization ...... 261,462 276,585 277,597 209,317 193,386 261,666 EBITDA ...... 371,728 316,831 266,595 262,918 239,824 243,501 Asset impairment and write-off(a) ...... 15,609 27,008 75,674 5,318 3,663 74,019 Share of profit of joint ventures ...... (2,017) (2,272) — — — — Other gains, net ...... (37,371) (8,271) (10,190) (6,891) (2,635) (5,934) MSA and TSA(b) ...... 19,235———— — Provisions and penalties(c) ...... 1,287 676 10,328 5,721 7,520 12,127 Other exceptional items(d) ...... 4,630 8,765 6,887 5,571 2,136 3,452 Adjusted EBITDA ...... 373,101 342,737 349,294 272,637 250,508 327,165

(a) Mainly impairment and write-off of old network equipment (decommissioned fixed network and exchanges, swapped equipment etc.). Does not include impairment of receivables and trading stock. (b) Fees payable to our previous owner (as a percentage of revenue) under a management services agreement and a technical services agreement that was entered into at the time of privatization and discontinued in 2010. (c) Includes mainly litigation provisions related to regulatory claims. (d) Includes cable extraction costs (both costs and revenue from sale of extracted copper cables), legalization costs for duct network (one-off expense for procuring all building documentation for our duct network, where missing), Alcatel-Lucent severance costs (the amount of the compensation of Alcatel-Lucent employees in the case of the termination of their labor contracts) as per the Alcatel-Lucent Agreement, steering committee fees related to restructuring in 2012, bank account management charges and the amount of the compensation of employees in the case of the termination of their labor contracts. Adjusted to exclude bank fees included in finance costs.

59 EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of our financial and operating performance used by management that are not required by, or prepared in accordance with IFRS. These measures are prepared by management because we believe they provide a view of our recurring operating performance that is unaffected by our capital structure and allows management to readily view operating trends and identify strategies to improve operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating these measures, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our use of each of these measures is as follows:

• We define EBITDA as starting from profit/(loss) for the period (prepared in accordance with IFRS) and adding back income tax expense, finance costs, finance income and depreciation and amortization.

• We define Adjusted EBITDA as EBITDA as calculated above, and adjusted to remove the effect of asset impairment and write-off, share of profit of joint ventures, other gains, net, fees payable under a management services agreement and technical services agreement entered into at the time of privatization and discontinued in 2010, provisions and penalties and other exceptional items which we believe are not indicative of our underlying operating performance.

• We define Adjusted EBITDA margin as Adjusted EBITDA divided by total revenue in the applicable period. The EBITDA measures presented may not be comparable to similarly titled measures used by other companies. We encourage you to review our financial information in its entirety and not to rely on a single financial measure. See ‘‘Presentation of Financial and Other Information—Non-IFRS Financial Measures’’ for an explanation of certain limitations to the use of these measures. (10) The following is a calculation of capital expenditures:

For the nine For the year ended months December 31, September 30, 2010 2011 2012 2012 2013 (BGN in thousands) Payments for purchases of property, plant & equipment ...... 124,288 118,484 143,142 105,590 89,440 Payments for purchases of other non-current assets(a) ...... 42,258 54,805 65,453 36,536 24,337 Change in investing net working capital ...... (3,607) 4,944 (5,026) (16,287) (15,838) Total capital expenditures ...... 162,939 178,233 203,569 125,839 97,939 Of which: Network capital expenditures(b) ...... 128,374 136,050 146,090 97,146 65,796 Payment for spectrum permit ...... — — 13,827 — — IT capital expenditures ...... 25,107 20,075 14,887 10,775 4,485 Other capital expenditures(c) ...... 9,458 22,107 28,765 17,918 27,658

(a) Includes payments for acquisition of intangible assets. (b) Excludes payment for spectrum permit for the use of a block of 5 MHz in the 1800 MHz spectrum band. (c) Includes commercial capital expenditure, such as the renovation and reconstruction of our retail locations, CPEs to support our growing pay-TV and fiber subscriber base and other capital expenditures, such as capitalized sales commissions.

60 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion and analysis of our results of operations and financial condition based on (i) the audited consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for and as at the years ended December 31, 2010, 2011 and 2012, prepared in accordance with IFRS and (ii) the unaudited interim consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for and as at the nine months ended September 30, 2013, including the comparative data for and as at the nine months September 30, 2012 prepared in accordance with best practice as derived from IAS 34. You should read this discussion in conjunction with the Consolidated Financial Statements and the accompanying notes included elsewhere in this Offering Circular. A summary of the critical accounting estimates that have been applied to the Consolidated Financial Statements is set forth below in ‘‘—Critical Accounting Estimates.’’ You should also review the information in the section ‘‘Presentation of Financial and Other Information.’’ This discussion also includes forward-looking statements which, although based on assumptions that management considers reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those expressed or implied by the forward-looking statements. For a discussion of risks and uncertainties that we face as a result of various factors, see ‘‘Forward- Looking Statements’’ and ‘‘Risk Factors.’’

Overview We are the leading telecommunications operator in Bulgaria, based on revenue for the six months ended June 30, 2013. (Source: Telekom Austria and Deutsche Telekom reports). We are the only operator that provides mobile, fixed telephony, fixed broadband and pay-TV (both DTH and IPTV) services nationwide to both residential and business customers. This integrated nationwide mobile and fixed-line network gives us a competitive advantage as we are able to offer bundled ‘‘dual-play,’’ ‘‘triple-play’’ and ‘‘quadruple-play’’ products that combine all these services on a nationwide basis. We provide our fixed-line services through our own fixed-line network and our mobile services through our own mobile network based on GSM/GPRS/EDGE and UMTS/HSPA+ technologies. As at September 30, 2013, we served 2.7 million mobile subscribers, 1.4 million fixed telephony subscribers and 0.3 million fixed broadband subscribers. For the twelve months ended September 30, 2013, we generated total revenue of BGN 812.9 million and had Adjusted EBITDA of BGN 327.2 million. During that period, our mobile and fixed-line businesses each comprised approximately 50.0% of our total revenue. We are currently the third largest mobile operator in Bulgaria, based on number of subscribers, with 2.7 million subscribers as at September 30, 2013, an increase of 58.8% from 1.7 million subscribers as at December 31, 2010. (Source: Telekom Austria and Deutsche Telekom reports). This is primarily due to the implementation of an ongoing successful market challenger strategy in the mobile market, which has led us to achieve an increase in our mobile market share, from a 16% subscriber market share as at December 31, 2010 to a 21% subscriber market share as at June 30, 2013, and to develop a solid market share position. (Source: Telekom Austria and Deutsche Telekom reports). A central part of the market challenger strategy has been our focus on features that allow us to differentiate ourselves from our competitors, such as what we believe to be our ‘‘best in class’’ mobile network, which we believe provides market leading coverage, fast download speeds and one of the lowest dropped call rates among the major network operators in Bulgaria. We are the incumbent in the fixed-line market and we believe we have the largest fixed-line network in Bulgaria. We offer fixed telephony, fixed broadband and pay-TV services to our residential and business customers. We provide fixed broadband services over ADSL and FTTx connections. Our ongoing FTTx network build-out enables us to benefit from the ongoing shift to FTTx from other broadband technologies as customers demand services at higher speeds. As at December 31, 2012 our subscriber market share in the fixed telephony and fixed broadband market was approximately 68% and 25%, respectively. (Source: CRC). We are the successor to the former state-owned monopoly in fixed-line services, which was privatized in 2004. We gained our GSM mobile license in 2004, our UMTS mobile license in 2005 and launched our mobile operations in 2005. In 2007, we were acquired by AIG Capital Partners, Inc. through a leveraged buyout. Financial obligations incurred due to this leveraged buyout resulted in a debt restructuring process. In 2012, we underwent a restructuring that included a change in our ownership. This restructuring process was completed in November 2012, when CCB Group and VTB acquired a majority stake in our business, while simultaneously restructuring our financial obligations.

61 Recent Developments In July 2013, the Company’s direct parent company, Viva Telecom Bulgaria EAD successfully completed its acquisition of all remaining common voting shares of the Company, pursuant to the Squeeze Out, which was approved by the Bulgarian Financial Supervision Commission (the regulatory authority for the non-banking financial sector). The Bulgarian government’s Golden Share was not subject to the Squeeze Out. At the general meeting of shareholders of the Company on September 30, 2013, the resolution was passed to cancel the special rights of the Golden Share, such as the right to veto certain corporate actions. The Golden Share was then redeemed on October 15, 2013. The delisting of the Company from the Bulgarian stock exchange was completed as of October 31, 2013.

Key Factors Affecting Results of Operations Overview We generate most of our revenue from the provision of mobile services and fixed-line voice and data services (including pay-TV). We believe that our ability to provide nationwide bundled offerings (‘‘dual-play, ‘‘triple-play’’ or ‘‘quadruple-play’’) is and will become very important as a competitive advantage. The table below sets forth a breakdown of our revenue for the periods indicated.

For the nine months For the year ended December 31, ended September 30, 2010 2011 2012 2012 2013 (BGN thousands) Fixed-line revenue ...... 563,625 519,789 460,429 354,666 300,922 Fixed-voice ...... 402,433 361,667 301,353 235,794 176,088 Fixed-data ...... 131,666 121,353 110,406 83,444 77,241 Fixed, other ...... 29,525 36,769 48,670 35,428 47,593 Mobile revenue ...... 332,762 376,081 397,288 295,767 304,724 Mobile service ...... 268,215 324,296 338,967 258,061 248,262 Pre-paid ...... 30,003 34,196 30,856 24,825 17,552 Post-paid ...... 238,212 290,100 308,111 233,236 230,710 Mobile, other ...... 64,548 51,785 58,321 37,706 56,462 Total revenue ...... 896,387 895,870 857,717 650,433 605,646

Mobile Our mobile segment is comprised of our mobile services, both voice and data, and our other mobile business, which includes among other things, the sale of mobile handsets. Our mobile revenue is principally driven by our average number of subscribers and average revenue per user (‘‘ARPU’’). For the nine months ended September 30, 2013, revenue generated by our mobile segment comprised 50.3% of our total revenue. The Bulgarian mobile market is characterized by high penetration rates and high levels of competition. As a result, our mobile subscriber base depends on a number of factors, including pricing, quality of service, availability of new services, overall market growth, the level of competition to obtain new subscribers, retaining existing subscribers, our ability to cause existing subscribers to use their Vivacom SIM card as their primary SIM card (rather than as an alternate SIM card) and general economic conditions in Bulgaria. As a result of falling mobile termination rates (‘‘MTRs’’), we believe that mobile subscribers will gradually cease using multiple SIM cards but rather choose one mobile operator as the costs of calling subscribers on other mobile networks decrease. Mobile services ARPU is driven primarily by recurring charges from post-paid subscribers, traffic volume, data services utilization, revenue from interconnection rates and our prices. Our prices, in turn, are mainly driven by the level of competition in the market and decreasing MTRs which have been pressuring prices downward. Traffic volume is related to both the number of subscribers and average usage per subscriber, though it is becoming less of a determining factor in ARPU as the prevalence of flat-fee tariffs and bundled packages increases. Additionally, traffic volume is also susceptible to the effect of regulations. Due to the fall in MTRs, traffic volume has been stimulated, but interconnect revenues and roaming charges have

62 decreased. Aside from regulations, mobile traffic volume growth is effected by the continuing trend of fixed-to-mobile substitution and our success in stimulating additional usage by our existing subscribers. Other factors that contribute to traffic volume growth are the growth of the number of subscribers and revenue based on the average minutes of use, (‘‘AMOU’’) by each of our subscribers, which in turn depends on obtaining and retaining subscribers who generate high traffic volumes and do not tend to frequently change their service provider.

Fixed-line Our fixed-line segment is comprised of our fixed-voice services, fixed-data services and other fixed business, which includes our pay-TV and wholesale duct rental business. For the nine months ended September 30, 2013, revenue generated by our fixed-line segment comprised 49.7% of our total revenue.

Fixed-Voice: Fixed Telephony and Other Our fixed-voice services include fixed telephony and other fixed-voice services. For the nine months ended September 30, 2013, revenues generated by our fixed-voice services comprised 29.1% of our total revenue. Our fixed telephony revenue is principally affected by the average number of subscribers and ARPU, which in turn depends on traffic volume, call charges and activation and monthly fees. Growth in the average number of fixed telephony subscribers depends on a number of factors, including pricing, the availability of new services and technologies, our ability to retain existing subscribers and win subscribers from competitors as well as general economic conditions in Bulgaria. Our fixed telephony subscriber numbers are gradually declining due to fixed-to-mobile substitution by customers and mobile operators’ fixed telephony offerings, which undercut our prices and attract price-sensitive customers. We focus on retaining our high value customers, such as business customers, rather than on price competition, as we aim to maximize our revenue market share by providing more comprehensive services with reliable quality. Fixed telephony traffic volume growth depends on the size and mix of the subscriber base, usage patterns and the continuing trend of fixed-to-mobile substitution. Revenue from other fixed-voice services includes wholesale traffic revenue and public payphone revenue. Wholesale traffic consists primarily of international transit traffic passing through our network to other national or international operators. Our wholesale traffic business has low margins and is susceptible to volume volatility depending on the transit prices we set, which change based on our wholesale interconnect expenses. Public payphone revenue has seasonal peaks in the summer months, but is generally declining as mobile calls are becoming more cost effective for customers and the mobile penetration rate in Bulgaria increases.

Fixed-Data: Fixed Broadband and Other Fixed-data revenue, which includes revenue from fixed broadband and other data services is principally affected by the average number of subscribers and ARPU, which in turn depends on our prices and the speed and quality of connections we are able to provide to our customers. For the nine months ended September 30, 2013, revenues generated by our fixed-data services comprised 12.8% of our total revenue. Our fixed-data services are comprised of fixed broadband services provided over ADSL and FTTx connections to both residential and business customers and other data services, which include complex IP-based data solutions for large business customers (including VPN and MAN services) as well as our ‘‘legacy’’ leased lines services that are mainly used by our security-conscious business customers, such as financial institutions, who are looking for dedicated data capacity. These ‘‘legacy’’ services stem from our history as the state-owned national incumbent telecommunications operator. According to Analysys Mason, in Bulgaria, the fixed broadband penetration rate remains significantly lower than in Western European countries. See ‘‘Industry and Market Overview.’’ If the enforcement of regulations against ‘‘grey market’’ operators increases as expected, the penetration rate is likely to grow. Additionally, subscribers are expected to seek increasingly higher broadband speeds and better connection quality, which are priced at a premium. Revenue from our broadband services is mainly impacted by our number of subscribers, which in turn depends on a number of factors, including performance of internet services, the level of competition in the

63 market, prices, the availability of new services and technologies, our ability to attract new subscribers and retain existing subscribers and general economic conditions. Revenue from other fixed data services is generated from our professional internet, IP VPN and MAN services and complex corporate data solutions offered to business customers, as well as the sale of CPEs. The provision of additional services, nationwide offerings and quality-backed service level agreements, contribute to higher revenue per business customer from other fixed-data services.

Other Fixed: Pay-TV and Miscellaneous Our other fixed businesses are comprised of various services, some of which are ‘‘legacy’’ services. Our pay-TV business and wholesale duct rental business constitute the largest portion of our other fixed businesses. For the nine months ended September 30, 2013, revenues generated by our other fixed business accounted for 7.9% of our total revenue.

Pay-TV We launched our DTH television service in 2010 and IPTV service in 2012, and are currently positioned as the only fully integrated ‘‘quadruple-play’’ operator offering nationwide coverage in Bulgaria. Our DTH service delivers television content directly to our customers’ homes via satellite while our IPTV service is a fully digitalized platform delivering television content via Internet connectivity, which provides a variety of television channels, video-on-demand and a wide range of interactive features. Our pay-TV revenue is principally driven by the number of subscribers and the services that they select. We offer a wide variety of services through both DTH and IPTV, including packages with up to 140+ channels, SD/HD channels, exclusive content and other interactive services on our IPTV platform. Our pay-TV business is in the early stages of expansion and therefore the costs incurred are more significant at this point in time.

Miscellaneous Our miscellaneous fixed business consists primarily of wholesale services to other licensed telecommunications operations such as duct rental and collocation of equipment.

Termination Rates We receive revenues in the form of access and interconnection fees from other network operators for calls terminated on our network, and we are required to pay access and interconnection fees to other network operators for calls terminated on their networks, in each case both domestic and international. These access and interconnection fees are based on set termination rates for both fixed-line calls (‘‘FTRs’’) and mobile calls, which affect both mobile and fixed telephony revenues and costs. Termination rates are regulated by the Communications Regulation Commission (‘‘CRC’’) in Bulgaria. See ‘‘Regulation’’ for more information on the CRC. In recent years, the CRC has aggressively lowered termination rates in Bulgaria to be compatible with EU regulations and averages. MTRs and FTRs were reduced in July 2012 and again in January 2013 in accordance with a glide path set by the CRC, which is shown in the table below. Further decreases were implemented in July 2013, with the maximum permissible FTR lowered to BGN 0.0050 and MTR lowered to BGN 0.023, both below EU and regional averages.

64 The following table sets out the per minute interconnection tariffs, as determined by CRC that we and our competitors are permitted to charge other network operators for calls that terminate on our respective networks during each of the periods indicated. It also shows the glide path implemented by the CRC.

Mobile Termination Fixed Termination International Mobile International Fixed Date Rate Rate Termination Rate(1) Termination Rate (in BGN stotinki) January 1, 2009 ...... 27.0 3.0 — — April 1, 2009 ...... 22.0 1.9 — — July 1, 2009 ...... 20.0 1.7 — — 2009 Annual Average ...... 22.3 2.0 41.5 3.5 January 1, 2010 ...... 17.8 1.5 — — July 1, 2010 ...... 12.0 1.2 — — 2010 Annual Average ...... 14.9 1.4 42.1 4.7 2011 Annual Average ...... 12.0 1.2 42.4 5.3 January 1, 2012 ...... 12.0 1.2 — — July 1, 2012 ...... 5.1 0.9 — — 2012 Annual Average ...... 8.6 1.1 22.1 3.4 January 1, 2013 ...... 4.3 0.8 — — July 1, 2013 ...... 2.3 0.5 — — 2013 Estimated Annual Average ...... 3.3 0.6 3.3 0.7

(1) New glide path reduction in force as of July 1, 2012. The decrease in termination rates has had a dual impact on our business, results of operations and financial condition by decreasing interconnection revenue received from other operators for calls made by other customers that terminate on our network while also decreasing interconnection expenses for calls by our customers that terminate on other operators’ networks, as our payments to other operators decrease. We have been following a focused policy of transferring the interconnect price reductions to the end user and reducing our retail call rates. See ‘‘Industry and Market Overview—Regulatory Environment’’ for further information on termination rates. The decreases in termination rates referred to throughout this section as the ‘‘regulatory effect’’ on revenues, have had and will continue to have a direct impact on our revenues and other income and costs, and a consequent impact on our profitability. This regulatory effect is calculated by taking into account the impact of reductions in termination rates, and applying those reduced rates to the previous year, using previous year volumes, as if the new lower tariffs would have been applicable in the previous year. The following table sets forth our total revenue, interconnect revenue, Adjusted EBITDA and total revenue and Adjusted EBITDA on an adjusted basis to exclude the regulatory effect during the periods under review by using constant termination rates, which are calculated assuming that termination rates for the applicable period would have been the same as the termination rates applicable from July 1, 2013 onwards.

For the nine months For the year ended December 31, ended September 30, 2010 2011 2012 2012 2013 (BGN in thousands, except where indicated) Total revenue ...... 896,387 895,870 857,717 650,433 605,646 (Decrease) over prior equivalent period (%) ...... (0.1) (4.3) (6.9) Of which Interconnect revenue ...... 131,552 146,528 128,480 109,527 49,543 Total revenue at constant termination rates(1) ...... 791,135 768,490 762,105 566,794 589,557 Increase/(decrease) over prior equivalent period (%) (2.9) (0.8) 4.0 Adjusted EBITDA ...... 373,101 342,737 349,294 272,637 250,508 Increase/(decrease) over prior equivalent period (%) (8.1) 1.9 (8.1) Adjusted EBITDA at constant termination rates(1) . . 342,359 304,544 320,878 248,287 245,366 Increase/(decrease) over prior equivalent period (%) (11.0) 5.4 (1.2)

(1) Adjusted to reflect termination rates in effect as at July 1, 2013. For the three months ended September 30, 2013, no adjustments have been made in respect of contractually agreed upon rates for wholesale international inbound traffic.

65 General Economic Conditions in Bulgaria Many European countries have faced or are facing an economic slowdown, which includes a general contraction in consumer spending resulting from, among other factors, reduced consumer confidence, falling gross domestic product, rising unemployment rates and uncertainty in the macroeconomic environment. Although the economic climate in Bulgaria has also been negatively affected by the global economic downturn, in comparison, the Bulgarian economy has demonstrated signs of strength and fiscal stability with low levels of government debt. According to the IMF, Bulgaria’s real GDP grew at a compound annual growth rate (‘‘CAGR’’) of 1.3% between 2010 and 2012 and is forecasted to grow at a CAGR of 2.8% over the 2012 to 2017 period. We operate in the telecommunications sector, for which underlying customer demand has proven to be less cyclical than other aspects of consumer spending during the ongoing global financial and economic crisis. However, the general macroeconomic environment still has an adverse effect on consumer spending. Consumers could spend less on an incremental basis, such as by placing fewer calls, sending fewer SMS, or opting for flat-rate or lower tariff price plans. In poor economic conditions, consumers are likely to delay the replacement of their existing mobile handsets or be more likely to disconnect or cancel their services. Generally, weak economic conditions may weigh on the growth prospects of the telecommunications market in Bulgaria, which in turn may impact our number of subscribers and ARPU.

Competition In the periods under review, we faced competition from the two other major Bulgarian mobile network operators, MobilTel and Globul, each of which holds a greater share of the mobile market than we do. Our revenue market share for the mobile market was approximately 22% for the second quarter of 2013, which is in line with our subscriber market share of approximately 21% as at June 30, 2013. See ‘‘Industry and Market Overview—Mobile Market—Market Overview.’’ MobilTel and Globul are also our main competitors in the fixed telephony market where we are the incumbent with approximately 87% revenue market share as calculated for 2012. See ‘‘Industry and Market Overview—Fixed Telephony Market—Market Overview.’’ In the Bulgarian fixed broadband market, we compete primarily with Blizoo, MobilTel, Bulsatcom and a significant number of small-scale LAN operators. Many of the small-scale LAN operators are considered to operate in the ‘‘grey market’’ as they do not pay taxes or license fees and use illegal aerial cables or our ducts for free to deliver their fixed broadband services, which gives them an unfair advantage, as they are able to offer lower priced fixed broadband products. See ‘‘Industry and Market Overview—Fixed Broadband Market—Market Overview.’’ We are the market leader in the fixed broadband market with a 25% subscriber market share as at December 31, 2012, followed by Blizoo, MobilTel and Bulsatcom (Source: CRC). Our primary competitors have pursued aggressive marketing and pricing strategies to retain and expand their respective market shares which, if further pursued in the future, could reduce our margins, cause us to increase our marketing and promotional expenses in response to such strategies and result in increased customer churn. In addition, the competitive nature of the market in which we operate may be exacerbated by new market entrants or the consolidation of some of our primary competitors. In light of this high competition, overall prices for most products and services offered to customers in the telecommunications market in Bulgaria have decreased over the years. As a result, we face a market in which price pressure and threats to market share are increasing and ARPU has been decreasing. We try to avoid direct price competition and believe that our revenues and profitability will be supported by continued growth in the number of our subscribers, cross-selling and up-selling of services, the launch of innovative new services and the active management of our subscriber acquisition, maintenance and retention costs.

66 Principal Factors Affecting Mobile Revenues Subscriber Base The table below sets forth selected subscriber data for our mobile services business for the periods indicated, including a breakdown by type of customer.

Mobile Subscriber Base(1) As at As at December 31, September 30, 2010 2011 2012 2012 2013 (percentages, except where indicated) Total number of subscribers (in thousands)(2) ...... 1,701 2,168 2,541 2,488 2,676 Post-paid(3) ...... 75 74 75 75 77 Pre-paid(3) ...... 25 26 25 25 23 Total subscriber growth from prior equivalent period ...... 28 17 8 The table below sets forth selected market data for our mobile business for the periods indicated:

As at As at December 31, June 30(4), 2010 2011 2012 2012 2013 (percentages) Penetration rate ...... 145 163 174 168 174 Market share based on number of subscribers(4) ...... 16 18 20 19 21

Source: Telekom Austria and Deutsche Telekom reports and penetration rate based on IMF population figures. (1) Based on the number of SIM cards in use, as described in ‘‘Industry, Market and Subscriber Data’’ and does not include subscribers of MVNOs. (2) Total number of subscribers as at September 30, 2013 would have been 2.3 million, had adjustments been made to remove 213,000 active machine-to-machine mobile subscribers from the post-paid mobile subscriber base and 154,000 mobile subscribers from our pre-paid mobile subscriber base who have had an activity event (such as outgoing and incoming customer generated usage or recharge) in the last twelve months, but not in the last three months. These adjustments would present our subscriber base in line with prevailing practices of other European mobile telecommunications operators, however they are contrary to historical reporting practices in Bulgaria. See ‘‘Industry, Market and Subscriber Data.’’ (3) Post-paid and pre-paid mobile subscribers are calculated as described in ‘‘Industry, Market and Subscriber Data.’’ (4) Market share and penetration rate as at September 30, 2013 is not available as at the date of this Offering Circular, as the subscriber numbers of our competitors are not yet publicly available. Therefore, market share and penetration rate as at June 30, 2013 is presented in this Offering Circular. According to subscriber figures publicly reported by the three Bulgarian mobile operators, the total number of mobile subscribers in Bulgaria has grown by a CAGR of 7.8% between December 31, 2010 and December 31, 2012 to reach 12.6 million subscribers as at June 30, 2013. Our subscriber market share increased from 16% as at December 31, 2010 to 18% as at December 31, 2011 and further increased to 20% as at December 31, 2012 and to 21% as at June 30, 2013. Our mobile subscriber base consists primarily of residential subscribers and, in line with the Bulgarian mobile telecommunications market, the vast majority of our subscribers are post-paid subscribers. As at September 30, 2013, 77% of our total mobile subscriber base consisted of post-paid subscribers. All of our business subscribers are post-paid subscribers. We attribute our new subscriber acquisitions primarily to competitive pricing and what we believe is superior network quality. Additionally, as the third entrant in the mobile telecommunications market in Bulgaria, we have been a beneficiary of the introduction of mobile number portability. We remain the only mobile operator reporting a net gain of numbers transitioned to our network. In August 2010, the CRC revised the mobile number portability process from a ‘‘two-stop shop’’ procedure to a ‘‘one-stop shop’’ procedure making it faster and easier for consumers to transfer their numbers. Since then, we have had over 252,000 net new subscribers switched to our network through the mobile number portability process. Our mobile subscriber base has consistently increased, from 1.7 million subscribers as at December 31, 2010 to 2.7 million subscribers as at September 30, 2013. We attribute this growth over the periods under review to a number of factors, including what we believe is our superior network quality, offering value for bundled services, decreasing churn amongst our post-paid subscriber base, cross-selling and up-selling to

67 existing customers between mobile voice and data, and targeting high-value customers with new data services.

ARPU The table below sets forth certain ARPU data for our mobile business.

Mobile ARPU(1) For the nine For the year ended months ended December 31, September 30, 2010 2011 2012 2012 2013 (in BGN, except where indicated) Pre-paid ARPU(2) ...... 7.0 5.6 4.5 4.9 3.1 Post-paid ARPU(3) ...... 17.5 16.7 14.4 14.8 12.9 Blended mobile ARPU(4) ...... 14.9 13.8 12.0 12.4 10.6 Increase/(decrease) from prior equivalent period (%) ...... (7.4) (13.0) (14.5) Mobile data ARPU(5) ...... 1.4 1.5 1.7 1.7 1.8 Mobile data ARPU as % of blended mobile ARPU(6) ...... 9 11 14 13 17

(1) We define pre-paid, post-paid and blended ARPU as described in ‘‘Industry, Market and Subscriber Data.’’ In particular, the subscriber base used to calculate ARPU in this table includes machine-to-machine connections and pre-paid subscribers who have had an activity event (such as outgoing and incoming customer generated usage or recharge) in the last twelve months. In contrast, the prevailing European methodology for calculating pre-paid mobile subscriber base is such that pre-paid mobile subscribers are counted if they have had an activity event (such as outgoing and incoming customer generated usage or recharge) within the last three months and for calculating post-paid mobile subscriber base is such it excludes machine-to-machine connections. See ‘‘Industry, Market and Subscriber Data.’’ (2) We define pre-paid mobile ARPU as described in ‘‘Industry, Market and Subscriber Data.’’ Our pre-paid ARPU adjusted using prevailing European methodology to calculate our pre-paid mobile subscriber base as described in note 1 above for the nine months ended September 30, 2013 would be BGN 4.6. (3) We define post-paid mobile ARPU as described in ‘‘Industry, Market and Subscriber Data.’’ Our post-paid ARPU adjusted using prevailing European methodology to calculate our post-paid mobile subscriber base as described in note 1 above for the nine months ended September 30, 2013 would be BGN 14.4. (4) We define blended mobile ARPU as described in ‘‘Industry, Market and Subscriber Data.’’ Our blended ARPU adjusted using prevailing European methodology for calculating our pre-paid and post-paid mobile subscriber base as described in note 1 above for the nine months ended September 30, 2013 would be BGN 13.9. (5) We define mobile data ARPU as described in ‘‘Industry, Market and Subscriber Data.’’ Our mobile data ARPU adjusted using prevailing European methodology for calculating our pre-paid and post-paid mobile subscriber base as described in note 1 above for the nine months ended September 30, 2013 would be BGN 2.3. (6) We calculate mobile data ARPU as a percentage of blended ARPU by dividing mobile data revenue (including revenue from SMS and VAS messaging services) during the period by mobile services revenue during the same period as used in the calculation of blended mobile ARPU. See ‘‘Industry, Market and Subscriber Data.’’ Our blended mobile ARPU declined during the periods under review primarily due to pressure from regulation and competition. Blended mobile ARPU decreased by 14.5% to BGN 10.6 for the nine months ended September 30, 2013 from BGN 12.4 for the nine months ended September 30, 2012 primarily as a result of the continued reduction in termination rates mandated by the CRC and reduced tariffs for our offerings. The increasing popularity of Android smartphones boosted the smartphone penetration rate and, in turn, mobile data usage by customers and mobile data ARPU as a percentage of total ARPU. In 2012, the smartphone penetration rate in Bulgaria was 22%. See ‘‘Industry and Market Overview—Mobile Market.’’ As a result, mobile data ARPU increased by 5.9% to BGN 1.8 for the nine months ended September 30, 2013 from BGN 1.7 for the nine months ended September 30, 2012. The gain in mobile data ARPU partially compensated for the falling ARPU from voice services. Blended mobile ARPU decreased by 13.0% to BGN 12.0 for the year ended December 31, 2012 from BGN 13.8 for the year ended December 31, 2011, primarily as a result of lower MTRs leading to lower revenue from incoming traffic, as well as due to reduced tariffs for our offerings, which included VAS with included minutes. Pre-paid ARPU and usage fell significantly primarily as a result of the increased migration of users from pre-paid to post-paid services stemming from large-scale pre-to-post campaigns and promotions through which active pre-paid customers were migrated to post-paid tariffs. Mobile data ARPU increased by 13.3% to BGN 1.7 for the year ended December 31, 2012 from BGN 1.5 for the year

68 ended December 31, 2011, which also led to an increase in mobile data ARPU as a percentage of total mobile ARPU. This increase was primarily due to the growing penetration of mobile data services among customers alongside the increasing penetration of smartphones and more offerings, which included data services. Blended mobile ARPU decreased by 7.4% to BGN 13.8 for the year ended December 31, 2011 from BGN 14.9 for the year ended December 31, 2010, largely as a result of the reduction in MTRs and more competitively priced product offerings. Mobile data ARPU increased by 7.1% to BGN 1.5 for the year ended December 31, 2011 from BGN 1.4 for the year ended December 31, 2010, which is primarily due to the higher data transfer speeds we offer on our entire network with nationwide 3G coverage. Pre-paid ARPU decreased by 20.0% from BGN 7.0 to BGN 5.6 primarily due to the reduction in MTRs and more competitively priced product offerings.

Traffic Volume Traffic volume for a given period measures the number of minutes of calls over our network for the period. The table below sets forth selected traffic data for our mobile business.

Mobile Traffic Volume(1) For the nine months For the year ended ended December 31, September 30, 2010 2011 2012 2012 2013 Total voice traffic (in millions of outgoing minutes and incoming minutes)(2) ...... 2,476 2,963 3,497 2,566 2,949 Increase over prior equivalent period (%) ...... 19.7 18.0 14.9 AMOU(3) ...... 141 129 123 123 126 Increase/(decrease) over prior equivalent period (%) ...... (8.5) (4.7) 2.4

(1) Mobile traffic volume is comprised of total outgoing and incoming minutes used by our mobile subscribers, excluding minutes used by customers of other networks that are roaming on our network. (2) Includes outgoing mobile-to-mobile, outgoing mobile-to-fixed, outgoing mobile-to-international, incoming mobile-to-mobile off-network, incoming fixed-to-mobile and incoming international-to-mobile calls. (3) We define AMOU as described in ‘‘Industry, Market and Subscriber Data.’’ Total mobile voice traffic increased by 14.9% to 2,949 million minutes for the nine months ended September 30, 2013 from 2,566 million minutes for the nine months ended September 30, 2012 primarily led by the growth of our mobile subscriber base as well as the slight increase in AMOU. Total mobile voice traffic increased by 18.0% from 2,963 million minutes to 3,497 million minutes and 19.7% from 2,476 million minutes to 2,963 million minutes, for the years ended December 31, 2012 and 2011, respectively, which was primarily driven by our higher subscriber base but was slightly offset by decreasing AMOUs in each period.

69 Principal Factors Affecting Fixed-line Revenue Subscriber Base The table below sets forth selected subscriber data as at the end of the periods indicated for our fixed-line business broken down by fixed telephony and fixed broadband subscribers.

Fixed-line Subscriber Base(1) As at As at December 31, September 30, 2010 2011 2012 2012 2013 (in thousands of subscribers, except percentages) Total fixed telephony ...... 1,787 1,610 1,460 1,500 1,358 Total fixed telephony growth over prior period (%) ...... (9.9) (9.3) (9.5) Total fixed broadband ...... 343 335 322 322 323 Total fixed broadband growth over prior period (%) ...... (2.3) (3.9) 0.3

(1) Our fixed-line subscriber base includes fixed telephony (retail voice) subscribers and fixed broadband subscribers only. Our fixed telephony subscribers include both residential and business subscribers. Our fixed broadband subscribers include both residential and business ADSL and FTTx subscribers. The following table shows the number of fiber homes passed by our network over the past two years:

As at December 31, As at September 30, 2010 2011 2012 2012 2013 Number of fiber homes passed ...... — 132,000 402,000 334,000 570,000

Fixed Telephony Our total fixed telephony subscribers decreased by 9.5% to 1.4 million as at September 30, 2013, from 1.5 million as at September 30, 2012. The decrease in fixed telephony subscribers in the first nine months of 2013 as compared to the same period in 2012 was primarily due to the strong price competition surrounding fixed telephony services, where such services are being offered as a low price VAS to our competitors’ mobile, fixed broadband and pay-TV services as well as ongoing fixed-to-mobile substitution. Total fixed telephony subscribers decreased by 9.9% to 1.5 million as at December 31, 2012, from 1.6 million as at December 31, 2011, primarily due to relatively inexpensive fixed telephony services that our competitors were able to offer as a low cost add-on to bundled offerings. This was slightly offset by the decrease in aggressive campaigns run by our competitors compared to 2011. Total fixed telephony subscribers decreased by 9.3% to 1.6 million as at December 31, 2011, from 1.8 million as at December 31, 2010. This is mainly attributable to the aggressive offers that were available in the market from our competitors, often with prices below the actual cost of the service. During 2011, operators that were traditionally only in the mobile market turned their attention to the fixed telephony market by launching aggressive offers without monthly recurring charges for an initial promotional period.

Fixed Broadband Our total fixed broadband subscribers increased by 0.3% to 323,000 as at September 30, 2013, from 322,000 as at September 30, 2012. The slight increase is primarily due to the increase in FTTx connections that has partially offset the continued decrease in ADSL subscribers. We are currently in the midst of an ongoing FTTx network build-out to meet expected customer demand for higher speed data technologies, launched with the support of our own duct network. Total fixed broadband subscribers decreased by 3.9% to 322,000 as at December 31, 2012, from 335,000 as at December 31, 2011. This was primarily due to the ultra-competitive fixed broadband market in 2012, characterized by customer demand for high-speed bandwidth capacity. Total fixed broadband subscribers decreased by 2.3% to 335,000 as at December 31, 2011, from 343,000 as at December 31, 2010, primarily as a result of industry consolidation leading to lower priced offerings and aggressive promotions. In 2011 MobilTel and Bulsatcom entered the fixed broadband market by acquiring numerous ISPs.

70 ARPU The table below sets forth our fixed telephony and fixed broadband ARPUs for the periods indicated.

Fixed-line ARPU(1) For the nine For the year ended months ended December 31, September 30, 2010 2011 2012 2012 2013 (in BGN, except where indicated) Fixed telephony ARPU(2) ...... 15.8 14.8 13.6 13.8 12.3 Increase/(decrease) over prior equivalent period (%) ...... (6.3) (8.1) (10.9) Fixed broadband ARPU(3) ...... 16.0 14.2 13.1 13.2 12.1 Increase/(decrease) over prior equivalent period (%) ...... (11.3) (7.7) (8.3)

(1) Our fixed-line ARPU includes ARPUs for fixed telephony and fixed broadband and does not include revenues from other fixed-voice services, other fixed-data services or other fixed-line services. (2) See ‘‘Industry, Market and Subscriber Data’’ for information on how we define fixed telephony ARPU. (3) See ‘‘Industry, Market and Subscriber Data’’ for information on how we define fixed broadband ARPU.

Fixed Telephony Fixed telephony ARPU has been in decline during the periods under review due to the continued fall in termination rates and MRC, as well as ongoing fixed-to-mobile substitution. Total fixed telephony ARPU decreased by 10.9% to BGN 12.3 for the nine months ended September 30, 2013, from BGN 13.8 for the nine months ended September 30, 2012. The decrease in total fixed telephony ARPU for the nine months ended September 30, 2013 compared to the same period in 2012 is primarily due to the decrease in FTRs from July 2012. FTRs were reduced to BGN 0.009 per minute as at July 1, 2012. Total fixed telephony ARPU decreased by 8.1% to BGN 13.6 for the year ended December 31, 2012, from BGN 14.8 for the year ended December 31, 2011. The decrease was primarily due to the migration of subscribers to plans with lower monthly payments that effectively have unlimited voice minutes as well as the decrease in FTRs from July 2012. Total fixed telephony ARPU decreased by 6.3% to BGN 14.8 for the year ended December 31, 2011, from BGN 15.8 for the year ended December 31, 2010. The decrease was primarily due to changes we made to our tariff structure. The proportion of tariffs with lower MRC increased, with the introduction of more included minutes within the tariff plans and closed user groups, where calls within the group designated by the business customer are free. This, together with increased fixed-to-mobile substitution driven by a decrease in the prices of mobile services, had the effect of depressing fixed telephony revenue.

Fixed Broadband Fixed broadband ARPU has decreased during the periods under review mainly due to our strategy of increasing and retaining subscribers by launching new bundled products, which generates lower MRC per subscribed service. Total fixed broadband ARPU decreased by 8.3% to BGN 12.1 for the nine months ended September 30, 2013, from BGN 13.2 for the nine months ended September 30, 2012. The decrease in total fixed broadband ARPU for the nine months ended September 30, 2013 compared to the same period in 2012 was primarily due to the introduction of our new bundle strategy and different promotions. We have undertaken a unique approach by giving our customers the freedom to customize their own bundle, while giving them the opportunity to take advantage of MRC discounts for each product. As a result, the customer can create a complete bundle portfolio covering all combinations of services that meet all of his or her needs at the best prices available. Total fixed broadband ARPU decreased by 7.7% to BGN 13.1 for the year ended December 31, 2012, from BGN 14.2 for the year ended December 31, 2011. The decrease was primarily due to the introduction of a new attractively priced broadband tariff structure for our standalone and bundled broadband offerings in July 2012.

71 Total fixed broadband ARPU decreased by 11.3% to BGN 14.2 for the year ended December 31, 2011, from BGN 16.0 for the year ended December 31, 2010. The decrease was primarily due to the introduction of new bundles at the end of 2010 and in 2011, which generated less revenue as customers were paying lower prices per subscribed service and had unlimited voice minutes.

Traffic Volume The table below sets forth selected voice traffic volume data for our fixed-line business for each of the periods indicated.

Voice Fixed-line Traffic For the nine For the year ended months ended December 31, September 30, 2010 2011 2012 2012 2013 Voice traffic (in millions of outgoing and incoming minutes)(1) 2,567 2,320 2,115 1,599 1,388 Increase/(decrease) over prior equivalent period (%) ...... (9.6) (8.8) (13.2) AMOU(2) ...... 116 115 115 114 110 Increase/(decrease) over prior equivalent period (%) ...... — — (3.5)

(1) Includes fixed-to-fixed, fixed-to-mobile, fixed-to-international, VAS and incoming off-network calls. (2) We define AMOU as described in ‘‘Industry, Market and Subscriber Data.’’ Total fixed-voice traffic decreased by 13.2% to 1,388 million minutes for the nine months ended September 30, 2013 from 1,599 million minutes for the nine months ended September 30, 2012, primarily due to ongoing fixed-to-mobile substitution, which resulted in the loss in fixed telephony subscribers as well as the decrease in calls originated from our fixed telephony subscribers and the decrease in incoming volume of calls made by customers of other operators that terminate on our fixed network. Total fixed-voice traffic decreased by 8.8% from 2,320 million minutes to 2,115 million minutes, and 9.6% from 2,567 million minutes to 2,320 million minutes for the years ended December 31, 2012 and 2011, respectively, primarily as a result of our declining subscriber base due to fixed-to-mobile substitution and aggressive price competition from our competitors. AMOU remained stable for the periods under review due to our strategy of offering more VAS such as international calls, free minutes to mobiles, unlimited minutes for calls made within our network and the promotion of flat-fee voice plans with a high number of included minutes. Additional VAS for placing calls to all types of destinations, national (within and outside of our network), mobile and international, have also been made available, providing our subscribers with flexible solutions to match their consumption patterns.

Recent Events Affecting Results of Operations Restructuring On October 8, 2012, our shareholders approved the necessary processes, including amendments to our then existing loan agreement, for the restructuring of our existing debt. As a result of the restructuring, which was completed in November 2012, there was a change in our ownership and the amount outstanding under the then existing loan agreement was reduced from A478.4 million to A452.1 million through a combination of debt repayment, equity conversion and debt write-off. Amounts outstanding under the then existing loan agreement were consolidated into the Existing Senior Facility.

Discontinued Operations On August 20, 2010, we reached a final agreement with Mancelord Limited, for the sale of 50% of the National Unit ‘‘Radio and Television Stations’’ (‘‘NURTS’’), an internal division that provided for the broadcasting of radio and television signal over the territory of Bulgaria through the jointly controlled entity, NURTS Bulgaria AD. The transaction was concluded after obtaining the necessary regulatory approvals. Leading up to the sale, NURTS was classified as a disposal group held for sale and as a discontinued operation. Results from discontinued operations, amounted to a profit of BGN 40.7 million for the period from January 1, 2010 to August 20, 2010, and appear in ‘‘Other gains, net’’ in our consolidated financial statements for the year ended December 31, 2010.

72 On September 20, 2011, we reached an agreement with Bluesat Partners Ltd. for the sale of our remaining stake in NURTS Bulgaria AD for BGN 58.7 million, which was approved by the CPC. See notes 13 and 24 of our consolidated financial statements for the year ended December 31, 2011.

Future Events Affecting Results of Operations Investments in Spectrum As part of our business strategy, we make substantial investments in our mobile network, which has thus far resulted in the substantial build out of our 3G network nationwide. In 2012, we acquired additional UMTS spectrum of 5 MHz. The cost of this permit amounted to BGN 13.8 million. Going forward, we currently anticipate that we may participate in LTE spectrum auctions in the 800 MHz spectrum band (or other form of frequency allocations) as early as 2015, which could result in our incurrence of significant and unexpectedly high capital expenditures, if the sum of interest from various parties has exceeded the available spectrum. See ‘‘Risk Factors—Risks Related to our Industry and our Business—Our permits to provide telecommunications services have finite terms and any inability to renew any of these permits upon termination or any inability to obtain new permits for new technologies or any excessive prices charged for renewing or obtaining permits could adversely affect our business.’’

Termination of the Alcatel-Lucent Agreement In February 2010, the Company entered into a five year agreement with Alcatel-Lucent, pursuant to which Alcatel-Lucent provides services to us relating to the operation and servicing of our network. The services that were outsourced to Alcatel-Lucent include among others, the maintenance of our fiber and copper access network, service provisioning and assurance, mobile sites field maintenance, radio planning and optimization, active equipment and service platforms maintenance, and the operation of a network operation center. In connection with this agreement, we transferred approximately 3,000 full time employees to Alcatel-Lucent. An agreement to terminate the Alcatel-Lucent Agreement was signed on October 28, 2013. As a result of signing the termination agreement, over 2,000 employees will be transferred from Alcatel-Lucent to us in January 2014, which will result in increased headcount. This will result in an increase in staff costs and a decrease in other operating expenses as the majority of the maintenance fees under the Alcatel-Lucent Agreement will be converted to staff costs.

Explanation of Key Income Statement Items Revenue Our revenues are generated from the five main sources discussed below. Since January 1, 2012, we have recorded revenue from value-added services, net of costs, whereas previously revenue from value-added services was recorded on a gross basis. Net revenue from value-added services is included in outgoing traffic revenue (with respect to voice services) and leased lines and data transmission revenue (with respect to SMS services for mobile customers). Our management believes that the impact of this change in presentation, amounting to less than 1% of total revenues, is not material.

Recurring Charges Revenue from recurring charges consists of revenues from monthly subscription fees paid by post-paid subscribers under contract and is recognized as revenue over the associated period.

Outgoing Traffic Revenue Revenue from outgoing traffic primarily relates to fees paid by both post-paid and pre-paid customers at an agreed tariff for a fixed duration of time and recognized as revenue based upon voice services provided on a monthly basis that is not included as part of the customer’s monthly tariff or pre-paid package plan. Recognition of revenue from pre-paid SIM cards is based on actual airtime usage or the expiration of the obligation to provide service.

Leased Lines and Data Transmission Revenue Revenue from leased lines and data transmission mainly relates to fees paid by business and wholesale customers at an agreed rate for the provision of dedicated capacity on our data network and is recognized as revenue over the associated subscription period. The leased lines and data transmissions services represent our ‘‘legacy’’ business, which stem from our history as the state-owned national incumbent

73 telecommunications operator. In recent years, customers using these services have migrated from leased lines to other complex data solutions, such as MAN or IP VPN, with only certain security-conscious customers, such as financial institutions continuing to use such services.

Interconnect Revenue Revenue from interconnections mainly relates to charges to other telecommunications providers when their customers initiate calls that terminate or pass through our network or when their customers use our mobile network when roaming.

Other Revenue Other revenue relates to revenue generated from services not included in any other revenue category above (including pay-TV and the sale of mobile handsets), which is recognized as revenue when services are rendered.

Interconnect Expenses Interconnect expenses relate to the costs incurred when our customers’ calls are terminated on another operator’s network or when our customers use the mobile network of other operators when roaming.

Other Operating Expenses Other operating expenses include maintenance and repair costs for network and information systems, the charged provisions for impairment of assets, costs of advertising, facilities and license fees and administrative and professional costs amongst others. Prior to the financial period beginning January 1, 2012, we recorded costs of value-added services as other operating expenses, whereas subsequently revenue from value-added services has been recorded net of costs.

Materials and Consumables Expenses Materials and consumables expenses are comprised of the costs of the materials consumed by our business during the respective period, including the costs associated with mobile handsets sold and CPEs sold and leased as well as electricity expenses.

Staff Costs Staff costs include salaries, wages and bonuses, and pension, health and unemployment fund contributions.

Depreciation and Amortization Our tangible and intangible assets are depreciated and amortized on a straight-line basis over the best estimate of their useful lives.

Finance Income and Costs Finance income and costs include interest income on bank deposits and finance leases and interest expense on borrowings and foreign exchange gain and loss.

Other Gains, Net Other gains, net is comprised of the result from sales of non-current assets and materials which are not sold or otherwise disposed of in the ordinary course of business, such as the decommissioning of cables and disposals of real estate assets.

Share of Profit of Joint Ventures Share of profit of joint ventures includes our interest in NURTS Bulgaria AD for the years ended December 31, 2010 and 2011. We report our interests in jointly controlled entities using the equity method.

74 (Loss)/Profit from Discontinued Operations (Loss)/profit from discontinued operations represents the financial results of NURTS before it was sold in 2010 and classified as a disposal group held for sale and as a discontinued operation in our consolidated financial statements for the year ended December 31, 2010.

Income Tax Expenses Income tax expenses include current and deferred taxes.

Results of Operations The table below shows our consolidated results of operations for the years ended December 31, 2010, 2011, 2012 and for the nine months ended September 30, 2012 and 2013.

For the nine months For the year ended December 31, ended September 30, 2010 2011 2012 2012 2013 (BGN in thousands) Revenue ...... 896,387 895,870 857,717 650,433 605,646 Interconnect expenses ...... (119,488) (133,475) (112,665) (93,628) (44,450) Other operating expenses ...... (253,926) (286,889) (309,967) (174,470) (176,971) Materials and consumables expenses ...... (118,146) (104,167) (109,253) (75,495) (95,394) Staff costs ...... (72,487) (65,051) (69,427) (50,813) (51,642) Depreciation and amortization ...... (261,462) (276,585) (277,597) (209,317) (193,386) Finance costs ...... (33,402) (41,305) (33,777) (24,007) (39,012) Finance income ...... 9,624 9,095 8,201 7,063 4,362 Other gains, net ...... 37,371 8,271 10,190 6,891 2,635 Share of profit of joint ventures ...... 2,017 2,272 — — — (Loss) / Profit before tax ...... 86,488 8,036 (36,578) 36,657 11,788 Income tax expenses ...... (11,466) (856) 3,336 (3,736) (1,538) Profit after tax for the year from discontinued operations ...... 40,728 ———— (Loss) / Profit for the period ...... 115,750 7,180 (33,242) 32,921 10,250

Nine Months ended September 30, 2013 as Compared to Nine Months ended September 30, 2012 Revenue Our total revenue was BGN 605.6 million for the nine months ended September 30, 2013, a decrease of BGN 44.8 million, or 6.9%, from BGN 650.4 million for the nine months ended September 30, 2012. The table below sets forth our revenue for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012.

For the nine months ended September 30, Change 2012 2013 (amount) (%) (BGN in millions, except percentages) Recurring charges ...... 251.3 262.3 10.9 4.4 Outgoing traffic ...... 129.7 107.2 (22.5) (17.4) Leased lines and data transmissions ...... 97.3 90.4 (6.9) (7.1) Interconnect ...... 109.5 49.5 (60.0) (54.8) Other revenue ...... 62.6 96.3 33.7 53.8 Total revenue ...... 650.4 605.6 (44.8) (6.9) Revenue from recurring charges was BGN 262.3 million for the nine months ended September 30, 2013, an increase of BGN 10.9 million, or 4.4%, from BGN 251.3 million for the nine months ended September 30, 2012 primarily due to increased bundling, which increased the overall number of services provided to customers and net subscriber gains from optimizing the tariffs that we offer to customers.

75 Revenue for outgoing traffic was BGN 107.2 million for the nine months ended September 30, 2013, a decrease of BGN 22.5 million, or 17.4%, from BGN 129.7 million for the nine months ended September 30, 2012, mainly due to lower termination rates and competitive pressure leading to a decline in prices per minute and more included minutes in tariffs offered to customers. Revenue for leased lines and data transmissions was BGN 90.4 million for the nine months ended September 30, 2013, a decrease of BGN 6.9 million, or 7.1% from BGN 97.3 million for the nine months ended September 30, 2013, primarily due to the decline in our subscriber base and migration of customers to other data services where the offerings of our competitors were priced lower. Interconnect revenue was BGN 49.5 million for the nine months ended September 30, 2013, a decrease of BGN 60.0 million, or 54.8%, from BGN 109.5 million for the nine months ended September 30, 2012. The decrease in revenue was mainly a result of lower termination rates as mandated by the CRC. Other revenue was BGN 96.3 million for the nine months ended September 30, 2013, an increase of BGN 33.7 million, or 53.8% from BGN 62.6 million for the nine months ended September 30, 2012 mainly due to increased sales of mobile handsets and tablets and increased revenue from pay-TV. Sales of mobile handsets and tablets increased due to heightened promotional efforts and subsidies for both products. The following table sets forth a breakdown of our revenue by segment for the nine months ended September 30, 2012 and 2013:

For the nine months ended September 30, Change 2012 2013 (amount) (%) (BGN in millions, except percentages) Fixed-line revenue ...... 354.7 300.9 (53.7) (15.2) Mobile revenue ...... 295.8 304.7 9.0 3.0 Total revenue ...... 650.4 605.6 (44.8) (6.9) Our fixed-line revenue, which is comprised of fixed-voice (fixed telephony and other), fixed-data (fixed broadband and other) and other fixed-line services was BGN 300.9 million for the nine months ended September 30, 2013, a decrease of BGN 53.7 million, or 15.2%, from BGN 354.7 million for the nine months ended September 30, 2012. The decrease was mainly attributable to the ongoing fixed-to-mobile substitution trend, competition from other operators and a decrease in interconnect revenues stemming from the regulatory effect. Our mobile revenue was BGN 304.7 million for the nine months ended September 30, 2013, an increase of BGN 9.0 million, or 3.0%, from BGN 295.8 million for the nine months ended September 30, 2012. The increase in mobile revenue was primarily due to the growth of our mobile subscriber base, which can be attributed to our competitive pricing and the quality of our network, which offset the decrease in mobile ARPU stemming from the regulatory effect.

Interconnect Expense Our interconnect expense was BGN 44.5 million for the nine months ended September 30, 2013, a decrease of BGN 49.2 million, or 52.5%, from BGN 93.6 million for the nine months ended September 30, 2012. This was mainly due to lower termination rates for calls made by our subscribers that terminated outside our network, as a result of the regulatory effect.

Other Operating Expenses Our other operating expenses were BGN 177.0 million for the nine months ended September 30, 2013, an increase of BGN 2.5 million, or 1.4%, from BGN 174.5 million for the nine months ended September 30, 2012.

76 The table below sets forth our other operating expenses for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012.

For the nine months ended September 30, Change 2012 2013 (amount) (%) (BGN in millions, except percentages) Maintenance and repairs ...... 65.4 61.1 (4.3) (6.5) Advertising, customer service, billing and collection ...... 38.2 40.7 2.5 6.6 Facilities ...... 30.2 33.1 3.0 9.8 Administrative expenses ...... 5.6 11.6 6.0 106.3 License fees ...... 9.7 10.2 0.4 4.5 Vehicles and transport ...... 2.7 2.6 (0.1) (3.6) Leased lines and data transmission ...... 2.9 2.4 (0.5) (17.2) Professional fees ...... 5.1 2.0 (3.1) (60.3) Other, net ...... 14.7 13.2 (1.4) (9.9) Total ...... 174.5 177.0 2.5 1.4 The increase in other operating expenses was driven by higher administrative expenses reflecting accrued one-off costs for compensation paid out to customers following a CRC decision to impose lower regulated fixed to mobile retail prices, after the new pricing scheme proposed by us was rejected. Facilities costs increased primarily due to an increase in rental prices, as we increased the number of rented technical sites and remodeled our existing point-of-sale network. These increases were partially offset by the lower cost of maintenance and repairs, principally due to lower costs for dismantling copper cables, as such activities were reduced in 2013, due to a change in the third-party vendor responsible for the decommissioning of cables. Furthermore, the maintenance of our customer care and billing system was insourced at the end of 2012, further decreasing the cost of maintenance and repairs. Professional fees decreased as we had higher costs in 2012 that were related to our restructuring.

Materials and Consumables Expenses Our materials and consumables expenses were BGN 95.4 million for the nine months ended September 30, 2013, an increase of BGN 19.9 million, or 26.4%, from BGN 75.5 million for the nine months ended September 30, 2012 mainly due to increased costs related to the higher sales of mobile handsets to support the increased demand for smartphones and higher energy costs. The cost per mobile handset increased over this period, which led to a corresponding rise in the subsidy we provided to customers. Higher energy costs were primarily due to a rise in electricity prices and an increased number of retail locations in our expanding network footprint.

Staff Costs Our staff costs were BGN 51.6 million for the nine months ended September 30, 2013, an increase of BGN 0.8 million, or 1.6%, from BGN 50.8 million for the nine months ended September 30, 2012, mainly due to the increase in the number of our commercial employees, including sales, customer service and administrative staff, driven by our increased number of retail locations.

Depreciation and Amortization Our depreciation and amortization costs were BGN 193.4 million for the nine months ended September 30, 2013, a decrease of BGN 15.9 million, or 7.6%, from BGN 209.3 million for the nine months ended September 30, 2012. This was mainly due to decreased net book value of our fixed assets as a result of the impairment of our fixed-line business as at December 31, 2012. As at the year ended December 31, 2012, following third-party impairment testing of our assets as part of our annual financial review, we recorded a BGN 56.6 million impairment charge against our fixed-line business. In 2012, the forecasted future cash flows for our fixed-line business declined as a result of stricter termination rate regulations implemented by the CRC and competitive market pressures leading to an impairment loss that was recognized in other operating expenses for the year ended December 31, 2012.

77 Finance Costs Our finance costs were BGN 39.0 million for the nine months ended September 30, 2013, an increase of BGN 15.0 million, or 62.5%, from BGN 24.0 million for the nine months ended September 30, 2012, primarily as a result of increased interest rates on bank borrowings following our restructuring in 2012.

Finance Income Our finance income was BGN 4.4 million for the nine months ended September 30, 2013, a decrease of BGN 2.7 million, or 38.2%, from BGN 7.1 million for the nine months ended September 30, 2012, due to decreased interest income on bank deposits as a result of lower interest rates and lower cash balances held with financial institutions in 2013 following repayment of our long-term borrowings in 2012.

Other Gains, Net Our other gains, net were BGN 2.6 million for the nine months ended September 30, 2013, a decrease of BGN 4.3 million, or 61.8%, from BGN 6.9 million for the nine months ended September 30, 2012 as gains from sales of non-current assets decreased, mainly due to the decrease in sales of our dismantled copper cables as such activities were reduced in 2013, due to a change in the third-party vendor responsible for the decommissioning of cables.

Income Tax Expenses The following table sets forth our income tax expense for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012.

For the nine months ended September 30, Change 2012 2013 (amount) (%) (BGN in millions, except percentages) Current income tax charge ...... 5.7 1.4 (4.3) (75.8) Deferred tax credit to comprehensive income ...... (2.0) 0.2 2.1 (108.3) Total tax expense/(benefit) ...... 3.7 1.5 (2.2) (58.8) Income tax expenses were BGN 1.5 million for the nine months ended September 30, 2013, a decrease of BGN 2.2 million, or 58.8%, from BGN 3.7 million for the nine months ended September 30, 2012 due to our lower operating profit for the first three quarters of 2013.

Profit for the Period As a result of the foregoing, our profit for the period was BGN 10.3 million for the nine months ended September 30, 2013, a decrease of BGN 22.7 million, or 68.9% from BGN 32.9 million for the nine months ended September 30, 2012.

Year Ended December 31, 2012 as Compared to Year Ended December 31, 2011 Revenue Our total revenue was BGN 857.7 million for the year ended December 31, 2012, a decrease of BGN 38.2 million, or 4.3%, from BGN 895.9 million for the year ended December 31, 2011.

78 The table below sets forth our revenue for the year ended December 31, 2012 as compared to the year ended December 31, 2011.

For the year ended December 31, Change 2011 2012 (amount) (%) (BGN in millions, except percentages) Recurring charges ...... 334.8 336.4 1.6 0.5 Outgoing traffic ...... 180.7 169.1 (11.6) (6.4) Interconnect ...... 157.1 129.7 (27.4) (17.4) Leased lines and data transmission ...... 146.5 128.5 (18.0) (12.3) Other revenue ...... 76.8 94.1 17.3 22.5 Total revenue(1) ...... 895.9 857.7 (38.2) (4.3)

(1) Total revenue for the year ended December 31, 2012 includes revenue from VAS recorded net of costs, while total revenue for the year ended December 31, 2011, includes gross revenue from VAS with the costs of VAS included in other operating expenses. This could affect the comparability of our Consolidated Financial Statements. Our management believes that the impact of this change in presentation, amounting to less than 1% of total revenues, is not material. See ‘‘Presentation of Financial and Other Information’’ and ‘‘—Explanation of Key Income Statement Items—Revenue’’ above. Revenue from recurring charges was BGN 336.4 million for the year ended December 31, 2012, an increase of BGN 1.6 million, or 0.5%, from BGN 334.8 million for the year ended December 31, 2011 due to the growth of our mobile subscriber base and bundled services. Revenue from recurring charges consisted primarily of revenue from monthly fees paid by customers for the provision of mobile and fixed telephony services. Revenue from outgoing traffic was BGN 169.1 million for the year ended December 31, 2012, a decrease of BGN 11.6 million, or 6.4%, from BGN 180.7 million for the year ended December 31, 2011, mainly due to ongoing fixed-to-mobile substitution, which resulted in line losses and shrinking fixed-line traffic. Interconnect revenue was BGN 129.7 million for the year ended December 31, 2012, a decrease of BGN 27.4 million, or 17.4%, from BGN 157.1 million for the year ended December 31, 2011. The decrease was primarily related to the termination rate reductions imposed by the CRC. Revenue for leased lines and data transmissions was BGN 128.5 million for the year ended December 31, 2012, a decrease of BGN 18.0 million, or 12.3% from BGN 146.5 million for the year ended December 31, 2011, principally due to the migration of customers from leased lines to other fixed-data services offered by our competitors, where there is high price competition in the market and thus lower price offerings are available. Other revenue for the year ended December 31, 2012 was BGN 94.1 million, an increase of BGN 17.3 million, or 22.5% from BGN 76.8 million for the year ended December 31, 2011 mainly due to the growth in sales of mobile handsets as a result of increased customer demand. The table below sets forth a breakdown of our revenue by segment for the year ended December 31, 2012 as compared to the year ended December 31, 2011.

For the year ended December 31, Change 2011 2012 (amount) (%) (BGN in millions, except percentages) Fixed-line revenue ...... 519.8 460.4 (59.4) (11.4) Mobile revenue ...... 376.1 397.3 21.2 5.6 Total Fixed-line and Mobile revenue ...... 895.9 857.7 (38.2) (4.3) Our fixed-line revenue, which is comprised of fixed-voice (telephony and other), data (broadband and other) and other fixed-line services was BGN 460.4 million for the year ended December 31, 2012, a decrease of BGN 59.4 million, or 11.4%, from BGN 519.8 million for the year ended December 31, 2011. The decrease in fixed-line revenue was primarily attributable to the decrease in interconnect revenue following the reduction of FTRs by the CRC in July 2012 as well the decline in our fixed telephony subscriber base.

79 Our mobile revenue was BGN 397.3 million for the year ended December 31, 2012, an increase of BGN 21.2 million, or 5.6%, from BGN 376.1 million for the year ended December 31, 2011. The increase in mobile revenue was primarily attributable to the growth of our mobile subscriber base, due to increasing fixed-to-mobile substitution and increased promotional efforts to gain new mobile customers.

Interconnect Expense Our interconnect expense was BGN 112.7 million for the year ended December 31, 2012, a decrease of BGN 20.8 million, or 15.6%, from BGN 133.5 million for the year ended December 31, 2011, primarily attributable to the decrease in termination rates.

Other Operating Expenses Our other operating expenses were BGN 310.0 million for the year ended December 31, 2012, an increase of BGN 23.1 million, or 8.0%, from BGN 286.9 million for the year ended December 31, 2011, mainly due to the increase in other expenses from the impairment loss of the fixed-line business recorded in 2012. The table below sets forth our other operating expenses for the year ended December 31, 2012 as compared to the year ended December 31, 2011.

For the year ended December 31, Change 2011 2012 (amount) (%) (BGN in millions, except percentages) Maintenance and repairs ...... 89.0 86.8 (2.3) (2.5) Advertising, customer service, billing and collection ...... 50.5 52.3 1.8 3.5 Facilities ...... 38.8 42.1 3.3 8.5 License fees ...... 12.9 13.2 0.4 2.8 Administrative expenses ...... 12.1 8.0 (4.0) (33.3) Professional fees ...... 5.5 6.2 0.7 12.8 Leased lines and data transmission ...... 3.8 3.9 0.0 1.0 Vehicles and transport ...... 3.7 3.7 0.0 (0.9) Other(1) ...... 70.6 93.8 23.2 32.9 Total ...... 286.9 310.0 23.1 8.0

(1) Other for the year ended December 31, 2011 includes the costs of VAS, where revenue from value-added services was recorded on a gross basis. Other for the year ended December 31, 2012 does not include the costs of VAS, as since the financial period beginning January 1, 2012, we have recorded revenue from value-added services, net of costs. This could affect the comparability of our Consolidated Financial Statements. Our management believes that the impact of this change in presentation, amounting to less than 1% of total revenues, is not material. See ‘‘Presentation of Financial and Other Information’’ and ‘‘—Explanation of Key Income Statement Items—Revenue’’ above. The increase in other expenses was offset by the decrease in administrative expenses following one-off costs incurred in 2011 in connection with procuring missing building documentation for our duct network. Due to the heightened scrutiny and enforcement actions taken against ‘‘grey market’’ operators by the Bulgarian municipalities, we were required to update necessary documentation to bring our duct networks in line with applicable laws and regulations.

Materials and Consumables Expenses Our materials and consumables expenses for the year ended December 31, 2012 were BGN 109.3 million, an increase of BGN 5.1 million, or 4.9%, from BGN 104.2 million for the year ended December 31, 2011 mainly due to the higher number of mobile handsets sold and increased electricity costs.

Staff Costs Our staff costs were BGN 69.4 million for the year ended December 31, 2012, an increase of BGN 4.4 million, or 6.7%, from BGN 65.1 million for the year ended December 31, 2011, mainly due to the hiring of additional commercial and IT employees following an increase in the number of the retail locations that we own and operate.

80 Depreciation and Amortization Our depreciation and amortization costs were BGN 277.6 million for the year ended December 31, 2012, a slight increase of BGN 1.0 million, or 0.4%, from BGN 276.6 million for the year ended December 31, 2011.

Finance Costs Our finance costs for the year ended December 31, 2012 were BGN 33.8 million, a decrease of BGN 7.5 million, or 18.2%, from BGN 41.3 million for the year ended December 31, 2011, as a result of lower interest expenses on our bank borrowings following repayment of certain loans under the Existing Senior Facility in February and August 2012 and our restructuring in November 2012, amounting to repayment of a total of BGN 110.7 million in 2012.

Finance Income Our finance income was BGN 8.2 million for the year ended December 31, 2012, a decrease of BGN 0.9 million, or 9.8%, from BGN 9.1 million for the year ended December 31, 2011 due to lower interest income on bank borrowings as a result of lower cash balances held in 2012 following the repayment of certain loans under the Existing Senior Facility and less interest income from finance leases on mobile handsets whereby customers pay us for mobile handsets in installments at lower interest rates than those offered by banks. We launched our finance lease operations at the end of 2009, an offering which was initially popular with our customers. However, demand tapered in 2011, as existing customers interested in this service had already received mobile handsets.

Other Gains, Net Our other gains, net were BGN 10.2 million for the year ended December 31, 2012, an increase of BGN 1.9 million, or 23.2%, from BGN 8.3 million for the year ended December 31, 2011 as gains from sales of non-current assets increased, mainly due to increased sales of dismantled copper cables as we completed copper replacement projects and continued to digitalize our network.

Share of Profit of Joint Ventures We did not have any share of profit of joint ventures for the year ended December 31, 2012, as compared to BGN 2.3 million for the year ended December 31, 2011, as we sold our remaining stake in NURTS Bulgaria AD on September 20, 2011.

Income Tax Expenses The following table sets forth our income tax expense/(benefit) for the year ended December 31, 2012 as compared to the year ended December 31, 2011.

For the year ended December 31, Change 2011 2012 (amount) (%) (BGN in millions, except percentages) Current income tax charge ...... 6.6 6.4 (0.3) (4.3) Deferred tax credit to comprehensive income ...... (5.8) (9.7) (3.9) 67.5 Total tax expense/(benefit) ...... 0.9 (3.3) (4.2) (489.7) Our income tax benefit was BGN 3.3 million for the year ended December 31, 2012, as compared to income tax expenses of BGN 0.9 million for the year ended December 31, 2011, primarily due to the deferred tax benefits recognized in this period as a result of the BGN 56.6 million impairment on the fixed-line business which represented a temporary tax difference in accordance with the provisions of the Corporate Income Tax Act (‘‘CITA’’) in Bulgaria.

Profit for the Period As a result of the foregoing, for the year ended December 31, 2012, we recorded a BGN 33.2 million loss for the period, as compared to a profit for the period of BGN 7.2 million for the year ended December 31, 2011.

81 Year Ended December 31, 2011 as Compared to Year Ended December 31, 2010 Revenue Our total revenue was BGN 895.9 million for the year ended December 31, 2011, a slight decrease of BGN 0.5 million, or 0.1%, as compared to BGN 896.4 million for the year ended December 31, 2010. The table below sets forth our revenue for the year ended December 31, 2011 as compared to the year ended December 31, 2010.

For the year ended December 31, Change 2010 2011 (amount) (%) (BGN in millions, except percentages) Recurring charges ...... 338.7 334.8 (3.9) (1.2) Outgoing traffic ...... 195.4 180.7 (14.8) (7.6) Interconnect ...... 131.6 157.1 25.5 19.4 Leased lines and data transmission ...... 148.9 146.5 (2.4) (1.6) Other revenue ...... 81.8 76.8 (5.0) (6.1) Total revenue ...... 896.4 895.9 (0.5) (0.1) Revenue from recurring charges was BGN 334.8 million for the year ended December 31, 2011, a decrease of BGN 3.9 million, or 1.2%, from BGN 338.7 million for the year ended December 31, 2010 primarily due to a decline in our fixed telephony subscriber base. However, this decrease was largely offset by the growth in our mobile subscriber base. Revenue for outgoing traffic was BGN 180.7 million for the year ended December 31, 2011, a decrease of BGN 14.8 million, or 7.6%, from BGN 195.4 million for the year ended December 31, 2010 mainly due to the ongoing trend of fixed-to-mobile substitution, which resulted in line losses and shrinking fixed traffic. Interconnect revenue was BGN 157.1 million for the year ended December 31, 2011, an increase of BGN 25.5 million, or 19.4%, from BGN 131.6 million for the year ended December 31, 2010. The increase was mainly related to the growth in our mobile subscriber base and an increase in international transit traffic which maintained high termination rates during the period, as the CRC had yet to lower international termination rates. Revenue for leased lines and data transmissions was BGN 146.5 million for the year ended December 31, 2011, a decrease of BGN 2.4 million, or 1.6% from BGN 148.9 million for the year ended December 31, 2010 primarily due to the migration of customers from leased lines to other complex data services, where there is high price competition. This overall decline was offset, in part, by the leased lines and data transmissions revenue we received in connection with the sale of NURTS, as intercompany eliminations became external revenue. Other revenue for the year ended December 31, 2011 was BGN 76.8 million, a decrease of BGN 5.0 million, or 6.1% from BGN 81.8 million for the year ended December 31, 2010 mainly due to lower revenue generated from the sale of mobile handsets as consumers turned to lower-priced models during the economic downturn. The table below sets forth a breakdown of our revenue by segment for the year ended December 31, 2011 as compared to the year ended December 31, 2010.

For the year ended December 31, Change 2010 2011 (amount) % (BGN in millions, except percentages) Fixed-line revenue ...... 563.6 519.8 (43.8) (7.8) Mobile revenue ...... 332.8 376.1 43.3 13.0 Total Fixed-line and Mobile revenue ...... 896.4 895.9 (0.5) (0.1) Our fixed-line revenue, comprised of fixed-voice (fixed telephony and other), fixed-data (fixed broadband and other) and other fixed-line services was BGN 519.8 million for the year ended December 31, 2011, a

82 decrease of BGN 43.8 million, or 7.8%, from BGN 563.6 million for the year ended December 31, 2010. The decrease in fixed-line revenue was primarily attributable to line losses and shrinking fixed traffic. Our mobile revenue was BGN 376.1 million for the year ended December 31, 2011, an increase of BGN 43.3 million, or 13.0%, from BGN 332.8 million for the year ended December 31, 2010. Mobile revenue increased primarily as a result of the growth of our mobile subscriber base.

Interconnect Expense Our interconnect expense was BGN 133.5 million for the year ended December 31, 2011, an increase of BGN 14.0 million, or 11.7%, from BGN 119.5 million for the year ended December 31, 2010 primarily due to growth in international transit traffic at high volumes and relatively stable termination rates, which resulted in higher interconnect expenses, as well as higher interconnect revenues.

Other Operating Expenses Our other operating expenses were BGN 286.9 million for the year ended December 31, 2011, an increase of BGN 33.0 million, or 13.0%, from BGN 253.9 million for the year ended December 31, 2010. The table below sets forth our other operating expenses for the year ended December 31, 2011 as compared to the year ended December 31, 2010.

For the year ended December 31, Change 2010 2011 (amount) (%) (BGN in millions, except percentages) Maintenance and repairs ...... 77.9 89.0 11.2 14.4 Advertising, customer service, billing and collection ...... 41.3 50.5 9.2 22.2 Facilities ...... 31.2 38.8 7.7 24.7 License fees ...... 13.2 12.9 (0.3) (2.1) Administrative expenses ...... 8.8 12.1 3.2 36.5 Cost of value-added services (VAS)(1) ...... 7.1 7.6 0.4 5.9 Professional fees ...... 26.7 5.5 (21.2) (79.4) Leased lines and data transmission ...... 5.4 3.8 (1.6) (28.9) Vehicles and transport ...... 5.8 3.7 (2.1) (35.9) Other ...... 36.6 63.0 26.4 72.0 Total ...... 253.9 286.9 33.0 13.0

(1) Cost of value-added services is included in revenues from value-added services which is presented net of such costs beginning in the year ended December 31, 2012. This could affect the comparability of our Consolidated Financial Statements. Our management believes that the impact of this change in presentation, amounting to less than 1% of total revenues, is not material. See ‘‘Presentation of Financial and Other Information’’ and ‘‘—Explanation of Key Income Statement Items—Other Operating Expenses’’ above. Our other operating expenses was BGN 286.9 million in the year ended December 31, 2011, an increase of BGN 33.0 million, or 13.0%, from BGN 253.9 million in the year ended December 31, 2010. This increase was principally driven by the 72.0% increase in other expenses to BGN 63.0 million from BGN 36.6 million. This was mainly due to the accrual of a provision for international MTR increases, impairment of fixed assets and obsolete material related to outdated technologies and decommissioned equipment and higher maintenance and repair costs stemming from the Alcatel-Lucent Agreement, see ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Future Events Affecting Results of Operations—Termination of the Alcatel-Lucent Agreement.’’ In addition, this increase can also be attributed to higher advertising, higher costs for our pay-TV content as we increased our subscriber numbers and increased pay-TV installation fees. We experience increased transponder costs for our DTH service and must make payments to certain television content providers, which results in a higher cost per subscriber at the outset that decreases over time as our subscriber base increases. We also incurred higher facilities costs due to our staff consolidation and increased rent because of our relocation to our current headquarters building, as well as higher rents on leased retail locations and BTS. Furthermore, beginning in August 2010 after the NURTS sale, we made rent payments under a sale and leaseback arrangement for the collocation of equipment on NURTS towers.

83 In 2011, we accrued a BGN 7.8 million provision in our other expenses following the CRC’s decision to implement international MTRs equal to the domestic MTRs as at April 2011. This provision was reversed in 2012 following a court decision overruling the early application of the lower international MTRs. This increase was partially offset by decreases in professional fees by 79.4% from BGN 26.7 million to BGN 5.5 million following the expiration of a management services agreement and transition services agreement with our previous owners, decreases in vehicles and transport costs by 35.9% from BGN 5.8 million to BGN 3.7 million as a result of entering into the Alcatel-Lucent Agreement and decreases in costs related to leased lines and data transmission by 28.9% from BGN 5.4 million to BGN 3.8 million, mainly due to decreased prices for international internet access and reduced demand for such services, as customers migrated to other complex data solutions services.

Materials and Consumables Expenses Our materials and consumables expenses for the year ended December 31, 2011 were BGN 104.2 million, a decrease of BGN 14.0 million, or 11.8%, from BGN 118.1 million for the year ended December 31, 2010 mainly due to lower costs of mobile handsets sales in line with decreased revenue from mobile handsets sales as a result of a higher demand for lower priced mobile handsets.

Staff Costs Our staff costs were BGN 65.1 million for the year ended December 31, 2011, a decrease of BGN 7.4 million, or 10.3%, from BGN 72.5 million for the year ended December 31, 2010, mainly due to the outsourcing of our network operation and maintenance activities to Alcatel-Lucent.

Depreciation and Amortization Our depreciation and amortization costs were BGN 276.6 million for the year ended December 31, 2011, an increase of BGN 15.1 million, or 5.8%, from BGN 261.5 million for the year ended December 31, 2010 principally as a result of increased network and commercial capital expenditures as part of the build-out of our 3G network at the end of 2010 and during 2011.

Finance Costs Our finance costs for the year ended December 31, 2011 were BGN 41.3 million, an increase of BGN 7.9 million, or 23.7%, from BGN 33.4 million for the year ended December 31, 2010 primarily as a result of increased interest expense on bank borrowings due to an increase in the Euro Interbank Offered Rate (‘‘EURIBOR’’).

Finance Income Our finance income was BGN 9.1 million for the year ended December 31, 2011, a decrease of BGN 0.5 million, or 5.5%, from BGN 9.6 million for the year ended December 31, 2010, primarily due to the effect of the valuation of the put option for the remaining 50% stake in NURTS Bulgaria AD in 2010, which was partially offset by increased interest income on bank deposits as a result of both higher cash balances held and interest rates.

Other Gains, Net Our other gains, net were BGN 8.3 million for the year ended December 31, 2011, a decrease of BGN 29.1 million, or 77.9%, from BGN 37.4 million for the year ended December 31, 2010 as gains from sales of non-current assets decreased due to fewer real estate sales as a result of the statutory mortgages on some of our properties imposed by the Bulgarian Privatization and Post Privatization Control Agency and cooling market demand. Mortgages over our real estate were imposed by the Bulgarian Privatization and Post Privatization Control Agency between June and August 2010 in connection with securing the fulfillment of certain pending obligations under the privatization agreement related to the sale of the government-owned shares in Bulgarian Telecommunications Company AD, and as disclosed in note 11 in our consolidated financial statements for the year ended December 31, 2012. See ‘‘Risk Factors—Risks Related to our Industry and our Business—We are subject to risks from legal and similar proceedings, including disputes and legal proceedings relating to the regulatory, legal, competition and tax authorities, competitors, the Bulgarian Privatization and Post Privatization Control Agency and other parties, which when concluded, could

84 have a material adverse effect on our business, results of operations or financial condition’’ and ‘‘Risk Factors— Risks Related to the Notes and our Structure—It may be difficult to realize the value of the Collateral.’’

Share of Profit of Joint Ventures Our share of profit of joint ventures was BGN 2.3 million for the year ended December 31, 2011, an increase of BGN 0.3 million, or 12.6%, from BGN 2.0 million for the year ended December 31, 2010 stemming from the revenues from NURTS Bulgaria AD prior to the sale of our remaining stake in NURTS Bulgaria AD in 2011.

Income Tax Expenses The following table sets forth our income tax expenses for the year ended December 31, 2011 as compared to the year ended December 31, 2010.

For the year ended December 31, Change 2010 2011 (amount) (%) (BGN in millions, except percentages) Current income tax charge ...... 12.5 6.6 (5.8) (46.7) Deferred tax credit to comprehensive income ...... (1.0) (5.8) (4.8) 476.5 Total tax expense/(benefit) ...... 11.5 0.9 (10.6) (92.5) Income tax expenses were BGN 0.9 million for the year ended December 31, 2011, a decrease of BGN 10.6 million, or 92.5%, from BGN 11.5 million for the year ended December 31, 2010, mainly due to both our lower operating profit and deferred tax benefits. Our deferred tax benefits accrued primarily due to a change in accounting regarding the tax depreciation and amortization of certain fixed assets in this period, which represents a temporary tax difference in accordance with the provision of CITA in Bulgaria.

Profit after Tax for the year from Discontinued Operations We did not have any profit after tax for the year from discontinued operations for the year ended December 31, 2011, as compared to BGN 40.7 million for the year ended December 31, 2010, as we sold NURTS on August 20, 2010. Leading up to the sale, NURTS was classified as a disposal group held for sale and as a discontinued operation.

Profit for the Period As a result of the foregoing, profit for the period decreased by BGN 108.6 million, or 93.8%, to BGN 7.2 million for the year ended December 31, 2011 from BGN 115.8 million for the year ended December 31, 2010.

Liquidity and Capital Resources Our liquidity requirements arise primarily from the need to fund capital expenditures for the expansion and maintenance of our network operations, both in terms of quality of services and innovative technologies, for working capital and to repay debt. Historically, our principal sources of liquidity have been cash flows from operating activities, which include revenues generated by our mobile and fixed-line subscribers, periodically as supplemented by borrowings under the Existing Senior Facility. Following the Transactions and the application of the proceeds therefrom, our debt service obligations will consist primarily of interest payments under the Notes and principal and interest payments on the amounts drawn under the Revolving Credit Facility. We believe that our available cash balances, combined with our cash flows from operating activities and borrowing capacity under the Revolving Credit Facility, will be sufficient to meet our expected general liquidity needs and debt service obligations for the next twelve months. However, we will be highly leveraged and have significant debt service obligations and cannot provide assurance that our business will generate sufficient cash flows from operations to meet our liquidity needs, including making interest payments under the Notes or on other debt when due. Our ability to generate cash from operations will depend on our future operating performance, which in turn is dependent on various factors, including but not limited to those described under ‘‘—Key Factors Affecting Results of Operations,’’ many of which are beyond our control. If our cash flow from operating

85 activities is lower than expected, or our capital expenditure requirements exceed our projections, we may be required to seek additional financing, which may not be available on commercially reasonable terms, if at all. We believe that our operating cash flows and borrowing capacity will be sufficient to meet our requirements and commitments for the foreseeable future. Our actual financing requirements will depend on numerous factors, including general economic conditions, the availability of credit from banks, other financial institutions and capital markets, restrictions in the instruments governing our debt and our general financial performance. See ‘‘Risk Factors—Risks Relating to Our Financial Profile—Our substantial leverage and debt service obligations could adversely affect our business and prevent us from fulfilling each of our obligations with respect to the Notes and the Note Guarantee’’ and ‘‘Risk Factors—Risks Relating to Our Financial Profile—We will require a significant amount of cash to service our debt and sustain our operations. Our ability to generate sufficient cash depends on many factors beyond our control, and we may be forced to take other actions to satisfy our debt obligations, which may not always be successful.’’ We maintain cash and cash equivalents to fund the day-to-day requirements of our business. We hold cash primarily in Lev.

86 Cash Flow The following table summarizes the principal components of our consolidated cash flows for the periods presented.

For the nine months For the year ended ended December 31, September 30, 2010 2011 2012 2012 2013 (BGN thousands) Cash flows from operating activities Profit before tax ...... 128,560 8,036 (36,578) 36,657 11,788 Adjustment for: Depreciation and amortization ...... 261,462 276,585 277,597 209,317 193,386 Impairment loss on trade receivables ...... 21,625 21,559 19,733 14,746 7,957 Impairment of assets ...... 5,834 15,247 62,420 — — Interest expenses, net ...... 25,955 30,210 25,458 16,649 34,522 Loss (profit) from operations with non-current asset ...... (59,452) 6,456 4,936 — — Carrying amount of current assets written-off ...... 359 446 135 — — Loss (income) from operations with cash flow hedges ...... — 2,131 (27) (23) 7 Increase from investment operations ...... (2,225) (2,595) (286) — (25) Impairment loss and write off of non-current asset ...... ———4,975 3,191 Gain on sale of non-current assets ...... ———(6,879) (2,603) Impairment loss and write off of current asset ...... ———423554 Increase (decrease) in provisions for other liabilities and charges . . . 3,316 11,747 (2,954) (5,173) 1,656 Changes in operating assets and liabilities Increase in operating assets ...... (59,181) (10,246) (10,106) — — Increase/(decrease) in operating liabilities ...... (18,542) (6,917) 17,499 — — Changes in Inventories ...... ———(1,910) (9,616) Trade and other receivables ...... ———(3,573) (17,057) Trade and other payables ...... ———4,067 (4,346) Provisions and employee benefits ...... ———(1,518) (2,286) Cash generated from operations ...... 307,711 352,659 357,827 267,758 217,128 Interest received ...... 6,868 5,767 7,880 6,482 2,656 Interest paid ...... (32,521) (37,682) (24,670) (22,392) (36,915) Corporate income tax paid ...... (14,998) (11,730) (6,995) (5,309) 162 Net cash from operating activities ...... 267,060 309,014 334,042 246,539 183,031 Proceeds from sale of property, plant and equipment ...... 46,507 8,995 11,595 8,466 11,006 Purchase of property, plant and equipment ...... (124,288) (118,484) (143,142) — — Purchase of other non-current assets ...... (42,258) (54,805) (65,453) — — Acquisition of property, plant, equipment and intangible assets .....———(142,126) (113,777) Dividends received ...... 208 293 267 31 50 Proceeds from sale of discontinued operations ...... 92,018———— Cash deposits with maturity greater than three months ...... — (54,507) 54,430 52,314 (56) Acquisition of investment in subsidiaries and JV ...... (55,255) ———— Sale of investments ...... — 58,675——25 Net cash used in investing activities ...... (83,068) (159,833) (142,303) (81,315) (102,752) Repayments of long-term borrowings ...... (25,346) — (110,679) (59,169) (9,185) Dividend paid ...... (140,820) (160,265) (158,087) (158,087) — Payments of obligations under finance lease ...... (1,578) (2,197) (752) (747) (1,220) Net cash used in financing activities ...... (167,744) (162,462) (269,518) (218,003) (10,405) Net increase/(decrease) in cash and cash equivalents ...... 16,248 (13,281) (77,779) (52,779) 69,874 Exchange gain on cash ...... 3 422 1 25 (60) Cash and cash equivalents at the beginning of the year ...... 138,272 154,523 141,664 141,664 63,886 Cash and cash equivalents at the end of the period ...... 154,523 141,664 63,886 88,909 133,700

Net Cash from Operating Activities Nine Months ended September 30, 2013 as Compared to Nine Months ended September 30, 2012 For the nine months ended September 30, 2013, net cash flows from operating activities decreased by BGN 63.5 million or 25.8%, to BGN 183.0 million, from BGN 246.5 million for the nine months ended September 30, 2012. The decrease mainly resulted from lower operating profit, higher interest payments and an increase in operating assets. Our interest payments were higher due to the change in our interest payment period from monthly to quarterly payments under the Existing Senior Facility. The increase in operating assets was primarily due to the increase in trade receivables and trading stock to support customer growth and a decrease in trade payables. Trade and other receivables increased mainly due to

87 increased finance lease receivables stemming from the higher sales of mobile handsets, as well as from the change in other assets driven by capitalized sales commissions and license fee prepayments to the CRC. Trade payables decreased mainly due to decreased payables to international telecommunications operators due to the decrease in international termination rates, which was partially offset by the increase in payables to suppliers related to our higher level of trading stock.

Year Ended December 31, 2012 as Compared to Year Ended December 31, 2011 For the year ended December 31, 2012, net cash flows from operating activities increased by BGN 25.0 million or 8.1%, to BGN 334.0 million, from BGN 309.0 million for the year ended December 31, 2011. The increase was primarily the result of lower corporate income tax payments and an increase in operating liabilities mainly due to increased roaming discount balances at the end of 2012, as roaming discounts are settled annually despite the fact that they are accrued monthly. This increase was partially offset by higher interest payments on our borrowings due to the change in our interest payment period from monthly to quarterly payments under the Existing Senior Facility.

Year Ended December 31, 2011 as Compared to Year Ended December 31, 2010 For the year ended December 31, 2011, net cash flows from operating activities increased by BGN 42.0 million or 15.7%, to BGN 309.0 million from BGN 267.1 million for the year ended December 31, 2010. The increase was primarily a result of more efficient working capital management mainly due to a decrease in trade receivables and a decrease in the number of mobile handsets and other goods held in stock, in line with the level of their cost of sales in the respective years. In 2010 the increase in the trade receivables balances was mainly a result of the introduction of four billing cycles per month for fixed-line customers and an increased number of handset sales on installment payment plans.

Net Cash Used in Investing Activities Nine Months ended September 30, 2013 as Compared to Nine Months ended September 30, 2012 For the nine months ended September 30, 2013, net cash flows used in investing activities increased by BGN 21.4 million or 26.4%, to BGN 102.8 million, from BGN 81.3 million for the nine months ended September 30, 2012. The increase was primarily attributable to bank deposits with a maturity of greater than three months. In the first three quarters of 2012, additional cash deposits were released in advance of our loan repayments to be made during the year. This increase was partially offset by lower payments for purchases of property, plant and equipment and intangible assets in line with our lower capital expenditures for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012.

Year Ended December 31, 2012 as Compared to Year Ended December 31, 2011 Net cash flows used in investing activities decreased by BGN 17.5 million or 11.0%, to BGN 142.3 million for the year ended December 31, 2012, from BGN 159.8 million for the year ended December 31, 2011 despite the increase in payments for our purchases of fixed assets, reflecting the higher level of capital expenditure in 2012, as it was offset by the cash inflow from the release of cash deposits with maturity greater than three months. In contrast, in 2011, the increase in cash deposits with maturity greater than three months offset the cash inflow from the sale of our remaining 50% stake in NURTS Bulgaria AD.

Year Ended December 31, 2011 as Compared to Year Ended December 31, 2010 Net cash flows used in investing activities increased by BGN 76.8 million or 92.4%, to BGN 159.8 million for the year ended December 31, 2011, from BGN 83.1 million for the year ended December 31, 2010, driven by a higher level of capital expenditures in 2011, as evidenced by increased payments for purchases of non-current assets and outflows of cash deposits with maturity greater than three months. Also, compared to 2011, in 2010 we had increased sales of real estate assets and proceeds from the sale of NURTS.

88 Net Cash Used in Financing Activities Nine Months ended September 30, 2013 as Compared to Nine Months ended September 30, 2012 For the nine months ended September 30, 2013, net cash flows used in financing activities decreased by BGN 207.6 million or 95.2%, to BGN 10.4 million, from BGN 218.0 million for the nine months ended September 30, 2012. The decrease was primarily due to lower repayments of borrowings and the lack of dividend payments, as there were no distributable reserves.

Year Ended December 31, 2012 as Compared to Year Ended December 31, 2011 Net cash flows used in financing activities increased by BGN 107.1 million or 65.9%, to BGN 269.5 million for the year ended December 31, 2012, from BGN 162.5 million for the year ended December 31, 2011. This increase was due in part to repayments of long-term borrowings, including regular loan repayments under the Senior Facilities Agreement as well as a prepayment under the Senior Facilities Agreement relating to our restructuring in 2012.

Year Ended December 31, 2011 as Compared to Year Ended December 31, 2010 Net cash flows used in financing activities decreased by BGN 5.3 million or 3.1%, to BGN 162.5 million for the year ended December 31, 2011, from BGN 167.7 million for the year ended December 31, 2010, primarily as a result of the lack of repayment of borrowings, offset by the increased payment of dividends.

Contractual Obligations The following table summarizes our contractual obligations as at September 30, 2013 that are expected to have an impact on our liquidity and cash flow in future periods, without giving pro forma effect to the Transactions. The information presented in this table reflects, in part, management’s estimates of the contractual maturities of our obligations, which may differ significantly from the actual maturities of these obligations:

Less than More than Payments due by period 1 year 1 - 5 years 5 years Total (BGN in thousands) Borrowings ...... 42,569 839,688 — 882,257 Accounts payable(1) ...... 68,362 50 5,340 73,752 Finance lease obligations(2) ...... 1,370 — — 1,370 Operating lease obligations(3) ...... 10,062 33,466 83,397 126,925 Total contractual obligations ...... 122,363 873,204 88,737 1,084,304

(1) Consists of current and non-current trade payables. (2) Consists of payments under our finance leases. (3) Consists of payments under our non-cancellable operating leases primarily relating to the rental of our administrative building and fleet of motor vehicles. The table does not include outstanding purchase contracts with suppliers, payments due under arrangements related to provisions, maintenance and contingent liabilities entered into in the ordinary course of business.

Capital Expenditures and Investments We invest our capital in order to maintain and strengthen our competitive position. Our investments mainly relate to the build-out and enhancement of our fixed and mobile network (particularly in respect of 3G technology and HSPA+). Our capital expenditures also include information technology investments aimed at supporting network development, commercial products and services and overall customer management, as well as commercial and other capital expenditures for structural support to the build-out and maintenance of consumer points of sale (such as refurbishing and furniture) and for customer equipment such as mobile handsets and modems. A significant proportion of our total capital expenditure in recent years has been allocated to the roll out of our fiber network and building our state of the art mobile network which we believe will decrease going forward. Assuming current business and industry conditions do not change, we expect our total capital expenditure in the year ending December 31, 2013 to be approximately 20% lower than the previous year. Our capital expenditure plans are subject to change depending, among other things, on the evolution of market conditions and the cost and availability of funds.

89 The following table shows our historical capital expenditures for the periods indicated:

For the nine months For the year ended ended December 31, September 30, 2010 2011 2012 2012 2013 (BGN in millions) Network ...... 128 136 146 97 66 IT...... 25 20 15 11 4 Commercial and other ...... 9 22 29 18 28 Licenses ...... — — 14 — — Total capital expenditure ...... 163 178 204 126 98 For the nine months ended September 30, 2013, capital expenditures amounted to BGN 98 million, which consisted of: • BGN 66 million of capital expenditures relating to network activities, mainly for investment in optical infrastructure and our 3G mobile network; • BGN 28 million of capital expenditures relating to commercial and other activities, mainly for CPEs to support our growing pay-TV and fiber subscriber base as well as renovation and reconstruction of our retail locations and sales commissions related to term contracts; and • BGN 4 million of capital expenditures relating to IT activities, mainly for customer care and billing (‘‘CC&B’’) driven projects. For the nine months ended September 30, 2012, capital expenditures amounted to BGN 126 million, which consisted of: • BGN 97 million of capital expenditures relating to network activities, mainly for fiber optical deployment and mobile network roll-out; • BGN 18 million of capital expenditures relating to commercial and other activities, mainly for CPEs and commissions; and • BGN 11 million of capital expenditures relating to IT activities, mainly for sales and CC&B driven projects. For the year ended December 31, 2012, capital expenditures amounted to BGN 204 million, which consisted of: • BGN 146 million of capital expenditures relating to network activities, mainly for fiber optical deployment and 3G network roll-out; • BGN 29 million of capital expenditures relating to commercial and other activities, mainly for CPEs to support our growing pay-TV and fiber subscriber base as well as sales commissions and renovation and reconstruction of our retail locations; • BGN 15 million of capital expenditures relating to IT activities, mainly for data centers, CC&B, point of sales and product development, as well as for management information systems; and • BGN 14 million of capital expenditures relating to the acquisition of a spectrum permit for the use of a block of 5 MHz in the 1800 MHz spectrum band. For the year ended December 31, 2011, capital expenditures amounted to BGN 178 million, which consisted of: • BGN 136 million of capital expenditures relating to network activities, mainly for mobile network roll-out, mobile transmission, fiber deployment and maintenance of core fixed network; • BGN 22 million of capital expenditures relating to commercial and other activities, mainly for CPEs and commissions; and • BGN 20 million of capital expenditures relating to IT activities, mainly for CC&B, point of sales and product development, as well as hardware and software acquisition.

90 For the year ended December 31, 2010, capital expenditures amounted to BGN 163 million, which consisted of: • BGN 128 million of capital expenditures relating to network activities, mainly for mobile network roll-out, mobile core and fixed access development; • BGN 9 million of capital expenditures relating to commercial and other activities, mainly for CPEs and the rebranding and reconstruction of certain retail locations following the acquisition of the 2be retail network; and • BGN 25 million of capital expenditures relating to IT activities, mainly for CC&B development and convergent solutions development driven by the merger of the fixed and mobile businesses, OSS and IT infrastructure. In line with our historical strategy, the amounts we spend and the time at which expenditures are made will depend upon a variety of factors including current and anticipated subscriber demands and our own targets relating to a desired mix of subscriber base, which is determined by our evolving business plan. Our capital expenditure plans are also affected by and updated for changing general economic conditions. See ‘‘Risk Factors—Risks Related to our Industry and our Business—We operate in a capital intensive environment and we may not have sufficient liquidity to fund our capital expenditure programs or our ongoing operations in the future.’’

Off Balance Sheet Arrangements As at September 30, 2013, we did not have any off balance sheet arrangements other than operating leases of approximately BGN 126.9 million, as disclosed in the notes to our Consolidated Financial Statements and summarized in ‘‘—Contractual Obligations.’’

Quantitative and Qualitative Disclosures about Market Risk We are exposed to various market risks, including foreign currency exchange rate, credit and liquidity risks associated with our underlying assets, liabilities, forecast transactions and firm commitments. Our treasury department is responsible for managing exposure to market risk that arises in connection with operations and financial activities, including foreign currency exchange rate, credit and liquidity risk management. These risks are identified, measured and monitored through various control mechanisms so that we can establish adequate prices for the services we provide, appropriately assess the market circumstances related to our investments and maintain free liquid funds to prevent undue concentration of a particular risk. The following sections discuss our most significant exposures to market risk. The following discussions do not address other risks that we face in the normal course of business, including country, political, regulatory and legal risks.

Foreign Exchange Rate Risk Our foreign exchange rate risk exposure mainly relates to our exposure to U.S. dollars, mainly from committed purchases of certain network equipment. See ‘‘Risk Factors—Risks Related to our Industry and our BusinessOur financial results could be adversely affected by changes in foreign currency exchange rates.’’ As at September 30, 2013, we had USD denominated assets amounting to $0.9 million and liabilities amounting to $1.3 million on our balance sheet. We manage our foreign currency exchange rate risk related to future supplies denominated in USD by hedging the exposure through forward contracts. All forward contracts are entered into with credible counterparties. When a significant exposure to foreign currency arises, we take into account the following factors: • future outlook on the volatility of financial market variables, which are modeled by our treasury department and are in accordance with best practice analytical techniques and economic models; • effect of the given foreign exchange exposure on our financial results; and • the cost of foreign exposure hedging.

91 Credit Risk Credit risk is the risk of financial loss arising from our counterparties’ inability to repay or service debt in accordance with the contractual terms. Credit risk includes both the direct risk of default and the risk of a deterioration of creditworthiness, as well as concentration risks. We believe we have appropriate credit policies, procedures and authorization guidelines in place to manage and monitor credit risk. Our credit risk is principally associated with account receivables and short-term deposits, which as at September 30, 2013 amounted to BGN 197.1 million. We seek to minimize credit risk through the application of monthly subscription contracts, initial credit checks, credit limits and credit monitoring procedures. We also seek to minimize credit risk by obtaining cash deposits from our retail customers and distributors where we perceive credit risk to exist. We believe that our implementation of the foregoing procedures has led to experiencing a limited amount of credit losses. Our expenses for receivables written off and not previously impaired in 2010, 2011 and 2012 amounted to BGN 0.1 million, BGN 0.1 million and BGN 0.4 million, respectively. In addition, our allowance for impairment of receivables in the statement of financial position as at December 31, 2010, December 31, 2011 and December 31, 2012 amounted to BGN 78.7 million, BGN 64.2 million and BGN 65.9 million, respectively. Furthermore, as a general rule, we have no significant level of credit concentration related to accounts receivable. Credit risk relating to cash and cash equivalents, derivative financial instruments, financial deposits and money market funds arises from the risk that the counterparty becomes insolvent and accordingly is unable to return the deposited funds or execute the obligations under the derivative transactions as a result of the insolvency. To mitigate this risk, wherever possible we conduct transactions and deposit funds with investment-grade rated financial institutions and monitor and limit the concentration of our transactions with any single party.

Liquidity Risk Liquidity risk is the risk that we may have difficulty in obtaining funds in order to meet both our day-to-day operating requirements and debt servicing obligations (interest and debt repayments). This arises mostly in connection with the contractual maturity of our monetary assets and liabilities that result from business activities and from the possibility that our trade debtors may not be able to settle their payment obligations within the normal terms of trade. We monitor our liquidity requirements and aim to mitigate liquidity risk through monitoring cash flows, ensuring the availability of overdraft facilities and preparing daily liquidity reports. Short and medium term cash flow forecasting is performed by our treasury department. These forecasts are monitored to ensure our cash and liquidity requirements are sufficient to meet operational needs and to monitor compliance with borrowing limits and debt covenants on our borrowing facilities.

Critical Accounting Estimates and Judgments The discussion and analysis of our results of operations and financial condition are based on our Consolidated Financial Statements, which have been prepared in accordance with IFRS. The preparation of these financial statements requires management to apply accounting methods and policies that are based on difficult or subjective judgments, estimates based on past experience and assumptions determined to be reasonable and realistic based on the related circumstances. The application of these estimates and assumptions affects the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of income and expenses during the reporting period. The resulting accounting estimates could differ from the related actual results. All assumptions, expectations and forecasts used as a basis for certain estimates within the Consolidated Financial Statements represent good-faith assessments of our future performance for which management believes there is a reasonable basis. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Detailed information regarding accounting policies is provided in note 2 to our consolidated financial statements for the year ended December 31, 2012 included elsewhere in this Offering Circular.

92 Impairment of goodwill, tangible and intangible assets We test annually whether goodwill has suffered any impairment, in accordance with our accounting policy as stated in Note 2.6 of our consolidated financial statements for the year ended December 31, 2012. The ability of a tangible or intangible asset to generate sufficient future economic benefits to recover its carrying amount is usually subject to greater uncertainty. In performing these assessments of recoverable amount a significant number of estimates and judgments are required including but not limited to: • An estimate of future cash flows expected to derive from these assets. • Expectations about possible variations in the amount or timing of those future cash flows. • The designation of the cash generating unit for which future cash flows are derived. The cash generating units identified are the fixed-line and mobile businesses. • The time value of money represented by weighted average cost of capital (‘‘WACC’’). The respective long term pre-tax WACC rates used are: 8.7% for fixed-line and 10.6% for mobile for 2012 (9.7% and 9.6% for 2011). • Perpetual growth rate (‘‘PGR’’). The respective PGR values used are: 0.0% for fixed-line and 1.0% for mobile for 2012 (0.0% and 1.0% for 2011). As at December 31, 2012, we performed impairment testing of our assets and as a result no need for impairment was identified for the mobile business. If estimated cash flows were 10% lower or WACC/PGR were 1.0% higher/lower there would still be no need for impairment. These sensitivities are calculated on an individual basis as follows:

Effect on value in use—no Estimate Change (%) impairment (BGN thousands, except for percentages) EBITDA margin absolute decrease ...... (1) (16,000) WACC absolute increase ...... 0.5 (58,000) PGR absolute decrease ...... (0.5) (41,000) In 2012, forecasted future cash flows for the fixed-line business declined as a result of stricter termination price regulation and competitive market pressures. This caused us to recognize BGN 56.6 million impairment loss in other operating expenses for the year ended December 31, 2012. The recoverable amount of the asset allocated to the fixed-line business has been calculated using the value in use methodology. The fair value less cost to sell premise was also analyzed and is considered to produce lower recoverable amount. The sensitivity of the recoverable amount expressed as additional impairment losses on an individual basis is as follows:

Effect on value in use— Estimate Change (%) additional impairment (BGN thousands, except for percentages) EBITDA margin absolute decrease ...... (1) (39,000) WACC absolute increase ...... 0.5 (33,000) PGR absolute decrease ...... (0.5) (24,000) Goodwill amounting to BGN 1.7 million allocated to the fixed-line business has been impaired in full.

Useful lives of assets The determination of the useful lives of assets is based on historical experience with similar assets as well as any anticipated technological development and changes in broad economic or industry factors. The appropriateness of the estimated useful lives of assets is reviewed annually, or whenever there is an indication of significant changes in the underlying assumptions. We believe that the accounting estimate related to the determination of the useful lives of assets is a critical accounting estimate as it involves assumptions about technological development in an innovative industry. Further, due to the significance of depreciable assets as a percentage of our total assets, the impact of any changes in these assumptions could be material to our financial position, and results operations. Were the actual useful lives of the assets to differ by 10% from management’s estimates, the carrying value of the plant and equipment and respectively depreciation and amortization charges would be an estimated BGN 27.0 million higher or lower.

93 Provisions and contingent liabilities As set out in Note 28 of our consolidated financial statements for the year ended December 31, 2012, we are a participant in several lawsuits and administrative proceedings. Our treatment of obligations with uncertain timing and amount depends on our management’s estimation of the amount and timing of the obligation and probability of an outflow of resources embodying economic benefits that will be required to settle the obligation (both legal and constructive). A provision is recognized when we have a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Contingent liabilities are not recognized because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within our control. Contingent liabilities are assessed continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the financial statements of the period in which the change in probability occurs.

Going concern The financial statements have been prepared on a going concern basis, which assumes that we will continue in operational existence for the foreseeable future. In 2012 we realized a loss of BGN 33.2 million, as compared to a profit of BGN 7.2 million in 2011. Our working capital as at December 31, 2012 amounted to BGN 20.3 million, as compared to negative BGN 937.4 million as at December 31, 2011. See Note 17 of our consolidated financial statements for the year ended December 31, 2011, where the Company classified its debt under the Existing Senior Facility as current liabilities on the balance sheet. Our future viability depends upon the business environment as well as upon the continuing support of our existing and potential owners and providers of finance. If this risk is not mitigated and if our business was to be wound down and our assets sold, adjustments would have to be made to reduce the balance sheet value of assets to their liquidation value, to provide for further liabilities that might arise, and to reclassify property, plant and equipment and long term liabilities as current assets and liabilities. Our directors, in light of their assessment of expected future cash flows, are satisfied that it is appropriate for the financial statements to be prepared on a going concern basis.

Subscriber acquisition costs Costs to acquire telecommunication customers are capitalized and amortized over the minimum enforceable contractual period as these will be recovered from the future revenue generated from the customers. In the event that a customer terminates a service contract prior to the expiration of the minimum enforceable contractual period, any unamortized customer acquisition costs are written off.

Purchase price accounting We assess the initial accounting for business combinations by identifying and determining the fair value to be assigned to the acquired identifiable assets, liabilities, contingent liabilities, and the cost of the combination. The initial accounting for business combinations is determined provisionally by the end of the period in which the combination is effected. Either the fair value to be assigned to the acquired liabilities or contingent liabilities or the cost of combination can be determined only provisionally. We recognize any adjustments to those provisional values as a result of concluding the initial accounting within twelve months of the acquisition date.

Provision for impairment of trade receivables A provision for impairment of trade receivables is established when there is objective evidence that we will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than thirty days), and historical evidence of collectability are considered indicators that trade receivables are impaired. Certain receivables are assessed and impaired individually if it’s known that it will not be collected in full. All other receivables are impaired on a group basis according to their aging structure and taking into consideration historical data on collectability.

94 Income tax provision We are subject to income taxes in the Bulgarian tax jurisdiction. Significant judgment is required in determining the provision for income taxes. We recognize liabilities for anticipated tax due based on management estimates. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

95 INDUSTRY AND MARKET OVERVIEW In 2012, Bulgaria had a population of approximately 7.3 million people according to the International Monetary Fund (‘‘IMF’’). Since the liberalization of its economy in the 1990s, Bulgaria has implemented major reforms to build macroeconomic stability and stimulate growth. Bulgaria joined NATO in 2004 and the European Union in 2007 and is now defined by the World Bank as an ‘‘upper middle-income economy,’’ with a real GDP of A27.27 billion for 2012. Bulgaria’s currency, the Lev, has been pegged to the euro at 1 euro to 1.95583 Lev since the introduction of the euro in 1999. Bulgaria’s recent macroeconomic performance demonstrated fiscal stability in the context of a global economic crisis, and has been underpinned by relatively low levels of government debt (18.5% of GDP as at the end of 2012, according to the IMF). The country’s fiscal environment is considered favorable to business with a corporate tax rate of 10%. Bulgaria has historically been open to foreign direct investment, having successfully privatized key enterprises in the telecommunications, energy and financial services sectors, which has contributed to the overall stability of the national currency. According to Bulgaria’s National Statistical Institute (‘‘NSI’’), approximately 5.3 million people, or 72.5% of the population, live in urban areas. The most populous city in Bulgaria is Sofia, its capital, with 1.3 million inhabitants, or 17.8% of the population, and the seven largest cities combined, each with over 100,000 inhabitants, have a collective population of 2.65 million inhabitants, or 36% of the total population, according to the NSI. Despite a projected population decline to 7.1 million in 2017 according to the IMF, the number of households is expected to remain flat, somewhat reducing downward pressure on fixed telephony, fixed broadband and pay-TV segments. According to the IMF, Bulgaria’s real GDP grew at a 1.3% CAGR during the two year period from 2010 through 2012 from A26.57 billion to A27.27 billion. The IMF forecasts a real GDP CAGR of 2.8% for the years from 2012 to 2017 for Bulgaria as compared to 1.3% for the European Union. With a growing economy, Bulgaria’s real GDP per capita has been steadily increasing having grown at a CAGR of 3.0% since 2010, according to the IMF. However, Bulgaria’s GDP per capita of approximately $7,000, according to the IMF, remains substantially lower than the average GDP per capita for EU countries. This gap is expected to narrow as the Bulgarian economy continues to grow, resulting in increasing disposable income of consumers, subsequently available for spending on goods and services such as mobile telecommunications services. According to the IMF, Bulgaria reported an unemployment rate of 12.4% in 2012, with the rate expected to decline to 7.4% by 2017. Inflation in Bulgaria was 2.4% in 2012 and is expected to remain at an average of 2.4% over the five-year period from 2012 to 2017. Moody’s Investors Service (‘‘Moody’s’’) has currently rated Bulgaria ‘‘Baa2’’ for both local currency and foreign currency issuer ratings, with a ‘‘Stable’’ outlook. Standard & Poor’s Finance Services LLC (‘‘S&P’’) has currently rated Bulgaria ‘‘BBB’’ for long-term local currency and foreign currency debt with a ‘‘Stable’’ outlook. From 2010 to 2012, Bulgaria was the only one of its regional peers (including Hungary, Romania and Serbia) to have its rating upgraded by Moody’s. Hungary’s rating was downgraded by Moody’s and Serbia’s rating was downgraded by S&P. The table and charts below present a comparison of key macroeconomic performance indicators for Bulgaria against its regional peers as at 2012 and an overview of the key macroeconomic trends in Bulgaria.

Key Macroeconomic Performance Indicators

Bulgaria Romania Hungary Serbia Population (million) ...... 7.3 21.3 10.0 7.6 GDP per Capita (nom. $’000) ...... 7.0 7.9 12.7 4.9 2012 Real GDP Growth (%) ...... 0.8 0.3 (1.7) (1.8) Public Gross Debt (% GDP) ...... 18.5 37.0 79.0 63.7 Unemployment (%) ...... 12.4 7.0 11.0 23.1 Inflation (% change in CPI) ...... 2.4 3.3 5.7 7.3 Credit Rating (S&P) ...... BBB BB BB BB Credit Rating Outlook (S&P) ...... Stable Stable Negative Negative Source: For S&P ratings, S&P. For all other data, IMF.

96 Key Macroeconomic Trends in Bulgaria

GDP expected to grow post-2010 turnaround Inflation to remain stable

15%

10%

10% 3.5% 3.5% 3.5% 2.3% 1.8% 1.2% 0.4% 0.8% 0%

5% (5.5)% 3.4% 3.0% 2.8% 3.0% 2.5% 2.3% 2.6% 1.9% 3.1% 2.1% 2.0% 2.4% 1.9% 1.8% 1.7% 1.8% 1.8% 0.9% -10% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017 Bulgaria EU

Population to continue declining but households to remain Declining unemployment and increasing GDP per capita stable to boost consumer spending 15% (USD) 8.00 3.00 9,256 8,745 (millions) (millions) 8,284 9,000 7,881 7,582 2.90 7,312 2.87 2.87 2.87 2.86 2.86 2.86 2.86 7,033 7.50 7.56 2.85 7.51 6,433 6,374 12.4% 12.4% 7.33 2.80 11.4% 11.4% 6,000 7.25 7.18 7.15 7.15 7.15 7.15 7.00 10% 10.3% 2.70 8.9% 3,000 6.50 2.60 6.9% 7.4% 7.4%

6.00 2.50 5% 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017

Population Number of Households (right axis) Unemployment rate Nominal GDP per capita (right axis)

Source: For households, Analysys Mason, Central and Eastern Europe Telecoms Market: Trends and Forecasts 2013 – 2018 (with data updated July 2013). For all other macroeconomic data, IMF, World Economic Outlook Database (with data updated July 2013). 14NOV201307482537

Bulgarian Telecommunications Market Market Overview According to the Bulgarian Communications Regulation Commission (‘‘CRC’’), the Bulgarian telecommunications market generated approximately BGN 2.8 billion, or the equivalent of A1.4 billion, in total revenues in 2012. The mobile services market is the main revenue generator in the telecommunications industry as it contributed 54% of total revenues in 2012. The telecommunications market has contracted by an annual rate of 5.2% between 2010 and 2012, driven principally by a steep regulation driven reduction in mobile termination rates, according to the CRC. Additional factors include the trend of switching from fixed telephony to VoIP, ongoing price competition and bundling discounts. However, the market is expected to stabilize going forward due to reduced regulatory pressures and increased data consumption as a result of both the roll-out of fiber services and the ongoing investment in 3G networks, followed by investment in LTE networks as early as 2015, when the 800 MHz spectrum band may be made available. The table below presents revenue generated in the Bulgarian telecommunications market by segment for the fiscal years ended December 31, 2010, 2011 and 2012.

97 Bulgarian Telecommunications Market Overview

In BGN million In E million 2010 2011 2012 2010 2011 2012 Mobile voice services ...... 1,937 1,734 1,524 990 887 779 Fixed telephony services ...... 387 328 316 198 168 162 Leased lines ...... 49 44 45 25 22 23 Data transfer and internet access ...... 317 316 347 162 162 177 Pay-TV and radio ...... 323 244 235 165 125 120 Bundled services ...... 101 238 311 51 122 159 Other(1) ...... 27 40 44 14 21 23 Total ...... 3,141 2,944 2,822 1,606 1,505 1,443 Source: Annual Report of the Communications Regulation Commission 2012. Constant BGN/B exchange rate of 0.511293. (1) Provision of duct access, satellite systems access services, collocation services and other services.

The three national mobile network operators (‘‘MNOs’’) in Bulgaria are Vivacom, MobilTel (also known as Mtel) and Globul, each having their own nationwide mobile network infrastructure. Based on figures reported by the three national MNOs, Vivacom is the largest telecommunications operator by total revenue for the six months ended June 30, 2013, with A204 million of revenue, compared to A199 million for MobilTel and A170 million for Globul. Vivacom is the incumbent fixed network operator in Bulgaria, with the largest fixed telephony and fixed broadband market share. In the mobile telecommunications market in Bulgaria, Vivacom is the third largest mobile operator by subscribers and is positioned as a converged communications provider offering combinations of fixed telephony, mobile, fixed broadband and pay-TV. Vivacom is the fastest growing mobile operator with 2.7 million subscribers as at September 30, 2013. Vivacom is currently owned by affiliates of majority shareholders VTB and CCB Group. MobilTel operates under the Mtel brand and is the largest mobile operator in Bulgaria with 5.3 million subscribers as at June 30, 2013. MobilTel was acquired by Telekom Austria in 2005, and in January 2011 acquired two fixed broadband operators (Megalan and Spectrum Net) followed by certain smaller acquisitions. In addition to mobile services, MobilTel’s offerings are comprised of fixed-data, IPTV and fixed wireless solutions for its customers. Globul is the second largest mobile operator in Bulgaria with 4.6 million subscribers as at June 30, 2013. In July 2013, the Norwegian operator Telenor completed the acquisition of Globul from Hellenic Telecommunications Organization, the Greek incumbent telecommunications operator. In addition to mobile services, Globul also offers fixed wireless telephony services. The chart below highlights the performance of the three MNOs in Bulgaria, in terms of revenue, since 2009.

Revenues of Top Bulgarian Telecommunications Operators

2009 2010 2011 2012 (in E millions) Vivacom ...... 476 458 458 439 MobilTel ...... 615 564 528 469 Globul ...... 423 422 413 378 Total ...... 1,514 1,444 1,399 1,286 Source: Telekom Austria and Deutsche Telekom reports.

In addition to the three national MNOs, other key operators in the Bulgarian telecommunications market include Blizoo and Bulsatcom. Blizoo is Bulgaria’s largest cable pay-TV operator, formed in 2009 from the merger of Cable TEL and Eurocom Cable Management, when both of these companies were bought by EQT, a Swedish private equity fund and rebranded as Blizoo in May 2010. Blizoo operates a digitalized DOCSIS-enabled pay-TV

98 network that is available in the areas in which Blizoo has cable coverage, as well as a limited LAN and fiber network. Blizoo also offers fixed telephony and fixed broadband services, primarily in bundles with its pay-TV offering. Bulsatcom is primarily a Direct-to-Home (‘‘DTH’’) operator and provides a dual product offering comprised of pay-TV and fixed broadband services. According to IHS, as of December 31, 2012, Bulsatcom is the market leader in satellite pay-TV with approximately 530,000 subscribers. Following a series of acquisitions of ISPs since 2009, it is the fourth largest fixed broadband provider, according to the CRC. Bulsatcom was also granted Bulgaria’s fourth mobile license in January 2013, having acquired spectrum in the 1800 MHz band in December 2011. As of the date of this Offering Circular, Bulsatcom has not yet started operating its mobile network. Max Telecom is a WiMAX, smaller scale operator. Max Telecom acquired spectrum in the 1800 MHz band in December 2011 and has announced plans to launch LTE services on that spectrum band later this year in a small number of cities. As of the date of this Offering Circular, Max Telecom has not yet started operating its mobile network. In addition to the key operators described in this section, smaller ‘‘grey market’’ operators collectively hold a significant share of the fixed broadband and pay-TV markets. See ‘‘—Key Trends’’ and ‘‘Risk Factors— Risks Related to our Industry and Business—The continued existence of a widespread ‘‘grey market’’ in fixed broadband and pay-TV services may adversely affect our business.’’

Key Trends The Bulgarian telecommunications market is shifting towards bundling of services (combined offers for mobile, fixed telephony, fixed broadband and/or pay-TV), which have proven popular with consumers. The CRC estimates that bundled products reached a penetration rate of 54.7% among Bulgarian households in 2012. Telecommunications operators principally use bundled services as a tool to reduce churn, but also to exploit the benefits from cross-selling multiple services to a single customer. Both Vivacom and MobilTel offer ‘‘quadruple-play’’ services, with Vivacom offering fully integrated nationwide ‘‘quadruple-play’’ services. MobilTel’s fixed bundled services are provided via multiple brands (Megalan and Mtel) through its fixed network across Bulgaria. This shift and increased competition in the provision of bundled services has been reflected in recent merger and acquisitions activity in Bulgaria, including the acquisition of cable operators Megalan Network and Spectrum Net by MobilTel in January 2011; and the acquisition of Eurocom Cable and CableTel by EQT in October 2009 and subsequent rebranding as Blizoo in May 2010. Mobile termination rates (‘‘MTRs’’) have declined sharply in the European Union as a result of specific EU directives and regulations. MTRs in Bulgaria are now in line with EU guidelines. Furthermore, there is a new provision in the Bulgarian law on electronic communications that restricts the number of SIM cards that a mobile subscriber can own and requires customers to register their SIM cards, and as a result the Bulgarian telecommunications market is expected to move away from multiple SIM cards per subscriber, as mobile subscribers consolidate communications spend on a single bill. Bulgaria’s mobile broadband penetration rate currently ranks amongst the lowest in the European Union according to the European Commission. Data usage in Bulgaria is considered to be relatively low compared to other EU countries. According to the European Commission Digital Agenda Scoreboard for 2013, the mobile broadband penetration rate in Bulgaria was approximately 40% compared to an average mobile broadband penetration rate of 54.5% in the European Union as at January 2013. The fixed broadband penetration rate in Bulgaria is lower than the average in Western Europe with an average household penetration rate of 47% compared to 65% in Western Europe in 2012, according to Analysys Mason. However, the European Commission Digital Agenda Scoreboard 2013 has reported that Bulgaria has one of the highest fixed broadband penetration growth rates in Europe in 2012, where the fixed broadband penetration rate gap versus the EU average penetration rate has been narrowed by approximately 2%. A ‘‘grey market’’ in fixed broadband and pay-TV services exists in Bulgaria, where a significant number of all LAN operators do not adhere to the rules of the industry and build aerial cables in violation of construction laws or use national ducts without appropriate payment to deliver their fixed broadband services. A significant number of analog cable television operators do not pay license fees and pay reduced taxes as they often understate their number of subscribers. As a result, they are able to offer lower priced fixed broadband and pay-TV products. Bulgarian local authorities, including the Sofia municipality, have implemented a series of reforms to reduce the number of illegal LAN operators. In the medium term,

99 large fixed broadband providers are expected to gain additional market share from ‘‘grey market’’ LAN operators that might discontinue their operations as a result of the stricter enforcement of government regulations.

Mobile Market Market Overview Based on figures reported by the three MNOs, the number of mobile subscribers in Bulgaria has grown at a CAGR of 7.8% between December 31, 2010 and December 31, 2012 to reach 12.6 million subscribers as at June 30, 2013. Third-party mobile virtual network operators (‘‘MVNOs’’) currently have limited penetration in Bulgaria. In 2012, the number of mobile subscribers represented approximately 174% of the country’s population of 7.3 million, when calculated using mobile subscribers as reported by the three MNOs. For 2012, Analysys Mason estimated a mobile penetration rate (excluding machine-to-machine) of 141% in Bulgaria, compared to 127% for Western Europe. The number of mobile subscribers is greater than the resident population, due to certain subscribers owning multiple SIM cards (e.g., mobile phone SIM cards for more than one network, smartphones, tablets, mobile broadband modems, etc.), non-resident subscribers and subscribers that are legal entities. In addition, operators in Bulgaria count pre-paid mobile subscribers in their subscriber base if they have had an activity event (such as a usage or recharge) within the last twelve months, in contrast to the more restrictive three month definition that is common in the European and other markets. This definitional difference limits the comparability of mobile penetration rate estimates for Bulgaria with those for other countries. The Bulgarian mobile market is characterized by a large proportion of post-paid subscribers, with 66% of subscribers in Bulgaria in 2012 being post-paid subscribers based on figures reported by the three MNOs, compared to an average of 54% in Western Europe in 2012 according to Analysys Mason (excluding machine-to-machine).

Mobile Penetration Rate and Subscribers Evolution

(m) 174% 163% 142% 144% 145%

11.9 12.6 10.6 10.7 10.9

8.3 5.5 6.2 6.9 7.7

5.1 4.5 3.9 4.2 4.3

2008 2009 2010 2011 2012 Pre-paid Post-paid Penetration Rate

Source: Telekom Austria and Deutsche Telekom reports. Penetration rate based on IMF population figures. 7NOV201316444463 Based on figures reported by the three MNOs, MobilTel, Globul and Vivacom had 41%, 37% and 22% revenue market share, respectively, for the second quarter of 2013, in line with their respective subscriber market share of 42%, 37% and 21% as at June 30, 2013. MobilTel has lost approximately 7% subscriber market share over the last four years (from 49% in the third quarter of 2009 to 42% in the same period in 2013) due to higher prices and the greater ease of mobile number portability. Vivacom, as the third mobile market entrant, has been the primary beneficiary of MobilTel subscriber migration, which Vivacom attributes to its mobile network quality and competitive pricing. Vivacom has enjoyed revenue market share gains of 12% and subscriber market share gains of 8% over the last four years, which is significantly higher than most number three mobile operators in Europe.

100 Mobile Revenue Market Share Evolution of the Three MNOs

70% 58% 60% 54% 51% 49% 49% 49% 48% 49% 48% 50% 46% 45% 44% 44% 45% Mtel 43% 42% 41% 41% 40% Globul 38% 39% 38% 37% 38% 38% 30% 36% 37% 37% 35% 36% 37% 37% 35% 37% 37% 37% 31% Vivacom 20% 21% 21% 21% 22% 17% 19% 19% 19% 10% 14% 15% 16% 15% 16% 11% 11% 11% 12% 13% 0% Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13

Mtel Globul Vivacom Source: Telekom Austria and Deutsche Telekom reports. 7NOV201316583773

Key Trends Mobile ARPUs in Bulgaria, like those elsewhere in Europe, have experienced declines in recent years, in part due to the reductions in MTRs. MTRs have declined sharply in the European Union as a result of specific EU directives and regulations. Mobile ARPU decline in Bulgaria is anticipated to stabilize going forward. Mobile operators are expected to benefit from rising smartphone and tablet penetration with corresponding data growth in the coming years. Mobile payments and monetization of media content may provide additional revenue opportunities. In addition, relatively low ARPU combined with the lack of wholesale and site access obligations reduces new entrant risk in Bulgaria.

Mobile Handset ARPU Evolution and Benchmarking

(€/month) 2012 Mobile Handset ARPU (€/month) -3% -3% -6%

-11% -11%

21.3

8.9 8.4 7.5 8.2 7.5 6.6 6.4 6.3

2010A 2011A 2012A 2013E 2014E 2015E Bulgaria Mobile CEE Avg. Mobile WE Avg. Mobile Mobile Handset ARPU (€/month) ARPU Growth Rate YoY (%)

Source: Analysys Mason, Central and Eastern Europe Telecoms Market: Trends and Forecasts 2013 – 2018 (with data updated July 2013) and Western European Telecoms Market: Trends and Forecasts 2013 – 2018 (with data updated June 2013). 7NOV201316444724 Smartphone penetration in Bulgaria is below the average for Western Europe. Analysys Mason estimates that in 2012 there were 2.7 million and 205.6 million smartphone handsets in Bulgaria and Western Europe, respectively. These figures correspond to the smartphone penetration rate of 22% for Bulgaria, using mobile subscribers as reported by operators and 37% for Western Europe, using mobile subscribers as estimated by Analysys Mason. Smartphone penetration is expected to rise as smartphones provide customers with attractive additional functionality. They also help operators drive increased mobile data revenue. Measures being implemented by operators to increase smartphone adoption include developing low-cost operator-branded mobile handsets, offering popular low-cost smartphones and offering smartphones through leasing agreements with monthly payments rather than a single upfront payment. According to Analysys Mason, mobile data traffic is expected to grow significantly as data usage in Bulgaria is currently relatively low compared to Western Europe. According to Analysys Mason, data as a percentage of service revenue was 15.5% in Bulgaria at the end of 2012, compared to 38.3% for Western Europe. Mobile data growth in Bulgaria is driven primarily by smartphone uptake and increased usage of mobile broadband and data intensive applications.

101 According to the CRC, given the increased HSPA+ capacity and speed in cities and improved rural 3G coverage, these factors may provide growth for mobile broadband in the coming years. A commercial nationwide LTE network is not expected before 2016, given the lack of availability of the necessary frequencies in Bulgaria that allow cost efficient deployment on a large scale.

Spectrum Allocation The leading MNOs benefit from attractive and similar spectrum allocations, particularly spectrum in the 900 MHz band. This presents a significant barrier to entry for potential competitors, particularly for national coverage, as the costs of building network coverage are high. Three 1800 MHz permits were awarded in December 2011, however, the risk of another nationwide network emerging is mitigated by the limited financial resources of the newly licensed operators (as indicated by the delay in payment for the new permit by 4G Com) and the challenging business case for a fourth MNO. Bulsatcom acquired 2 5MHz and Max Telecom acquired 2 8MHz, while 4G Com acquired 2 8MHz. 700 MHz and 800 MHz bands are currently used for broadcasting, national security and military purposes and are not expected to be auctioned until 2015. The 900 MHz spectrum was originally set aside for GSM, with 3G use permitted in 2011. The 1800 MHz spectrum is being deployed by Vivacom, MobilTel and Globul for GSM networks. New entrants Bulsatcom and Max Telecom intend to use this spectrum to develop 4G services; however, the business justification and ability to finance a rollout are challenging. The 2100 MHz spectrum was allocated in 2005 and provides capacity to absorb additional UMTS traffic by the three MNOs. The 2600 MHz spectrum that is currently used by the military was scheduled to be auctioned earlier this year, but due to a lack of interest from the Bulgarian mobile operators, the tender procedure was closed in August 2013. The table below provides further details concerning current spectrum allocation in Bulgaria.

Summary Spectrum Allocation

900 MHz 1800 MHz Frequency 700 MHz 800 MHz (GSM-900 (GSM-1800 2100 MHz 2600 MHz Standard (LTE) (LTE) W-CDMA) LTE) (W-CDMA) (LTE) 2 x 11.2 2 x 10 MHz Vivacom.... 2 x 10 MHz MHz 1 x 5 MHz 2 x 11.2 2 x 10 MHz MobilTel.... 2 x 10 MHz MHz 1 x 5 MHz Recent tender Potentially Spectrum 2 x 11.2 2 x 10 MHz Globul...... 2 x 10 MHz procedure available in allocation in MHz 1 x 5 MHz closed the longer 2015 at the due to lack Bulsatcom.. term earliest — 2 x 5 MHz — of interest Max — 2 x 8 MHz — Telecom.....

4G COM.... — 2 x 8 MHz — 8NOV201306084001

Coverage According to the CRC, in 2012, the three MNOs each have more than 99% 2G coverage by territory and population and they continue to invest in their 3G networks. Vivacom and MobilTel have the largest 3G coverage by population (in excess of 99% of the country’s population compared to 94.8% for Globul). MobilTel has 3G coverage by territory of 96.6%, compared to 96.0% for Vivacom and 76.5% for Globul as at December 2012. Vivacom reported the greatest growth in 3G coverage by territory with almost 9% growth in 2012 compared to 7% for MobilTel and 4% for Globul.

102 Distribution The MNOs have focused on developing their branded networks of stores as a core element of their distribution strategies. This is particularly important as cash accounts for a significant proportion of transactions in the Bulgarian economy. Stores also allow operators to pro-actively sell and cross-sell. In addition, stores serve as a valuable physical interaction point with customers and provide products and services beyond mobile phones. Based on figures reported by the three MNOs, as at September 30, 2013, Vivacom had 232 owned branded retail locations with an additional 123 alternative sale points. As at June 30, 2013, MobilTel had 218 owned branded retail locations with an additional 297 sale points and Globul had 157 owned branded retail locations with an additional 268 sale points.

Fixed Telephony Market Market Overview Based on figures published by Analysys Mason, the number of fixed telephony connections in Bulgaria has grown at a CAGR of 3.7% since 2010 to reach 2.4 million at the end of 2012. Analysys Mason estimated a fixed telephony penetration rate of 67% of households at the end of 2012. In contrast to the number of connections, aggregate revenue from fixed telephony services declined during the period, from BGN 387 million in 2010 to BGN 316 million in 2012, according to the CRC. The total outgoing traffic (measured in minutes) generated by subscribers from national and international calls is declining in Bulgaria. According to the CRC, minutes of use decreased by 10% between 2011 and 2012, which is 0.5% more than the decrease between 2010 and 2011. Vivacom is the national incumbent and leading Bulgarian fixed telephony operator with 68% subscriber market share as at December 2012 followed by MobilTel, Globul and Blizoo, according to the CRC. Furthermore, the CRC reports that Vivacom’s revenue market share was approximately 87% for the year ended December 31, 2012, in a market comprised of 25 operators.

Key Trends Fixed telephony connections in Bulgaria are expected to slightly decline in the coming years as a result of the continued fixed-to-mobile substitution trend, but will still represent a large segment of the total telecommunications market with approximately 2.3 million subscribers in 2017 according to forecasts by Analysys Mason.

Fixed Telephony Connections in Bulgaria

(000s subscribers) 3,000

2,377 2,427 2,439 2,409 2,500 2,294 2,352 2,299 2,211

2,000

1,500

1,000

500

0 2010 2011 2012 2013 2014 2015 2016 2017 Source: Analysys Mason, Central and Eastern Europe Telecoms Market: Trends and Forecasts 2013 – 2018 (with data updated July 7NOV2013164453482013). As a result of limited service usage, customers are seeking low monthly recurring charges. In response, the market is expected to continue shifting towards bundled services as operators’ position fixed telephony as an add-on to pay-TV and fixed broadband services. Vivacom’s fixed telephony market share is expected to decline due to fixed number portability and wireless competition but at a significantly reduced rate. Other fixed telephony operators continue to gain market share, with a 1.9% increase in their number of subscribers in 2012 compared to 2011, according to the CRC. However, alternative operators subscriber growth significantly decelerated in 2012 compared to previous years (in 2011, these subscribers increased by 79% compared to 2010 based on the CRC figures).

103 Fixed Broadband Market Market Overview Based on figures published by Analysys Mason, the number of fixed broadband connections in Bulgaria has increased at a CAGR of 15% since 2010 to reach 1.5 million in 2012. The fixed broadband household penetration rate is growing but remains relatively low compared to Western Europe (47% in Bulgaria compared to 65% in Western Europe in 2012, according to Analysys Mason), as highlighted in the chart below.

Fixed Broadband Household Penetration Rate

100%

80% 65% 63% 60% 60%

40% 47% 38% 36% 20%

0% 2010A 2011A 2012A

Bulgaria Western Europe

Source: Analysys Mason, Central and Eastern Europe Telecoms Market: Trends and Forecasts 2013 – 2018 (with data updated July 2013) and Western European Telecoms Market: Trends and Forecasts 2013 – 2018 (with data updated June 2013). 7NOV201316445105 The Bulgarian fixed broadband market is highly fragmented. According to the CRC, the total number of registered operators providing internet access and data transfer was 874 at the end of 2012, while 633 operators were actively providing these services. According to the CRC, Vivacom is the market leader by number of subscribers, followed by Blizoo, MobilTel and Bulsatcom. Vivacom’s subscriber market share at the end of 2012 was 25%, based on total fixed broadband subscribers as reported by the CRC. According to the CRC, the total subscriber market share of the top ten internet providers in Bulgaria was 69% at the end of 2012, a 2.9% increase compared to 2011. CRC figures may not account for ‘‘grey market’’ fixed broadband providers, primarily small LAN operators that use unauthorized aerial cables and avoid tax and license payments. Increased penetration rate is mainly driven by low prices in major urban areas due to marketplace competition as well as by demand for high-speed networks. The preference for high-speed connections, reflected by consumer use in downloading movies, limits substitution with mobile broadband and underlies the expectation that the fixed broadband market will shift from DSL, analog cable and LAN Ethernet to higher speed technologies such as FTTx. The on-going shift of customers to FTTx is highlighted in the chart below. According to Analysys Mason, FTTx connections represented 26% of all fixed broadband connections in Bulgaria in 2012 compared to 16% in 2010.

104 Fixed Broadband Connections by Technology in Bulgaria (2010-2015)

(000s) 2,000 1,688 1,734 1,617 1,481 1,500 1,215 728 722 1,125 738 642 1,000 413 458 226 236 170 195 213 145 500 272 531 179 381 427 498

360 343 263 239 236 245 0 2010 2011 2012 2013 2014 2015 DSL FTTx Cable Other

Source: Analysys Mason, Central and Eastern Europe Telecoms Market: Trends and Forecasts 2013 – 2018 (with data updated July 2013). In its definition of FTTx, Analysys Mason includes fiber to the home or building and fiber to the apartment (with LAN distribution) but excludes very-high- bit-rate digital subscriber line, where the cabinet is in the building. Other represents all other fixed connections, including non-FTTH, powerline technologies and WLAN connections. 8NOV201306084145

Key Trends Growth in fixed broadband connections is expected to be driven by an increase in the fixed broadband household penetration rate in Bulgaria, which is significantly lower than more mature markets (47% penetration rate in Bulgaria compared to 65% in Western Europe, according to Analysys Mason). In Bulgaria, 2012 saw a shift towards internet as part of a bundled service rather than as a stand-alone product. The most popular combination was internet with pay-TV services. MobilTel focused its strategy and marketing on convergent product bundles whilst Blizoo retained existing television customers through offering a new Internet service. Large fixed broadband providers are expected to take market share from ‘‘grey market’’ LAN operators, which face increased regulatory enforcement. For example, one of the key reasons for specific amendments to the Electronic Communications Act in December 2011 was to move responsibility for tackling ‘‘grey market’’ operators from the telecommunications regulator to a more specialized agency. LAN operators also have limited ability to offer pay-TV or fixed telephony services given their lack of technical resources or capital to continue investing in infrastructure.

Pay-TV Market Based on figures published by IHS, the number of pay-TV subscribers in Bulgaria increased at a 2.5% CAGR since 2010 to reach 1.6 million in 2012. At the end of 2012, pay-TV penetration rate was 54% according to the CRC. This penetration rate may be underestimated due to a significant number of ‘‘grey market’’ operators in pay-TV. Cable television is the main pay-TV technology, but has decreased from 74% of total pay-TV subscribers in 2008 to 51% in 2012, according to IHS, and is expected to further decline to 40% in 2015. This decline is driven by relatively lower quality of services offered by Bulgarian cable operators, a limited number of channels offered, and lack of capital to continue investing in infrastructure. Technology developments in terms of set-top boxes are expected to continue to stimulate a growing number of cable television users to replace the traditional analog signal with a digital one, with a digital converter box (an electronic device that connects to an analog television set) to be used in order for the television to receive digital broadcasts. DTH has been gaining market share from cable television, mainly driven by the relative affordability of Bulsatcom’s DTH offering. According to IHS, DTH market share in the pay-TV market will grow to 46% in 2015. IPTV was recently launched in Bulgaria and has become the fastest growing segment in pay-TV. According to the CRC, revenue from the provision of IPTV to end users increased by 97% in 2012 compared to 2011. Customers are seeking television services with interactive functions (such as those provided by IPTV) and exclusive content, such coverage of sporting events and movies.

105 The chart below presents the evolution of pay-TV delivery technology over time by subscriber base and highlights the subscriber shift from cable to DTH as well as the introduction of IPTV.

Pay-TV Subscribers by Means of Delivery (2010-2015)

100% 2% 1% 2% 3% 6% 9% 11% 12% 32% 80% 39% 44% 45% 46% 60% 46%

40% 66% 58% 51% 20% 46% 42% 40%

0% 2010 2011 2012 2013 2014 2015 CATV DTH IPTV Terrestrial Source: IHS. 7NOV201316444982 At the end of September 2013, analog television was switched-off and Digital Terrestrial Television (‘‘DTT’’) was launched in Bulgaria. These developments are not expected to have a large impact on the pay-TV market due to limited channel offerings on DTT. With a focus on advertising, Bulgaria’s top broadcasters have the resources and will continue to pay fees for the inclusion of their programs on pay-TV channels. There has been a long-running dispute between the European Union and Bulgaria over the award of six DTT multiplex licenses (four to Hannu Pro and two to Towercom), which the European Union believes was flawed and is seeking to annul. A seventh license was awarded to Bulsatcom in May 2013. Currently, only seven channels have been ‘‘uploaded’’ for the digitalization process, of which five channels (bTV, Nova TV, TV7, News7 and Bulgaria on Air) are required to be distributed via DTT.

Regulatory Environment The CRC is the primary regulator for the telecommunications market in Bulgaria. The CRC’s regulatory approach is now broadly in line with the common EU approach following regulatory reform in recent years. See ‘‘Regulation’’ for a more detailed discussion of the telecommunications regulatory environment in Bulgaria.

Termination Rates In recent years, reduction in termination rates significantly reduced revenue in the Bulgarian telecommunications market, though the moderation of regulatory pressure is likely to support market stabilization in the future. Historically, termination rates in Bulgaria have been considerably above the EU average but the CRC has aggressively pushed rates to levels compatible with the EU framework. MTRs were reduced in July 2012 (from BGN 0.130 in July 2011 to BGN 0.055 in July 2012) and again in January 2013 to reach BGN 0.046 in accordance with the glide path. Further decreases were implemented in July 2013, with MTR lowered to BGN 0.023, below EU and regional averages. Bulgaria’s FTRs were reduced in July 2013 to BGN 0.0050 compared to BGN 0.0085 in January 2013, and are likewise significantly below EU and regional averages.

106 MTR and FTR Overview

Evolution of Bulgarian mobile termination rates(1) Bulgaria’s MTR vs. EU markets(2)

(€ in cents) (€ in cents)

11.4 2.7 2.6 2.2 7.6 6.4

4.4

1.7

2009A 2010A 2011A 2012A 2013E Bulgaria CEE average EU average

Evolution of Bulgarian fixed termination rates(1) Bulgaria’s FTR vs. EU markets(2)

(€ in cents) (€ in cents)

1.0 0.7 0.6 0.7 0.6 0.5 0.4

0.3

2009A 2010A 2011A 2012A 2013E Bulgaria CEE average EU average (1) Figures are average rates for 2009 to 2012 and estimated average rate for 2013. (2) Figures are as of January 1, 2013 based on data from the Body of European Regulators for Electronic Communications. For Bulgaria, termination rates were reduced further on July 1, 2013. MTRs and FTRs were reduced to €1.2 cents and €0.3 cents, respectively. Source: Company reports and Body of European Regulators for Electronic Communications reports; CRC website and CRC Resolution8NOV201307074066 No. 362. As MTRs and FTRs have now converged to EU and regional averages, Bulgaria’s termination rates are expected to have limited impact on revenue going forward. In addition, the CRC has lifted regulations on telecommunications operators that have SMP in particular markets, such as the requirement that the price that could be charged for calls that are placed from a fixed telephony line to a mobile number had to move downward proportionally with every MTR decrease and the pre-approval requirement for a review of each bundled offer prior to its release to the public. In 2007, the EU Roaming regulation was adopted, obliging all member states to implement the ‘‘Eurotariff,’’ which sets a cap on mobile call costs. Roaming costs have been cut 80% since 2007 and there are current EU proposals to significantly reduce roaming fees within its jurisdiction; however, these proposals have been put on hold due to industry protests.

Number Portability Number portability is a regulated activity, which enables subscribers to change their service provider whilst retaining their existing telephone number. Pursuant to Article 30 of the Universal Services Directive (2002/22/EU) as amended by Directive 2009/136/EC, Member States of the European Union are required to ensure the provision of number portability to subscribers. Number portability was introduced in Bulgaria in 2007 for mobile telephone connections and in 2009 for fixed telephone connections. The number of subscribers that ported out their telephone numbers increased greatly in 2010 with the introduction of the ‘‘one-stop-shop,’’ whereby a subscriber needs to contact only the new service provider, who will then start the process of porting the number. Vivacom has historically had more mobile numbers ported in than ported out, and more fixed numbers ported out than ported in. The Bulgarian Electronic Communications Act of 2009 requires mobile operators to register the name, address and EGN (Bulgaria’s equivalent of a social security number) of pre-paid SIM card users. Mobile users who did not register their pre-paid SIM cards before January 1, 2010 had outgoing phone calls and SMS text messaging facilities on their cards blocked, resulting in a decrease of pre-paid subscribers in the first quarter of 2010. Additionally, automatic contract renewal clauses were prohibited.

107 Network Access Fixed-line regulation is limited as there are no obligations to provide wholesale access to Vivacom’s fiber network and there are no reported active LLU providers, despite Vivacom’s obligation since 2008 to provide wholesale access to its ADSL network. In April 2013, the CRC approved the pricing plan submitted by Vivacom for providing access to its duct infrastructure, which is based on a cost-oriented approach.

108 BUSINESS Overview We are the leading telecommunications operator in Bulgaria, based on revenue for the six months ended June 30, 2013. (Source: Telekom Austria and Deutsche Telekom reports). We are the only operator that provides mobile, fixed telephony, fixed broadband and pay-TV (both DTH and IPTV) services nationwide to both residential and business customers. This integrated nationwide mobile and fixed-line network gives us a competitive advantage as we are able to offer bundled ‘‘dual-play,’’ ‘‘triple-play’’ and ‘‘quadruple-play’’ products that combine all these services on a nationwide basis. We provide our fixed-line services through our own fixed-line network and our mobile services through our own mobile network based on GSM/ GPRS/EDGE and UMTS/HSPA+ technologies. As at September 30, 2013, we served 2.7 million mobile subscribers, 1.4 million fixed telephony subscribers and 0.3 million fixed broadband subscribers. For the twelve months ended September 30, 2013, we generated total revenue of BGN 812.9 million and had Adjusted EBITDA of BGN 327.2 million. During that period, our mobile and fixed-line businesses each comprised approximately 50.0% of our total revenue. We are currently the third largest mobile operator in Bulgaria, based on number of subscribers, with 2.7 million subscribers as at September 30, 2013, an increase of 58.8% from 1.7 million subscribers as at December 31, 2010. (Source: Telekom Austria and Deutsche Telekom reports). This is primarily due to the implementation of an ongoing successful market challenger strategy in the mobile market, which has led us to achieve an increase in our mobile market share, from a 16% subscriber market share as at December 31, 2010 to a 21% subscriber market share as at June 30, 2013, and to develop a solid market share position. (Source: Telekom Austria and Deutsche Telekom reports). A central part of the market challenger strategy has been our focus on features that allow us to differentiate ourselves from our competitors, such as what we believe to be our ‘‘best in class’’ mobile network, which we believe provides market leading coverage, fast download speeds and one of the lowest dropped call rates among the major network operators in Bulgaria. We are the incumbent in the fixed-line market and we believe we have the largest fixed-line network in Bulgaria. We offer fixed telephony, fixed broadband and pay-TV services to our residential and business customers. We provide fixed broadband services over ADSL and FTTx connections. Our ongoing FTTx network build-out enables us to benefit from the ongoing shift to FTTx from other broadband technologies as customers demand services at higher speeds. As at December 31, 2012 our subscriber market share in the fixed telephony and fixed broadband market was approximately 68% and 25%, respectively. (Source: CRC). We are the successor to the former state-owned monopoly in fixed-line services, which was privatized in 2004. We gained our GSM mobile license in 2004, our UMTS mobile license in 2005 and launched our mobile operations in 2005. In 2007, we were acquired by AIG Capital Partners, Inc. through a leveraged buyout. Financial obligations incurred due to this leveraged buyout resulted in a debt restructuring process. In 2012, we underwent a restructuring that included a change in our ownership. This restructuring process was completed in November 2012, when CCB Group and VTB acquired a majority stake in our business, while simultaneously restructuring our financial obligations.

Our Strengths We believe that the following competitive strengths will enable us to retain our customer base, capitalize on growth opportunities in the Bulgarian market and maintain and expand our current market share positions.

Integrated network telecommunications provider with a leading market position in the Bulgarian telecommunications industry. We operate as the only nationwide integrated telecommunications operator with an extensive network in Bulgaria, offering mobile, fixed telephony, fixed broadband and pay-TV services to residential and business customers. We have a leading market position in the Bulgarian telecommunications industry based on revenue for the six months ended June 30, 2013. (Source: Telekom Austria and Deutsche Telekom reports). We are the incumbent in the fixed telephony and fixed broadband market with a growing subscriber base in the mobile market. We believe that our nationwide footprint and distribution network provides us with larger scale cross-selling opportunities than our competitors. As at June 30, 2013, we had a 21% subscriber market share in the mobile market. As at December 31, 2012, we had a 68% subscriber market share and

109 an 87% revenue market share in the fixed telephony market. (Source: CRC). As at December 31, 2012, we had a 25% subscriber market share in the fixed broadband market. (Source: CRC). The integrated nature of our network allows us to offer customers mobile, fixed telephony, fixed broadband and pay-TV product bundles. We believe this gives us a strong competitive advantage in Bulgaria, as our high quality products and services will increase customer loyalty and position us to successfully take advantage of convergent service and cross-selling opportunities. For example, we aim to provide additional and premium versions of our existing services to customers using only a single product or service, and as a result, improve profitability per subscriber. We currently offer our residential and business customers mobile, fixed telephony, fixed broadband and pay-TV services on a stand-alone basis and also in the form of ‘‘dual-play,’’ ‘‘triple-play’’ and ‘‘quadruple-play’’ packages. Our product bundles typically offer customers convenience and a discount on the aggregate price as compared to stand-alone products, which we believe makes the proposition attractive for customers. We anticipate greater demand for bundled product offerings from our customers, and therefore plan to continue to attract customers by developing and marketing a range of potential bundled offerings. For example, we recently launched our ‘‘Combine and Save’’ offering that offers customers the opportunity to custom-make their own bundled package. We believe that our ability to maintain a leading position in the Bulgarian telecommunications market in the face of competitive pressure reflects the underlying strength of our customer value proposition, our strong ‘‘Vivacom’’ brand and our breadth of product and service offerings, which caters to a broad set of customer demographics and usage profiles.

Resilient business model. We believe that our diversified business model, which offers mobile, fixed telephony, fixed broadband and pay-TV services on a wide variety of tariff plans with bundling options has reinforced the stability of our revenue. For example, we have been able to mitigate negative market trends such as customers’ fixed-to-mobile substitution, by increasing mobile revenue through growing our mobile subscriber base from 1.7 million as at December 31, 2010 to 2.7 million as at September 30, 2013. Our mobile revenue has steadily increased from BGN 332.8 million in for the year ended December 31, 2010 to BGN 397.3 million for the year ended December 31, 2012. For the first time in our history, our mobile revenue was higher than our fixed-line revenue for the nine months ended September 30, 2013. For the twelve months ended September 30, 2013, our mobile, fixed-voice (fixed telephony and other fixed-voice services), fixed-data (fixed broadband and other fixed-data services) and fixed other revenue comprised 50.0%, 29.7%, 12.8% and 7.5% of our total revenue, respectively. We believe that we have had strong overall revenue performance in the face of challenging market and regulatory conditions. We grew our share of the Bulgarian telecommunications market revenue by more than our two main competitors, Mobiltel and Globul, between 2009 and 2012. (Source: Telekom Austria and Deutsche Telekom reports). Our performance has been attributable to the strengths of our mobile and fixed broadband business, including up-selling value-added services (‘‘VAS’’), cross-selling by promoting bundling, and migrating our fixed broadband subscribers from ADSL to FTTx.

Improving regulatory environment to underpin future market stability. We believe that the Bulgarian telecommunications regulatory environment is currently more favorable to us than it has been in recent years. In the first three quarters of 2013, two key changes to the Bulgarian regulatory framework were implemented, which we currently anticipate will benefit us in the long term. The price that can be charged for calls that are placed from a fixed telephony line to a mobile line is no longer regulated, where previously we were required to decrease our prices proportionally with every MTR decrease effected by the CRC. In addition, the CRC has lifted the pre-approval requirement of reviewing each of our bundled offers before they are released to the public, which allows us more flexibility in how we market our products and services. We also believe that the impact of regulatory changes on our revenue will stabilize, given that significant mobile termination rate (‘‘MTR’’) and fixed termination rate (‘‘FTR’’) reductions have taken place over the past several years and are now below the European average. As at July 1, 2013, Bulgarian MTRs and FTRs were BGN 0.023 and BGN 0.005 respectively. The European averages as at January 1, 2013 for MTRs and FTRs were A0.026 and A0.006 or the equivalent of BGN 0.051 and BGN 0.012, respectively. Now that the objectives of the EU telecommunications regulatory framework seemingly have been accomplished, by aligning termination rates across Europe, we anticipate that there will be minimal future

110 decreases in MTR and FTR and therefore minimal impact on our revenue. See ‘‘Industry and Market Overview—Regulatory Environment.’’

‘‘Best-in-class’’ mobile network. We provide our mobile services through what we believe to be a high quality and reliable mobile telecommunications network. Our network is an integrated second generation/third generation (‘‘2G’’/‘‘3G’’) network based on GSM/EDGE/UMTS/HSPA+ technology through which we provide voice and data services, as well as a range of VAS. We believe that our network provides fast download speeds and one of the lowest dropped call rates among the major mobile network operators in Bulgaria with nearly 100% GSM and UMTS population coverage. Our 3G network is highly rated in coverage and data transfer speed and rated the best in speech quality. (Source: NSN Study 2011) As spending in mobile data increased along with an increased demand for faster network download speeds, we have been able to leverage our network quality to meet this demand and achieve rapid growth in mobile subscribers. In recent years, we have made substantial investments in our mobile network, which have resulted in the build out of our 3G network nationwide. Our aggregate network capital expenditure (including our spectrum permit payment) for the period from 2010 to 2012 was BGN 424.3 million, with the majority of these expenditures concentrated on improving and maintaining our mobile network. As at December 31, 2012 our GSM mobile network covered 99.99% of the Bulgarian population, and our UMTS mobile network covered 99.41% of the Bulgarian population. In 2012, we acquired additional UMTS spectrum of 5 MHz to enhance our capacity and user achievable peak data rates. We have also invested heavily in expanding our UMTS network and in the expansion of our HSPA+ technology in order to support our growth in line with demand. Compared to our two main competitors, we have the most paired spectrum per subscriber at 12.3 MHz per million subscribers, compared to MobilTel, which has 5.6 MHz per million subscribers and Globul, which has 6.9 MHz per million subscribers. (Source: Telekom Austria and Deutsche Telekom reports and CRC). Consequently, we believe that, we have ample capacity to support increased traffic volumes and that we will be able to continue to provide high quality and reliable mobile services to our customers. We have also been making the necessary technical preparations for the future launch of LTE services in Bulgaria as early as 2015, when the 800 MHz spectrum band may become available.

Strong fixed-line network, benefitting further from fiber build out. We believe that we have the most extensive fixed-line network in Bulgaria that is also a fully digitalized fixed telephony network. In order to position ourselves for future growth in the fixed broadband market, we have targeted potential new investments with strict return on investment criteria for the future. We have implemented a targeted FTTx build-out in the most affluent cities in Bulgaria, which due to a combination of our ownership of an extensive duct infrastructure and inexpensive labor costs in Bulgaria, has resulted in low build-out costs and a higher return on our investments in fiber. We maintain a disciplined approach to expanding our fiber network and adhere to stringent project acceptance criteria, maintaining a threshold of cost per household passed before committing to a fiber build-out. Our FTTx build-out consists of a mix of fiber to the building (‘‘FTTB’’) and fiber to the home (‘‘FTTH’’) technology. The technology that is ultimately implemented depends on economics and density of the area. We began our FTTx roll out in 2011 in Sofia and Varna and we have since achieved significant progress, with 570,000 fiber homes passed as at September 30, 2013. Our targeted fiber build-out is nearly two-thirds complete and has thus far been completed ahead of our estimated budget. Our ongoing FTTx network build-out enables us to benefit from the ongoing shift from other broadband technologies to FTTx as customers demand higher speed technologies. We also operate our own fiber backbone network, including a ‘‘Dense Wavelength Division Multiplexing’’ fiber network that allows data from different sources to be carried together on an optical fiber on its own separate light wavelength, which allows for us to easily expand capacity on our network. We are able to route all of our internet traffic via this infrastructure. Given the relatively low fixed broadband penetration rates in Bulgaria as compared with other Central Eastern European countries, we anticipate that this is an area in which we will be able to attract new subscribers with our fixed broadband services and higher quality IPTV resulting from this investment, and will also enable us to up-sell these new products to our large existing subscriber base. A significant proportion of our total capital expenditure in recent years has been allocated to the roll-out of our fiber network and building our state of the art mobile network which we believe will decrease going forward. Assuming current business and industry conditions do not change, we expect our total capital

111 expenditure in the year ending December 31, 2013 to be approximately 20% lower than the previous year. Our capital expenditure plans are subject to change depending, among other things, on the evolution of market conditions and the cost and availability of funds.

Strong and predictable cash flow generation. We believe that our market position and targeted approach to investment in our business, where we require a certain return on our investments and payback, is a proven business model that will provide us with strong revenue and cash flow. The vast majority of our subscribers are post-paid subscribers which typically generate stable monthly subscription revenue, with relatively low churn rates, thereby providing us with significant predictability in our cash flows. We had Adjusted EBITDA margins of 41.6%, 38.3% and 40.7% for the years ended December 31, 2010, 2011 and 2012, respectively (see ‘‘Presentation of Financial Information—Non-IFRS Financial Measures’’ for more information as to how Adjusted EBITDA margin is calculated). Due to our market position, quality network and strong base of post-paid subscribers, which includes all of our fixed-line subscribers and approximately 77% of our mobile subscribers as at September 30, 2013, we anticipate our strong cash flow to continue.

Improving macroeconomic environment. We currently operate exclusively in the Bulgarian markets. Despite the uncertain economic environment in Bulgaria during the recent global financial and economic crisis, Bulgaria is outperforming certain other economies within the European Union, with positive real GDP growth of 1.8% and 0.8% in 2011 and 2012, respectively. (Source: Eurostat). In 2013, Bulgaria’s real GDP is forecasted by Eurostat to increase by 0.9%, compared to an average negative growth forecast of 0.1% for the European Union, as a whole. (Source: Eurostat). As a result of historically effective fiscal policy, the Bulgarian economy also benefits from low public debt, amounting to 18.5% of real GDP in 2012, compared to an average of 85.3% for the European Union and moderate and decreasing inflation, equal to 2.4% at the end of 2012, as compared to 3.4% at the end of 2011. (Source: Eurostat). Bulgaria also has a favorable fiscal environment for business with a corporate tax rate of 10%, which is among the lowest in Europe. Bulgaria’s S&P credit rating is BBB and its Moody’s credit rating is Baa2 with a stable outlook. Furthermore, Bulgaria benefits from a relatively stable monetary regime based, in part, on the fact that the Lev is pegged to the euro.

Experienced management backed by supportive shareholders. Our management team of industry professionals has extensive experience in the mobile and fixed-line telecommunications sectors in Bulgaria, including significant experience developed within our organization itself. Between our Chief Executive Officer, Finance Director, Chief Technical Officer and Chief Marketing Officer, we have over 45 years of combined experience in the telecommunications industry. We believe that the experience of our management team has enabled us to develop products and services that have broad customer appeal, while managing our operations with a strong focus on cost discipline and profitability, which has been demonstrated by the growth of our business and increase in operational efficiency in challenging market conditions. We have recently overtaken our two main competitors, Mobiltel and Globul, and are now the leading telecommunications operator in Bulgaria based on revenues for the six months ended June 30, 2013. (Source: Telekom Austria and Deutsche Telekom reports). We believe that our management team is well prepared and has the relevant experience to successfully implement our growth strategy. We are backed by our majority shareholders, CCB Group and VTB, who support our management team and our long-term strategy. They provide a strong local presence, expertise in the technology, media and telecommunications sector and a working relationship with the Bulgarian government and the CRC.

Our Strategy We aim to build upon our existing market position to increase our revenue, enhance our profitability, increase our cash flow and service our indebtedness by pursuing the key strategies set forth below.

Build on strength in each product and leverage core offerings. We hold approximately 30% of the Bulgarian telecommunications market based on revenue as at December 31, 2012. (Source: CRC). Our strategy is to increase our market share in the coming years by continuing to offer products and services that are attractive to customers across the markets in which we

112 operate, developing new products to meet consumer demand and keeping product offerings and solutions well diversified to enhance our revenue stability. We intend to continue to grow our mobile subscriber base by offering additional services within our current mobile offerings in an up-selling sales initiative to new and existing customers, as well as taking advantage of the revision to the mobile number portability process from a ‘‘two-stop shop’’ procedure to a ‘‘one-stop shop’’ procedure making it faster and easier for customers to keep their existing mobile phone number when they switch network providers. We are planning to increase our efforts on marketing our integrated ‘‘Vivacom’’ brand to increase customer perception and awareness and also to enhance the quality of our customer service to strengthen our brand. We also plan to increase the penetration rate and ARPU of smartphone and tablet users by developing an ecosystem of dedicated services and content for these devices as well as enlarging our portfolio of additional services that bring new technologies onto the market, such as location-based services, near field communication and mobile payments. As the incumbent in the fixed telephony market, our strategy is to compete on value rather than price. We intend to retain our existing fixed telephony subscribers through giving subscribers incentives to switch to our longer 24 month contracts that provide competitive value and through cross-selling bundled offerings. In the fixed-data market, we intend to continue the build-out of our fiber network in targeted areas in order to satisfy the demand for high broadband speeds and use the strength of our fiber network to enhance our bundled offerings. We also intend to continue to incentivize the migration of our customer base from ADSL to FTTx connections by maintaining similar pricing for ADSL connections and our higher speed fiber products. In areas where we are not yet able to migrate customers to FTTx connections, we plan on retaining these customers by offering them attractive pay-TV bundles. We plan to leverage our prominent presence in other markets to build up our pay-TV subscriber base by conducting marketing and promotional campaigns that highlight the picture and sound quality of our pay-TV services, promoting our varied bundled offerings and developing our pay-TV service portfolio further by adding more channels, interactive functions, such as video-on-demand and exclusive content. We also plan on leveraging our fiber build-out to provide IPTV services, for which we will maintain similar pricing across DTH and IPTV products in order to encourage customers to subscribe to IPTV.

Capitalize on bundled offerings. Our strategy is to capitalize on our bundling capabilities to continually benefit from growth in the mobile, fixed broadband and pay-TV lines of our business and reduce churn. Bundled offerings generally drive and support the sales of mobile, fixed telephony and fixed broadband products and services and reduce customer churn as compared with individually sold products and services. We believe that an integrated mobile and fixed-line service offering that provides higher quality and reliability than our competitors will enable us to sell additional as well as premium versions of existing services, such as bundled mobile, fixed broadband and pay-TV services to customers, while also reducing churn as customers often prefer bundled products due to the convenience and cost savings that are available when acquiring mobile, fixed telephony, fixed broadband and pay-TV services from a single provider for one price. Going forward, we anticipate greater demand for bundled offerings from our customers and therefore plan to continue to attract customers by continuing to refine and market our bundled offerings. We believe customers with only a single product or service present significant opportunities to sell additional as well as premium versions of existing services. In addition, we anticipate that our positioning as the only fully integrated telecommunications operator in Bulgaria with a nationwide footprint will enable us to take a greater advantage of the opportunities offered by the bundling trend than our competitors, many of whom are pursuing similar strategies.

Leverage strong position with business customers. We have positioned ourselves as a primary service provider for high-value business customers in the Bulgarian market, whereby we provide them with all of their business telecommunications services. We operate a large direct sales force for our business segment, including dedicated account managers for large business subscribers and a business pre-sales department for complex customized products and services. We intend to continue to increase our customer retention and maximize ARPU by offering customized products and services and subscription-based packages that include dedicated customer support. Such products include VIVAFleet, a GPS service that gives our business customers the ability to track all the routes of a vehicle in their fleet, VIVATeam, a service that gives customers the ability to monitor the mobile

113 communications of their employees, and various other high quality mobile and fixed-line convergent services (such as IP-converged solutions), which are becoming the standard in the business sector in Bulgaria. We aim to deliver such cost effective and business oriented solutions to our customers at a breadth that our competitors cannot offer. We believe that we have a significant opportunity to increase our business mobile and fixed-line subscriber base as demonstrated by the success of our MegaBiz offering, which combines a variety of tariff plans that include up to 2000 monthly minutes for calls to all national fixed and mobile networks as well as calls to the European Union, United States and Canada. Additionally, we aim to grow our share of niche segments such as small and medium enterprises (‘‘SME’’) and small office/home offices (‘‘SOHO’’) by marketing services to SMEs and SOHOs as competitive in value rather than price, and by focusing on the provision of customer service that specifically caters to their business needs. We are able to do this easily by leveraging economies of scale, as we use our already existing infrastructure and dedicated personnel to provide tailored customer service for our business customers.

Identify and deploy cost optimization measures to increase efficiency. Our strategy is to maximize our profit margin by controlling operating costs within our business through a number of measures, such as extracting synergies by unifying our operational IT platforms and implementing industry standardized IT solutions, controlling our subscriber acquisition costs, reducing our upgrade and maintenance expenses and improving our debt collection function. We also plan on continuing to improve our operational efficiency, specifically in areas such as procurement, operations and customer care. In addition, we believe that we can further improve our profitability through the continued implementation of our targeted investment policy for capital expenditures. We plan to continue conducting a systematic review of our cost base at all levels and to implement operational efficiencies where appropriate, such as focusing on automation as a cost reduction initiative, for example through electronic invoicing. Our goal is to provide market-level services with above market- level efficiency.

Invest in network quality to capitalize on areas of market growth. We have a strong network infrastructure and have plans to further develop our networks to meet the growing demand for data services. We believe we provide superior mobile and fixed-line network quality and intend to consolidate this position further by completing the build-out of our 3G network, expanding the capacity of our BTS through targeted investments and completing our targeted fiber build-out. With respect to the mobile network, we recently acquired an additional paired 5 MHz in the UMTS 2100 spectrum band to enhance our network capacity and achievable peak rates, and subsequently invested a substantial portion of our annual network capital expenditures in coverage and quality improvement of our GSM and UMTS network. In order to leverage our network quality to capitalize on the trend of increased spending on mobile data, a market that has seen increased growth in recent years driven by increasing data network speeds and increasing smartphone and tablet penetration, we plan on continuing to invest in the UMTS network and in the expansion of our HSPA+ technology to increase coverage and performance levels. We also currently anticipate that we may participate in LTE spectrum auctions as early as 2015, when the 800 MHz spectrum band may become available. Finally, our plan to continue to build-out our fiber network in the largest cities in Bulgaria will set a foundation for future growth and allow us to continue to offer higher quality services, which require additional capacity.

Recent Developments In July 2013, the Company’s direct parent company, Viva Telecom Bulgaria EAD successfully completed its acquisition of all remaining common voting shares of the Company, pursuant to the Squeeze Out, which was approved by the Bulgarian Financial Supervision Commission (the regulatory authority for the non-banking financial sector). The Bulgarian government’s Golden Share was not subject to the Squeeze Out. At the general meeting of shareholders of the Company on September 30, 2013, the resolution was passed to cancel the special rights of the Golden Share, such as the right to veto certain corporate actions. The Golden Share was then redeemed on October 15, 2013. The delisting of the Company from the Bulgarian stock exchange was completed as of October 31, 2013.

114 Our Operations Overview We provide mobile and fixed-line offerings throughout Bulgaria over our integrated nationwide network. Our goal in the mobile market is to leverage our high quality 3G network in order to expand our leadership in mobile data and build on our track record of subscriber growth, which has been demonstrated by the growth in our subscriber market share from 16% as at December 31, 2010 to 21% as at June 30, 2013. As the incumbent in the fixed-line market, we seek to retain our existing customer base by competing on value, for example, by offering more add-on products, incentivizing longer term contracts by offering better pricing and subsidies for certain products, offering bundled services to decrease churn, including premium pay-TV services and providing FTTx solutions in larger cities to satisfy customer demand for high broadband speeds. We believe each of these approaches gives us a competitive advantage in both the mobile and fixed-line markets and positions us to receive maximum benefit from the market trend of ‘‘bundling.’’

Mobile Operations Our mobile operations contributed approximately 50.0% of our total revenue for the twelve months ended September 30, 2013. We had approximately 2.7 million mobile subscribers as at September 30, 2013, compared to 1.7 million as at December 31, 2010, where approximately 77% were post-paid subscribers and approximately 23% were pre-paid subscribers. For the nine months ended September 30, 2013, blended mobile ARPU was BGN 10.6 per month. Our mobile services include a competitive variety of voice and data offerings that include VAS, such as mobile data, multimedia entertainment and international roaming. In addition to our mobile services and products that are targeted at residential customers, we also offer a variety of products and services that target the specific needs of business customers, such as VivaMail, an email hosting and mobile email and data offering. We offer our mobile voice and data services and products over our GSM/GPRS/EDGE and UMTS/ HSPA+ networks, on either a post-paid or pre-paid basis, through multiple volume-based and flat-rate offerings, each with multiple tariff options. Post-paid subscribers are invoiced monthly for services used, based on 12-month or 24-month contracts. Pre-paid subscribers pay in advance and can recharge their pre-paid SIM card with additional top-ups.

Mobile Post-paid Our post-paid mobile voice and data offerings, accounted for 75.2% of our mobile revenue for the twelve months ended September 30, 2013. We offer a variety of post-paid mobile tariffs within each offering plan that provide our subscribers with the flexibility to choose from different combinations of voice and data options, including various VAS, such as unlimited mobile data or international roaming packages, so that they can find a suitable offering that matches their usage intensity and habits. We also have different offerings for residential and business subscribers. We believe that our mobile post-paid offerings are some of the most comprehensive in the Bulgarian telecommunications market. Our strategy in the mobile post-paid segment is to grow our subscriber base by focusing on our integrated brand, what we believe to be our ‘‘best in class’’ mobile network and our ability to offer quality products at competitive market price points.

Residential Customers Our current mobile post-paid offerings for residential customers include: • MaxiCall. MaxiCall offers up to 1200 monthly minutes for use on all national mobile and fixed networks, depending on the tariff selected. We also apply a very competitive rate for any additional minutes required. • EasyCall. EasyCall offers up to 1200 monthly minutes for calls to all national mobile and fixed networks, depending on the tariff selected, as well as low rates for domestic SMS and for additional minutes. • MegaCall. MegaCall includes up to 1800 monthly minutes for calls to all national mobile and fixed networks and to over 50 other countries. This offering also includes up to 1800 additional monthly minutes for calls made within the Vivacom network, as well as low rates for domestic SMS and additional minutes.

115 • VIVA Free. VIVA Free is a customized offering, where customers choose from a variety of options, including minutes for use on the Vivacom network, national calls or calls to international operators, SMS or unlimited mobile data. Customers create their own tariff by choosing what the package should include and activating a minimum of two VAS. VIVA Free also includes the flexibility to add or remove services every month, according to a customer’s current needs. • Net&Call. Net&Call offers unlimited mobile data, up to 3600 minutes for calls on our network, up to 3600 SMS on our network and up to 90 minutes for calls to other national mobile networks. This tariff plan includes attractive prices per minute for calls to other national mobile and fixed networks. • Traffic Unlimited. Traffic Unlimited offers subscribers unlimited mobile data through USB dongles, notebooks and tablets. Each of these offerings come with a range of tariffs to suit each subscriber’s usage levels. Where not already included, VAS may be added to the subscriber’s monthly tariff plan. Such services include unlimited mobile data, roaming voice and mobile data packages (within the European Union or within neighboring Balkan countries), SMS and MMS and international calls to both fixed and mobile. In addition, we also offer the VIVA Bipper VAS, which is a unique mobile service that provides our customers with the current location of the members of their households and the centralized ability to control each member’s bill.

Business Customers We provide business voice services to large business subscribers, small and medium enterprises (‘‘SMEs’’) and small office/home offices (‘‘SOHOs’’). For large business customers, we offer customized services tailored to their specific requirements. For SME and SOHO subscribers, we offer more standardized products, such as all-inclusive tariff plans that offer customers a set amount of calling minutes, SMS and gigabytes of mobile internet access for a fixed monthly fee. Our current mobile post-paid offerings for business customers include: • VIVACOM MegaBiz. VIVACOM MegaBiz includes up to 2000 monthly minutes for calls to all national fixed and mobile networks and networks in the European Union, United States and Canada. This offering also includes calls to fixed networks in certain other countries and low rates for additional minutes. • VIVACOM Infinity. VIVACOM Infinity includes up to 2400 monthly minutes for calls to all mobile and fixed national networks and to over 50 other countries including most of Europe and the United States. This offering also includes preferential rates for calls after any additional minutes needed. • Ultima. Ultima offers up to 900 monthly minutes for calls to all national mobile and fixed networks and to over 50 other countries including most of Europe and the United States. This offering also includes preferential rates for additional minutes. • Traffic Unlimited. A similar offering to Traffic Unlimited for residential customers. Each of these offerings present a range of tariff options to suit each subscriber’s usage levels. Where not already included, VAS may be added to the subscriber’s monthly tariff plan. Such services include unlimited mobile data, roaming voice and mobile data packages (within the European Union or within neighboring Balkan countries), and international calls to both fixed and mobile operators.

Mobile Pre-paid Our pre-paid mobile voice and data offerings accounted for 5.8% of our mobile revenue for the twelve months ended September 30, 2013. Unlike our mobile post-paid offerings, we offer pre-paid plans only to residential customers. Our pre-paid subscribers can choose from a variety of pre-paid mobile offerings. Our current mobile pre-paid offerings for residential customers include: • Call-Yo. Our standard pre-paid offering, which includes BGN 10 of airtime to all national operators when first purchased and BGN 3 of additional promotional airtime. This offering includes preferential rates for national calls and SMS.

116 • Get M@x. Our Get M@x offering includes BGN 3 of airtime to all national operators when first purchased and 100 minutes for calls and 100 SMS for use on the Vivacom network and includes a bundle of services with each recharge. The bundle of services included with each recharge is dependent upon the amount by which the account is topped-up. • Get Bonus. This offering includes BGN 3 of airtime and includes a certain amount of minutes and SMS with each recharge. The bundle of services included with each recharge is dependent upon the amount by which the account is topped-up. • VIVA International Start and VIVA International. These two offerings allow the customer to make calls at very attractive prices to all fixed and mobile national networks as well as all fixed and mobile networks in Bosnia and Herzegovina, Croatia, Germany, Greece, Macedonia, Montenegro, Poland, Romania, Russia, Serbia, Turkey and the United Kingdom. • Easy Traffic. Our pre-paid mobile data offering, which includes 1200 MB of mobile data that is valid for 10 days from the date of purchase.

Mobile Other Other mobile services and products accounted for 19.0% of our mobile revenue for the twelve months ended September 30, 2013. These services and products include the sale of mobile handsets and accessories, non-recurring charges, such as those from roaming charges incurred by customers of other operators logging into our network, as well as late payment and administrative fees. We offer our subscribers a broad selection of subsidized mobile handsets, tablets, notebook computers, USB dongles and other related accessories, which we source from a number of well-known suppliers, including Nokia, Samsung, Acer, HP, HTC, Blackberry, Sony, Huawei and LG. We do not currently offer Apple products to our customers, as we believe that the market in Bulgaria is price sensitive and is predominantly characterized by low to mid-level priced smartphone demand. As we do not believe demand for Apple products is as high as Android-powered products, we have chosen to focus on the sale of Android-powered devices and development of an ecosystem of dedicated services and content for Android-powered smartphone and tablet users.

Fixed-line Operations Our fixed-line operations contributed approximately 50.0% of our total revenue for the twelve months ended September 30, 2013. We had approximately 1.4 million fixed telephony and 0.3 million fixed broadband subscribers as at September 30, 2013. Our fixed-line voice and data services consist of a wide range of voice and data offerings. We provide fixed-line services to both residential and business customers. In response to certain trends in the Bulgarian fixed-line telecommunications market, such as fixed-to-mobile substitution, we have focused our efforts on sustaining our market leadership in the fixed-line market by retaining our existing customer base and building out our fiber network in targeted areas. Given an already extensive customer base, we concentrate on retaining clients by offering bundled services that converge mobile, fixed telephony, fixed broadband and pay-TV services and by promoting long term contracts of 12 and 24-months.

Fixed-Voice Our fixed-voice services include fixed telephony for residential and business customers as well as wholesale voice and public phone services. These services contributed 59.4% of our fixed-line revenue for the twelve months ended September 30, 2013.

Fixed Telephony We offer a wide range of fixed telephony services, including the VIVACOM Uni Fix offering used to attract cost conscious users as well as the Super Fix offering for users with high usage requirements. Our strategy in the fixed telephony segment is to compete on value by including VAS like international calls, free minutes to any mobile on our network and unlimited minutes for calls made within our network.

Residential Customers Throughout Bulgaria, we provide traditional voice telephone service through our Public Switched Telephone Network and our Integrated Services Digital Network.

117 Our current fixed telephony offerings for residential customers include: • VIVACOM Mega Fix. VIVACOM Mega Fix is a plan that includes 3600 minutes for local and long distance calls within our fixed network per month. This also includes 30 minutes for calls to all national mobile and other fixed networks. • VIVACOM Uni Fix. VIVACOM Uni Fix is a plan that includes 30 minutes for calls to all national fixed and mobile networks in Bulgaria as well as calls to over 50 other countries. • Super Fix. Super Fix is a plan that includes 3600 minutes for local and long distance calls within our fixed network. • Minimum. Minimum is a low monthly tariff plan that includes 30 minutes of local calls per month • Low user plan. Low user plan is a low monthly tariff plan for customers who are enrolled in a government social assistance program. This plan includes 20 minutes of local calls per month, and free local calls during off-peak hours, which are between 8 pm and 8 am Mondays to Fridays, weekends and public holidays. • Handicap plan 160 and 300. These are low monthly tariff plans for disabled customers that include either 160 minutes of local calls per month, or 300 minutes of local and long distance calls per month. • Standard. Standard is a low monthly tariff plan that offers the customer a low rate for all calls made and free local and long distance national calls during off-peak hours, as defined above. • ISDN 2B+D. A plan that allows for telephone calls, data transfer and video-conference call via one ISDN line. Includes five free phone numbers, two channels for voice and data transfer between an unlimited number of ISDN numbers, and the ability to connect up to eight different pieces of equipment. Where not already included, VAS may be added to the subscriber’s monthly tariff plan. Such services include calls to fixed networks in Europe and to fixed and mobile networks in the United States and Canada, unlimited calls on our mobile network, caller ID, voicemail, conference call capabilities, call blocking, information services and call forwarding. Business Customers We provide fixed telephony services to large business customers, SMEs and SOHOs. Among our large business customers, our largest customers are certain Bulgarian ministries and state-owned companies. We continue to target our large business customers to capitalize on our experience and service infrastructure, such as our dedicated call center. See ‘‘—Customer Service, Acquisition and Retention—Customer Service.’’ We also believe there are significant opportunities to grow our SME and SOHO customer base given our ability to offer bundled services and provide our clients with experienced customer service. For larger business customers, we typically tailor offerings to the needs of the customer and, where applicable, to competitive bidding requirements that certain businesses put in place in accordance with their tender procedure requirements. We also offer large business customers ‘‘Session Initiation Protocol’’ services, which facilitate multimedia communication sessions such as voice and video calls over our IP networks, national toll-free services and shared toll services. We typically offer our SME and SOHO customers off-the-shelf plans rather than highly bespoke offerings, as such customers are less likely to require bespoke solutions. Our current fixed telephony offerings for business customers include: • Office Plans. A service that provides a large variety of different tariff plans suitable for office phones. • VIP Business. VIP Business is a telephone service provided through IP connectivity, and is a highly integrated solution for simultaneous usage of multiple voice channels. Includes up to 30 simultaneous voice channels and a wide range of additional services. • ISDN. Service that provides digital connection to the users with possibilities for access to voice services and services for transfer of data, text, video and images. • Audio Conference. Service that allows for the organization of conference calls. • Universal number. Service that provides a ‘‘0700’’ number, through which our business customer can be more accessible to their customers. Their customer will pay the value of a local call and our business customer pays the difference (if any) of the full value of the call.

118 • Green phone. A ‘‘0800’’ toll-free service through which our business customers can be more accessible to their customers. Our business customers pay for the full value of the call. • Televoting. Service that enables our business customers to organize opinion polls of various types: quiz shows, contests, events, product choices, etc. • Virtual Private Network. Service for business customers with several offices all over Bulgaria, giving them the opportunity to optimize their telephone expenses. • Centerx. Service that groups together digital telephone lines of our business customer in the territory of one company location (one access code) that is organized into a virtual business group where the calls within the group are not charged. • Access networks. Service that provides for the planning and implementation of complex telecommunications service solutions for newly constructed buildings. Where not already included, VAS may be added to the subscriber’s monthly tariff plan. Such services include unlimited calls on our mobile network, caller ID, voicemail, conference calls, call restriction, information services and call forwarding.

Fixed-voice Other Our fixed-voice other services include wholesale voice and public phone services. Wholesale voice consists primarily of transit international traffic going via our network to other national or international operators, i.e. for calls neither initiated nor terminated on our network. Our telecommunications infrastructure used in interconnection cooperation enables us to effectively manage telecommunications traffic routing to all operators domestically and abroad. We enter into direct interconnection agreements with domestic and foreign operators, which allow us to offer high quality services in Bulgaria and abroad to our customers. We offer a wholesale operator service, through which we sell network capacity to other operators and manage incoming and outgoing call termination traffic for other national and international operators. We also receive interconnection revenue from other operators for managing calls of their customers that terminate on our mobile or fixed-line network. Similarly, we are required to pay termination fees to other operators for calls made by our customers that terminate on their mobile or fixed-line network. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Results of Operations—Termination Rates’’ and ‘‘—Certain Contracts Relating to the Operation of Our Business—Interconnection Agreements.’’ Our public phone service includes the provision of telephone booths and payphones for public use.

Fixed-data Our fixed-data services include the provision of fixed broadband services over ADSL and FTTx connections to residential and business customers and other data services such as dial-up services, the sale of CPEs, VPN and MAN services. Our fixed-data services contributed 25.6% of our fixed-line revenue for the twelve months ended September 30, 2013.

Fixed Broadband We offer a wide array of fixed broadband services to both residential and business customers. Our focus is on the build-out of our fiber network in targeted areas, the retention of current ADSL subscriber base, migration to FTTx and on providing our customers with comprehensive after-sales service. We began our FTTx roll out in 2011 in Sofia and Varna and we have since achieved significant progress, with 570,000 fiber homes passed as at September 30, 2013. We maintain a disciplined approach to expanding our fiber network and adhere to stringent project acceptance criteria, maintaining a threshold of cost per household passed before committing to a fiber build-out. Our targeted fiber build-out is nearly two-thirds complete and has thus far been completed ahead of our estimated budget. We believe our low build-out costs are attributable to our ownership of the ducts and the low cost of labor in Bulgaria, allowing for a higher return on our investments in fiber. In addition, we bundle our fixed telephony and fixed broadband services, as our fixed broadband plan requires a fixed telephony subscription, however this offering includes a free Wi-Fi modem.

119 Our current fixed broadband offerings for residential and business customers include: • VIVACOM FiberNet. VIVACOM FiberNet connects the subscriber to our high-speed fiber optic connection that provides for speeds of up to 100Mbps for both Bulgarian and international traffic. Additional services are provided for free within the various speed packages. • Internet VIVACOM Net. Internet VIVACOM Net is our ADSL connection that provides high speed internet. A free Wi-Fi modem is included upon purchase of this tariff plan. • Tooway. Tooway is our high speed internet via satellite service, which includes service at the most remote locations, unlimited traffic and state of the art equipment. All of these offerings include a variety of tariff plans to suit each subscriber’s usage levels.

Fixed-data Other Our fixed-data other services include the sale of CPEs, professional internet, IP VPN and MAN services and complex solutions associated with the aforementioned services. We sell certain CPEs, including laptops, in connection with the provision of our fixed broadband services. Our VPN services include VIVACOM IP-VPN, a service that provides high-quality and high-speed connectivity to a remote office network, where our business customers can access directly applications and information stored on remote servers, and VPN Net, a high-quality, high-speed and cost-effective IP environment for the transfer of voice, video and business data between geographically remote offices of users within Bulgaria. The service is provided in two versions, IP VPN Net and L2 VPN Net. Our MAN services are used to provide virtual local networks for clients and to provide links between customers’ office branches located in different cities, including Bitstream, a service that allows other licensed telecommunications operators to deliver ADSL internet access to their customers using our access network and MAN infrastructure

Fixed Other Our fixed other services include pay-TV and the use of our duct network, collocation of customer equipment, a service where our business customers can rent space for their communication equipment, Local Loop Unbundling (‘‘LLU’’) and digital leased lines. Our fixed other services contributed 15.0% of our fixed-line revenue for the twelve months ended September 30, 2013.

Pay-TV We launched our DTH business in 2010 and more recently our IPTV business in 2012. Our pay-TV offerings have national coverage and include three standalone DTH television plans offering 40+, 70+, and 80+ channels and what we believe to be a ‘‘best in class’’ IPTV offering of 140+ channels that includes HD channels and equipment. Our IPTV service includes interactive features, a ‘‘video on demand’’ library and our own movie channel ‘‘Vivacom Arena.’’ For both DTH and IPTV services, we provide exclusive content, including coverage of certain sporting events and movies. We have content distribution agreements in place with major content providers. Our strategy in the pay-TV segment is to build-out our customer base by carrying out effective marketing and promotional campaigns, tailoring flexible packages for customers and bundling with services such as fixed telephony and fixed broadband to capture higher value and retain more customers.

Miscellaneous Our miscellaneous fixed other services offerings are as follows: • Use of duct network. This service allows other licensed telecommunications operators to install telecommunication cables along our underground network routes for their business purposes. • Collocation of customer equipment. This service enables our customers to install and operate their communication equipment in dedicated centers, predominantly located on our premises. • LLU. This service allows other licensed telecommunications operators to use the physical last mile of our access network, in order for them to deliver telecommunications services, such as ADSL to their customers. • Intelligent network. Intelligent network services enhance our core fixed telephony services by offering more sophisticated systems to our existing network. These services are comprised of our value added service 0900, which provides information or public entertainment services when a certain 0900 number

120 is dialed, as well as VPN fix, which provides our clients with short code dialing and calls to members of a group that are billed at preferential prices. • Sale of devices. This is comprised of our sale of personal computers and laptops to customers. • Special numbers. This service gives customers the opportunity to select a telephone number of their choice.

Bundled and Convergent Services Bundled offerings provide our subscribers with convenience and cost savings that are available when acquiring mobile, fixed telephony, fixed broadband and pay-TV services from a single provider for one price. As the only Bulgarian telecommunications operator with an integrated infrastructure and national network coverage, we believe that we are well positioned to offer bundled services that combine mobile, fixed telephony, fixed broadband and pay-TV services. Our bundling approach gives customers the freedom to customize their own bundle and provides easy access to a complete bundled portfolio covering combinations of services to meet all customer needs and usage patterns. This enables our customers to take advantage of discounts and control their costs by purchasing all of our services, or to select a combination of them. We use bundling primarily to retain our fixed telephony customer base and to expand our mobile and fixed broadband subscriber base. Our multi-play offerings combine two or more of our four services in customizable packages for a flat monthly fee. For example, we have launched the following bundled offerings to our residential customers: • VIVACOM 4PLAY. Our ‘‘quadruple-play’’ bundled offering that combines our mobile, fixed telephony, fixed broadband and pay-TV services. • VIVACOM Trio. Our ‘‘triple-play’’ bundled offering that combines three out of four of our mobile, fixed telephony, fixed broadband and pay-TV services. • VIVACOM Duo. Our ‘‘dual-play’’ bundled offering that combines two out of four of our mobile, fixed telephony, fixed broadband and pay-TV services. • Combine and Save. Provides a wide variety of different tariff plans for pay-TV, fixed broadband, mobile and fixed telephony services that customers can pick and choose from to design their own package. All multi-play packages include optional additional packages for customizing each service. We have developed our range of offerings for our business customers with a number of packages for a flat monthly fee, including: • VIVACOM Trio. Our ‘‘triple-play’’ bundled offering for businesses that combines our mobile (with up to five mobile lines), fixed telephony and fixed broadband services. • VIVACOM Trio BIZ+. Our ‘‘triple-play’’ bundled offering for businesses that combines our mobile (with up to five mobile lines), fixed telephony and fixed broadband services. This offering includes a virtual mobile number with the fixed telephony service that allows for free unlimited phone calls between all the phone numbers provided under the same bundled offering. • VIVACOM Duo. Our ‘‘dual-play’’ bundled offering for businesses that combines our mobile (5 lines) and fixed telephony services. • VIVACOM Duo BIZ+. Our ‘‘dual-play’’ bundled offering for businesses that combines our mobile (5 lines) and fixed telephony services. This offering also includes a virtual mobile number with the fixed telephony service that allows for free unlimited phone calls between all the phone numbers provided under the same bundled offering. • VIVACOM Link. Our ‘‘dual-play’’ bundled offering for businesses that combines our fixed telephony and fixed broadband services. • VIVACOM Link BIZ+. Our ‘‘dual-play’’ bundled offering for businesses that combines our fixed telephony and fixed broadband services. This offering includes a virtual mobile number with the fixed telephony service that allows for free unlimited phone calls between all the phone numbers provided under the same bundled offering.

121 Marketing and Branding Our marketing strategy is characterized by the following objectives: (i) retention of existing subscribers; (ii) protection of existing revenue sources; and (iii) development of new growth opportunities. We focus on building a high quality customer experience, in order to retain our subscribers on our network. Our efforts are not only limited to the instances when our subscribers contact our points of sale or call centers but we also strive to provide a high quality customer experience by managing our subscribers through the entire ‘‘life cycle’’ of a customer relationship. This process begins with activating the subscriber in our network and then continues through resolving subscribers’ complaints regarding services in a timely manner (approximately five working days), collecting payments from the subscriber, orchestrating fraud prevention processes and ending with various subscriber retention activities. We believe that our ‘‘life cycle’’ approach to marketing ultimately leads to increased value received by our subscribers through increased subscriber responsiveness to up-selling and migration to contract solutions or higher rate plans. In the final three months of a subscriber’s contract we undertake dedicated individual retention activities, directed towards subscribers with high value contracts, such as offering them a new mobile handset at a preferred price or subsidy. In order to protect our revenue sources and develop new growth opportunities, we aim at migrating subscribers from lower value services to the higher value contracts and services, such as migrating ADSL customers to FTTx, or encouraging subscribers to purchase VAS. We believe we can achieve this through competing on value rather than price and offering customizable tariffs. Moreover, we focus on the expansion of mobile data services and promoting smartphones. We stimulate data usage by extending our offering portfolio and developing our comprehensive hardware offering, such as USB dongles, mobile handsets, netbooks, laptops, tablets, and dedicated VAS, such as unlimited data. We are also attempting to increase the adoption of smartphones among existing users in order to stimulate mobile data usage through special smartphone price plans with higher monthly fees and mobile data VAS. We believe the purchasing decisions of a majority of customers are driven by image, value for money and brand loyalty in the Bulgarian telecommunications market. Therefore, we work to provide a consistent image and high quality subscriber experience in the key areas that subscribers place value. These include a wide range of available products, quality, usefulness, customer service and usability and convenience of VIVAONLINE. See ‘‘—Customer Service, Acquisition and Retention—Customer Service.’’ The Vivacom brand has enjoyed a high level of recognition since its introduction in 2009. To capitalize on this brand recognition and to benefit from greater synergy among all segments of our integrated network, we have focused marketing efforts on customer service in order to highlight our brand as a provider of ‘‘best-in-class’’ services and customer experience. Our brand image is additionally strengthened by our partnership with well-known mobile handset brands, through which we are granted limited exclusivity for certain mobile handset models. In line with Bulgarian market practice, we market our products primarily through focused television advertising, with billboards, press, radio and the internet as additional advertising outlets. Due to our nationwide reach, our advertisements on television tend to be more efficient and successful. We target our business customers through bill inserts, direct mailing and through advertising special offers in business catalogs. Our integrated brand strategy may be differentiated from the multi-brand strategies of our largest competitors and we believe that this strategy enables us to achieve similar levels of brand recognition with lower advertising costs. We believe the distinctiveness of the Vivacom brand and campaigns makes them persuasive to a wide audience and fosters positive brand recognition.

Distribution and Sales Network We sell our services and products through direct channels, such as Vivacom-owned stores and indirect channels, such as a smaller number of third-party retail distributors. Our distribution network is further supported by remote channels such as telemarketing. As at September 30, 2013, our products and services were offered in approximately 355 stores, of which 232 are our own branded retail locations, which offer our products on an exclusive basis and 123 alternative sale points. We have a large sales force for our business segment, with dedicated account managers for large business subscribers, a VIP helpdesk with dedicated support staff, and a business pre-sales department for complex customized products and services. Although we have a smaller distribution and sales network than some of our competitors in the residential segment, we believe that our focus on selling services and products through our own stores, which are strategically located, and where our sales force is better trained and better incentivized than our competitors, produces comparable, if not better results than those of our competition.

122 Our sales force is able to present to our customers a rich portfolio of different products, additional services and devices, and is trained to be focused on proactive selling, up-selling and cross-selling in our stores, where many customers pay their bills. The main sources of revenue for members of our sales force are commissions from the sales each member makes. Half of our sales forces’ remuneration is based on performance in connection with our highly flexible bonus scheme. In an effort to better serve our customer base, we provide our employees training that is focused on the development of selling skills and knowledge of our products. We also provide specialist marketing support, training and branding materials to maintain a high quality of services delivered as well as make final decisions on the locations of our stores. We closely monitor the implementation of the standards used for training, network management and sales quality. We continually seek to optimize our entire sales network and in the past we have ceased cooperation with several third-party retail distributors who have failed to meet our performance expectations.

Customer Service, Acquisition and Retention Customer Service Our customer service policy is focused on providing high-quality and competitive service. We aim to provide a positive customer experience throughout the entire ‘‘life cycle’’ of a customer relationship with competence, availability and efficiency, at a level that exceeds average performance levels in the Bulgarian telecommunication industry. We provide 24 hours a day seven days a week customer service and technical support for all business customers. We also provide an additional service to our high-value business customers who require pro-active technical support. We aim to resolve all written customer claims and complaints within approximately five business days of receipt of such claim or complaint, which we believe is the fastest response time in the Bulgarian telecommunications market. At the core of our customer service efforts are call centers that enable us to respond to customer calls in a timely, personalized and professional manner through our trained customer service representatives located in Sofia and Pleven. Our call center is equipped with intelligent call routing strategies (voice and multimedia), a customer-friendly interactive voice response system, a call center agent desktop, real time and historical reporting and conducts outbound call campaigns. The call center system is integrated with our customer relationship management, business support and work force management system, which also ensures high availability and business continuity in case of network failures in one of our two call center locations. We operate a constant scheme of training, knowledge management, monitoring and evaluation of the performance of our customer representatives and teams, which is benchmarked against certain qualitative and quantitative key performance indicators. Over the course of 2012, we succeeded in reducing the average wait time for initial assistance to around 14 seconds, and achieved an average ‘‘calls abandoned’’ rate of approximately 6%. Apart from call center services, our customers also have at their disposal, a variety of self-service channels, such as an interactive voice response system, Unstructured Supplementary Service Data on our mobile network and the recently introduced VIVAONLINE, our Web Self Service Portal. VIVAONLINE provides customers with 24 hours, seven days a week access to information about their services, customer data, current consumption and notifications as to billing information. Customers are also able to change their billing address, sign up for electronic billing and to use additional services. We are aiming to add extra functionalities to VIVAONLINE, such as the ability for customers to purchase new services and devices, to change/renew their existing tariff plan, to pay their bills online and add additional extras and services. We are also aiming to use VIVAONLINE to target customers with special retention offers and to up-sell and cross-sell offers in the future.

Acquisition and Retention Policy We have several customer acquisition initiatives, the most important of which is the provision of mobile handset and tablet subsidies in order to grow our mobile subscriber base. Although mobile handset subsidies increase customer acquisition costs, they are a standard industry practice and therefore an important part of customer acquisition and are necessary in order to remain competitive. The amount of the subsidy depends on the tariff that is combined with the handset and the length of the contract. For our fixed-line businesses, we provide complimentary installations of the products and services purchased, as well as the free rental of CPEs, such as modems, satellite receivers and set-top boxes (the first one is free, and customers pay a monthly fee for each additional set-top box). We have a policy of maintaining ownership of CPE’s throughout the life of the contract, as opposed to selling them to customers, because

123 the life of a CPE is generally longer than our longest customer contract of 24 months, which allows for the recycling and re-use of the CPE. In addition, customers also benefit as it saves them the upfront payment. The key assumptions and objectives of our retention policy are: (i) protection of our subscriber base through minimization of churn; (ii) cost optimization for customer retention efforts, such as calls, mailing, SMS, which vary depending on the subscribers’ value, probability of churn and contract end date; (iii) focus on high-value subscribers and providing them with increasingly attractive offers (even in advance of three months prior to the end of their contract); (iv) consistent strengthening of our brand image as a telecommunications operator that rewards loyal subscribers through more attractive offers; (v) simplification of procedures for contract renewal; and (vi) offering extra benefits, such as discounts on extra add-ons, additional features and subsidized mobile handsets, to post-paid customers with a tenure of more than six months and a positive payment history. In order to reduce churn, we have established dedicated teams within our call center, who are primarily responsible for tending to subscribers with a high propensity to churn. Moreover, we hire external call centers focused mainly in the active subscriber retention process. Going forward, we plan to focus on the increased efficiency of our other avenues of communication, such as VIVAONLINE, for the retention and migration of our subscriber base.

Credit Management and Billing We bill our post-paid subscribers on a monthly basis. Post-billing related activities, such as printing and delivery of bills are outsourced to a third-party vendor. While the standard credit period amounts to 18 days from the date of the issuing of the invoice, certain high-value business subscribers may be granted extended individual payment dates, depending on their contract profitability. Post-paid residential and business subscribers are subjected to an initial credit check and a credit limit is installed on their account. Depending on a subscriber’s credit history, we may require that a credit limit deposit be made. Monitoring of payments and debt collection processes are executed within our internal structures and begin after we send a monthly paper or electronic bill to subscribers. Main variables for our scorecard system include the payment history and the subscriber value as well as specific subscriber demographics, such as age and income, among other factors. This credit evaluation plays a role in our decision on whether to increase the credit limit imposed on a subscriber’s account. We undertake a wide range of debt management activities to control our bad debt levels, including direct collections executed by our employees in the form of collection calls, direct collections executed in cooperation with third-party specialized collection agencies, pursuing legal remedies, and finally the sale of overdue receivables after exhausting all other measures. We maintain a provision in our accounts for estimated credit losses in our distribution network based on a formalized procedure that determines the probability of a subscriber’s ability to pay overdue receivables, taking into account the outcomes of regular credit risk assessment tests, as well as payment history and value of delivered collateral.

Seasonality Although our businesses are not subject to meaningful seasonal effects, mobile revenue tends to increase during the Christmas holiday period and decrease in the first quarter of each year due to lower usage after the Christmas period and the fewer number of days in February. We also experience higher sales of mobile handsets over the Easter and Christmas periods. Fixed-line voice revenue tends to be slightly lower during summer holiday months, which is offset by increased revenue from roaming charges in those months.

Network and Infrastructure Overview We have developed an integrated mobile and fixed-line network infrastructure providing high capacity transmission capabilities and extensive coverage throughout Bulgaria. As at December 31, 2012, our 3G network covered 99.41% of the Bulgarian population and 95.95% of Bulgarian territory, while our 2G network covered 99.99% of the Bulgarian population and 99.37% of Bulgarian territory. Our permits allow us to use two channels on the 900 MHz spectrum band, two channels on the 1800 MHz spectrum band and three channels on the 2100 MHz spectrum band. The geographic scope of our network and the integrated nature of our operations allow us to offer our customers mobile, fixed telephony, fixed broadband and pay-TV services, as well as bundled services and VAS.

124 We also have over 500 roaming agreements with other Bulgarian and international telecommunications operators around the world. See ‘‘—Certain Contracts Relating to the Operation of Our Business—Roaming Agreements.’’ For the period from January 1, 2010 through September 30, 2013, total capital expenditure relating to our network (excluding our spectrum permit payment) was approximately BGN 476.3 million.

Mobile Network We offer mobile services through our integrated 2G and 3G network, which we believe to be a high quality and reliable mobile telecommunications network. We believe that through the use and management of our network, we will be able to support current growth in the market. Our network is based on: GSM/EDGE (2G technologies) and UMTS/HSPA+ (3G technologies). Our 2G and 3G networks are designed to work as one network. Depending on the capabilities of the mobile handset, the 3G network is the preferred technology of our customers, as 3G provides superior voice quality and superior data bandwidth. If the user starts the connection on the 3G network, depending on the radio conditions and the type of usage, the user could be moved smoothly to the 2G network if needed to maintain the connection. If the user then moves again to an area with sufficient radio conditions for 3G service, the user may then be transferred back onto the 3G network without interruption.

GSM/EDGE GSM is a 2G mobile telecommunications standard widely used around the world. General Packet Radio Service, or GPRS is a packet oriented mobile data service available within GSM technology, which allows users to browse the internet and to transfer files with the speed up to 86 Kbps. Enhanced Data Rates for GSM Evolution, or EDGE, is an extension of GPRS for GSM networks and allows for improvement of data transmission rates of up to 236.8 Kbps, which is several times greater than those achievable on GSM/GPRS networks. This enhances radio interference capacity and makes the usage of data-based services more convenient. 100% of our 2G network is EDGE capable.

UMTS/HSPA+ Universal Mobile Telecommunication System, or UMTS, is a widely used 3G European telecommunications standard. We have been using our 3G network since 2006. The system provides data transmission rates which far exceed those of 2G networks and which also improve the quality of services (e.g. accelerating of the rate at which internet sites open and shortening file transfer periods). Evolved High Speed Packet Access or HSPA+, is a technology that significantly enhances the UMTS network capacity and data transmission rates available to subscribers. Currently, it allows data to be transmitted with speeds of up to a maximum of 42 Mbps when downloading and up to 5.74 Mbps when uploading data to the network. The entirety of the network has upload speeds of up to 5.74 Mbps. 3G networks allow for simultaneous use of different services, such as streaming content, interactive and voice calls and implementation of services demanding high data rates or high-speed channel reservations such as video calls or video on demand.

Fixed-line Network We believe our fixed-line network to be the largest in Bulgaria, which is comprised of an extensive copper infrastructure and a fiber network that passes 570,000 homes as at September 30, 2013. This network provides for a fully digitalized fixed telephony services and ADSL and fiber services that offer speeds of up to 20 Mbps and 100 Mbps, respectively. We have ADSL2+ capabilities across nearly our entire network, with 100% active digital subscriber line access multiplexer network devices and 95% of installed CPEs. We also have a fully owned fiber backbone network that includes a Dense Wavelength Division Multiplexing fiber network that allows for easy capacity extension. We are able to route all backbone traffic via this infrastructure. We began our FTTx roll out in 2011 in Sofia and Varna and we have since achieved significant progress, with 570,000 fiber homes passed as at September 30, 2013. Our targeted fiber build-out is nearly two-thirds complete and has thus far been completed ahead of our estimated budget. We believe that we incur low build-out costs allowing for a higher return on investment in fiber, due to our ownership of the ducts and the low cost of labor in Bulgaria. Our FTTx build-out consists of a mix of FTTB and FTTH technology. The technology that is ultimately implemented depends on economics and density of the area.

125 The following table shows the number of fiber homes passed by our network over the past two years:

As at December 31, As at September 30, 2010 2011 2012 2012 2013 Number of fiber homes passed ...... — 132,000 402,000 334,000 570,000

Software Software is incorporated into virtually every element of our network. For radio planning, we purchase software and regular upgrades from suppliers such as Aircom, Actix, Anite, JDSU and Mapinfo. Apart from operations and maintenance software provided to us by equipment vendors, we also have a range of specialized tools for network planning. We are in the process of implementing industry standardized IT solutions rather than customized solutions for our key systems.

Construction, Maintenance and Development We have made significant investments into our network over the last few years. We plan to build-out our fiber network in targeted areas to provide superior FTTx solutions in larger cities. We also intend to continue the roll-out of HSPA+ 900 in rural areas and to upgrade 21Mbps sites to 42 Mbps sites. We are additionally implementing triple-carrier dual frequency UMTS (one channel in the 900 MHz spectrum band and two channels in the 2100 MHz spectrum band) to 41% of the population and will continue through next year as UMTS 900 spectrum band will be the primary source of coverage and UMTS 2100 spectrum band will provide the capacity and higher throughputs. We plan to swap our current MAN network with an MPLS network within the next five years, with an aim to decrease network outages and significantly reducing our costs. Our future capital expenditures on our networks will comprise maintenance expenditures and discretionary build-out of our networks. We continue to carefully consider transitions to future technologies, such as LTE. The LTE auction for the 800 MHz spectrum band is not expected to be held before 2015. Prior to the termination of the Alcatel-Lucent Agreement, Alcatel-Lucent took primary responsibility for the operation and servicing of our network, including the maintenance of our fiber and copper access network. These services will now be insourced, with over 2000 employees to be transferred from Alcatel- Lucent to us in January 2014. We do not have any outsourcing arrangements for network construction, maintenance and operation. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Future Events Affecting Results of Operations—Termination of Alcatel-Lucent Agreement.’’

Information Technology Systems Information technology systems are critical to our operations. Our expansive information technology systems are highly integrated into every aspect of our business, providing capabilities for a variety of purposes, such as online services, point-of-sales support, third-party integration of sales channels and resellers, service provisioning, billing, customer relationship management, data warehousing and enterprise resource management and workplace support. For example, we have a billing system that has the capability to generate a single bill for all services and a single core customer relationship management system that provides access to detailed customer information in one single database that covers customer, product and promotional management, which enables us to better monitor our operational and financial performance. We have invested continuously in our information technology infrastructure in the recent years to further improve IT effectiveness and efficiency through increased standardization, centralization, consolidation and virtualization of IT systems. We use carefully selected software systems that increase our efficiency, including internally developed software, open-source software, and third-party commercial software. We only engage with well-established suppliers for hardware and software in order to prevent cost intensive product and design changes. In the case of natural disaster or an emergency situation, we operate a back-up disaster recovery center. Our information technology services are delivered predominantly by in-house resources in close cooperation with selected outsourcing partners, especially during the development and testing phase. This IT and sourcing strategy allows us to react in a flexible and efficient way to changing market demands by producing regular roll-outs of new product developments. Our integrated management system is certified at an ISO 9001:2008 Quality Standard and ISO 14001:2004 Environment Management Standard. Our management system provides IT support for the provision of

126 electronic communication services, GSM and UMTS mobile voice service, television, internet access, data transfer, transmission media, collocation and complex technical solutions. Our information security management system is certified in accordance with ISO/IEC 27001:2005 requirements and covers the security management process over the specified scope at our headquarters, the data center in Haydushka Polyana and Kaspichan.

Permits We believe we hold all necessary permits to operate our business. Our permit to provide mobile services in Bulgaria using GSM technology was issued in 2004 and expires in 2024. We acquired our UMTS permit in 2005 and it will expire in 2025. Both these permits may be renewed thereafter at the discretion of the relevant authorities. Pursuant to the terms of the GSM and UMTS permit, we have national coverage across Bulgaria. In 2012, we acquired an additional channel of paired 5 MHz in the UMTS 2100 spectrum band. Our fixed-line services are provided pursuant to a permit obtained from the CRC, which was re-issued in 2005 and is valid until 2019. If we participate in LTE spectrum auctions in the 800 MHz spectrum band (or other form of frequency allocations), as currently anticipated, and are successful in acquiring a channel in this spectrum band, any LTE services we provide will be pursuant to a permit.

Certain Contracts Relating to the Operation of Our Business The following is a summary of certain contracts relating to the operation of our business:

Interconnection Agreements We have entered into more than 80 separate interconnection agreements with domestic and international telecommunications operators that connect our mobile and/or fixed customers to customers on each of their respective networks. In addition, the Company’s wholly-owned subsidiary BTC Net EOOD has more than 20 interconnection agreements with international operators. Under these agreements, each party provides to the other, and receives from the other, connecting transit and/or termination services. Generally, these agreements have an initial term of one year and then continue indefinitely until one of the parties gives written notice of termination or until mutual consent for termination is reached. Depending on the agreement, in order for the notice of termination to be applicable, the notice must be given from between one to three months prior to when the termination may occur. Furthermore, these agreements typically may be terminated without prior notice upon certain events of default, such as breach of contract, bankruptcy or insolvency.

Roaming Agreements We are party to over 500 roaming agreements with other Bulgarian and international operators around the world as at September 30, 2013. These agreements allow our mobile subscribers to access other mobile networks by providing them with international roaming services. Although the particular terms vary by country, the agreements generally regulate billing and accounting, settlement procedures, customer care, technical aspects of the roaming agreements, testing, security, information on signaling interconnection and connectivity. These agreements usually continue indefinitely or automatically renew until one of the parties gives written notice of termination. This notice is typically required to be issued six months prior to termination. Further, the agreements typically may be terminated upon certain events of default, such as bankruptcy or insolvency.

Legal Proceedings We are involved in a number of legal proceedings arising in the ordinary course of business. Below is a description of pending legal proceedings that we consider to be material. In addition, from time to time, we may be subject to audits and investigations, some of which may in the future result in proceedings being instituted against us. See ‘‘Risk Factors—Risks Related to Regulatory and Legislative Matters— Frequent changes to tax regulations may have an adverse effect on our financial condition and results of our operations.’’

127 Bulgarian Privatization and Post Privatization Control Agency Our previous owners were subject to certain claims by the Bulgarian government in connection with the privatization of the company. To secure these claims, the Bulgarian Privatization and Post Privatization Control Agency imposed statutory liens on our properties, based upon the privatization legislation, as amended in March 2010, as well as on the shares in our capital. As at September 30, 2013, statutory liens remain on 565 of our properties with a net book value amounting to BGN 18.9 million and no statutory liens on our shares imposed by the Bulgarian Privatization and Post Privatization Control Agency remain outstanding. These claims were withdrawn in July 2013, and we are in the process of lifting all mortgages in favor of the Bulgarian Privatization and Post Privatization Control Agency from our assets.

Consumer Complaints The CRC has issued approximately 460 penal decrees against us regarding violations of fixed and mobile number portability regulations. The aggregate liability of these penal decrees is BGN 21.9 million. However, we have successfully appealed a significant number of these decrees. However, as at September 30, 2013, there are approximately 270 proceedings still pending before the courts and we have made a provision for these claims in the amount of approximately BGN 5.8 million that is based on the results of the proceedings that have already ended.

Other Litigation We are also subject to various legal proceedings arising in the ordinary course of business, none of which, if adversely decided, are likely to have a material adverse effect on our business, financial condition or results of operations.

Intellectual Property We have registered some of our most important trademarks such as ‘‘Vivacom,’’ in Bulgaria and in the European Union, as well as in the Republic of Macedonia, Serbia, Montenegro and Turkey. We do not own any registered patents or copyrights that we consider to be material to our business as a whole. We have several license agreements regarding our use of the registered trademarks of third parties.

Insurance We maintain insurance coverage that we believe is consistent with our risk management policies and is in line with the standards adopted by telecommunications companies in Bulgaria. Our insurance coverage includes: insurance protection against material damage to our business assets, by, among others, to fire, explosion, strikes, riots, earthquake, flooding and theft. We also maintain insurance coverage against loss of profits due to business interruption, insurance protection against civil liability for personal damage and/or damage to property arising in connection with the conducted business or property, insurance protection against civil liability of the lessor, as well as insurance protection for employer’s civil liability for accidents at work and civil liability for damages resulting from sudden and accidental pollution of the environment, vehicle and motorists’ third-party liability insurance and civil liability insurance for the members of our Management and Supervisory Board.

Environmental Matters We are subject to a broad range of environmental laws and regulations. These laws and regulations impose increasingly stringent environmental obligations regarding, among other things, radiation emissions, zoning, the protection of employee health and safety, noise and historical and artistic preservation. Our operations are subject to preliminary and subsequent control by the respective authorities, such as requiring the measurement of the electromagnetic field around the BTS that has been issued by a certified laboratory, or the provision of prior notification to the appropriate authorities. We could therefore, be exposed to certain costs or liabilities. Our objective is to comply in all material respects with applicable environmental and health control laws, and all related permit requirements. In extreme cases, the penalty for repeat violations of the applicable environmental laws in could result in administrative sanction.

128 We use different network infrastructure strategies in order to achieve radiation emission ranges lower than the levels permitted by applicable Bulgarian regulations. All plans for our BTS include a preliminary report and subsequent measurement of electromagnetic emissions performed by an authorized laboratory as is currently required by Bulgarian law. If the Bulgarian government were to set limits on electromagnetic emissions that are stricter than those currently in effect, we could be required to move or make other changes to our mobile infrastructure, which may affect the coverage of our mobile service.

Employees As at September 30, 2013, we had 3,480 employees and 0.7% of our workforce (less than 30 employees) was unionized among five unions. We had 7,268 full-time employees as at December 31, 2008 and 3,141, 3,253 and 3,406 full-time employees as at December 31, 2010, 2011 and 2012, respectively. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Future Events Affecting Results of Operations—Termination of the Alcatel-Lucent Agreement’’ for a discussion on the increase to our number of employees in January 2014 due to the termination of the Alcatel-Lucent Agreement. There are no staff associations, staff councils, work councils or other organizations. We have not been subject to any collective labor disputes or strikes since privatization in 2004. A collective labor agreement is in place with employees to regulate severance payments and annual paid leaves and we believe our labor relations with our employees are generally good. We and our employees pay legally defined pension insurance as required under Bulgarian law, which covers future pension benefit. We are not legally required under Bulgarian law to pay pension benefits after the retirement of an employee. Pension contributions are made to a national social security fund and additional compulsory social insurance funds, which are ultimately responsible for providing government pension benefits. For the nine months ended September 30, 2013, our cost related to pension, health and unemployment fund contributions amounted to BGN 6.7 million with no unfunded liability. Our cost-related contributions are capped at 18.1% of a maximum insurable monthly salary of BGN 2,200 for 2013.

Property and Leases We either own or lease property essential for our business operations. We own, lease or have other rights to use or construct on the sites where our mobile and fixed-line telecommunications network equipment is installed. We also own and lease administrative facilities, operational network facilities and retail facilities through Bulgaria. Our headquarters are located at 115i Tsarigradsko Shose Boulevard, 1784 Sofia, Bulgaria, where we lease office space for our headquarters.

129 REGULATION Overview Our activities as a mobile and fixed-line operator in Bulgaria are subject to statutory regulation and supervision by various Bulgarian national regulatory authorities, in particular the Communications Regulation Commission (the ‘‘CRC’’). In addition to the CRC, the Commission for Protection of Competition (the ‘‘CPC’’) and the Commission for Consumer Protection (the ‘‘CCP’’) are also involved in regulatory issues relating to the telecommunications sector. The relevant regulatory framework is set forth mainly in the Law on Electronic Communications (the ‘‘LEC’’). Bulgaria is a member state of the European Union and is therefore, subject to EU telecommunications regulation. Over the last 20 years, significant changes have taken place in the Bulgarian telecommunications sector from the privatization of state owned telecommunications entities and the opening of the telecommunications market to new market entrants to the implementation of the European Union’s regulatory framework for telecommunications in Bulgarian legislation. Amendments to the LEC were drafted and adopted to reflect Bulgaria’s accession to the European Union, which fully implements the EU directives relating to electronic communications into the Bulgarian legal system.

Key Legal Acts At the European level, telecommunications activities are regulated by the following key legal acts: • Directive 2002/21/EC of the European Parliament and of the Council of March 7, 2002 on a common regulatory framework for electronic communications networks and services; • Directive 2002/20/EC of the European Parliament and of the Council of March 7, 2002 on the authorization of electronic communications networks and services; • Directive 2002/22/EC of the European Parliament and of the Council of March 7, 2002 on universal service and users’ rights relating to electronic communications networks and services (the ‘‘Universal Service Directive’’); • Directive 2002/19/EC of the European Parliament and of the Council of March 7, 2002 on access to, and interconnection of, electronic communications networks and associated facilities; • Directive 2009/136/EC of the European Parliament and of the Council of November 25, 2009 amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No. 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws; • Directive 2009/140/EC of the European Parliament and of the Council of November 25, 2009 amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services, Directive 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities, and Directive 2002/20/EC on the authorization of electronic communications networks and services; • Directive 2002/58/EC of the European Parliament and of the Council of July 12, 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector; • Directive 2002/77/EC of the European Commission of September 16, 2002 on competition in the markets for electronic communications networks and services; • Directive 2006/24/EC of the European Parliament and of the Council of March 15, 2006 on the retention of data generated or processed in connection with the provision of publicly-available electronic communications services or of public communications networks and amending Directive 2002/58/EC (the ‘‘Data Retention Directive’’); and • EU Regulation No. 531/2012 of the European Parliament and of Council of June 13, 2012 addressing roaming on public mobile communications networks within the European Union (the ‘‘Roaming II Regulation’’). Telecommunications regulation in Bulgaria is to a significant extent, based on European Commission (the ‘‘EC’’) regulations and EU directives. However, their application has national aspects, which depend on

130 the CRC’s regulatory policy and on the characteristics of the Bulgarian market. The LEC, together with over 20 acts of secondary legislation, which include rules and ordinances and regulate matters such as methodologies, general and technical requirements, is in compliance with the European Union’s regulative principles in this sector. Among other things, it implements the 2002 EU regulatory framework, as well as its following amendments, the most significant of which occurred in 2009, which were adopted into Bulgarian legislation and became enforceable towards the end of 2011.

Principles of the Bulgarian Legal Framework The Bulgarian legal framework for the telecommunications sector states that the national regulatory authorities must respect the principles of lawfulness, predictability, transparency, public openness, consultancy, proportionality, non-discrimination and technological neutrality in respect of networks in the provision of telecommunication services by companies. It also states that the authorities must keep regulatory interference to the required minimum. One of the main purposes of the Bulgarian legal framework is to create the necessary conditions for promoting competition within the telecommunications sector. Furthermore, the LEC seeks to prevent distortion or restriction of competition in the sector, to encourage investment in infrastructure and to promote innovation. The law also tasks state authorities with the following priorities: contributing to the development of the internal market for telecommunications by the elimination of possible barriers in the provision of electronic communications; encouraging the establishment and development of trans- European networks, the interoperability of pan-European services and end-to-end connectivity; ensuring non-discriminatory treatment of telecommunications operators; cooperating with the national regulatory authorities of the Member States of the European Union, the European Commission and the Bureau of European Regulators for Electronic Communications (‘‘BEREC’’) in a transparent manner and ensuring the development of consistent regulatory practice, as well as the consistent application of the EU regulatory framework on telecommunications. The Bulgarian legal framework also charges the national regulatory authorities with using their best efforts to ensure that there is: (i) universal service; (ii) a high level of protection for consumers in their dealings with suppliers; (iii) a simple and inexpensive dispute resolution procedures; (iv) a high level of protection of personal data and privacy; (v) conditions for the provision of clear information, including setting requirements for the transparency of tariffs and conditions for use of public telecommunications services; (vi) support for the interests of specific groups, in particular of people with disabilities, elderly people and people with special needs; ensuring the maintenance of the integrity and security of public electronic communications networks. End-users should have the ability to access and distribute information or to run applications and services of their choice. The adoption of the LEC brought stability and clarity to the Bulgarian regulatory framework for telecommunications. The imposition of specific obligations without a clear and articulated reason was generally stopped and the asymmetry in regulations was significantly reduced. For example, the LEC sets clear rules and guidelines for the implementation of number portability and outlines an evolutionary approach for the transition to a more efficient regulatory process.

Telecommunications Market Supervision Pursuant to the LEC, the CRC is the national regulative authority primarily responsible for the electronic communications sector. The CRC is an independent governmental body that implements related legislation and general administrative acts in the telecommunications sector. It is a collective authority that consists of five members. The chairperson of the CRC is nominated and dismissed, by the Council of Ministers and is appointed by the Prime Minister of Bulgaria. The deputy chairperson and two other members are elected and dismissed, by the National Assembly of Bulgaria. The fifth member is appointed and dismissed, by decree of the President of Bulgaria. Each member is appointed for a term of five years. The CRC has the power to grant authorizations and permits, most importantly, the right to maintain and supply telecommunications equipment, services and networks. It prepares, adopts and updates general and statutory administrative acts related to its powers as well as a regulatory policy for the use of numbers, addresses and names. Other functions vested in the CRC are: assigning the provision of universal service; preparing, adopting and updating a regulatory policy for the use of numbers, addresses and names for the execution of telecommunications; providing for use, reserving and withdrawing numbers, addresses and names.

131 The CRC also investigates cases of non-compliance with the requirements to ensure the security and integrity of the public telecommunications networks and services, performs the functions of a national standardization organization in Bulgaria’s dealings with the European Telecommunications Standardization Institute, considers consumer complaints and promotes the development of the telecommunications market. The CRC also grants, modifies, transfers, suspends, terminates or withdraws authorizations for the use of telecommunications scarce resources, such as spectrum assignment, as well as provisional authorizations for the use of an individually assigned telecommunications scarce resource. Another aspect of the CRC’s activities concerns the resolution of disputes between telecommunications operators, where the CRC will render assistance or issues binding instructions in case of disputes arising in connection with existing obligations under the law between telecommunications operators, when either of the parties has submitted a written request. In addition to the CRC, the executive branch of the government also plays a role in the regulation of the telecommunications sector, as the Council of Ministers issues a revised Electronic Communications Policy at least once every four years, and is advised by the Minister of Transport, Information Technology and Communications on policies, strategies, plans and programs in Bulgarian telecommunications. The Minister of Transport, Information Technology and Communications is a specialized executive authority who conducts the state policy in telecommunications. At the supra-national level, the telecommunications sector is also regulated by the European Commission, Parliament and Council, as well as BEREC. The CRC interacts with the European Commission, BEREC and the regulatory authorities of the Member States of the European Union in a transparent manner to work towards the development of the single market in the European Union. It follows the recommendations of the European Commission when it is found that there is divergence in the implementation of the regulatory functions, which may create a barrier to the internal market of the European Union.

Significant Market Power The CRC is vested with the powers to identify the telecommunications operators, which have significant market power (‘‘SMP’’) on the relevant market. It defines, analyzes and assesses the relevant telecommunications markets in Bulgaria to determine whether there is effective competition in accordance with the general principles of competition law. If the CRC determines there is no effective competition in a certain market, it will identify the telecommunications operators that operate in that market as having SMP, and will impose and maintain specific obligations on them, that can be amended or even withdrawn after such designation. The CRC can also determine that two or more telecommunications operators jointly have SMP, even if they are not affiliated and when evaluated on an individual basis, would not be determined to have SMP. Where a telecommunications operator has been designated as having SMP in a specific market, it may also be designated as having SMP in a closely related market, when on the basis of a market analysis, it is ascertained that the links between the two markets allow the market power held by the telecommunications operator in the first market to be leveraged in the second market, thereby strengthening the market power of such telecommunications operator. The CRC defines the relevant markets in accordance with the requirements of EU law and with circumstances in the Bulgarian telecommunications markets. When making the determination of what specific obligations to impose, maintain, amend or withdraw upon a telecommunications operator that has been designated as having SMP, the CRC must take the following into consideration: (i) the proportionality of the obligations imposed, considering the reason for the ineffective competition ascertained and the result sought; (ii) be able to justify such obligations; (iii) weighing the introduction of regulatory intervention on emerging markets, even where the existence of a market entrant or entrants with large market shares has been ascertained.

132 Following market analysis procedures that have been carried out by the CRC since 2010, we have been recognized as a telecommunications provider with SMP in the following markets and are subject to the obligations set out in the following table:

SMP Market CRC Resolution Imposed Obligations Access to the public Resolution No. 195 of Obligations related to wholesale services: telephone network at a March 14, 2013 (i) obligation of rendering the services carrier fixed location for selection and wholesale line rental; (ii) obligation residential and of transparency; (iii) obligation of non-residential non-discrimination; (iv) obligation of reference customers (Market No.1 model offer for wholesale line rental; under EC (v) obligation of maintenance of segregated recommendation accountancy, including in relation to the 2007/879/EO of respective retail markets; (vi) price limitations, 17 December 2007) including for cost-based approach. Obligations related to retail services: (i) obligation of non-discrimination; (ii) price limitations and control over the individual tariffs for BTC’s access; (iii) requirement for filing at the CRC one month prior publication the regulated services’ prices and the price formation documentation. Publicly available Resolution No. 195 of Obligations related to wholesale services: national and March 14, 2013 (i) obligation of rendering the services carrier international telephone selection and wholesale line rental; (ii) obligation services (Markets of transparency; (iii) obligation of No. 3-6 under EC non-discrimination; (iv) obligation of reference recommendation model offer for wholesale line rental; 2003/311/EO of (v) obligation of maintenance of segregated 11 February 2003) accountancy, including in relation to the respective retail markets; (vi) price limitations, including for cost-based approach. Obligations related to retail services: (i) obligation of non-discrimination; (ii) price limitations and control over the individual tariffs for BTC’s access; (iii) requirement for filing with the CRC one month prior publication the regulated services’ prices and the price formation documentation. Wholesale terminating Resolution No. 1954 of Specific obligations related to wholesale segments of leased lines September 27, 2012 terminating segments of leased lines sub-market (Market No. 6 under EC with speeds not exceeding 8 Mbit/s: (i) obligation recommendation of providing access and permit to use network 2007/879/EO of elements and equipment in relation to usage of 17 December 2007, the service ‘wholesale terminating segments of respectively, Market leased lines with speeds not exceeding 8 Mbits/s’ No. 13 under EC irrespective of the technology used to provide recommendation leased or dedicated capacity; (ii) obligation of 2003/311/EO of transparency; (iii) obligation of 11 February 2003) non-discrimination; (iv) price limitations.

133 SMP Market CRC Resolution Imposed Obligations Voice call termination Resolution No. 1362 of (i) Obligation of providing access and permit to on individual mobile May 31, 2012 use network elements and equipment; networks (Market No. 7 (ii) obligation of transparency; (iii) obligation of under EC non-discrimination; (iv) obligation of maintenance recommendation of segregated accountancy; (v) price limitations, 2007/879/EO of including for cost-based approach. 17 December 2007, respectively, Market No. 16 under EC recommendation 2003/311/EO of 11 February 2003) Call origination on the Resolution No. 1361 of (i) Obligation of providing access and allowing the public telephone May 31, 2012 utilization of the necessary network elements and network provided at a equipment; (ii) obligation of transparency; fixed location (Market (iii) obligation of non-discrimination; No. 2 under EC (iv) obligation of reference model offer for recommendation interconnection; (v) obligation of maintenance of 2007/879/EO of segregated accountancy; (vi) price limitations, 17 December 2007, including for cost-based approach. respectively, Market No. 8 under EC recommendation 2003/311/EO of 11 February 2003) Call termination on Resolution No. 1361 of (i) Obligation of providing access and allowing the individual public May 31, 2012 utilization of the necessary network elements and telephone networks equipment; (ii) obligation of transparency; provided at a fixed (iii) obligation of non-discrimination; location (Market No. 3 (iv) obligation of publishing model offer for under EC interconnection; (v) obligation of maintenance of recommendation segregated accountancy; (vi) price limitations, 2007/879/EO of including for cost-based approach. 17 December 2007, respectively, Market No. 9 under EC recommendation 2003/311/EO of 11 February 2003) Wholesale (physical) Resolution No. 246 of Specific obligations related to provision of network infrastructure February 22, 2011 unbundled access to the subscribers line: access (including shared (i) obligation of providing access and allowing the or fully unbundled utilization of the necessary network elements and access) at a fixed equipment; (ii) obligation of transparency; location (Market No. 4 (iii) obligation of non-discrimination; under EC (iv) obligation of publishing model offer for recommendation unbundled access to the subscribers line; (v) price 2007/879/EO of limitations. 17 December 2007)

134 SMP Market CRC Resolution Imposed Obligations Specific obligations related to provision of unbundled access to passive infrastructure (duct network): (i) obligation of providing access and allowing the utilization of the passive infrastructure; (ii) obligation of transparency; (iii) obligation of non-discrimination; (iv) obligation of publishing model offer for access to passive infrastructure; (v) price limitations. Wholesale fixed Resolution No. 246 of (i) Obligation of providing access and allowing the broadband access, February 22, 2011 utilization of the necessary network elements and (Market No. 5 under EC equipment; (ii) obligation of transparency; recommendation (iii) obligation of non-discrimination; (iv) price 2007/879/EO of limitations. 17 December 2007) However, no obligations are imposed on us for the provision wholesale access to our fiber network. In addition, we have benefitted from two key regulatory changes in 2013. The price that can be charged for calls that are placed from a fixed telephony line to a mobile line is no longer regulated, where previously the price had to move downward proportionally with every MTR decrease. In addition, the CRC has lifted the pre-approval requirement of reviewing each of our bundled offers before it was released to the public, which allows us more flexibility in how we market our products.

Universal Service Universal telecommunications services include the operation of telephone, fax and internet connections and the provision and maintenance of network access for all end-users, regardless of their location within the country, at an affordable price. Bulgarian legislation that regulates universal service is in complete accordance with the Universal Service Directive. Universal service as defined in Bulgarian legislation includes: • connection at a fixed location to a public electronic communications network regardless of the technology used; • provision of public telephone services over that connection which allows incoming and outgoing national and international calls; • provision of public pay telephones or other public voice telephony access points of specified quality, which provides for the possibility to make emergency calls, free of charge, to national numbers and to the single European emergency call number ‘‘112,’’ • provision of a telephone directory for the numbers of all subscribers to public telephone services; • provision of directory enquiry services accessible to all end-users, including users of public pay telephones or other public voice telephony access points; and • access to public telephone services, including the emergency call services, telephone directory and directory enquiry services for persons with disabilities, similar to the services provided to the other end-users. The CRC organizes a tender process, which adheres to the principles of objectivity, transparency and non-discrimination, in order to select a universal service provider or providers that together, will provide all the above services across the entire territory of Bulgaria. The telecommunications providers providing such services are to meet each reasonable request for connection at a fixed location to the public telephone network and for access to electronic communications network. Historically, we have been the Bulgarian universal service provider and in such capacity, are subject to the obligations to provide universal service across the entire territory of Bulgaria for the required quality and under affordable prices. Bulgarian legislation contains special rules, regarding the affordability of universal service. Universal service providers are required to determine the rates and packages for the provision of universal services on the basis of the methodology promulgated by the CRC and adopted by the Council of Ministers. The CRC reviews these rates and packages and may require the universal service operators to adjust them in accordance with the requirements of law and the aforementioned methodology.

135 Prices According to Bulgarian telecommunications legislation, tariffs are to be determined by the telecommunications operators based on supply and demand, non-discrimination against users, categories of end-users, traffic volume and other conditions related to freedom of contract. Discounts may be offered for services under publicly known conditions when the user of those services meets pre-announced conditions for their provision. The tariffs are submitted by the telecommunications operators for review by the CRC before their entry into effect and are made public by posting them on the Internet or in a publication that is accessible to users. In certain cases, the CRC may impose price controls and requirements based on cost orientation on telecommunications operators that have been determined to have significant market power on the relevant market. In addition, special rules apply for the determination of prices for the provision of universal services. See ‘‘—Universal Service.’’

Access and Interconnection Any telecommunications operator has the right and, when requested by another telecommunications operator, the obligation to negotiate interconnection of their respective networks for the purpose of provision of public telecommunications services and ensuring interoperability of services. The CRC is mandated to encourage and, where appropriate, to impose obligations on Bulgarian telecommunications operators, with a view to promoting efficiency, sustainable competition, efficient investment and innovation, while delivering maximum benefit to end-users. The terms and procedure for the establishment of access and interconnection are defined by a CRC ordinance.

International Roaming On June 30, 2007, EC Regulation No. 717/2007 of the European Parliament and of the Council of 27 June 2007 on roaming on public mobile telephone networks within the Community and amending Directive 2002/21/EC (the ‘‘EU Roaming Regulation’’) came into effect. The EU Roaming Regulation provides a steady reduction in retail and wholesale roaming charges for calls made or received from destinations within the European Union and the European Economic Area. Two years later, on 1 July 2009, the Roaming II Regulation amending the EU Roaming Regulation, came into effect, enacting the EC proposal to extend the regulation’s scope and duration. The Roaming II Regulation reduced the caps applicable to roaming voice charges, while extending the glide path for roaming voice charges until June 30, 2012 and introduced a cap on the roaming charges that telecommunications operators can charge for SMS and mobile data services. With respect to EU mobile roaming services, a communication from the European Commission to the European Parliament published in May 2010, included the objective of bringing the difference between roaming and national retail tariffs to nearly zero by 2015. This communication led to a new regulation proposal and to the adoption, on July 1, 2012, of Regulation (EU) No. 531.2012 of the European Parliament and of the Council of 13 June 2012 on roaming on public mobile communications networks within the Union (the ‘‘Roaming III Regulation’’), which repealed and replaced the EU Roaming Regulation. The Roaming III Regulation introduces, amongst others, a glide path reduction in wholesale and retail voice services, SMS, data cap mechanisms, and obligation to publish a wholesale reference offer to provide wholesale roaming services on a predefined basis. The Roaming III Regulation also introduces, starting from 2014, an obligation for domestic mobile network operators to implement specific mechanisms for the separate sale of regulated retail roaming services, in order to enable their customers to access regulated voice, SMS and data roaming services, provided as a bundle by any alternative roaming provider. In March 2013, BEREC published its guidelines on the Roaming III Regulation. The European Commission is currently coordinating working groups comprised of stakeholders to define the processes, interfaces and protocols that are to be adopted.

National Roaming There are currently no specific obligations for the provision of national roaming services in Bulgaria. With CRC decision 629/30.08.2013, the CRC has issued a non-binding statement that the provision of national roaming services will be subject to negotiations. However, there are certain requirements for the provision of such services, namely: • minimum network coverage of 20% by population before the request for national roaming services; • minimum term of the contract for the service of three years;

136 • the range of retail services (SMS, MMS, data, voice) that are to be provided through national roaming services should conform to what has been negotiated; and • the service could be required with a reasonable request by an operator, which was assigned spectrum and numbers from the numbering plan and has 20% network coverage by population. Nevertheless, upon the detection of a problem with regards to competition, such as a lack of good faith when entering into agreements for ‘‘national roaming,’’ the CRC will intervene and may impose an access obligation (and such terms and bargaining) for the provision of this service. The adoption of CRC decision 629/30.08.2013 does not create an obligation for operators to provide network access to MVNOs.

Spectrum Allocation Spectrum is a limited national resource and it is essential to the development of the electronic communications sector as part of the Bulgarian economy. The LEC, which governs the liberalization of spectrum allocation, provides for a suitable and sufficient frequency resource allocation system that deals with the growing demand for new services by the Bulgarian population and new technological developments are introduced. One of the main objectives of the LEC in liberalizing spectrum allocation was to minimize regulatory intervention, and to implement the principle of technological neutrality in spectrum allocation. Thus, telecommunications operators that have been granted permits for the use of individually assigned radio frequency spectrum, have the flexibility to switch towards more environmentally friendly technologies. The neutral regulatory policy creates conditions for the development of the telecommunications market, reduces the investment risk for businesses and provides for the rapid uptake of new technologies. The National Radio Spectrum Council (‘‘NRSC’’) plays an important role in Bulgarian spectrum allocation, as it develops the National Radio Frequency Plan (the ‘‘National Plan’’), the primarily legal act for frequency management. In 1999, the government issued the National Plan for civil and national defense and security needs, as well as for shared use between them was issued. Subsequently, the National Plan has been updated several times to accommodate new systems and technologies and to harmonize it with the allocation table of the International Telecommunications Union (‘‘ITU’’) Radio Regulations. A recent update of the National Plan harmonized it with EU policy. In accordance with the National Plan, the Bulgarian radio spectrum in the range from 9KHz to 3,000 GHz is allocated into radio frequencies, radio frequency bands and radio services for civilian needs, as well as for the needs of the state bodies and services, connected with national security. The radio frequencies and the radio frequency bands are provided by the CRC after national coordination and clearance with all state bodies, central-government departments and services concerned for the purpose of ensuring the safety of aeronautical and maritime navigation and protection of national security. For current spectrum allocation in Bulgaria, see ‘‘Industry and Market Overview—Mobile Market—Spectrum Allocation.’’ When a provision is made for granting an authorization for use of a certain radio spectrum, the NRSC notifies the CRC, which grants the relevant authorization and collects the fees.

Authorization for the Use of Radio Spectrum The authorization for the use of radio spectrum should be granted in respect to the principles of objectivity, proportionality, non-discrimination and transparency. The CRC grants such authorization after conducting a contest or tender in the cases where the number of candidates is greater than the number of the persons that are eligible to obtain an authorization for the relevant available scarce resource. In certain cases the CRC is permitted to grant an authorization without conducting a contest or tender, including the following: (i) if the authorization is for the needs of state bodies in connection with their functions and diplomatic missions; (ii) if it is for the implementation of electronic communications for private needs; and (iii) where the number of candidates is smaller than or equal to the number of persons that are eligible to obtain an authorization for the relevant available scarce resource. The procedure for granting of the authorization is started by submission of an application for the use of a certain radio spectrum. The CRC should adopt a decision on granting of the requested authorization within six weeks after receipt of the application, unless an international coordination of the radio frequencies is required, in which case, the CRC will perform such coordination within eight months after the date of submission of the application. The granting of an authorization may be denied in the following cases: (i) no free limited resource is available or has not been coordinated at the national or international level, as the case may be; (ii) the use

137 of the limited resource may jeopardize national security or will contradict the international duties of Bulgaria; (iii) the applicant has been declared bankrupt or is in bankruptcy or in a liquidation procedure, has been banned from pursuing commercial activity, or has unsettled public obligations as specified under the law; or (iv) the CRC has revoked the applicant’s authorization for the use of individually assigned radio spectrum that is of the same type as the authorization applied for, for the period determined by the CRC. The CRC may revoke an issued authorization for use of individually assigned radio spectrum if: (i) the operator providing public electronic communications networks and/or services has not fulfilled any of its obligation, undertaken in such capacity; (ii) if in two year period the CRC has established three or more violations of one and the same condition under the issued authorization; (iii) if the CRC has found that the operator has been declared bankrupt or is in bankruptcy or in a liquidation procedure, has been banned from pursuing commercial activity, or has unsettled public obligations as specified under the law; or (iv) the operator has not fulfilled its obligations related to the efficient use of the radio spectrum, imposed by the respective authorization. Acting on its own initiative or on the motion of an interested party, the CRC may announce an intention to conduct a contest or a tender for use of a particular radio spectrum in case of a need to limit the number of the granted authorizations. The number of authorizations granted for use of a particular radio spectrum may be limited upon considerations of effective use of the spectrum, maximizing the benefit of users, and the promotion of competition.

Number Portability The Universal Service Directive requires EU Member States to ensure that all subscribers of publicly available telephone services (including mobile services) are able to retain their number or numbers independently of the telecommunications operator that provides the service. In the case of geographic numbers this should apply at the specific location and in the case of non-geographic numbers, at any location. For mobile services, a national significant number should be able to be retained. However, these requirements do not apply in the case of porting of numbers between networks providing services at a fixed location and mobile networks. After the entry of Bulgaria into the European Union, Bulgaria was obliged to conform to the EU regulation regarding number portability. An extended deadline for introducing the EU requirements was given, which expired on January 1, 2009, but it was not observed by the Bulgarian authorities and only partial number portability was introduced in April 2008. A number of subscribers, who used analog networks, did not have the possibility to change the operators while retaining their numbers and high fees often accompanied the provision of this service. Due to the unavailability of portability services for fixed numbers, the European Commission launched an infringement procedure against Bulgaria in May 2009. Subsequently, the CRC announced the introduction of fixed number portability as at July 1, 2009. Part of the obstacles faced with the provision of portability services was that some of the fixed-lines were serviced by analog exchanges. In order for the infringement procedure that was filed to be suspended, we completed a full digitalization of our network. In accordance with EU legislation, the LEC puts an obligation for Bulgarian telecommunications operators to provide portability services. A National Numbering Plan was prepared by the CRC, which allocates the numbers used in electronic communications networks for identification, routing and billing by the telecommunications operators. The CRC adopted functional specifications for number portability in Bulgaria after a public consultation and then promulgated the said specifications in the State Gazette. These specifications contained the technical conditions for the implementation of portability, the actions that the operators must take and the method for implementation of portability and other requirements, obligations, procedures and principles. The Universal Service Directive places an obligation on the national regulatory authorities to ensure that pricing for interconnection related to the provision of number portability is cost oriented and that direct charges to subscribers, if any, do not act as a disincentive for the use of these facilities. Bulgarian telecommunications operators are required to determine among themselves, the prices that are related to the execution of number portability, which respect the principle of cost orientation as required by EU legislation. More specifically, they determine a lump-sum price that covers costs in connection with the verification of the identity of a particular subscriber and for other activities related to the administration of porting a number.

138 Protection of Competition and Consumers Protection of competition is monitored at the European level by the European Commission and at the domestic level by the CPC and to a lesser extent the CRC. Pursuant to the LEC, the CPC and CRC are to cooperate with each other with regards to the observance of the rights of entities using telecommunications services, as well as counteracting competition restricting practices and anti-competitive concentrations of telecommunications operators and undertakings. The CPC has been designated with broad regulatory powers in the area of competition. It monitors the market for any violations of the competition rules and imposes penalties for any such violations. In addition; it advises state and local government authorities on repealing or amending administrative acts, which lead or could lead to prevention, restriction or distortion of competition, administers injunctions against violations of competition law, cooperates with the European Commission and the other national antitrust authorities of the EU Member States, conducts analysis of the state of competition in Bulgaria, interacts with government authorities, as well as with institutions and non-governmental organizations by means of participation in the drafting of statutory acts, issues opinions on draft legislation, as well as on statutory and general administrative acts in force, and proposes and organizes initiatives related to the promotion of the rules of competition. The CRC has specialized powers regarding the protection of the competition in the field of telecommunications. It analyzes the effectiveness of competition in the relevant market in accordance with the methods and principles of competition law. A relevant market is considered effectively competitive if no telecommunications operator, whether individually or jointly with other operators, has significant market power on the given market. In the cases where, on the basis of an analysis of a relevant market, it is ascertained that competition is not effective, the CRC will identify operators which individually or jointly have a significant market power in a relevant market and will impose specific obligations on any such operator or operators. When determining the specific obligations to impose, maintain, amend or withdraw, the CRC must adhere to the principle of proportionality, justify the specific obligations to be imposed and refrain from regulatory intervention in emerging markets, even in those markets where the existence of an entrant or entrants with a large market share has been ascertained. Both the CPC and CRC have been mandated with the authority to apply measures against telecommunications operators that operate in Bulgaria, and even outside of Bulgaria, if they explicitly, implicitly or could potentially prevent, restrict or distort competition in the Bulgarian telecommunications market. The following actions are prohibited under Bulgarian legislation: any concerted agreements, decisions or practices, the abuse of monopolistic and dominant positions on the market, and any other actions and operations which may result in the prevention, restriction or distortion of competition in Bulgaria or which could affect trade between EU Member States, such as the direct or indirect fixing of prices or other trade terms, allocation of markets and restriction or control of technical development or investment. Bulgarian legislation also provides for the special protection of consumer interests. Telecommunications operators are required to respect the principles of transparency and non-discrimination, and are prohibited from providing preferential treatment to specific subscribers or a group of subscribers. Telecommunications operators are required to prepare General Conditions in their contracts with subscribers in the cases where the negotiation of individual contracts is impractical. The General Conditions or the amendments thereto are to be posted on the Internet sites of the operators and displayed in a conspicuous place at their trade offices or in other appropriate manners. The CRC may place requirements on telecommunications operators in order to ensure end-users with disabilities have access to electronic communications services, including emergency call services and services of social value that are equivalent to the access provided to the majority of end-users, and are able to take advantage of the choice of services available to the majority of end-users.

Protection of Personal Data Due to the large number of telecommunications users, regulations relating to the protection of personal data are particularly important to the business of telecommunications operators. Telecommunications operators are required to protect their public network against unauthorized access to personal data and to guarantee personal data and privacy protection to end-users. They can process subscriber data only if such data is necessary for the provision of telecommunications services, for billing and for proving the accuracy of the clients’ bills, otherwise known as ‘‘traffic data.’’ Telecommunications operators are required to

139 provide to end-users accurate and full information about the type of traffic data that is processed, as well as information about the duration of such processing. The LEC places an obligation on the providers of publicly available electronic communications services or a public communications network, who collects, processes and uses traffic data for the purposes of making specific calls or connections, to erase or make data collected after the termination of that call or connection anonymous. An exception exists for telecommunications providers to keep data that is necessary for the performance of a new call or connection, and in certain specific cases provided for under the law. For instance, if end-users have granted their consent, telecommunications providers are allowed to use traffic data for marketing research and for providing VAS, which requires additional processing of traffic data. Personal data of end-users acquired in relation with marketing research must be made anonymous. Traffic data is made anonymous when the data is no longer related in any way to any particular customer and the identity of the customer cannot be extracted from the data. Such anonymous data is no longer considered traffic data and the rules concerning the protection of traffic data will not apply to it. Telecommunications providers are obliged to include a mechanism in their relations with customers, that makes it possible for customers to withdraw their consent for use of their personal data at any time. The requirement to retain connection data, introduced at the European level by the Data Retention Directive and implemented in the Bulgarian legal system by an amendment to the LEC, is particularly important to operators. Telecommunications operators are obliged to retain, for a period of twelve months, data generated or processed in the process of their activity, which are necessary to trace and identify the source, destination, date, time, duration and type of any communication. The retained data are retained for the needs of investigation of serious criminal offences. Telecommunications operators are obligated to delete the data after a twelve month period. The telecommunications operators are legally obligated not to disclose communications, traffic and location data, as well as data that can identify the subscriber, which has been received by the telecommunications operators during the course of the provision of electronic communications services and networks. This obligation is subject to a few exceptions provided by Bulgarian law aimed at preserving public interest, however, the above data may be only disclosed to certain authorities defined by the law and following authorization by the relevant Bulgarian court.

140 MANAGEMENT Bulgarian Telecommunications Company EAD Bulgarian Telecommunications Company EAD is a single shareholder joint stock company incorporated in Bulgaria, with a registration address at 115i Tsarigradsko Shose Boulevard, 1784 Sofia, Bulgaria. Bulgarian Telecommunications Company EAD has a two-tier management and supervisory structure consisting of the managing board (the ‘‘Management Board’’) and the supervisory board (the ‘‘Supervisory Board’’). The Management Board is required to report its activities to the Supervisory Board.

Management Board and Executive Officers The Management Board currently consists of five members and is responsible for the overall management and performance of Vivacom, including defining and executing our business strategy. The members of the Management Board are elected and dismissed by the Supervisory Board. The term of appointment is for five years. The following table sets out the name, age and positions of the individuals who currently serve on the Management Board.

Name Age Position Atanas Iliev Dobrev ...... 42 Chief Executive Officer and Member Zlatozar Krastev Sourlekov ...... 49 Chairman Alexander Georgiev Grancharov ...... 46 Chief Marketing Officer and Deputy Chairman Rusin Yordanov Yordanov ...... 42 Chief Legal Officer and Member Ivaylo Rumenov Bachiyski ...... 42 Chief Technical Officer and Member The following is a summary of the business experience and principal outside business interests of the Management Board and certain executive officers. The business address for each member of the Management Board is 115i Tsarigradsko Shose Boulevard, 1784 Sofia, Bulgaria. Atanas Iliev Dobrev. Mr. Dobrev is the Chief Executive Officer of Vivacom and a member of the Management Board. He joined Vivacom in September 2008 as Chief Financial Officer. Prior to joining Vivacom, Mr. Dobrev was Chief Financial Officer of Cosmo Bulgaria Mobile for seven years, a mobile operator in Bulgaria. He has a Master’s Degree in International Economic Relations from the University of National and World Economy and a Master’s Degree in Business Administration from Rollins College. Zlatozar Krastev Sourlekov. Mr. Sourlekov is the Chairman of the Management Board. He has also been a member of the Supervisory Board of Corporate Commercial Bank since 2000. He is also a Managing Director of Proakta EOOD. He has a Diploma in International Economic Relations from the University of National and World Economy, Sofia. Alexander Georgiev Grancharov. Mr. Grancharov is the Chief Marketing Officer of Vivacom and Deputy Chairman of the Management Board. Prior to Vivacom, Mr. Grancharov worked at Coca Cola Bulgaria where he was Country Manager, before joining Carlsberg Bulgaria. During his nine years at Carlsberg Bulgaria, he was Chief Executive Officer. He has a Master’s Degree in International Relations and Diplomacy from the University of National and World Economy, Sofia. Rusin Yordanov Yordanov. Mr. Yordanov is the Chief Legal Officer of Vivacom and a member of the Management Board. He joined Vivacom in 2004 and has risen from Chief Corporate Counsel to Chief Legal Counsel. Prior to Vivacom, he had worked at the Privatization and Post-Privatization Control Agency and Penkov, Markov & Partners. He has a law degree from Sofia University. Ivaylo Rumenov Bachiyski. Mr. Bachiyski is the Chief Technical Officer of Vivacom and a member of the Management Board. Prior to joining Vivacom, he had worked for Alcatel-Lucent, Ericsson and Cisco. Recently, within the last five years, he has been the Global Account Director at Cogent Communications. He is also a Managing Director of Proxima Centauri EOOD. He has a Master’s Degree of Science in Communication Systems and Technologies from Technical University, Sofia and a Master’s Degree in Business Administration from Duke University. Asen Velikov. Mr. Velikov is the Financial Director of Vivacom. He joined Vivacom in 1999 and rose from Accounting Manager to Senior Manager in 2004, to Controlling Director in 2010 and to Financial Director in 2012. He has a degree in Accounting and a Masters in International Economic Relations from D.A. Tsenov Academy of Economics and is a passed finalist of the Chartered Institute of Management Accountants.

141 Supervisory Board The Supervisory Board currently consists of five members that are elected by our shareholders. The term of appointment is for five years. The members of the Supervisory Board define and oversee the implementation of our vision, goals and strategy through the provision of guidance to the Management Board. See ‘‘Principal Shareholders—Shareholders’ Agreement.’’ The following table sets out the name, age and positions of the individuals who currently serve on the Supervisory Board.

Name Age Position Tsvetan Radoev Vassilev ...... 54 Chairman Olksandr Moroz ...... 41 Member Philip Harrison Grose ...... 35 Member Stefano Zuppet ...... 46 Member Vladimir Alexandrov Rangelov ...... 41 Member The following is a summary of the business experience and principal outside business interests of the Supervisory Board. The business address for each member of the board is the registered address of Vivacom. Tsvetan Radoev Vassilev. Mr. Tsvetan Radoev Vassilev is the Chairman of the Supervisory Board and the Chairman of the Supervisory Board of Corporate Commercial Bank AD and of VICTORIA Insurance Company AD. He has a degree in International Economic Relations from the University of National and World Economy. Olksandr Moroz. Mr. Olksandr Moroz is a member of the Supervisory Board and an Executive Director at VTBC. Prior to joining VTBC in December 2007, he was a Vice-President at Royal Bank of Canada. Before joining Royal Bank of Canada, Mr. Moroz was an Associate at Societ´ e´ Generale´ and a senior consultant at Operis. He has a Master’s Degree in Physics from Kharkov State University and a PhD in Physics from the University of Cambridge. Philip Harrison Grose. Mr. Philip Harrison Grose is a member of the Supervisory Board and a Partner at Castle Hill Asset Management. Prior to joining Castle Hill Management in January 2010, he was a senior credit analyst at Ignis Investment Management Limited responsible for European telecommunications, media and technology (‘‘TMT’’) investments. Prior to joining Ignis, Mr. Grose worked at Merrill Lynch as a Senior Director covering the TMT sector. Before joining Merrill Lynch, he spent five years at Deutsche Bank as a research analyst on the high yield trading desk and in their research department. He has a Bachelor of Arts in Economics and History from the University of Pennsylvania. Stefano Zuppet. Mr. Stefano Zuppet is a member of the Supervisory Board and Managing Director and global head of TMT and Light Industries Investment Banking at VTBC. He is also a board member of Airport Alliance B.V.. Prior to joining VTBC in December 2011, he worked at Bank of America as a Managing Director and head of the Europe, the Middle East and Africa (‘‘EMEA’’) Investment Banking group. Previously, Mr. Zuppet worked at Merrill Lynch as a Managing Director and co-head of the EMEA TMT Investment Banking group. He has a Master’s Degree in Economics from Universita` Commerciale ‘Luigi Bocconi’ D.E.S. and a Master’s Degree of Science in Finance from the University of London. Vladimir Alexandrov Rangelov. Mr Vladimir Alexandrov Rangelov is a member of the Supervisory Board and Managing Partner at Kambourov & Partners Law Office, where he has worked since 1996. He is also a Procurator at Trinity Productions Bulgaria EOOD. He has an LLM from Sofia University and a Specialization in Law of Commercial Entities and Competition Law from the University of Hamburg.

Independent Audit Committee The members of the independent audit committee are chosen by the general meeting of the Company’s shareholders. The independent audit committee is tasked with: (a) monitoring the financial reporting process, the effectiveness of the internal control systems and risk management systems of the Company; (b) consulting with and monitoring external auditors regarding the extent of their independent financial audit of the Company and ensuring that the external auditors are in compliance with the requirements of the Law and the Code of Ethics of professional accountants, as well as monitoring the provision of any additional services provided by the external auditors; and

142 (c) recommending to the shareholders the appointment of the external auditors.

Compensation The members of the Management Board and the Supervisory Board have not received remuneration, awards or any other benefits paid by the Company or its subsidiaries in 2012 for their services as board members. Remuneration amounting to BGN 3.8 million relating to the members of the Management Board and the Supervisory Board and to key management personnel has been accrued as at September 30, 2013.

BTC Net EOOD BTC Net EOOD is a limited liability company domiciled in Bulgaria, with a registration address at 115i Tsarigradsko Shose Boulevard, 1784 Sofia, Bulgaria. BTC Net EOOD is a wholly owned subsidiary of the Issuer. The director of BTC Net EOOD is Plamen Yordanov Vasilev and may be contacted at the registered office of BTC Net EOOD.

Shareholders’ Agreement See ‘‘Principal Shareholders—Shareholders’ Agreement.’’

143 PRINCIPAL SHAREHOLDERS The Issuer The Issuer has an authorized and fully paid up share capital of 288,764,840 ordinary shares with a nominal value of BGN 1.00. All of the issued share capital of the Issuer is owned by Viva Telecom Bulgaria EAD, a single shareholder joint stock company, incorporated under the laws of Bulgaria, which is a wholly owned subsidiary of InterV Investment S.a` r.l., a private limited company organized under the laws of Luxembourg. InterV Investment S.a` r.l. is a wholly owned subsidiary of V2 Investment S.a` r.l., a private limited company organized under the laws of Luxembourg, which is a wholly owned subsidiary of V Telecom Investment S.C.A., a partnership limited by shares (soci´et´e en commandite par actions) organized and established under the laws of Luxembourg. V Telecom Investment S.C.A. is managed by its general partner, V Telecom Investment S.A. For a description of the measures in place to ensure that control is not abused, see ‘‘Management— Bulgarian Telecommunications Company EAD’’ and ‘‘—Shareholders’ Agreement.’’

Ownership of V Telecom Investment S.C.A. After the Squeeze Out, Viva Telecom Bulgaria EAD successfully completed its acquisition of all remaining common voting shares of the Issuer. The Bulgarian government’s Golden Share was not subject to the Squeeze Out. At the general meeting of shareholders of the Company on September 30, 2013, the decision was made to cancel the special rights of the Golden Share, such as the right to veto certain decisions. The Golden Share was then redeemed on October 15, 2013. The following table sets out the principal and other holders of the V Telecom Investment S.C.A.’s shares as at September 30, 2013.

Name of shareholder Number of Shares Percentage of Shares CCB Group(1) ...... 43,264 43.3% VTB(2) ...... 33,307 33.3% Former lenders(3) ...... 23,429 23.4% Total ...... 100,000 100.0%

(1) Stake held through Bromak Telecom Invest AD, which is controlled by Bromak EOOD, the holding company that is a majority owner of Corporate Commercial Bank AD, and ultimately controlled by Mr. Tsvetan Vassilev. CCB Group includes Corporate Commercial Bank AD, which is the fifth largest Bulgarian bank with assets of A3.2 billion as of June 30, 2013. (2) Stake held through Crusher Investments Limited, an indirectly, wholly owned subsidiary of JSC VTB Bank. JSC VTB Bank is the second largest bank in Russia with a growing investment banking business across the Commonwealth of Independent States and Central and Eastern Europe countries, which is majority owned by the Russian government and listed on the Moscow Interbank Currency Exchange, Russian Trading System Stock Exchange and the London Stock Exchange. (3) Former lenders of Bulgarian Telecommunications Company EAD’s senior secured debt before restructuring, all owning less than 5% of the capital individually. Following the completion of the Transactions, we intend to convert the Equity Bridge into common equity that will be offered to third parties. See ‘‘Certain Relationships and Related Party Transactions—Equity Bridge.’’

Shareholders’ Agreement In connection with our restructuring in 2012, our shareholders, including (i) Crusher Investment Limited, (ii) Bromak EOOD, (iii) V Telecom Investment S.C.A. (‘‘Lux Topco’’), (iv) V Telecom Investment General Partner S.A., Lux Topco’s general partner (‘‘Lux GP’’), (v) V2 Investment S.a` r.l., (vi) InterV Investment S.a` r.l. and (vii) Viva Telecom Bulgaria EAD, among others, entered into a shareholders’ agreement dated October 31, 2012 (the ‘‘Shareholders’ Agreement’’) reflecting our shareholders’ agreements with respect to the Company and its subsidiaries and the Bulgarian and Luxembourg holding companies formed in connection with the restructuring. The Shareholders’ Agreement reflects our shareholders’ agreement with respect to their respective rights and obligations in connection with their investment in, and the governance of, Lux GP and Lux Topco and its subsidiaries from time to time (including the Company) (the ‘‘Group’’ and each of them a ‘‘Group Company’’).

144 The Shareholders’ Agreement provides that the board of directors of the Lux GP shall be composed of two individuals nominated by VTB (or by a designated VTB transferee under certain circumstances), two individuals nominated by CCB Group (or by a designated CCB Group transferee under certain circumstances) and one individual nominated by the minority shareholders (or in certain circumstances a simple majority of the shareholders). At all meetings of the board of directors of the Lux GP, one director designated by VTB, one director designated by CCB Group and one director designated by the minority shareholders (if any), must be present to constitute a quorum in order to approve any board reserved matters. In all other cases, one director designated by VTB and one director designated by CCB Group must be present to constitute a quorum. The Shareholders’ Agreement also provides for certain corporate actions to be taken only with the consent of the board or the shareholders, in accordance with certain unanimity or majority requirements. Corporate actions that are subject to such approvals include, without limitation: • changes to the organizational documents of any Group Company; • certain changes to the strategy or products of the Group; • any material change in the nature of the business of the Group; • reductions in share capital; • creation, allotments, issues and disposals of shares in any Group Company; • any reorganization, amalgamation, consolidation, merger or sale of more than 25% (requiring consent by the board) or 35% (requiring consent by the shareholders) of the book value of the Group’s gross assets; • winding up, liquidation or bankruptcy of a Group Company or the Lux GP; • the disposal by any means (including by lease or licence) by any Group Company of any asset the value of which exceeds 35% of the book value of the Group’s gross assets; • incurrence of financial indebtedness in excess of 25% of the book value of the Group’s gross assets; • incurrence of capital expenditure in excess of certain maximum amounts per year for the Group, in accordance with a descending schedule ending in the financial year ended December 31, 2016 with a maximum amount of A75 million; and • determining the terms of reference for the audit committee, remuneration committee and capital expenditure committee, amongst others. Transfers of interests in Lux Topco and Lux GP are subject to tag-along and drag-along rights and equity co-investment call options in favor of the other shareholders and restricted from transfer to certain competitors. In addition, the Shareholders’ Agreement provides for the shareholders to negotiate and act in good faith in the case of a proposed sale or a public offering of the Company. Certain such actions may trigger change of control provisions under the Notes. See ‘‘Description of Notes—Repurchase at the Option of Holders—Change of Control.’’

145 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS In the course of our ordinary business activities, we regularly enter into agreements with or render services to related parties. In turn, such related parties may render services or deliver goods to us as part of their business. Purchase and supply agreements between subsidiaries and affiliated companies and with associated companies or shareholders of such associated companies that are not part of our Group are entered into on a regular basis within the ordinary course of business. Such transactions include, but are not limited to, the sale of mobile handsets and accessories, providing and receiving technical assistance and exchanging other services. We believe that all transactions with affiliated companies and persons with which members of our Management Board and Supervisory Board are affiliated are negotiated and conducted on a basis equivalent to those that would have been achievable on an arm’s-length basis, and that the terms of these transactions are comparable to those currently contracted with unrelated third-party suppliers, manufacturers and service providers. In addition to the foregoing ordinary course transactions, we have also entered into the following transactions with related parties.

Equity Bridge InterV Investment S.a` r.l. entered into the Equity Bridge with VTBC as arranger on November 6, 2013, which will provide for A150 million of secured borrowings. It is intended that the Equity Bridge will be replaced by a capital increase at V Telecom Investment S.C.A. in the short term. See ‘‘Description of Certain Financing Arrangements—Equity Bridge.’’

146 DESCRIPTION OF CERTAIN FINANCING ARRANGEMENTS The following contains a summary of the material terms of certain financing arrangements to which we are a party. The following summaries are not complete and are subject to the full text of the documents described below.

Revolving Credit Facility Bulgarian Telecommunications Company EAD, as borrower and BTC Net EOOD, as co-debtor have entered into a commitment with Societe Generale Expressbank AD, as lender (‘‘RCF Lender’’) to provide the Revolving Credit Facility with commitments of up to an aggregate of A35 million. Loans may be borrowed, repaid and reborrowed at any time. While the Revolving Credit Facility Agreement is still subject to negotiations among the relevant parties, we believe the following to be the material provisions of the Revolving Credit Facility, set forth in an agreed-upon term sheet.

Purpose Amounts drawn under the Revolving Credit Facility may be used for refinancing existing debt, general corporate purposes and the issuance of bank guarantees and letters of credit.

Maturity and Amortization The Revolving Credit Facility will terminate on the date falling three years after the Issue Date. To the extent not previously repaid, all borrowings must be repaid in full on that date. As an exception, letters of guarantee and letters of credit issued under the Revolving Credit Facility, may each remain in force for up to twelve months from the date of their issuance.

Interest Rate and Fees The interest rate on cash advances under the Revolving Credit Facility will be the aggregate of the applicable margin of 4% and EURIBOR (as defined in the Revolving Credit Facility). Applicable fees are (i) a 0.5% arrangement fee, flat on the Revolving Credit Facility amount, (ii) a 0.5% per annum commitment fee on the available commitment/undrawn amount, payable monthly and (iii) a 0.5% per quarter issuance fee on the respective letters of guarantee and letters of credit issued under the Revolving Credit Facility.

Security The RCF Lender will have super seniority with regard to the Notes and will benefit from the same collateral as the holders of the Notes; provided, however, that proceeds of enforcement of the collateral will be used to discharge the indebtedness under the Revolving Credit Facility before discharge of the Notes. See ‘‘—Intercreditor Agreement’’ below.

Repayments and Prepayments Any amount still outstanding at maturity of the Revolving Credit Facility will be immediately due and payable. The borrower may voluntarily prepay its utilization in which case the borrower is not liable for any taxes related to the prepayment. Amounts repaid may be reborrowed. In addition to voluntary prepayment, the Revolving Credit Facility provides for mandatory cancellation and prepayment in certain circumstances, including but not limited to: (i) if the borrower fails to repay any principal or interest payment when due and if the default lasts for more than two months as well as if the borrower fails to repay two consecutive interest and/or principal payments notwithstanding of the term of such a default; (ii) if the borrower applies the funds under the Revolving Credit Facility in contradiction to the agreed purpose of the Revolving Credit Facility; (iii) in case of reduction of the value or liquidity of the collateral and if the borrower does not provide additional collateral within the term specified by the lender; (iv) initiation of enforcement procedure in respect of the borrower or its assets by other creditors; (v) initiation of enforcement procedure in respect of the co-debtor by other creditors; (vi) if the competent supervisory authorities apply measures for termination of the borrower’s activities; (vii) continuous default of the borrower’s obligations towards its suppliers; (viii) in case the borrower fails to fulfill its obligations to other creditors, including in relation to the Notes; (ix) change of direct or indirect ownership of the shares in the borrower’s capital; (x) redemption of shares by the borrower; (xi) acquisition by the borrower

147 of shares in the capital of third companies or entities and (xii) (subject to thresholds) granting of loans by the borrower to third parties in any form, directly or indirectly, including through purchase of bonds.

Conditions Precedent The conditions precedent include, among others: (i) board resolutions approving entry into the finance documents and other acceptable evidence of corporate authorization and (ii) legal opinions on the Security Documents and Intercreditor Agreement confirming the security arrangements and the lack of recourse of the Equity Bridge lender against the borrower.

Covenants The Revolving Credit Facility will contain customary covenants. Set out below is a brief description of such customary covenants, all of which are subject to customary exceptions and qualifications.

Affirmative Covenants The affirmative covenants require, among other things: (i) the provision of certain financial and other information, including annual audited financial statements and quarterly unaudited financial statements; (ii) compliance with laws and regulations; (iii) payment of taxes and other liabilities; (iv) preservation of corporate existence and maintenance of assets; (v) maintenance of insurances, properties and all necessary approval, licenses and permits; (vi) providing access and other information to the lender; (vii) use of proceeds and (viii) notices of default and material litigation.

Negative Covenants The Revolving Credit Facility contains certain negative covenants which are similar as provided in the ‘‘Description of Notes’’ and include, among others, limitations (subject to thresholds) with respect to: (i) incurrence of debt; (ii) negative pledge; (iii) sale of certain assets; (iv) dividend and other payment restrictions; (v) certain mergers and consolidations; (vi) transactions with affiliates on arm’s length basis; (vii) changes in business activities; (viii) share redemption; (ix) guarantees of indebtedness; (x) impairment of security interests; (xi) joint ventures and disposals and (xii) change of ownership.

Events of Default The Revolving Credit Facility will provide for customary events of default, which are subject to customary materiality and grace periods, including: (i) failure to pay interest or other amounts (other than the principal) when due, subject to a 30-day grace period; (ii) failure to pay the principal on the loans under Revolving Credit Facility when due and payable; (iii) breach of covenants; (iv) cross default and cross acceleration with respect to other financial indebtedness; (vi) insolvency; (vii) insolvency proceedings; (viii) breach of representations or warranties; (ix) unlawfulness and invalidity; (x) repudiation and rescission and (xi) material adverse change.

Governing Law The Revolving Credit Facility is governed by and construed and enforced in accordance with the laws of the Republic of Bulgaria.

Equity Bridge Overview and structure On November 6, 2013, InterV Investment S.a` r.l. (‘‘Midco 2’’) as borrower, V2 Investment S.a` r.l. (‘‘Midco 1’’) as original guarantor, VTB Capital plc (‘‘VTBC’’) as arranger, original lender, agent and security agent and other financial institutions as lenders entered into an English law governed senior secured bridge facility agreement (the ‘‘Equity Bridge’’). The Equity Bridge provides for borrowings of A150,000,000 on a committed basis. The Equity Bridge can be utilized as one loan of the total available amount in order to fund intra-group loan (the ‘‘Funding Loan’’) from Midco 2 to Viva Telecom Bulgaria EAD (‘‘Bidco’’) and to pay transaction costs. Bidco will use the proceeds of the Funding Loan to partially refinance its existing debt under the Existing Senior Facility.

148 Availability The Equity Bridge may, subject to satisfaction of customary conditions precedent, be utilized from the date of signing until the date falling five days after the date of refinancing of the existing external debt (the ‘‘Refinancing Date’’).

Borrowers and Guarantors Midco 2 is the sole borrower under the Equity Bridge. The obligations arising under the Equity Bridge are guaranteed by Midco 1 as the original guarantor. It is intended that Bidco accedes to the Equity Bridge as additional guarantor within 30 business days of signing. Neither the borrower nor any of the guarantors may assign their rights or transfer any of their rights under the Equity Bridge.

Maturity and Repayment The Equity Bridge matures on the date falling 18 months after the Refinancing Date (the ‘‘Termination Date’’), on which date all outstanding amounts must be repaid in full. If undrawn by the end of the availability period and immediately after the utilization, the undrawn commitments arising under the Equity Bridge shall be automatically cancelled. Midco 2 has the right to voluntarily prepay the loan subject to a minimum prepayment amount and three business days’ notice. The amounts outstanding under the Equity Bridge become immediately repayable upon a change of control.

Interest Rate and Fees The interest rate under the Equity Bridge will be the rate per annum equal to the margin of 7.50% and EURIBOR. A duration fee of 1.35% of lenders’ participation in the outstanding loan shall be payable on the first anniversary of signing provided that there are any loans outstanding on such date. The duration fee shall be payable in full on the Termination Date. The borrower shall also pay a separate arrangement fee to the original lenders as specified in a separate upfront free letter.

Security As a condition to the drawdown under the Equity Bridge (i) Midco 2 shall grant a Bulgarian law governed share pledge over all present and future shares issued by Bidco and (ii) Midco 1 shall grant a Luxembourg law governed share pledge over all present and future shares issued by Midco 2. As a condition to Bidco acceding to the Equity Bridge as additional guarantor, Bidco shall grant a Bulgarian law governed junior ranking share pledge over all present and future shares issued by the Issuer. This share pledge will also form part of the Collateral for the Notes on a first-ranking basis.

Representations, Covenants and Events of Default The Equity Bridge contains certain customary representations, covenants and events of default. There are no maintenance financial covenants under the Equity Bridge and VTBC in its capacity as a shareholder lender is disenfranchised from certain voting matters with regards to requests for or waiver of certain events of default and/or decisions relating to security enforcement.

Intercreditor Agreement In connection with entering into the senior revolving credit facility agreement (the ‘‘Revolving Credit Facility Agreement’’), the senior secured notes indenture (the ‘‘Indenture’’) and an equity bridge term facility agreement (the ‘‘Equity Bridge Facility Agreement’’), Viva Telecom Bulgaria EAD (‘‘Viva’’), Bulgarian Telecommunications Company EAD (the ‘‘Parent Guarantor’’ or, as the issuer of the Notes, the ‘‘Issuer’’) and BTC Net EOOD as guarantor of the Revolving Credit Facility Agreement and the Notes (together with the Parent Guarantor, the ‘‘Guarantors’’) will enter into an intercreditor agreement (the ‘‘Intercreditor Agreement’’) to govern the relationships and relative priorities among: (a) the lenders under the Revolving Credit Facility Agreement; (b) any persons that accede to the Intercreditor Agreement as counterparties to certain hedging agreements (collectively, the ‘‘Hedging Agreements’’ and any persons that accede to the Intercreditor Agreement as counterparties to the Hedging Agreements are referred to

149 in such capacity as the ‘‘Hedge Counterparties’’); (c) the trustee of the holders of the Notes (the ‘‘Senior Secured Noteholders’’), on its behalf and on behalf of the Senior Secured Noteholders (the ‘‘Trustee’’); (d) the security agent (the ‘‘Security Agent’’); (e) the Creditor Representatives (as defined below); (f) intra-group creditors and debtors; and (g) certain investor debt (which consists of liabilities owed by any Debtor (as defined below) to any Shareholder Creditor (being the original shareholder creditors party to the Intercreditor Agreement on the date of the Intercreditor Agreement and any direct or indirect shareholder (or affiliate who is not a member of the Group (as defined below)) of the Parent Guarantor) (including without limitation any financial indebtedness and any liabilities of the Parent Guarantor to Viva pursuant to any shareholder loan) together with any related additional liabilities (the ‘‘Shareholder Liabilities’’)). The provisions of the Intercreditor Agreement will override anything in the Revolving Credit Facility Agreement, the Indenture, any Senior Unsecured Notes Indenture or the Equity Bridge Facility Agreement to the contrary but will not cure, postpone, waive or negate any default by Viva or the Debtors under the Revolving Credit Facility Agreement, the Indenture, any Senior Unsecured Notes Indenture or the Equity Bridge Facility Agreement or any other debt document. By accepting a Note, Senior Secured Noteholders shall be deemed to have agreed to and accepted the terms and conditions of the Intercreditor Agreement. The following description is a summary of certain provisions, among others, contained in the Intercreditor Agreement that relate to the rights and obligations of the Senior Secured Noteholders. It does not restate the Intercreditor Agreement in its entirety nor does it describe provisions relating to the rights and obligations of holders of other classes of our debt or capital expenditures. As such, we urge you to read the Intercreditor Agreement because it, and not the discussion that follows, defines certain rights and obligations of the Senior Secured Noteholders. The Intercreditor Agreement provides for the future issuance of senior unsecured notes (‘‘Senior Unsecured Notes’’) by a special purpose entity organized for the purpose of issuing Senior Unsecured Notes and wholly-owned, directly or indirectly by the Parent Guarantor (the ‘‘Senior Unsecured Notes Issuer’’) under an unsecured notes indenture (a ‘‘Senior Unsecured Notes Indenture’’) provided that a senior unsecured notes trustee, on its behalf and on behalf of the holders of the Senior Unsecured Notes (the ‘‘Senior Unsecured Noteholders’’ and, together with the Senior Secured Noteholders, the ‘‘Noteholders’’) accedes to the Intercreditor Agreement. The Parent Guarantor and each of its Restricted Subsidiaries that incurs any liability or provides any guarantee under any of the Revolving Credit Facility Agreement, the Indenture or the Senior Unsecured Notes Indenture or in respect of any Shareholder Liabilities are each referred to in this description as a ‘‘Debtor’’ and are referred to collectively as the ‘‘Debtors.’’ In this description ‘‘Group’’ refers to the Parent Guarantor and its subsidiaries from time to time. The Intercreditor Agreement will, amongst other things, set out: (a) the relative ranking of certain indebtedness of the Debtors; (b) the relative ranking of certain security granted by Viva and BTC Net EOOD (the ‘‘Collateral’’); (c) when payments can be made in respect of certain indebtedness of the Debtors; (d) when enforcement actions can be taken in respect of that indebtedness; (e) the terms pursuant to which that indebtedness will be subordinated upon the occurrence of certain insolvency events; (f) turnover provisions; and (g) when security and guarantees will be released to permit a sale of any assets subject to transaction security. The Intercreditor Agreement will contain provisions relating to future indebtedness that may be incurred by the Debtors that is permitted by the Revolving Credit Facility Agreement and the Indenture to rank pari passu with the facility provided under the Revolving Credit Facility Agreement (the ‘‘Revolving Credit Facility’’) and the Notes and be secured by the Collateral, subject to the terms of the Intercreditor Agreement, such debt being ‘‘Pari Passu Debt’’ and the creditors of such debt being ‘‘Pari Passu Creditors.’’ The Intercreditor Agreement will provide that the creditors of any credit facility constituting a ‘‘Credit Facility’’ under the Indenture are entitled under the terms of the Indenture to receive priority to the

150 Noteholders as to receipt of the proceeds of the enforcement of Collateral (each such facility and together with the Revolving Credit Facility, the ‘‘Credit Facilities’’ and each finance document relating thereto, a ‘‘Credit Facility Document’’). Each lender of a Credit Facility is a ‘‘Credit Facility Lender’’ and the liabilities of the Debtors to the Credit Facility Lenders are the ‘‘Credit Facility Lender Liabilities.’’ The Intercreditor Agreement allows for a refinancing in full or in part of the Notes and/or a refinancing of the Revolving Credit Facility.

Ranking and Priority The Intercreditor Agreement will provide, subject to the provisions in respect of permitted payments described below, that the Credit Facility Lender Liabilities and the liabilities of the Debtors under the Hedging Agreements (the ‘‘Hedging Liabilities’’) (and in respect of Hedging Liabilities which relate to (a) currency hedging or (b) interest rate hedging (the ‘‘Super Senior Hedging Liabilities,’’ and together with the Credit Facility Lender Liabilities, the ‘‘Super Senior Liabilities’’)), the liabilities of the Debtors in respect of the Notes (the ‘‘Senior Secured Notes Liabilities’’), the liabilities of the Debtors in respect of the Senior Unsecured Notes (the ‘‘Senior Unsecured Notes Liabilities’’ and, together with the Senior Secured Notes Liabilities, the ‘‘Notes Liabilities’’), the liabilities of the Debtors to the Trustee in respect of the Notes (the ‘‘Senior Secured Notes Trustee Liabilities’’), the liabilities of the Debtors to the trustee (the ‘‘Senior Unsecured Notes Trustee’’) in respect of any Senior Unsecured Notes that the Senior Unsecured Notes Issuer may issue in the future (the ‘‘Senior Unsecured Notes Trustee Liabilities’’ and, together with the Senior Secured Notes Trustee Liabilities, the ‘‘Trustee Liabilities’’), the liabilities of the Debtors to the Creditor Representatives (as defined below) (the ‘‘Creditor Representative Liabilities’’), the liabilities of the Debtors to the Security Agent (the ‘‘Security Agent Liabilities’’) and certain other unsecured liabilities will rank in right and priority of payment in the following order: (a) first, the Credit Facility Lender Liabilities, the Senior Secured Notes Liabilities, the liabilities of the Senior Unsecured Notes Issuer in respect of the Senior Unsecured Notes (the ‘‘Senior Unsecured Notes Issuer Liabilities’’), the Trustee Liabilities, the Pari Passu Debt, the Hedging Liabilities, the Creditor Representative Liabilities and the Security Agent Liabilities pari passu and without any preference between them; (b) second, the liabilities in respect of the guarantees (the ‘‘Senior Unsecured Notes Guarantees’’) granted by each guarantor of Senior Unsecured Notes in respect of any Senior Unsecured Notes (the ‘‘Senior Unsecured Notes Guarantee Liabilities’’) and the liabilities of each member of the Group under any loan whereby the proceeds of any Senior Unsecured Notes are lent by the Senior Unsecured Notes Issuer to another member of the Group (each, a ‘‘Senior Unsecured Notes Proceeds Loan’’ and together with the Senior Unsecured Notes Guarantee Liabilities, the ‘‘Senior Unsecured Notes Subordinated Liabilities’’), pari passu and without any preference between them; (c) third, certain intra-company obligations (excluding any Senior Unsecured Notes Proceeds Loan) owed by any member of the Group to any of the Intra-Group Lenders (as defined below), together with any related Additional Liabilities (as defined in the Intercreditor Agreement) (the ‘‘Intra-Group Liabilities’’); and (d) fourth, the ‘‘Shareholder Liabilities’’ (and together with the Intra-Group Liabilities, the ‘‘Subordinated Liabilities’’). The parties to the Intercreditor Agreement will agree in the Intercreditor Agreement that the security provided by the Debtors for the Credit Facility Lender Liabilities, the Senior Secured Notes Liabilities, the Senior Secured Notes Trustee Liabilities, the Senior Unsecured Notes Trustee Liabilities, the Pari Passu Debt, the Hedging Liabilities, the Creditor Representative Liabilities and the Security Agent Liabilities (together the ‘‘Senior Secured Liabilities’’) will rank and secure all such liabilities pari passu and without any preference between them (but only to the extent that such security is expressed to secure those liabilities). The parties to the Intercreditor Agreement will agree in the Intercreditor Agreement that the security granted by Viva over shares in the Parent Guarantor and over any Shareholder Liabilities owed by the Parent Guarantor to Viva (both as third party chargor to secure the Senior Secured Liabilities and the Senior Unsecured Notes Liabilities, and to secure Viva’s liabilities as guarantor under the Equity Bridge Facility Agreement (the ‘‘Equity Bridge Facility Guarantee Liabilities’’)) (the ‘‘Shared Security’’) will rank and secure all such liabilities in the following order: (a) first, the Secured Liabilities;

151 (b) second, the Senior Unsecured Notes Liabilities; and (c) third, the Equity Bridge Facility Guarantee Liabilities.

Permitted Payments The Intercreditor Agreement will permit, among other things, payments to be made by the Parent Guarantor and the other Debtors under the Revolving Credit Facility Agreement and the Indenture, and will also permit payments to be made by the Senior Unsecured Notes Issuer under the Senior Unsecured Notes Indenture. The Intercreditor Agreement will also permit payments in respect of Senior Unsecured Notes Subordinated Liabilities prior to the Secured Liabilities Discharge Date (as defined below) to be made by the Debtors under the Senior Unsecured Notes Indenture and the relevant agreement evidencing the terms of a Senior Unsecured Notes Proceeds Loan (each, a ‘‘Senior Unsecured Notes Proceeds Loan Agreement’’) including if (a) (i) the payment is of any principal amount of the Senior Unsecured Notes Subordinated Liabilities which is either not prohibited from being paid by any Credit Facility Document, the Indenture and any Pari Passu Debt Document (as defined below) or is paid on or after the final maturity date of the Senior Unsecured Notes Liabilities or is a payment of any amount which is not an amount of principal or capitalized interest; (ii) no payment stop notice in relation to the Senior Unsecured Notes is outstanding; and (iii) no payment default under any Credit Facility, no payment default (above an agreed threshold) under the Indenture and no payment default (above an agreed threshold) under the Pari Passu Debt Documents has occurred and is continuing; (b) the majority super senior creditors and the Trustee and the Pari Passu Debt Representative give prior consent to that payment being made; (c) the payment is of amounts owing to the Senior Unsecured Notes Trustee; (d) the payment is of costs, commissions, taxes, consent fees and expenses incurred in respect of (or reasonably incidental to) the documents relating to the Senior Unsecured Notes (the ‘‘Senior Unsecured Notes Documents’’) including in relation to any reporting or listing requirements under the Senior Unsecured Notes Documents; or (e) the payment is of costs, commissions, taxes, premiums and any expenses incurred in respect of (or reasonably incidental to) any refinancing of the Senior Unsecured Notes in compliance with the Intercreditor Agreement and the Credit Facility, the Senior Unsecured Notes Indenture and any Pari Passu Debt Document (collectively, the ‘‘Permitted Senior Unsecured Noteholder Payments’’). The Intercreditor Agreement will also permit payments from time to time when due to lenders owed any Intra-Group Liabilities (‘‘Intra-Group Liabilities Payments’’) if at the time of payment no acceleration event has occurred in respect of a Credit Facility, the Pari Passu Debt, the Senior Secured Notes Liabilities or the Senior Unsecured Notes Liabilities (an ‘‘Acceleration Event’’) and is continuing. The Intercreditor Agreement will permit Intra-Group Liabilities Payments if such an Acceleration Event has occurred and is continuing (a) prior to the date on which all Senior Secured Liabilities are discharged (the ‘‘Senior Secured Liabilities Discharge Date’’), with the consent of (i) the Majority Super Senior Creditors (as defined below); (ii) the Senior Secured Noteholders holding in aggregate the principal amount of Notes required to vote in favor of the relevant direction, approval, consent or waiver under the terms of the Indenture or, if the required amount is not specified, holding at least the majority of the principal amount of the then outstanding Notes (treating any Notes held by Debtors or affiliated as not outstanding) (the ‘‘Notes Required Holders’’); (iii) the Pari Passu Creditors holding in aggregate the principal amount of the relevant Pari Passu Debt required to vote in favor of the relevant direction, approval, consent or waiver under the terms of the relevant document relating to Pari Passu Debt (the ‘‘Pari Passu Debt Documents’’) or, if the required amount is not specified, holding at least the majority of the principal amount of the then outstanding Pari Passu Debt (treating any Pari Passu Debt held by Debtors or affiliates as not outstanding (the ‘‘Pari Passu Debt Required Holders’’); and (iv) the Hedge Counterparties whose Hedge Liabilities (excluding any Super Senior Hedging Liabilities) together exceed 662⁄3% of all the Hedging Liabilities (excluding any Super Senior Liabilities) (the ‘‘Majority Hedge Counterparties,’’ and together with the Majority Super Senior Credit Facility Creditors, the Notes Required Holders and the Pari Passu Debt Required Holders, the ‘‘Instructing Group’’) and, prior to the date on which all Senior Unsecured Notes Liabilities are discharged (the ‘‘Senior Unsecured Notes Discharge Date’’), the Senior Unsecured Notes Trustee; or (b) that payment is made to facilitate payment of the Senior Secured Liabilities. The Debtors may make Payments in respect of the Shareholder Liabilities (whether of principal, interest or otherwise) from time to time when due if the payment is expressly permitted or not otherwise prohibited by the Credit Facility Documents, the documents relating to the Notes (the ‘‘Senior Secured

152 Notes Documents’’), the Pari Passu Debt Documents (if any) and the Senior Unsecured Notes Documents (if any).

Senior Unsecured Notes Enforcement Restrictions Until the Senior Secured Liabilities Discharge Date, except with the prior consent of an Instructing Group, no Senior Unsecured Noteholder or Senior Unsecured Notes Trustee shall: (a) direct the Security Agent to enforce or otherwise (to the extent applicable) require the enforcement of, any security documents (including, without limitation, the Shared Security); or (b) take or require the taking of any enforcement action in relation to the Senior Unsecured Notes Guarantees or the Senior Unsecured Notes Proceeds Loans, except if a default has occurred in relation to the Senior Unsecured Notes (the ‘‘Relevant Senior Unsecured Notes Default’’) and is continuing and until the earliest of: (a) the date falling 179 days after delivery of the enforcement notice to the Credit Facility Agent, the Senior Secured Notes Trustee and the Pari Passu Debt Representative(s), (b) the date the Super Senior Creditors or the Senior Secured Creditors (each as defined below) take enforcement action in relation to a guarantor of the Senior Unsecured Notes (a ‘‘Senior Unsecured Notes Guarantor’’) (in which case, the Senior Unsecured Notes Creditors (as defined below) may only take the same enforcement action as the Super Senior Creditors or Senior Secured Creditors other than action taken to preserve or protect Collateral), (c) the date of an insolvency event in relation to a particular Senior Unsecured Notes Guarantor against whom enforcement action is to be taken; (d) the expiry of any other standstill period in respect of a Relevant Senior Unsecured Notes Default outstanding at the date of such first mentioned standstill period for such Relevant Senior Secured Notes Default commenced (unless that expiry occurs as a result of a cure, waiver or other permitted remedy); (e) the date on which the Credit Facility Agent, the Senior Secured Notes Trustee and the Pari Passu Debt Representative(s) (as applicable) consent to an enforcement in respect of the Relevant Senior Unsecured Notes Default by the relevant Senior Unsecured Notes Creditor; and (f) a failure to pay the principal amount outstanding on the Senior Unsecured Notes at the final stated maturity of the Senior Unsecured Notes. However, no such enforcement action may be taken if (1) the Security Agent has notified the Senior Unsecured Notes Trustee that it is enforcing the Collateral over the shares in a guarantor of the Senior Unsecured Notes in accordance with the instructions of the Enforcement Instructing Group (as defined below) or (2) the Security Agent has notified the Senior Unsecured Notes Trustee that it has received instructions as to enforcement of the transaction security from the Enforcement Instructing Group (unless a period of not less than 240 days has elapsed since the date such instructions were received by the Security Agent and no enforcement action has been taken by the Security Agent pursuant to such instructions).

Equity Bridge Facility Enforcement Restrictions Until the later of the Secured Liabilities Discharge Date and the Senior Unsecured Notes Discharge Date, except with the prior consent of or as required by an Enforcement Instructing Group, no Equity Bridge Creditor or Creditor Representative (as defined below) in respect of any liabilities under the Equity Bridge Facility Agreement (‘‘Equity Bridge Liabilities’’) shall direct the Security Agent to enforce or otherwise (to the extent applicable) require the enforcement of, any security documents (including, without limitation, the Shared Security).

Creditor Representative Under the Intercreditor Agreement, the parties will appoint various Creditor Representatives. ‘‘Creditor Representative’’ means: (a) in relation to the Lenders, the Revolving Credit Facility agent (the ‘‘RCF Agent’’); (b) in relation to the Credit Facility Lenders under any other Credit Facility, the facility agent (or equivalent) in respect of that credit facility (an ‘‘Additional Credit Facility Agent,’’ and, together with the RCF Agent, a ‘‘Credit Facility Agent’’); (c) in relation to the Senior Secured Noteholders, the Trustee; (d) in relation to any Senior Unsecured Noteholders, the Senior Unsecured Notes Trustee;

153 (e) in relation to the Pari Passu Creditors, the creditor representative for such Pari Passu Creditors (the ‘‘Pari Passu Debt Representative’’); (f) in relation to any Hedge Counterparty, such Hedge Counterparty which shall be its own Creditor Representative; and (g) in relation to the lenders under the Equity Bridge Facility Agreement, the facility agent (or equivalent).

Entitlement to Enforce Collateral The Security Agent may refrain from enforcing the Collateral unless otherwise instructed by depending on the circumstances, the Majority Super Senior Creditors or the Majority Secured Senior Creditors (each as defined below) (the ‘‘Enforcement Instructing Group’’) (see ‘‘—Manner of Enforcement’’ below). Prior to the Senior Secured Liabilities Discharge Date, (i) if the Enforcement Instructing Group has instructed the Security Agent not to enforce or to cease enforcing the security; or (ii) in the absence of instructions from the Enforcement Instructing Group, and, in each case, the Enforcement Instructing Group has not required Viva or any Debtor to make a Distressed Disposal, the Security Agent shall give effect to any instructions to enforce the Shared Security which the Senior Unsecured Notes Trustee (acting on the instructions of the Senior Unsecured Notes Required Holders) is then entitled to give the Security Agent under ‘‘—Senior Unsecured Notes Enforcement Restrictions’’ above. The Security Agent may refrain from acting in accordance with instructions from any other person to enforce the Collateral until it is indemnified by the relevant creditors and provided that those instructions are consistent with the Intercreditor Agreement.

Limitation on Enforcement by Super Senior Creditors and Senior Secured Creditors If either those Super Senior Creditors (as defined below) whose super senior credit participations aggregate more than 662⁄3% of the total super senior credit participations (the ‘‘Majority Super Senior Creditors’’) or those creditors of Senior Secured Notes Liabilities (the ‘‘Senior Secured Notes Creditors’’), the Pari Passu Creditors and the Hedge Counterparties (other than to the extent of their Super Senior Hedging Liabilities) (together, the ‘‘Senior Secured Creditors’’) (but excluding, for this purpose, any Hedge Counterparty in respect of its Hedging Liabilities) whose senior secured credit participations aggregate more than 50% of the total senior secured credit participations (the ‘‘Majority Senior Secured Creditors’’) wish to instruct the Security Agent to commence enforcement of any Collateral, such group of creditors (or their respective Creditor Representatives) must deliver a copy of the proposed instructions as to enforcement of any Collateral (the ‘‘Enforcement Proposal’’) to the Security Agent and the Creditor Representatives for each of the creditors of the Super Senior Liabilities (the ‘‘Super Senior Creditors’’) and/or the Senior Secured Noteholders and the Pari Passu Debt Representative (as appropriate) at least 10 business days prior to the proposed date of issuance of instructions under such Enforcement Proposal (the ‘‘Proposed Enforcement Instruction Date’’). Until the Super Senior Discharge Date, if the Security Agent has received conflicting enforcement instructions (and a failure by the Majority Super Senior Creditors or the Notes Required Holders or the Pari Passu Debt Required Holders to give any instruction is deemed a conflicting enforcement instruction), then the Security Agent will promptly notify the relevant Creditor Representatives and such Creditor Representatives will consult with each other and the Security Agent in good faith for a period of not less than 20 days (or such shorter period as the relevant Creditor Representatives may agree) (the ‘‘Initial Consultation Period’’) from the earlier of (a) the date of the latest such conflicting Enforcement Proposal and (b) the date falling 10 business days after the date the first Enforcement Proposal is delivered, with a view to coordinating instructions as to enforcement of the Collateral. The relevant Creditor Representatives will not be obliged to consult as described above if: (a) the Collateral has become enforceable as a result of an insolvency event; (b) a period of not less than six months has elapsed since the Proposed Enforcement Instruction Date and no enforcement is being effected by the Security Agent; (c) a Creditor Representative determines in good faith that to do so and thereby delay enforcement could reasonably be expected to have a material adverse effect on (i) the Security Agent’s ability to enforce any of the Collateral; or (ii) the proceeds of realization of the Collateral; or

154 (d) the Creditor Representatives agree that no Initial Consultation Period is required or agreed to a shorter consultation period. If consultation has taken place for at least 20 days (or such shorter period as the relevant Creditor Representatives may agree) or was not required to occur in the circumstances referred to in the preceding paragraph, there shall be no further obligation to consult and the Security Agent may act in accordance with the instructions as to enforcement then or previously received from the Enforcement Instructing Group and the Enforcement Instructing Group may issue instructions as to enforcement to the Security Agent at any time thereafter. In the absence of instructions from an Enforcement Instructing Group as to enforcement following the expiry of the consultation period, the Security Agent will not be required to take any action. If the Majority Super Senior Creditors or the Majority Senior Secured Creditors (acting reasonably) consider that the Security Agent is enforcing the Collateral in a manner which is not consistent with certain Security Enforcement Principles (as referred to below), the relevant Creditor Representatives shall give notice to the Creditor Representatives for the other Super Senior Creditors, the Pari Passu Creditors and the Trustee (as appropriate) after which the Creditor Representatives for the other Super Senior Creditors, the Pari Passu Creditors and the Trustee shall consult again with the Security Agent for a period of 10 days (or such lesser period as the relevant Creditor Representatives may agree) with a view to agreeing the manner of enforcement provided that such Creditors Representative shall not be obliged to consult again more than once in relation to each enforcement action and shall not be obliged to consult in any of the circumstances described in paragraphs (a), (b), (c) or (d) of the second preceding paragraph.

Manner of Enforcement The Enforcement Instructing Group may only give enforcement instructions that are consistent with certain security enforcement principles (the ‘‘Security Enforcement Principles’’), including that: (a) it shall be the primary and overriding aim of any enforcement of the Collateral to be in accordance with the ‘‘Security Enforcement Objective’’ (being to maximize, so far as is consistent with prompt and expeditious realization of value from enforcement of the Collateral, the recovery by the Super Senior Creditors and the Senior Secured Creditors: (b) the Collateral will be enforced and other enforcement action will be taken such that either: i. to the extent the Enforcement Instructing Group is being led by the Majority Super Senior Creditors, all proceeds or enforcement are received by the Security Agent in cash for distribution in accordance with the Intercreditor Agreement (see ‘‘—Application of Proceeds’’ below); or ii. to the extent the Enforcement Instructing Group is being led by the Majority Senior Secured Creditors, either (A) all proceeds of enforcement are received by the Security Agent in cash for distribution in accordance with the Intercreditor Agreement (see ‘‘—Application of Proceeds’’ below); or (B) sufficient proceeds from enforcement will be received by the Security Agent in cash to ensure that when the proceeds are applied in accordance with the Intercreditor Agreement (see ‘‘—Application of Proceeds’’ below), the Super Senior Liabilities are repaid and discharged in full (unless the Majority Super Senior Creditors agree otherwise); (c) the enforcement actions are prompt and expeditious it being acknowledged that, subject to the other provisions of the Intercreditor Agreement, the time frame for the realization of value from the enforcement of the Collateral or distressed disposal pursuant to enforcement will be determined by the Enforcement Instructing Group (see ‘‘—Manner of Enforcement’’ below) provided that it is consistent with the Security Enforcement Objective; (d) to the extent that the Collateral that is the subject of the proposed enforcement action is: i. over assets other than shares in a member of the Group, where the aggregate book value of such assets exceeds EUR 5,000,000 (or its equivalent in any other currency or currencies); or ii. over some or all of the shares in a member of the Group over which Collateral exists, then the Security Agent (acting reasonably and in good faith) shall, if requested by the Majority Super Senior Creditors or the Majority Senior Secured Creditors appoint a ‘‘big four’’ accounting firm, any reputable and independent international investment bank or other reputable and independent professional services firm with experience in restructuring and enforcement (a ‘‘Financial Advisor’’)

155 to opine as expert that the proceeds received from any such enforcement is fair from a financial point of view after taking into account all relevant circumstances (‘‘Financial Advisor’s Opinion’’); (e) The Security Agent shall not be required to appoint a Financial Advisor nor obtain a Financial Advisor’s Opinion if a proposed enforcement of Collateral: i. would result in the receipt of sufficient enforcement proceeds in cash by the Security Agent as to ensure that, after application in accordance with the Intercreditor Agreement, the Senior Secured Liabilities would be repaid in full; ii. is in accordance with any applicable law; and iii. complies with the provisions of the Intercreditor Agreement in relation to distressed disposals (see ‘‘—Release of the Guarantees and the Security—Distressed Disposal’’ below); (f) the Security Agent shall be under no obligation to appoint a Financial Advisor or to seek the advice of a Financial Advisor, unless expressly required to do so by any provision of the Intercreditor Agreement; and (g) the Financial Advisor’s Opinion (or any equivalent opinion obtained by the Security Agent in relation to any other enforcement of the Collateral that such action is fair from a financial point of view after taking into account all relevant circumstances) will be conclusive evidence that the Security Enforcement Objective has been met. The Security Enforcement Principles and the other terms of this section ‘‘—Limitation on Enforcement by Super Senior Creditors and Senior Secured Creditors’’ are for the benefit of the Super Senior Creditors and the Senior Secured Creditors only and may be amended, varied or waived with the prior written consent of the Majority Super Senior Creditors, the Notes Required Holders, the Pari Passu Debt Required Holders and the Security Agent. The Enforcement Instructing Group that will be entitled to give instructions to the Security Agent in respect of enforcement of Collateral comprises the Majority Super Senior Creditors and the Majority Senior Secured Creditors (in each case acting through its respective Creditor Representative). However, if prior to the Super Senior Discharge Date, the Security Agent has received conflicting enforcement instructions from the Creditor Representatives then, to the extent instructions from the Majority Senior Secured Creditors have been given, the Security Agent will comply with such instructions from the Majority Senior Secured Creditors provided that if either (i) no steps have been taken in relation to the commencement of enforcement of the Collateral within three months of the date of such enforcement instructions (including any such instructions not to take enforcement steps) or (ii) the Super Senior Liabilities have not been fully and finally discharged within six months of the date on which the first such enforcement instructions were first issued, then the instructions of the Majority Super Senior Creditors will prevail. Subject to the immediately preceding sentence, if the aforementioned conflicting enforcement instructions result from the Majority Senior Secured Creditors failing to give instructions or the Majority Senior Secured Creditors instructing that the Collateral not be enforced, then the Security Agent shall not enforce the Collateral.

Turnover The Intercreditor Agreement will also provide that if any Super Senior Creditor, Senior Secured Notes Creditor, Hedge Counterparty (which are not Super Senior Creditors), Pari Passu Creditor, Senior Unsecured Notes Creditor or any creditor in respect of Equity Bridge Liabilities (the ‘‘Equity Bridge Creditors’’) receives or recovers the proceeds of any enforcement of any Collateral, or any creditors of Subordinated Liabilities or Senior Unsecured Notes Creditor receives or recovers any payment or distribution not permitted under the Intercreditor Agreement or applied other than in accordance with ‘‘—Application of Proceeds’’ below that it shall (subject to certain prior actual knowledge qualifications in the case of the Trustee and the Senior Unsecured Notes Trustee): (a) in relation to receipts or recoveries not received or recovered by way of set-off, (i) hold that amount on trust for the Security Agent and promptly pay that amount or an amount equal to that amount to the Security Agent for application in accordance with the terms of the Intercreditor Agreement; and (ii) promptly pay an amount equal to the amount (if any) by which receipt or recovery exceeds the relevant liabilities owed to such creditor to the Security Agent for application in accordance with the terms of the Intercreditor Agreement; and

156 (b) in relation to receipts and recoveries received or recovered by way of set-off, promptly pay an amount equal to that recovery to the Security Agent for application in accordance with the terms of the Intercreditor Agreement.

Application of Proceeds The Intercreditor Agreement will provide that amounts received from the realization or enforcement of all or any part of the Collateral or otherwise paid to the Security Agent under the Intercreditor Agreement for application pursuant thereto will be applied in the following order of priority: (a) first, in payment of the following amounts in the following order: (i) pari passu and pro rata any sums owing to the Security Agent or any of its delegates, any receiver, the Trustee and the Senior Unsecured Notes Trustee (and their respective agents), as the case may be; and then (ii) pari passu and pro rata to each Creditor Representative (to the extent not included in (i) above and excluding any Hedge Counterparty in its capacity as its own Creditor Representative) of the unpaid fees, costs, expenses and liabilities (and all interest thereon as provided in the relevant secured debt finance documents) of each Creditor Representative and any receiver, attorney or agent appointed by such Creditor Representative under any Collateral document or the Intercreditor Agreement (to the extent that such Collateral has been given in favor of such obligations); (b) second, pari passu and pro rata in or towards payment to the relevant Creditor Representative of the Super Senior Creditors, to the Trustee on behalf of the Senior Secured Noteholders, to the relevant Hedge Counterparties (that are not Super Senior Creditors) and the relevant Pari Passu Debt Representative on behalf of the Pari Passu Creditors for application, in each case, towards any unpaid costs and expenses incurred by those Creditors in connection with any realization or enforcement of the Collateral taken in accordance with the terms of the Intercreditor Agreement or any action taken at the request of the Security Agent; (c) third, in or towards payment to, on a pari passu and pro rata basis, (i) each Credit Facility Agent on its own behalf and on behalf of the Credit Facility Lenders and the Arrangers for application towards the discharge of the Credit Facility Lender Liabilities, Credit Representative Liabilities and related Arranger Liabilities; and (ii) the relevant Hedge Counterparties for application towards the discharge of (A) the RCF Agent Liabilities and the Credit Facility Liabilities and related Arranger Liabilities (or the equivalent under any Credit Facility) in accordance with the terms of the Credit Facility Documents; and (B) the Super Senior Hedging Liabilities; (d) fourth, pari passu and pro rata to the Trustee on behalf of the Senior Secured Noteholders for application towards the discharge of the Senior Secured Notes Liabilities and to the Pari Passu Debt Representative on behalf of the Pari Passu Creditors for application towards the discharge of the Pari Passu Liabilities and to the Hedge Counterparties towards the discharge of the Hedging Liabilities (other than the Super Senior Hedging Liabilities); (e) fifth, (to the extent permitted by law and only in respect of amounts received or recovered in respect of Senior Unsecured Notes Subordinated Liabilities or from the enforcement of the Shared Security) to the Senior Unsecured Notes Trustee on behalf of the Senior Unsecured Noteholders for application towards the discharge of the Senior Unsecured Notes Liabilities; (f) sixth, (to the extent permitted by law and in respect of amounts received or recovered from the enforcement of the Shared Security only) to the relevant Creditor Representative of the Equity Bridge Creditors for application towards the discharge of the Equity Bridge Facility Guarantee Liabilities; and (g) seventh, after the discharge of all Senior Secured Liabilities, the Senior Unsecured Notes Liabilities and the Equity Bridge Liabilities, in payment of the surplus (if any) to the relevant Debtor or other person entitled to it.

Additional Indebtedness Subject to certain restrictions in the Credit Facility Documents, if a Debtor gives written notice to the Security Agent, the Creditor Representatives and the Hedge Counterparties that it intends to enter into one or more loans and/or credit or guarantee facilities and/or issue any debt securities under which it will incur additional or replacement indebtedness (‘‘Additional Indebtedness’’) which is, under the terms of the Senior Secured Notes Documents, the Pari Passu Debt Documents and the Credit Facility Documents,

157 permitted to share in the Collateral, then the parties will (at the cost, and with the consent of the Parent Guarantor) enter into the requisite documentation to give effect to the Additional Indebtedness and ensure that any such obligations and liabilities related thereto will have the ranking (and the creditors under such Additional Indebtedness will have the rights and obligations) permitted to be conferred upon it in accordance with the Senior Secured Notes Documents, the Pari Passu Debt Documents and the Credit Facility Documents (including, without limitation, the entry into of a new intercreditor agreement on substantially the same terms as the Intercreditor Agreement) provided that such documentation does not adversely affect the interests of any of the Super Senior Creditors and Senior Secured Creditors.

Release of the Guarantees and the Security Non-distressed Disposal In circumstances where a disposal is not being effected (a) at the request of the Enforcement Instructing Group after the Collateral has become enforceable; (b) by enforcement of Collateral; or (c) in the case of a disposal to a person outside of the Group, after an Acceleration Event in respect of Senior Secured Liabilities has occurred (each, a ‘‘Distressed Disposal’’) and is otherwise permitted or not prohibited by the Credit Facility Documents, the Indenture, the Senior Unsecured Notes Indenture, the Pari Passu Debt Documents and the Equity Bridge Documents (and provided that the Parent Guarantor provides a certificate to the Security Agent to that effect), the Intercreditor Agreement will provide that the Security Agent is irrevocably authorized (i) to release the Collateral or any other claim in respect of the Senior Secured Liabilities and/or the Senior Unsecured Notes Liabilities over the relevant asset, (ii) if the relevant asset consists of shares in the capital of a Debtor, to release the Collateral or any other claim in respect of the Senior Secured Liabilities and/or the Senior Unsecured Notes Liabilities over the assets of that Debtor and the shares in and assets of any of its subsidiaries and (iii) to execute and deliver or enter into any release of the Collateral or any claim described in the preceding provisions and issue any certificates of non-crystallization of any floating charge or any consent to dealing that may, in the discretion of the Security Agent, be considered necessary or desirable. If any proceeds from such disposal are required to be applied in mandatory prepayment of any of the Senior Secured Liabilities, the Senior Unsecured Notes Liabilities or the Equity Bridge Facility Guarantee Liabilities or to be offered to Secured Parties pursuant to the terms of the relevant secured debt documents then such proceeds shall be applied in or towards payment of such Senior Secured Liabilities, the Senior Unsecured Notes Liabilities or the Equity Bridge Facility Guarantee Liabilities or shall be offered to the relevant Secured Parties in accordance with the terms of the relevant secured debt documents and the consent of any other party to the Intercreditor Agreement will not be required for that application.

Distressed Disposal Where a Distressed Disposal of an asset is being effected, the Intercreditor Agreement will provide that the Security Agent is authorized and instructed: (a) to release the Collateral, or any other claim over that asset; (b) if the asset which is disposed of consists of shares in the capital of a Debtor, to release (i) that Debtor and any subsidiary of that Debtor from all or any part of its liabilities under the Subordinated Documents, its liabilities under the Credit Facility Documents, the Senior Secured Notes Documents, the Senior Unsecured Notes Documents, the Pari Passu Debt Documents, the Hedging Agreements, the Collateral documents, or the Intercreditor Agreement or other liabilities it may have to an Intra-Group Lender or Debtor (‘‘Other Liabilities’’); (ii) any Collateral granted by that Debtor or any subsidiary of that Debtor over any of its assets; and (iii) any other claim of a Shareholder Creditor, a lender of Intra-Group Liabilities (an ‘‘Intra-Group Lender’’), or another Debtor over that Debtor’s assets or over the assets of any subsidiary of that Debtor; (c) if the asset which is disposed of consists of shares in the capital of any holding company of a Debtor, to release (i) that holding company and any subsidiary of that holding company from all or any part of its liabilities under the Subordinated Documents, its liabilities under the Credit Facility Documents, the Senior Secured Notes Documents, the Senior Unsecured Notes Documents, the Pari Passu Debt Documents, the Hedging Agreements, the Collateral documents, or the Intercreditor Agreement and Other Liabilities; (ii) any Collateral granted by any subsidiary of that holding company over any of its assets; and (iii) any other claim of an Intra-Group Lender or another Debtor over the assets of any subsidiary of that holding company; and (d) if the asset which is disposed of consists of shares in the capital of a Debtor or a holding company of a Debtor, to provide for the disposal of liabilities and/or the transfer of liabilities to another Debtor.

158 Where shares or assets of a Senior Unsecured Notes Guarantor or the assets of Viva are sold, it is a further condition to the above releases or disposals of Collateral and liabilities that: (a) the proceeds of such sale or disposal are in cash (or substantially in cash) and/or, with the prior consent of the Senior Unsecured Notes Required Holders, non-cash, in which case the non-cash payment can take the form of the Secured Creditors bidding their claims); (b) all claims of the Secured Creditors against a member of the Group (if any), all of whose shares are sold or disposed of pursuant to such enforcement, are unconditionally released and discharged or sold or disposed of concurrently with such sale (and are not assumed by the purchaser or one of its affiliates), and all Collateral is simultaneously and unconditionally released and discharged concurrently with such sale, provided that in the event of a sale or disposal of any such claim (instead of a release or discharge); (x) the Instructing Group determines acting reasonably and in good faith that the Secured Creditors (taken as a whole) will recover more than if such claim was released or discharged; and (y) the agent/representative(s) in respect of the Instructing Group serve a notice on the Security Agent notifying the Security Agent of the same, in which case the Security Agent shall be entitled immediately to sell and transfer such claim to such purchaser (or an affiliate of such purchaser); and (c) such sale or disposal (including any sale or disposal of any claim) is made (x) pursuant to a competitive process or (y) where a reputable internationally recognized investment bank, firm of accountants or independent third party professional firm which is regularly engaged in providing valuations in respect of the relevant type and size of the assets, in each case selected by the Security Agent (acting on instructions of an Instructing Group) has delivered an opinion in respect of such sale or disposal that the amount received in connection therewith is fair from a financial point of view taking into account all relevant circumstances.

Amendment The Intercreditor Agreement will provide that it may be amended with only the consent of the Majority Super Senior Creditors, the Notes Required Holders, the Senior Unsecured Notes Required Holders, or, after the Final Discharge Date, the Equity Bridge Facility Agent, the Pari Passu Debt Required Holders, the Parent Guarantor and the Security Agent unless it is an amendment, waiver or consent that has the effect of changing or which relates to: (a) any amendment to the order of priority or subordination set out in the Intercreditor Agreement; or (b) any amendment to the payment waterfall, turnover provisions, redistribution and disposal proceeds provisions or enforcement provisions set out in the Intercreditor Agreement; or (c) certain provisions relating to the giving of instructions to the Security Agent or the exercise of discretion by the Security Agent or (d) the amendments provisions in the Intercreditor Agreement, in each case which shall not be made without the written consent of: (a) the Credit Facility Lenders; (b) the Trustee; (c) the Senior Unsecured Notes Trustee, insofar as any amendments might adversely affect the rights, ranking, immunities or protections of the Senior Unsecured Notes Trustee or the Senior Unsecured Noteholders; (d) the Pari Passu Debt Representative; (e) each Hedge Counterparty (to the extent that the amendment or waiver would materially and adversely affect the Hedge Counterparty); (f) the Creditor Representative of the Equity Bridge Creditors (to the extent that the amendment or waiver would materially and adversely affect the Equity Bridge Creditors taken as a whole); (g) the Security Agent; and (h) the Parent Guarantor. Subject to the paragraph above and certain other exceptions any amendment or waiver or consent will bind all parties to the Intercreditor Agreement. Furthermore, no amendment or waiver of the Intercreditor Agreement may impose new or additional obligations on or withdraw or reduce the rights of any party to the Intercreditor Agreement without the prior written consent of that party (other than, in the case of a

159 Super Senior Creditor, a Senior Secured Creditor, a Senior Unsecured Notes Creditor or an Equity Bridge Creditor, in a way which affects or would affect creditors of that party’s class generally).

Option to Purchase: Senior Secured Noteholders and Pari Passu Creditors After an Acceleration Event or the enforcement of any of the Collateral (a ‘‘Distress Event’’), one or more of the Trustee and the Pari Passu Debt Representative(s) (the ‘‘Purchasing Senior Secured Creditors’’) may (a) at the direction and expense of one or more of the Senior Secured Noteholders and/or Pari Passu Creditors (as applicable); (b) after all such Senior Secured Noteholders and Pari Passu Creditors have been given the opportunity to so participate; and (c) if the Trustee and/or the Pari Passu Debt Representative(s) gives not less than ten days’ prior written notice to the Creditor Representatives of the Credit Facility Lenders and (to the extent applicable) the Hedge Counterparties in connection with the Credit Facility Lender Liabilities, acquire or procure the acquisition of all (but not part only) of the rights and obligations of the Credit Facility Lenders and the Hedge Counterparties in connection with the Credit Facility Lender Liabilities under the Credit Facility Documents and the Super Senior Hedging Liabilities (the ‘‘Senior Acquisition Debt’’). If more than one Purchasing Senior Secured Creditor wishes to exercise the option to purchase the Senior Acquisition Debt, each such Purchasing Senior Secured Creditor shall acquire the Senior Acquisition Debt pro rata, in the proportion that its credit participation bears to the aggregate credit participations of all the Purchasing Senior Secured Creditors. Any Purchasing Senior Secured Creditors wishing to exercise the option to purchase the Senior Acquisition Debt shall inform the Trustee in accordance with the terms of the Indenture or the relevant Pari Passu Debt Representative(s) in accordance with the terms of the relevant Pari Passu Debt Documents, who will determine (consulting with each other as required) the appropriate share of the Senior Acquisition Debt to be acquired by each such Purchasing Senior Secured Creditor and who shall inform each such Purchasing Senior Secured Creditor accordingly. Furthermore, the Trustee or the Pari Passu Debt Representative(s) (as applicable) shall promptly inform the Creditor Representatives of the Credit Facility Lenders and the Hedging Counterparties of the Purchasing Senior Secured Creditors intention to exercise the option to purchase the Senior Acquisition Debt. Any such purchase will be on terms which will include, without limitation that: (a) the transfer is lawful; (b) payment in full in cash of an amount equal to the Credit Facility Lender Liabilities then outstanding and the amount that would be payable to the relevant Hedge Counterparty on the relevant date if the date was an Early Termination Date (as defined in the relevant Hedging Agreement) and the relevant Debtor was the Defaulting Party (under and as defined in the relevant Hedging Agreement), including in respect of any broken funding costs, as well as certain costs and expenses of the Credit Facility Lenders and the Hedge Counterparties; (c) after the transfer, no Credit Facility Lender or Hedge Counterparty will be under any actual or contingent liability to any Debtor; (d) the purchasing holders of Senior Secured Notes (other than the Trustee) and Pari Passu Creditors indemnify each Credit Facility Lender and each other finance party under such Credit Facility Document and each Hedge Counterparty under the Hedging Agreements for any actual or alleged obligation to repay or claw back any amount received by such Credit Facility Lender, finance party or Hedge Counterparty; and (e) the relevant transfer shall be without recourse to, or warranty from, any Credit Facility Lender or other finance party under such Credit Facility Document or Hedge Counterparty under any Hedging Agreements.

Option to Purchase: Senior Unsecured Noteholders and Senior Unsecured Notes Trustee One or more of the Senior Unsecured Noteholders and/or the Senior Unsecured Notes Trustee (together the ‘‘Senior Unsecured Notes Creditors’’) may, after a Distress Event, by giving not less than ten days’ notice to the Credit Representatives of the Credit Facility Lenders and (to the extent applicable) the Hedge Counterparties, the Senior Secured Notes Trustee and the Pari Passu Debt Representative(s) (together the ‘‘Relevant Representatives’’) (provided such notice may not be given until all necessary approvals from the purchasing Senior Unsecured Notes Creditors have been obtained), acquire or procure the acquisition of all, but not part, of the rights, benefits and obligations in respect of the Credit Facility Lender Liabilities, the Hedging Liabilities under the Hedging Agreements, the Senior Secured Notes Liabilities and the Pari Passu Debt. Any such purchase will be on terms which will include, without limitation that: (a) the transfer is lawful; (b) payment in full in cash of an amount equal to the Credit Facility Lender Liabilities then outstanding and the amount that would be payable to the relevant Hedge Counterparty on the relevant date if the date was an Early Termination Date (as defined in the relevant Hedging Agreement) and the relevant Debtor

160 was the Defaulting Party (under and as defined in the relevant Hedging Agreement), including in respect of any broken funding costs, as well as certain costs and expenses of the Credit Facility Lenders and the Hedge Counterparties; (c) after the transfer, no Credit Facility Lender, Senior Secured Noteholder, Hedge Counterparty or Pari Passu Creditor will be under any actual or contingent liability to any Debtor; (d) the purchasing holders of Senior Unsecured Notes (other than the Senior Unsecured Notes Trustee) indemnify each Credit Facility Lender and each other finance party under such Credit Facility Document, each Senior Secured Noteholder, each Hedge Counterparty under the Hedging Agreements and each Pari Passu Creditor for any actual or alleged obligation to repay or claw back any amount received by such Credit Facility Lender, finance party, Senior Secured Noteholder, Hedge Counterparty or Pari Passu Creditor; and (e) the relevant transfer shall be without recourse to, or warranty from, any Credit Facility Lender or other finance party under such Credit Facility Document, any Senior Secured Noteholder, any Hedge Counterparty under any Hedging Agreements or any Pari Passu Creditor.

Governing Law The Intercreditor Agreement will be governed by and construed in accordance with English law.

161 DESCRIPTION OF NOTES Bulgarian Telecommunications Company EAD (the ‘‘Issuer’’) will issue A400 million aggregate principal amount of 65⁄8% Senior Secured Notes due 2018 (the ‘‘Notes’’) under an indenture (the ‘‘Indenture’’) between, among others, the Issuer, BTC Net EOOD, as Guarantor, U.S. Bank Trustees Limited, as trustee (the ‘‘Trustee’’), and U.S. Bank Trustees Limited, as security agent (the ‘‘Security Agent’’), in a private transaction that is not subject to the registration requirements of the U.S. Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’). Unless the context requires otherwise, references in this ‘‘Description of Notes’’ to the Notes include the Notes and any ‘‘Additional Notes’’ (as defined below) that are issued under the Indenture. The terms of the Notes include those set forth in the Indenture. The Indenture will not be qualified under the U.S. Trust Indenture Act of 1939, as amended. The following description is a summary of the material provisions of the Indenture and the Notes, and refers to the Security Documents and the Intercreditor Agreement. This does not restate those agreements in their entirety. We urge you to read the Indenture, the Notes, the Security Documents and the Intercreditor Agreement because they, and not this description, define your rights as holders of the Notes. Copies of the Indenture, the form of Note, the Security Documents and the Intercreditor Agreement are available as set forth below under ‘‘—Additional Information.’’ Certain defined terms used in this description but not defined below under ‘‘—Certain Definitions’’ have the meanings assigned to them in the Indenture. You can find the definitions of certain terms used in this description under the subheading ‘‘—Certain Definitions.’’ In this description, the term ‘‘Issuer’’ refers only to Bulgarian Telecommunications Company EAD and not to any of its Subsidiaries. The registered holder of a Note will be treated as the owner of it for all purposes. Only registered holders will have rights under the Indenture.

Brief Description of the Notes and the Note Guarantee The Notes The Notes: • will be general obligations of the Issuer; • will be secured as set forth under ‘‘—Security,’’ but will receive proceeds from enforcement of Collateral and certain distressed disposals only after any obligations secured on a super priority basis, including the Revolving Credit Facility and certain Hedging Obligations have been repaid in full; • will be pari passu in right of payment with all existing and future Indebtedness of the Issuer that is not subordinated in right of payment to the Notes, including Indebtedness incurred under the Revolving Credit Facility; • will be senior in right of payment to all existing and future Indebtedness of the Issuer that is subordinated in right of payment to the Notes; • will be effectively subordinated to any existing and future Indebtedness of the Issuer and its Subsidiaries that is secured by property or assets that do not secure the Notes, to the extent of the value of the property and assets securing such Indebtedness; • will be guaranteed by the Guarantors; • will be effectively subordinated to any existing and future obligations of the Issuer’s Subsidiaries that are not Guarantors; and • will be effectively subordinated to any existing and future Indebtedness of the Issuer that is mandatorily preferred by law.

The Note Guarantee The Notes will be initially guaranteed by BTC Net EOOD. The Note Guarantee of the Guarantor: • will be a general obligation of the Guarantor; • will benefit from the security as set forth under ‘‘—Security’’; but will receive proceeds from enforcement of Collateral and certain distressed disposals only after any obligations secured on a

162 super priority basis, including the Revolving Credit Facility and certain Hedging Obligations have been repaid in full; • will be pari passu in right of payment with all existing and future obligations of the Guarantor that is not subordinated in right of payment to the Note Guarantee, including its obligations under the Revolving Credit Facility; • will be senior in right of payment to all existing and future Indebtedness of the Guarantor that is subordinated in right of payment to the Note Guarantee; • will be effectively subordinated to any existing and future Indebtedness of the Guarantor that is secured by property or assets that do not secure the Note Guarantee, to the extent of the value of the property and assets securing such Indebtedness; and • will be effectively subordinated to any existing and future Indebtedness of the Guarantor that is mandatorily preferred by law. The Notes and the Note Guarantee will be effectively subordinated in right of payment to all Indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Issuer’s non-guarantor Subsidiaries, if any. Any right of the Issuer or any Guarantor to receive assets of its non-guarantor Subsidiaries, if any, upon that non-guarantor Subsidiary’s liquidation or reorganization (and the consequent right of the holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that non-guarantor Subsidiary’s creditors, except to the extent that the Issuer or such Guarantor is itself recognized as a creditor of the non-guarantor Subsidiary, in which case the claims of the Issuer or such Guarantor, as the case may be, would still be subordinated in right of payment to any security in the assets of the non-guarantor Subsidiary and any Indebtedness of the non-guarantor Subsidiary senior to that held by the Issuer or such Guarantor. As of the date of this Offering Circular, all of the Issuer’s Subsidiaries will guarantee the Notes. As of the Issue Date all of the Issuer’s Subsidiaries will be ‘‘Restricted Subsidiaries’’ for the purposes of the Indenture. However, under the circumstances described below under the caption ‘‘—Certain Covenants— Designation of Restricted and Unrestricted Subsidiaries,’’ the Issuer will be permitted to designate Restricted Subsidiaries as ‘‘Unrestricted Subsidiaries.’’ The Issuer’s Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the Indenture. The Issuer’s Unrestricted Subsidiaries will not guarantee the Notes. Although the Indenture contains limitations on the amount of additional Indebtedness that the Issuer and its Restricted Subsidiaries may incur, the amount of such additional Indebtedness could be substantial.

Principal, Maturity and Interest The Issuer will issue A400 million in aggregate principal amount of Notes in this offering. The Issuer may issue additional Notes (‘‘Additional Notes’’) under the Indenture from time to time after this offering. Any issuance of Additional Notes is subject to all of the covenants in the Indenture, including the covenant described below under the caption ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock.’’ The Notes and any Additional Notes subsequently issued under the Indenture will be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase, except as otherwise provided in the Indenture. The Issuer will issue Notes in denominations of A100,000 and integral multiples of A1,000 in excess thereof. The Notes will mature on November 15, 2018.

Interest on the Notes will accrue at the rate of 65⁄8% per annum. Interest on the Notes will be payable semi-annually in arrears on May 15 and November 15 commencing on May 15, 2014. Interest on overdue principal and interest, including Additional Amounts (as defined herein), if any, will accrue at a rate that is 1% higher than the interest rate on the Notes. The Issuer will make each interest payment to the holders of record on the immediately preceding May 1 and November 1. Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

163 Paying Agent and Registrar for the Notes The Issuer will maintain one or more paying agents (each, a ‘‘Paying Agent’’) for the Notes, including a Paying Agent in the City of London. The Issuer will ensure that it maintains a Paying Agent in a member state of the European Union that will not be obliged to withhold or deduct tax pursuant to the European Union Directive 2003/48/EC (as amended from time to time) or any other directive implementing the conclusions of the ECOFIN Council meeting of 26 and 27 November 2000 on the taxation of savings income, or any law implementing, or complying with or introduced in order to conform to, such directive. The initial Paying Agent in London will be Elavon Financial Services Limited, UK Branch. The Issuer will also maintain one or more registrars (each, a ‘‘Registrar’’), for so long as the Notes are listed on the Official List of the Irish Stock Exchange and its rules so require. The Issuer will also maintain a transfer agent in London. The Issuer will appoint Elavon Financial Services Limited as the initial Registrar. The Issuer will appoint Elavon Financial Services Limited, UK Branch as the initial Transfer Agent. The Registrar and the Transfer Agent will maintain a register reflecting ownership of Definitive Registered Notes outstanding from time to time and will make payments on and facilitate transfers of Definitive Registered Notes on behalf of the Issuer. The Issuer may change the Paying Agents, the Registrars or the transfer agents without prior notice to the holders. For so long as the Notes are listed on the Official List of the Irish Stock Exchange and admitted for trading on the Main Securities Market, the Issuer will, to the extent and in the manner permitted by such rules, post such notice on the official website of the Irish Stock Exchange (www.ise.ie).

Transfer and Exchange Notes sold within the United States to qualified institutional buyers pursuant to Rule 144A under the U.S. Securities Act (‘‘Rule 144A’’) will initially be represented by one or more global Notes in registered form without interest coupons attached (the ‘‘144A Global Note’’), and Notes sold outside the United States pursuant to Regulation S under the U.S. Securities Act (‘‘Regulation S’’) will initially be represented by one or more global Notes in registered form without interest coupons attached (the ‘‘Regulation S Global Note’’ and, together with the 144A Global Notes, the ‘‘Global Notes’’). During the 40-day distribution compliance period (as such term is defined in Rule 902 of Regulation S), book-entry interests in the Regulation S Global Note may be transferred only to non-U.S. Persons under Regulation S or to persons whom the transferor reasonably believes are ‘‘qualified institutional buyers’’ within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or otherwise in accordance with applicable transfer restrictions and any applicable securities laws of any state of the United States or any other jurisdiction. Ownership of interests in the Global Notes (the ‘‘Book-Entry Interests’’) will be limited to persons that have accounts with Euroclear SA/NV (‘‘Euroclear’’) or Clearstream Banking, soci´et´e anonyme (‘‘Clearstream Banking’’) or Persons that may hold interests through such participants. Ownership of interests in the Book-Entry Interests and transfers thereof will be subject to the restrictions on transfer and certification requirements summarized below and described more fully under ‘‘Transfer Restrictions.’’ In addition, transfers of Book-Entry Interests between participants in Euroclear or Clearstream Banking will be effected by Euroclear or Clearstream Banking pursuant to customary procedures and subject to the applicable rules and procedures established by Euroclear or Clearstream Banking and their respective participants. Book-Entry Interests in the 144A Global Note may be transferred to a person who takes delivery in the form of Book-Entry Interests in the Regulation S Global Note only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Regulation S. Any Book-Entry Interest that is transferred as described in the immediately preceding paragraphs will, upon transfer, cease to be a Book-Entry Interest in the Global Note from which it was transferred and will become a Book-Entry Interest in the Global Note to which it was transferred. Accordingly, from and after such transfer, it will become subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests in the Global Note to which it was transferred. If Definitive Registered Notes are issued, they will be issued only in minimum denominations of A100,000 and integral multiples of A1,000 in excess thereof, upon receipt by the relevant Registrar of instructions relating thereto and any certificates and other documentation required by the Indenture. It is expected that

164 such instructions will be based upon directions received by Euroclear or Clearstream Banking, as applicable, from the participant which owns the relevant Book-Entry Interests. Definitive Registered Notes issued in exchange for a Book-Entry Interest will, except as set forth in the Indenture or as otherwise determined by the Issuer in compliance with applicable law, be subject to, and will have a legend with respect to, the restrictions on transfer summarized below and described more fully under ‘‘Transfer Restrictions.’’ Subject to the restrictions on transfer referred to above, Notes issued as Definitive Registered Notes may be transferred or exchanged, in whole or in part, in minimum denominations of A100,000 and integral multiples of A1,000 in excess thereof, to persons who take delivery thereof in the form of Definitive Registered Notes. In connection with any such transfer or exchange, the Indenture will require the transferring or exchanging holder to, among other things, furnish appropriate endorsements and transfer documents, furnish information regarding the account of the transferee at Euroclear or Clearstream Banking, where appropriate, furnish certain certificates and opinions, and pay any Taxes in connection with such transfer or exchange. Any such transfer or exchange will be made without charge to the holder, other than any Taxes payable in connection with such transfer or exchange. Notwithstanding the foregoing, the Issuer is not required to register the transfer of any Definitive Registered Notes: (1) for a period of 15 days prior to any date fixed for the redemption of the Notes; (2) for a period of 15 days immediately prior to the date fixed for selection of Notes to be redeemed in part; (3) for a period of 15 days prior to the record date with respect to any interest payment date; or (4) which the holder has tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or an Asset Sale Offer.

Additional Amounts All payments made by or on behalf of the Issuer under or with respect to the Notes (whether or not in the form of Definitive Registered Notes) or any of the Guarantors with respect to any Note Guarantee will be made free and clear of and without withholding or deduction for, or on account of, any present or future Taxes unless the withholding or deduction of such Taxes is then required by law. If any deduction or withholding for, or on account of, any Taxes imposed or levied by or on behalf of (1) any jurisdiction in which the Issuer or any Guarantor is then incorporated, organized or engaged in business, or otherwise resident for tax purposes, or any political subdivision thereof or therein or (2) any jurisdiction from or through which payment is made by or on behalf of the Issuer or any Guarantor (including the jurisdiction of any Paying Agent) or any political subdivision thereof or therein (each, a ‘‘Tax Jurisdiction’’) will at any time be required to be made from any payments made by or on behalf of the Issuer under or with respect to the Notes or any of the Guarantors under or with respect to any Note Guarantee, including payments of principal, redemption price, purchase price, interest or premium, the Issuer or the relevant Guarantor, as applicable, will pay such additional amounts (the ‘‘Additional Amounts’’) as may be necessary in order that the net amounts received by the holder in respect of such payments after such withholding, deduction or imposition (including any such withholding, deduction or imposition from such Additional Amounts) will equal the respective amounts that would have been received by the holder in respect of such payments in the absence of such withholding, deduction or imposition; provided, however, that no Additional Amounts will be payable with respect to: (1) any Taxes, to the extent such Taxes would not have been imposed but for the existence of any actual or deemed (pursuant to applicable Tax law of the relevant Tax Jurisdiction, such as, if applicable, a connection of a partnership that is attributed to the partners/beneficial owners) present or former connection between the holder or the beneficial owner of the Notes and the relevant Tax Jurisdiction (including being a resident of such Tax Jurisdiction for Tax purposes), other than the acquisition or holding of such Note, the enforcement of rights under such Note, under a Note Guarantee or under the Indenture, or the receipt of any payments in respect of such Note, a Note Guarantee or the Indenture; (2) any Taxes, to the extent such Taxes were imposed as a result of the presentation of a Note for payment (where Notes are in the form of Definitive Registered Notes and presentation is required) more than 30 days after the relevant payment is first made available for payment to the holder (except to the

165 extent that the holder would have been entitled to Additional Amounts had the Note been presented on the last day of such 30 day period); (3) any estate, inheritance, gift, sales, personal property, transfer or similar Taxes; (4) any Taxes withheld, deducted or imposed on a payment to an individual that is required pursuant to European Council Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council meeting of November 26 and 27, 2000 on the taxation of savings income, or any law implementing or complying with or introduced in order to conform to, such directive; (5) any Taxes imposed on or with respect to a payment made to a holder or beneficial owner of Notes who would have been able to avoid such withholding or deduction by presenting the relevant Note to another Paying Agent in a member state of the European Union; (6) any Taxes payable other than by deduction or withholding from payments under, or with respect to, the Notes, or any Note Guarantee; (7) any Taxes imposed or withheld by reason of the failure of the holder or beneficial owner of a Note, to comply with any reasonable written request of the Issuer, Guarantor or Paying Agent addressed to the holder or beneficial owner, as applicable, and made at least 30 days before any such withholding or deduction would be payable to satisfy any certification, identification, information or other reporting requirements, whether required by statute, treaty, regulation or administrative practice of a Tax Jurisdiction, as a precondition to exemption from, or reduction in the rate of deduction or withholding of, Taxes imposed by the Tax Jurisdiction (including, without limitation, a certification that the holder or beneficial owner is not resident in the Tax Jurisdiction), but in each case, only to the extent the holder or beneficial owner is legally entitled to provide such certification or documentation; (8) any Tax imposed on or with respect to any payment by the Issuer or the relevant Guarantor to the holder if such holder is a fiduciary or partnership or person other than the sole beneficial owner of such payment to the extent that Taxes would not have been imposed on such payment had such holder been the sole beneficial owner of such Note; or (9) any combination of items (1) through (8) above. In addition to the foregoing, the Issuer and the Guarantors will also pay and indemnify the holder for any present or future stamp, issue, registration, court or documentary Taxes, or any other excise or property Taxes, charges or similar levies (including penalties, interest and any other reasonable expenses related thereto) which are levied by any Tax Jurisdiction on the execution, delivery, issuance, or registration of any of the Notes, the Indenture, any Note Guarantee or any other document or instrument referred to therein (other than on or in connection with a transfer of the Notes other than the initial resale of the Notes by the Initial Purchasers), or the receipt of any payments with respect thereto, or enforcement of, any of the Notes, any Note Guarantee or the Indenture. If the Issuer or any Guarantor, as the case may be, becomes aware that it will be obligated to pay Additional Amounts with respect to any payment under or with respect to the Notes or any Note Guarantee, the Issuer or the relevant Guarantor, as the case may be, will deliver to the Trustee on a date that is at least 30 days prior to the date of that payment (unless the obligation to pay Additional Amounts arises less than 30 days prior to that payment date, in which case the Issuer or the relevant Guarantor shall notify the Trustee promptly thereafter) an Officer’s Certificate stating the fact that Additional Amounts will be payable and the amount estimated to be so payable. Any such Officer’s Certificate must also set forth any other information necessary to enable the Paying Agents to pay such Additional Amounts to holders on the relevant payment date. The Issuer or the relevant Guarantor will provide the Trustee with documentation satisfactory to the Trustee evidencing the payment of Additional Amounts. The Trustee shall be entitled to rely solely on such Officer’s Certificate as conclusive proof that such payments are necessary. The Issuer or the relevant Guarantor will make all withholdings and deductions required by law and will remit the full amount deducted or withheld to the relevant Tax authority in accordance with applicable law. The Issuer or the relevant Guarantor will use its reasonable efforts to obtain Tax receipts from each Tax authority evidencing the payment of any Taxes so deducted or withheld. The Issuer or the relevant Guarantor will furnish to the Trustee (or to a holder or beneficial owner upon written request), within a reasonable time after the date the payment of any Taxes so deducted or withheld is made, certified copies of Tax receipts evidencing payment by the Issuer or a Guarantor, as the case may be, or if, notwithstanding such entity’s efforts to obtain receipts, receipts are not obtained, other evidence of payments (reasonably

166 satisfactory to the Trustee) by such entity. Upon reasonable request, copies of Tax receipts or other evidence of payments, as the case may be, will be made available by the Trustee to the holders or beneficial owners of the Notes. Whenever in the Indenture or in this ‘‘Description of Notes’’ there is mentioned, in any context, the payment of amounts based upon the principal amount of the Notes or of principal, interest or of any other amount payable under, or with respect to, any of the Notes or any Note Guarantee, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. The above obligations will survive any termination, defeasance or discharge of the Indenture, any transfer by a holder or beneficial owner of its Notes, and will apply, mutatis mutandis, to any jurisdiction in which any successor Person to the Issuer or any Guarantor is incorporated, organized, engaged in business or otherwise resident for tax purposes or any jurisdiction from or through which such Person makes any payment on the Notes (or any Note Guarantee) and any political subdivision thereof or therein.

Note Guarantee The Notes will be initially guaranteed by BTC Net EOOD. This Note Guarantee will be the joint and several obligations of the Guarantor. The Note Guarantee is a full and unconditional guarantee, subject to certain limitations under applicable law, as described in ‘‘Limitations on Validity and Enforceability of the Guarantees and the Collateral and Certain Insolvency Law Considerations,’’ of the Issuer’s obligations under the Notes, subject to the contractual limitations discussed below. The obligations of the Guarantors will be contractually limited under the applicable Note Guarantees to reflect limitations under applicable law with respect to maintenance of share capital, corporate benefit, fraudulent conveyance and other legal restrictions applicable to the Guarantors and their respective shareholders, directors and general partners. For a description of such contractual limitations, see ‘‘Risk Factors—Risks Related to the Notes and our Structure—Each Note Guarantee will be subject to certain limitations on enforcement and may be limited by applicable laws or subject to certain defenses that may limit its validity and enforceability’’. Bulgarian insolvency laws may not be as favorable to you as United States or other insolvency laws. Insolvency laws and limitations on the Guarantee or the security interests of the Notes may adversely affect the validity and enforceability of the Guarantee and the security interests and will limit the amount that can be recovered under the Guarantee and the security interests granted by the Issuer and the Guarantor. See ‘‘Limitations on Validity and Enforceability of the Guarantees and the Collateral and Certain Insolvency Law Considerations.’’ The Note Guarantee of a Guarantor will be released: (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger, consolidation, amalgamation or combination) to a Person that is not (either before or after giving effect to such transaction) the Issuer or a Restricted Subsidiary, if the sale or other disposition does not violate the ‘‘Asset Sale’’ provisions of the Indenture; (2) in connection with any sale or other disposition of Capital Stock of that Guarantor (or Capital Stock of any Parent Holdco of such Guarantor (other than the Issuer)) to a Person that is not (either before or after giving effect to such transaction) the Issuer or a Restricted Subsidiary, if the sale or other disposition does not violate the ‘‘Asset Sale’’ provisions of the Indenture and the Guarantor ceases to be a Restricted Subsidiary as a result of the sale or other disposition; (3) if the Issuer designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture; (4) in connection with certain enforcement actions taken by the creditors under certain of our secured Indebtedness in accordance with the Intercreditor Agreement as described below under ‘‘—Intercreditor Agreement’’; (5) upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as provided below under the captions ‘‘—Legal Defeasance and Covenant Defeasance’’ and ‘‘—Satisfaction and Discharge’’; (6) upon the full and final payment of the Notes and performance of all Obligations of the Issuer and the Guarantors under the Indenture and the Notes; or (7) as described under the caption ‘‘—Amendment, Supplement and Waiver.’’

167 Upon any occurrence giving rise to a release of a Note Guarantee, as specified above, the Trustee, subject to receipt of certain documents from the Issuer and/or Guarantor, will execute any documents reasonably required in order to evidence or effect such release, discharge and termination in respect of such Note Guarantee. Neither the Issuer, the Trustee nor any Guarantor will be required to make a notation on the Notes to reflect any such release, discharge or termination.

Security General The Notes and the Note Guarantees, together with the obligations under the Revolving Credit Facility and certain Hedging Obligations, will be secured by first-ranking Liens over the Collateral (subject to prompt perfection of the Liens and release of the existing Liens over the Collateral as contemplated by the Security Documents). See ‘‘Collateral’’. The Collateral will be pledged pursuant to the Security Documents to the Security Agent on behalf of the holders of the secured obligations that are secured by the Collateral, including obligations under the Indenture and the obligations under the Revolving Credit Facility. The Collateral initially will include the following: (1) share pledge (as a financial collateral arrangement) over all of the shares in the Issuer and earnings therefrom as owned at present or in the future by Viva Telecom Bulgaria EAD, as the Issuer’s single shareholder; (2) enterprise pledge granted by the Issuer (and which includes inter alia security over the shares in BTC Net EOOD); (3) enterprise pledge granted by BTC Net EOOD; and (4) Issuer’s bank accounts’ other than bank accounts located outside Bulgaria and certain expressly exempted accounts (located in Bulgaria) as specified in the relevant Security Document and insurance policies’ receivables pledge, including receivables under the Issuer’s Property Damage and Business Interruption Policy and any substitute policy in the future, but excluding receivables under certain of the Issuer’s other insurance policies. Under the Indenture, the Issuer and the Restricted Subsidiaries will be permitted to incur certain additional Indebtedness in the future that may share in the Collateral, including additional Permitted Collateral Liens securing Indebtedness on a pari passu basis with the Notes, including Indebtedness under the Revolving Credit Facility and certain priority Hedging Obligations (provided that the proceeds from any recovery from the enforcement of any security interest will be applied to satisfy the obligations under the Revolving Credit Facility, certain priority Hedging Obligations and certain future indebtedness permitted under the Indenture (subject to the Intercreditor Agreement and any Additional Intercreditor Agreement), if any, before being applied to satisfy obligations to holders under the Notes and the Indenture). The amount of such Permitted Collateral Liens will be limited by the covenants described under the captions ‘‘—Certain Covenants—Liens’’ and ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock.’’ Under certain circumstances, the amount of such additional Indebtedness secured by Permitted Collateral Liens could be significant. The obligations under the Notes, the Revolving Credit Facility, certain Hedging Obligations and certain future Indebtedness permitted under the Indenture (subject to the Intercreditor Agreement and any Additional Intercreditor Agreement), if any, will be secured equally and ratably by first-ranking Liens over the Collateral, however, any proceeds received upon enforcement over any of the Collateral will only be applied in repayment of the Notes, and all other debt ranking pari passu with the Notes, after all liabilities in respect of the obligations under the Revolving Credit Facility and certain priority Hedging Obligations and certain future indebtedness permitted by the Indenture (subject to the Intercreditor Agreement or any Additional Intercreditor Agreement), if any, have been paid from such recoveries. The Issuer Share Pledge securing the Notes and the Guarantee will also secure the obligations of InterV Investment S.a` r.l. under the A150,000,000 Secured Term Loan entered into amongst, inter alios, InterV Investment S.a` r.l., V2 Investment S.a` r.l, Viva Telecom Bulgaria EAD and VTB Capital plc on a junior priority basis. Enforcement proceedings over the Issuer Share Pledge will be subject to the terms of the Intercreditor Agreement. See ‘‘Description of Certain Financing Arrangements—Intercreditor Agreement.’’ The proceeds from the sale of the Collateral may not be sufficient to satisfy the obligations owed to the holders of the Notes and the creditors of other Indebtedness secured thereby. No appraisals of the Collateral have been made in connection with this offering of the Notes. By its nature, some or all of the

168 Collateral will be illiquid and may have no readily ascertainable market value. Accordingly, the Collateral may not be able to be sold in a short period of time, or at all. See ‘‘Risk Factors—Risks Related to the Notes and our Structure—The Notes will be secured only to the extent of the value of the Collateral that has been granted as security for the Notes and the Note Guarantee, and given the considerations below, such security may not be sufficient to satisfy the obligations under the Notes and the Note Guarantee’’ and ‘‘Risk Factors—Risks Related to the Notes and our Structure—It may be difficult to realize the value of the Collateral’’.

Security Documents Subject to the terms of the Indenture, the Revolving Credit Facility and the Security Documents, the Issuer and the Guarantors, as the case may be, will have the right to remain in possession and retain control of the Collateral, to freely operate the property and assets constituting Collateral under the Enterprise Pledges and to collect, invest and dispose of any income therefrom (including any and all dividends, distributions or similar cash and non-cash payments in respect of the assets that are part of such Collateral). In compliance with Bulgarian law, the pledged bank accounts and insurance policies’ receivables of the Issuer and the pledged shares of the Issuer will be under the control of the Security Agent however, the Issuer will be permitted to operate the pledged receivables in the ordinary course of business (but not the pledged shares) as set forth in the respective Security Documents. The Security Documents will be governed by Bulgarian law and provide that the rights with respect to the Notes and the Indenture must be exercised by the Security Agent and in respect of the entire outstanding amount of the Notes. The Security Agent will enter into the Security Documents in its own name for the benefit of the Trustee and the Holders. Each Holder, by accepting a Note, appoints the Security Agent as its agent under the Security Documents and authorizes it to act as such. Neither the Trustee nor the Holders may, individually or collectively, take any direct action to enforce any rights in their favor under the Security Documents. The Holders may only act through the Security Agent. The Security Agent will agree to any release of the security interest created by the Security Documents that is in accordance with the Indenture without requiring any consent of the Holders.

Release The Issuer and the Guarantors will be entitled to the release of the Liens over the property and other assets constituting Collateral securing the Notes and the Note Guarantees under any one or more of the following circumstances: (1) in connection with any sale, assignment, transfer, conveyance or other disposition of such property or assets to a Person that is not (either before or after giving effect to such transaction) the Issuer or any of the Restricted Subsidiaries, if the sale or other disposition does not violate the ‘‘Asset Sale’’ provisions of the Indenture; (2) in the case of a Guarantor that is released from its Note Guarantee pursuant to the terms of the Indenture, the release of the property and assets, and Capital Stock, of such Guarantor; (3) if the Issuer designates any Restricted Subsidiary to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture, the release of the property and assets of such Restricted Subsidiary; (4) upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as provided below under the captions ‘‘—Legal Defeasance and Covenant Defeasance’’ and ‘‘—Satisfaction and Discharge’’; (5) in connection with certain enforcement actions taken by the creditors under certain of our secured Indebtedness in accordance with the Intercreditor Agreement or any Additional Intercreditor Agreement as described below under ‘‘—Intercreditor Agreement’’; (6) upon the full and final payment of the Notes and performance of all Obligations of the Issuer and the Guarantors under the Indenture and the Notes; (7) in accordance with the Security Documents; or (8) as described under the caption ‘‘—Amendment, Supplement and Waiver’’ and ‘‘Certain Covenants—No Impairment of Security Interests.’’

169 The foregoing will not cause or permit, directly or indirectly, the Lien on the Capital Stock of the Issuer to be released, other than as expressly provided by (4), (5) or (6) above. The Security Agent and the Trustee (to the extent required) will take all necessary action required to effectuate any release of Collateral securing the Notes and the Note Guarantees, in accordance with the provisions of the Indenture and the relevant Security Document, the Intercreditor Agreement or any Additional Intercreditor Agreement. Each of the releases set forth above shall be effected by the Security Agent without the consent of the Holders or any action on the part of the Trustee.

Intercreditor Agreement To establish the relative rights of certain creditors of the Issuer and Guarantors under their financing arrangements, including, without limitation, the Notes, the Equity Bridge, the Revolving Credit Facility and certain Hedging Obligations, the Issuer and Guarantors will enter into an Intercreditor Agreement with, among others, the agent under the Revolving Credit Facility, the Security Agent, the Trustee, VTB Capital plc as Arranger Agent and bridge Security Agent under the Equity Bridge (as defined therein), as described under ‘‘Description of Certain Financing Arrangements—Intercreditor Agreement.’’ Pursuant to the terms of the Intercreditor Agreement, any liabilities in respect of obligations under the Revolving Credit Facility, certain priority Hedging Obligations that are permitted to be incurred by clause (8) of the definition of Permitted Debt and certain future Indebtedness permitted under the Indenture (subject to the Intercreditor Agreement and any Additional Intercreditor Agreement), if any, and permitted to be secured on the Collateral (see ‘‘—Certain Definitions—Permitted Collateral Liens’’) will receive priority with respect to any proceeds received upon any enforcement over any Collateral. Any proceeds received upon any enforcement over any Collateral, after all obligations under the Revolving Credit Facility have been repaid, certain future indebtedness permitted by the Indenture (subject to the Intercreditor Agreement and any Additional Intercreditor Agreement), if any, and such certain priority Hedging Obligations (as described in ‘‘Description of Certain Financing Arrangements—Intercreditor Agreement’’) have been discharged from such recoveries, will be applied pro rata in repayment of all obligations under the Indenture and the Notes, certain non-priority Hedging Obligations (as described in ‘‘Description of Certain Financing Arrangements—Intercreditor Agreement’’) and any other Indebtedness of the Issuer and the Guarantors permitted to be incurred and secured by the Issuer Share Pledge and the rest of the Collateral pari passu with the Notes pursuant to the Indenture and the Intercreditor Agreement prior to any repayment of obligations in respect of the Equity Bridge, which are secured by any such Collateral.

Optional Redemption At any time prior to November 15, 2015, the Issuer may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture, upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to 106.625% of the principal amount of the Notes redeemed, plus accrued and unpaid interest and Additional Amounts, if any, to the date of redemption (subject to the rights of holders of Notes on the relevant record date to receive interest on the relevant interest payment date), with the net cash proceeds of an Equity Offering of (i) the Issuer or (ii) any Parent Holdco of the Issuer to the extent the proceeds from such Equity Offering are contributed to the Issuer’s common equity capital or are paid to the Issuer as consideration for the issuance of ordinary shares of the Issuer; provided that: (1) at least 65% of the aggregate principal amount of the Notes originally issued under the Indenture (excluding Notes held by the Issuer and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and (2) the redemption occurs within 90 days of the date of the closing of such Equity Offering. At any time prior to November 15, 2015, the Issuer may redeem during each twelve-month period commencing on the Issue Date up to 10% of the original principal amount of the Notes issued under the Indenture (including any Additional Notes) at a redemption price of 103% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon and Additional Amounts, if any, to the applicable redemption date, subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date. At any time prior to November 15, 2015, the Issuer may on any one or more occasions redeem all or a part of the Notes upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to 100% of

170 the principal amount of the Notes redeemed, plus the Applicable Premium as of, and accrued and unpaid interest and Additional Amounts, if any, to the date of redemption, subject to the rights of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date. Except pursuant to the preceding paragraphs and except pursuant to ‘‘—Redemption for Changes in Taxes,’’ the Notes will not be redeemable at the Issuer’s option prior to November 15, 2015. On or after November 15, 2015, the Issuer may on any one or more occasions redeem all or a part of Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and Additional Amounts, if any, on the Notes redeemed, to the applicable date of redemption, if redeemed during the twelve-month period beginning on November 15 of the years indicated below, subject to the rights of holders of Notes on the relevant record date to receive interest on the relevant interest payment date:

Redemption Year Price 2015 ...... 103.313% 2016 ...... 101.656% 2017 and thereafter ...... 100.000%

Unless the Issuer defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date. Any redemption and notice may, in the Issuer’s discretion, be subject to the satisfaction of one or more conditions precedent.

Redemption for Changes in Taxes The Issuer may redeem the Notes, in whole but not in part, at its discretion at any time upon giving not less than 30 nor more than 60 days’ prior notice to the holders of the Notes (which notice will be irrevocable and given in accordance with the procedures described in ‘‘—Selection and Notice’’), at a redemption price equal to 100% of the aggregate principal amount thereof, together with accrued and unpaid interest, if any, to the date fixed by the Issuer for redemption (a ‘‘Tax Redemption Date’’) and all Additional Amounts (if any) then due and which will become due on the Tax Redemption Date as a result of the redemption or otherwise (subject to the right of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date and Additional Amounts (if any) in respect thereof), if on the next date on which any amount would be payable in respect of the Notes or any Note Guarantee, the Issuer or the relevant Guarantor is or would be required to pay Additional Amounts (but, in the case of the relevant Guarantor, only if such amount cannot be paid by the Issuer or another Guarantor who can pay such amount without the obligation to pay Additional Amounts), and the Issuer or the relevant Guarantor cannot avoid any such payment obligation of Additional Amounts by taking reasonable measures available to it, and the requirement arises as a result of: (1) any amendment to, or change in, the laws or any regulations or rulings promulgated thereunder of a relevant Tax Jurisdiction which change or amendment is formally announced and becomes effective on or after the Issue Date (or, if the applicable Tax Jurisdiction became a Tax Jurisdiction on a date after the Issue Date, such later date); or (2) any amendment to, or change in, an official written interpretation or application of such laws, regulations or rulings (including by virtue of a holding, judgment, order by a court of competent jurisdiction or a change in published administrative practice) which amendment or change is formally announced and becomes effective on or after the Issue Date (or, if the applicable Tax Jurisdiction became a Tax Jurisdiction on a date after the Issue Date, such later date) (each of the foregoing clauses (1) and (2), a ‘‘Change in Tax Law’’). The Issuer will not give any such notice of redemption earlier than 60 days prior to the earliest date on which the Issuer or the relevant Guarantor would be obligated to make such payment of Additional Amounts if a payment in respect of the Notes or any Note Guarantee was then due. Prior to the publication or, where relevant, mailing of any notice of redemption of the Notes pursuant to the foregoing, the Issuer will deliver to the Trustee (a) an Officer’s Certificate stating that the obligation to pay such Additional Amounts cannot be avoided by the Issuer or the relevant Guarantor taking reasonable measures available to it (including, in the case of a Guarantor, that such amounts cannot be paid by the

171 Issuer or another Guarantor who can pay such amounts without the obligation to pay Additional Amounts); and (b) a written opinion of independent tax counsel to the Issuer of recognized standing qualified under the laws of the relevant Tax Jurisdiction and reasonably satisfactory to the Trustee (such approval not to be unreasonably withheld) to the effect that the Issuer or the relevant Guarantor has or will become obligated to pay such Additional Amounts as a result of a Change in Tax Law. The Trustee will accept and shall be entitled to rely on such Officer’s Certificate and opinion of independent tax counsel as sufficient evidence of the existence and satisfaction of the conditions precedent as described above, in which event it will be conclusive and binding on the holders.

Mandatory Redemption The Issuer is not required to make mandatory redemption or sinking fund payments with respect to the Notes.

Repurchase at the Option of Holders Change of Control If a Change of Control occurs, each holder of Notes will have the right to require the Issuer to repurchase all or any part (equal to A100,000 or in integral multiples of A1,000; provided that Notes of A100,000 or less may be redeemed in whole and not in part) of that holder’s Notes pursuant to a Change of Control Offer on the terms set forth in the Indenture. In the Change of Control Offer, the Issuer will offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest and Additional Amounts, if any, on the Notes repurchased to the date of purchase (the ‘‘Change of Control Payment’’), subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Issuer will mail a notice to each holder of the Notes at such holder’s registered address or otherwise deliver a notice in accordance with the procedures described under ‘‘—Selection and Notice,’’ stating that a Change of Control Offer is being made and offering to repurchase Notes on the date (the ‘‘Change of Control Payment Date’’) specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed or delivered, pursuant to the procedures required by the Indenture and described in such notice. The Issuer will comply with the requirements of Rule 14e-1 under the U.S. Exchange Act and any other applicable securities laws and regulations to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, the Issuer will comply with any applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue of such compliance. On the Change of Control Payment Date, the Issuer will, to the extent lawful: (1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and (3) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officer’s Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Issuer. The Paying Agent will promptly mail (or cause to be delivered) to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee (or an authentication agent approved by it) will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any. The Issuer will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require the Issuer to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to require that the Issuer repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.

172 The ability of the Issuer to repurchase Notes pursuant to a Change of Control Offer may be limited by a number of factors. The occurrence of certain of the events that constitute a Change of Control would constitute a mandatory prepayment event and/or a default due to a breach of undertaking under the Revolving Credit Facility. In addition, certain events that may constitute a change of control under the Revolving Credit Facility may not constitute a Change of Control under the Indenture. Future Indebtedness of the Issuer and its Subsidiaries may also contain prohibitions of certain events that would constitute a Change of Control or require such Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the holders of the Notes of their right to require the Issuer to repurchase the Notes could cause a default under such Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Issuer. Finally, the ability of the Issuer to pay cash to the holders of the Notes upon a repurchase may be limited by its then-existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The Issuer will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Issuer and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) a notice of redemption has been given pursuant to the Indenture as described above under the caption ‘‘—Optional Redemption,’’ unless and until there is a default in payment of the applicable redemption price. Notwithstanding anything to the contrary contained herein, a Change of Control Offer may be made in advance of a Change of Control, conditioned upon the consummation of such Change of Control, if a definitive agreement is in place for the Change of Control at the time the Change of Control Offer is made. The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of ‘‘all or substantially all’’ of the properties or assets of the Issuer and its Restricted Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase ‘‘substantially all,’’ there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Issuer to repurchase its Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Issuer and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain. The provisions under the Indenture relating to the Issuer’s obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified with the consent of the holders of a majority in principal amount of the Notes prior to the occurrence of the Change of Control. If and for so long as the Notes are listed on the Official List of the Irish Stock Exchange and admitted for trading on the Main Securities Market, the Issuer will publish notices relating to the Change of Control Offer, to the extent and in the manner permitted by such rules, on the official website of the Irish Stock Exchange (www.ise.ie).

Asset Sales The Issuer will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, consummate an Asset Sale unless: (1) the Issuer (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and (2) at least 75% of the consideration received in the Asset Sale by the Issuer or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following will be deemed to be cash: (a) any liabilities, as recorded on the balance sheet of the Issuer or any Restricted Subsidiary (other than contingent liabilities or liabilities that are expressly subordinated in right of payment to the Notes and/or any Note Guarantee), that are assumed by the transferee of any such assets and as a result of which the Issuer and the Restricted Subsidiaries are no longer obligated with respect to such liabilities or are indemnified against further liabilities; (b) any securities, notes or other obligations received by the Issuer or any such Restricted Subsidiary from such transferee that are converted by the Issuer or such Restricted Subsidiary into cash or

173 Cash Equivalents within 90 days following the closing of the Asset Sale, to the extent of the cash or Cash Equivalents received in that conversion; (c) any Capital Stock or assets of the kind referred to in clauses (2) or (4) of the next paragraph of this covenant; (d) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Sale, to the extent that the Issuer and each other Restricted Subsidiary are released from any guarantee of such Indebtedness in connection with such Asset Sale; and (e) consideration consisting of Indebtedness (or the cancellation of Indebtedness) of the Issuer or any Guarantor of a type set forth in clause (1) of the following paragraph, received from Persons who are not the Issuer or any Restricted Subsidiary. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Issuer (or the applicable Restricted Subsidiary, as the case may be) may apply such Net Proceeds (at the option of the Issuer or Restricted Subsidiary): (1) to repay, repurchase, prepay or redeem (a) Indebtedness of the Issuer or any Guarantor that is secured by a Lien on the Collateral and that is not subordinated in right of payment to the Notes or any Note Guarantee, (b) with respect to assets of a Restricted Subsidiary that is not a Guarantor, Indebtedness of a Restricted Subsidiary of the Issuer that is not a Guarantor, (c) the Notes pursuant to an offer made on a pro rata basis to all holders of Notes at a purchase price equal to at least 100% of the principal amount, plus accrued and unpaid interest and Additional Amounts, if any, to the date of purchase (a ‘‘Notes Offer’’) or (d) to make an Asset Sale Offer (as defined below) to all holders of the Notes and holders of other Indebtedness that is pari passu with the Notes or any Note Guarantees, that is secured by a Lien on the Collateral and that is not subordinated in right of payment with the Notes or any Note Guarantee; (2) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary; (3) to make a capital expenditure; (4) to acquire assets (other than Capital Stock) not classified as current assets under IFRS that are used or useful in a Permitted Business; (5) pursuant to a binding commitment to apply the Net Proceeds pursuant to clause (2), (3) or (4) of this paragraph; provided that such binding commitment shall be treated as a permitted application of the Net Proceeds from the date of such commitment until the earlier of (x) the date on which such acquisition or expenditure is consummated, and (y) the 180th day following the expiration of the aforementioned 365 day period; or (6) any combination of the foregoing. Pending the final application of any Net Proceeds, the Issuer (or the applicable Restricted Subsidiary) may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second paragraph of this covenant will constitute ‘‘Excess Proceeds.’’ When the aggregate amount of Excess Proceeds exceeds A15.0 million, within ten Business Days thereof, the Issuer will make an offer (an ‘‘Asset Sale Offer’’) to all holders of Notes and may make an offer to any holders of other Indebtedness that is pari passu with the Notes or any Note Guarantees to purchase, prepay or redeem with the proceeds of sales of assets the maximum principal amount of Notes and such other pari passu Indebtedness (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith) that may be purchased, prepaid or redeemed out of the Excess Proceeds. The offer price for the Notes in any Asset Sale Offer will be equal to 100% of the principal amount, plus accrued and unpaid interest and Additional Amounts, if any, to the date of purchase, prepayment or redemption, subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Issuer and the Restricted Subsidiaries may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into (or to be prepaid or redeemed in connection with) such Asset Sale Offer

174 exceeds the amount of Excess Proceeds or if the aggregate principal amount of Notes tendered pursuant to a Notes Offer exceeds the amount of the Net Proceeds so applied, the Trustee will select the Notes and such other pari passu Indebtedness, if applicable, to be purchased on a pro rata basis (or in the manner described under ‘‘—Selection and Notice’’), based on the amounts tendered or required to be prepaid or redeemed. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. The Issuer will comply with the requirements of Rule 14e-1 under the U.S. Exchange Act and any other applicable securities laws and regulations to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to a Change of Control Offer, an Asset Sale Offer or a Notes Offer. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control, Asset Sale or Notes Offer provisions of the Indenture, the Issuer will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control, Asset Sale or Notes Offer provisions of the Indenture by virtue of such compliance.

Selection and Notice If less than all of the Notes are to be redeemed at any time, the Paying Agent (or the Registrar, as applicable) will select Notes for redemption on a pro rata basis (or, in the case of Notes issued in global form as discussed under ‘‘Book-Entry; Delivery and Form,’’ based on a method that most nearly approximates a pro rata selection as the Trustee, the Registrar or the Paying Agent deems fair and appropriate), unless otherwise required by law or applicable stock exchange or depository requirements. The Trustee, the Paying Agent and the Registrar shall not be liable for any selections made by it in accordance with this paragraph. No Notes of A100,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount of that Note that is to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the holder of Notes upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of Notes called for redemption. For Notes which are represented by global certificates held on behalf of Euroclear or Clearstream Banking, notices may be given by delivery of the relevant notices to Euroclear for communication to entitled account holders in substitution for the aforesaid mailing. So long as any Notes are listed on the Official List of the Irish Stock Exchange and admitted for trading on the Main Securities Market and the rules of the Irish Stock Exchange so require, any such notice to the holders of the relevant Notes shall, to the extent and in the manner permitted by such rules, be posted on the official website of the Irish Stock Exchange (www.ise.ie) and, in connection with any redemption, the Issuer will notify the Irish Stock Exchange of any change in the principal amount of Notes outstanding.

Certain Covenants Restricted Payments The Issuer will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Issuer’s or any Restricted Subsidiary’s Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Issuer or any Restricted Subsidiary) or to the direct or indirect holders of the Issuer’s or any Restricted Subsidiary’s Equity Interests in their capacity as holders (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Issuer and other than dividends or distributions payable to the Issuer or a Restricted Subsidiary); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Issuer or any Restricted Subsidiary) any Equity Interests of the Issuer or any Parent Holdco of the Issuer;

175 (3) make any principal payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Issuer or any Guarantor that is expressly contractually subordinated in right of payment to the Notes or to any Note Guarantee (excluding any intercompany Indebtedness between or among the Issuer and any Restricted Subsidiary), except (a) a payment of interest or principal at the Stated Maturity thereof or (b) the purchase, repurchase or other acquisition of Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or scheduled maturity, in each case, due within one year of the date of such purchase, repurchase or other acquisition; (4) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value, any Subordinated Shareholder Debt (other than any capitalization of interest, including pay-in-kind interest, and other non-cash charges resulting therefrom); or (5) make any Restricted Investment, (all such payments and other actions set forth in these clauses (1) through (5) above being collectively referred to as ‘‘Restricted Payments’’), unless, at the time of any such Restricted Payment: (a) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; (b) the Issuer would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least A1.00 of additional Indebtedness pursuant to the Consolidated Leverage Ratio test set forth in clause (1) of the first paragraph of the covenant described below under the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Issuer and the Restricted Subsidiaries since the Issue Date (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7), (8), (9), (10), (11), (12), (14), (15) and (16) and of the next succeeding paragraph), is less than the sum, without duplication, of: (i) 50% of the Consolidated Net Income of the Issuer for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the Issue Date to the end of the Issuer’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus (ii) 100% of the aggregate net cash proceeds and the Fair Market Value of marketable securities received by the Issuer since the Issue Date as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Issuer (other than Disqualified Stock and Excluded Contributions) or from the issue or sale of convertible or exchangeable Disqualified Stock of the Issuer or convertible or exchangeable Indebtedness of the Issuer, in each case, that have been converted into or exchanged for Equity Interests or Subordinated Shareholder Debt of the Issuer (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Issuer) or from the issuance or sale of Subordinated Shareholder Debt (other than an issuance or sale to a Subsidiary of the Issuer); plus (iii) to the extent that any Restricted Investment that was made after the Issue Date is (a) sold, disposed of or otherwise cancelled, liquidated or repaid, 100% of the aggregate amount received in cash and the Fair Market Value of the property and marketable securities received by the Issuer or any Restricted Subsidiary, or (b) made in an entity that subsequently becomes a Restricted Subsidiary, 100% of the Fair Market Value of the Restricted Investment of the Issuer and the Restricted Subsidiaries as of the date such entity becomes a Restricted Subsidiary; plus (iv) to the extent that any Unrestricted Subsidiary of the Issuer designated as such after the Issue Date is redesignated as a Restricted Subsidiary or is merged or consolidated into the Issuer or a Restricted Subsidiary, or all of the assets of such Unrestricted Subsidiary are transferred to the Issuer or a Restricted Subsidiary, the Fair Market Value of the property received by the Issuer or Restricted Subsidiary or the Issuer’s Restricted Investment in such Subsidiary as of the date of such redesignation, merger, consolidation or transfer of assets, to the extent such investments reduced the Restricted Payments capacity under this clause (c) and were not previously repaid or otherwise reduced; plus

176 (v) 100% of any dividends or distributions received by the Issuer or a Restricted Subsidiary after the Issue Date from an Unrestricted Subsidiary, to the extent that such dividends or distributions were not otherwise included in the Consolidated Net Income of the Issuer for such period plus (vi) upon the full and unconditional release of a Restricted Investment that is a guarantee made by the Issuer or a Restricted Subsidiary to any Person (other than the Issuer or a Restricted Subsidiary), an amount equal to the amount of such guarantee. The preceding provisions will not prohibit: (1) the payment of any dividend or the consummation of any redemption within 60 days after the date of declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment would have complied with the provisions of the Indenture; (2) the making of any Restricted Payment in exchange for, or out of or with the net cash proceeds of the substantially concurrent sale or issuance (other than to a Subsidiary of the Issuer) of, Equity Interests of the Issuer (other than Disqualified Stock), Subordinated Shareholder Debt or from the substantially concurrent contribution of common equity capital to the Issuer; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded from clause (c)(ii) of the preceding paragraph and are not Excluded Contributions, and will not be considered to be net cash proceeds from an Equity Offering for purposes of the ‘‘Optional Redemption’’ provisions of the Indenture; (3) the purchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Issuer or any Restricted Subsidiary that is expressly subordinated to the Notes or to any Note Guarantee with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Issuer or any Restricted Subsidiary held by any current or former officer, director, employee or consultant of the Issuer or any Restricted Subsidiary pursuant to any equity subscription agreement, stock option agreement, restricted stock grant, shareholders’ agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed A2.5 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years); and provided, further, that such amount in any calendar year may be increased by an amount not to exceed the cash proceeds from the sale of Equity Interests of the Issuer or a Restricted Subsidiary received by the Issuer or a Restricted Subsidiary during such calendar year, in each case, to members of management, directors or consultants of the Issuer, any Restricted Subsidiary or any Parent Holdco of the Issuer to the extent the cash proceeds from the sale of Equity Interests have not otherwise been applied to the making of Restricted Payments pursuant to clause (c)(ii) of the preceding paragraph or clause (2) of this paragraph and are not Excluded Contributions; (5) the repurchase of Equity Interests deemed to occur upon the exercise of stock options to the extent such Equity Interests represent a portion of the exercise price of those stock options; (6) the declaration and payment of regularly scheduled or accrued dividends to holders of any class or series of Disqualified Stock of the Issuer or any preferred stock of any Restricted Subsidiary issued on or after the Issue Date in accordance with the covenant described below under the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’; (7) payments of cash, dividends, distributions, advances or other Restricted Payments by the Issuer or any Restricted Subsidiary to allow the payment of cash in lieu of the issuance of fractional shares upon (a) the exercise of options or warrants or (b) the conversion or exchange of Capital Stock of any such Person; (8) advances or loans to (a) any future, present or former officer, director, employee or consultant of the Issuer or a Restricted Subsidiary to pay for the purchase or other acquisition for value of Equity Interests of the Issuer or a Restricted Subsidiary (other than Disqualified Stock), or any obligation under a forward sale agreement, deferred purchase agreement or deferred payment arrangement pursuant to any management equity plan or stock option plan or any other management or employee benefit or incentive plan or other agreement or arrangement or (b) any management equity plan or stock option plan or any other management or employee benefit or incentive plan or unit trust or the trustees of any such plan or trust to pay for the purchase or other acquisition for value of Equity

177 Interests of the Issuer (other than Disqualified Stock); provided that the total aggregate amount of Restricted Payments made under this clause (8) does not exceed A2.5 million in any calendar year with unused amounts from such calendar year (but not including unused amounts from any prior calendar year) being available for use during the immediately succeeding calendar year; (9) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary to the holders of its Equity Interests (other than the Issuer or any Restricted Subsidiary) then entitled to participate in such dividends on no more than a pro rata basis; (10) Permitted Parent Payments; (11) Restricted Payments that are made with Excluded Contributions; (12) the payment of any Securitization Fees and purchases of Securitization Assets and related assets pursuant to a Securitization Repurchase Obligation in connection with a Qualified Securitization Financing; (13) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, following a Public Equity Offering that results in a Public Market of the Capital Stock of the Issuer or a Parent Holdco of the Issuer, the payment of dividends on the Capital Stock of the Issuer up to 6% per annum of the net cash proceeds received by the Issuer in any such Public Equity Offering or any subsequent Public Equity Offering of such Capital Stock, or the net cash proceeds of any such Public Equity Offering or subsequent Public Equity Offering of such Capital Stock of any Parent Holdco of the Issuer that are contributed in cash to the Issuer’s equity (other than through the issuance of Disqualified Stock or Excluded Contributions); provided, that if such Public Equity Offering was of Capital Stock of a Parent Holdco of the Issuer, the net proceeds of any such dividend are used to fund a corresponding dividend in equal or greater amount on the Capital Stock of such Parent Holdco of the Issuer; (14) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Issuer or any Restricted Subsidiary that is expressly subordinated to the Notes or to any Note Guarantee (a) to the extent that the purchase price is not greater than 101% of the principal amount of such Indebtedness in the event of a Change of Control (plus accrued and unpaid interest thereon); or (b) to the extent that the purchase price is not greater than 100% of the principal amount thereof in accordance with provisions similar to those provided under ‘‘—Repurchase at Option of Holders—Asset Sales,’’ in each case, to the extent required by any agreement or instrument pursuant to which such Indebtedness was issued or borrowed; provided that, prior to or simultaneously with such purchase, repurchase, redemption, defeasance or other acquisition or retirement, a Change of Control Offer or Asset Sale Offer, as applicable, as provided in such covenant with respect to the Notes has been made and the repurchase or redemption of all Notes validly tendered for payment and not withdrawn in connection with such Change of Control Offer or Asset Sale Offer, as the case may be, has been completed; (15) payments or other transactions pursuant to any tax sharing agreement or arrangement among the Issuer or any of its Restricted Subsidiaries and any other Person with which the Issuer or any of its Restricted Subsidiaries files or filed a consolidated tax return or with which the Issuer or any of its Restricted Subsidiaries is or was part of a consolidated group for tax purposes; provided, however, that such payments, and the value of such transactions, shall not exceed the lesser of (a) the net amount of the relevant tax that the Issuer or such Restricted Subsidiaries would owe to the appropriate taxing authority without taking into account such other Person and (b) the amount of the relevant tax (including any penalties and interest) that the Issuer or such Restricted Subsidiaries would owe if the Issuer or such Restricted Subsidiaries were filing a separate tax return (or a separate consolidated or combined return with its Subsidiaries that are members of the consolidated or combined group), taking into account any carryovers and carrybacks of tax attributes (such as net operating leases) of the Issuer and such Subsidiaries from other taxable years; (16) the making of any payments and any reimbursements contemplated under the caption ‘‘Use of Proceeds’’ in this Offering Circular; or (17) so long as no Default or Event of Default has occurred and is continuing, other Restricted Payments in an aggregate amount not to exceed A25.0 million since the Issue Date.

178 The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Issuer or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Unsecured Indebtedness shall not be deemed to be subordinate or junior to secured Indebtedness by virtue of its nature as unsecured Indebtedness.

Incurrence of Indebtedness and Issuance of Preferred Stock The Issuer will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, ‘‘incur’’) any Indebtedness (including Acquired Debt), and the Issuer will not issue any Disqualified Stock and will not permit any Restricted Subsidiary to issue any shares of preferred stock; provided, however: (1) that the Issuer may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock and the Guarantors may incur Indebtedness (including Acquired Debt) or issue preferred stock, if the Consolidated Leverage Ratio for the Issuer’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued, as the case may be, does not exceed 4.0 to 1.0, in each case, as if the additional Indebtedness had been incurred or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom); and (2) if the Indebtedness to be incurred is Senior Secured Indebtedness, the Issuer and the Guarantors may incur such Senior Secured Indebtedness if the Consolidated Senior Secured Leverage Ratio for the Issuer’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred does not exceed 3.0 to 1.0 determined on a pro forma basis (including a pro forma application of the net proceeds therefrom). The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, ‘‘Permitted Debt’’): (1) the incurrence by the Issuer and the Guarantors of Indebtedness under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) not to exceed A40.0 million plus, in the case of any refinancing of any Indebtedness permitted under this clause (1) or any portion thereof, the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing; (2) the incurrence by the Issuer or any Restricted Subsidiary of Indebtedness outstanding on the Issue Date after giving pro forma effect to the use of proceeds of the Notes issued on the Issue Date; (3) the incurrence by the Issuer and the Guarantors of Indebtedness represented by the Notes (other than Additional Notes) and the related Note Guarantees (including any future Note Guarantees); (4) the incurrence by the Issuer or any Guarantor of Indebtedness representing Capital Lease Obligations, mortgage financings or purchase money obligations incurred for the purpose of financing all or any part of the purchase price, lease expense, rental payments or cost of design, construction, installation or improvement of property, plant or equipment or other assets (including Capital Stock) used in the business of the Issuer or any Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred or issued to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (4), not to exceed at any time A10.0 million; (5) the incurrence by the Issuer or any Restricted Subsidiary of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clause (2), (3), (5) or (13) of this paragraph;

179 (6) the incurrence by the Issuer or any Restricted Subsidiary of intercompany Indebtedness between or among the Issuer or any Restricted Subsidiary; provided that: (a) if the Issuer or any Guarantor is the obligor on such Indebtedness and the payee is not the Issuer or a Guarantor, such Indebtedness must be unsecured and ((i) except in respect of the intercompany current liabilities incurred in the ordinary course of business in connection with the cash management operations of the Issuer and its Restricted Subsidiaries and (ii) only to the extent legally permitted (the Issuer and its Restricted Subsidiaries having completed all procedures required in the reasonable judgment of directors or officers of the obligee or obligor to protect such Persons from any penalty or civil or criminal liability in connection with the subordination of such Indebtedness)) expressly subordinated to the prior payment in full in cash of all Obligations then due with respect to the Notes, in the case of the Issuer, or the Note Guarantee, in the case of a Guarantor; and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Issuer or a Restricted Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Issuer or a Restricted Subsidiary, will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Issuer or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); (7) the issuance by any Restricted Subsidiary to the Issuer or to another Restricted Subsidiary of preferred stock; provided that: (a) any subsequent issuance or transfer of Equity Interests that results in any such preferred stock being held by a Person other than the Issuer or a Restricted Subsidiary; and (b) any sale or other transfer of any such preferred stock to a Person that is not either the Issuer or a Restricted Subsidiary, will be deemed, in each case, to constitute an issuance of such preferred stock by such Restricted Subsidiary that was not permitted by this clause (7); (8) the incurrence by the Issuer or any Restricted Subsidiary of Hedging Obligations not for speculative purposes (as determined in good faith by the Issuer or such Restricted Subsidiary, as the case may be); (9) the guarantee by the Issuer or any Restricted Subsidiary of Indebtedness of the Issuer or any Restricted Subsidiary to the extent that the guaranteed Indebtedness was permitted to be incurred by another provision of this covenant; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the Notes or a Note Guarantee, then the guarantee must be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed; (10) the incurrence by the Issuer or any Restricted Subsidiary of Indebtedness in respect of workers’ compensation claims, self-insurance obligations, captive insurance companies, bankers’ acceptances, performance and surety bonds in the ordinary course of business; (11) the incurrence by the Issuer or any Restricted Subsidiary of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within 30 Business Days; (12) Indebtedness represented by guarantees of any Management Advances; (13) Indebtedness of any Person outstanding on the date on which such Person becomes a Restricted Subsidiary or is merged, consolidated, amalgamated or otherwise combined with (including pursuant to any acquisition of assets and assumption of related liabilities) the Issuer or any Restricted Subsidiary (other than Indebtedness Incurred to provide all or any portion of the funds used to consummate the transaction or series of related transactions pursuant to which such Person became a Restricted Subsidiary or was otherwise acquired by the Issuer or a Restricted Subsidiary); provided, however, with respect to this clause (13), that at the time of the acquisition or other transaction pursuant to which such Indebtedness was deemed to be incurred (a) the Issuer would have been able to incur A1.00 of additional Indebtedness pursuant to clause (1) of the first paragraph of this covenant and, if the Indebtedness incurred increases Senior Secured Indebtedness, the Issuer would have been able to incur A1.00 additional Indebtedness pursuant to clause (2) of the first paragraph of this covenant, in each case, after giving effect to the incurrence of such Indebtedness pursuant to this clause (13) or (b) the Consolidated Leverage Ratio would not be greater than it was immediately prior to giving effect to such acquisition or other transaction and, if the Indebtedness incurred constitutes

180 Senior Secured Indebtedness, the Consolidated Senior Secured Leverage Ratio would not be greater than it was immediately prior to giving effect to such acquisition or other transaction; (14) Indebtedness arising from agreements of the Issuer or a Restricted Subsidiary providing for customary indemnification, obligations in respect of earnouts or other adjustments of purchase price or, similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business or assets or Person or any Equity Interests of a Subsidiary, provided that the maximum liability of the Issuer and the Restricted Subsidiaries in respect of all such Indebtedness shall at no time exceed the gross proceeds, including the Fair Market Value of non-cash proceeds (measured at the time received and without giving effect to any subsequent changes in value), actually received by the Issuer and the Restricted Subsidiaries in connection with such disposition; (15) Indebtedness of the Issuer and the Restricted Subsidiaries in respect of (a) letters of credit, surety, performance or appeal bonds, completion guarantees, judgment, advance payment, customs, VAT or other tax guarantees or similar instruments issued in the ordinary course of business of such Person and not in connection with the borrowing of money, including letters of credit or similar instruments in respect of self-insurance and workers compensation obligations, and (b) any customary cash management, cash pooling or netting or setting off arrangements, including customary credit card facilities, entered into in the ordinary course of business; provided, however, that upon the drawing of such letters of credit or other instrument, such obligations are reimbursed within 30 days following such drawing; (16) guarantees by the Issuer or any Restricted Subsidiary granted to any trustee of any management equity plan or stock option plan or any other management or employee benefit or incentive plan or unit trust scheme approved by the Board of Directors of the Issuer, so long as the proceeds of the Indebtedness so guaranteed are used to purchase Equity Interests of the Issuer (other than Disqualified Stock); provided that the amount of any net cash proceeds from the sale of such Equity Interests of the Issuer will be excluded from clause (c)(ii) of the first paragraph of the covenant described above under the caption ‘‘—Restricted Payments’’ and will not be considered to be net cash proceeds from an Equity Offering for purposes of the ‘‘Optional Redemption’’ provisions of the Indenture; (17) Indebtedness incurred in any Qualified Securitization Financing; and (18) the incurrence of Indebtedness by the Issuer or any of its Restricted Subsidiaries in an aggregate principal amount at any time outstanding, including all Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (18), not to exceed A50.0 million, provided that aggregate principal amount of such Indebtedness that may be incurred pursuant to this clause (18) by Restricted Subsidiaries that are not Guarantors shall not exceed A15.0 million. Notwithstanding anything to the contrary contained herein, if the Indebtedness (or any part thereof) to be incurred pursuant to this covenant is intended to rank senior to the Notes or the Note Guarantee with respect to proceeds distributions of any enforcement of any of the Collateral, such Indebtedness (or any part thereof) may only be incurred pursuant to the following clauses of the definition of Permitted Debt: (1) clause (1) and (2) clause (8) but only to the extent the Hedging Obligations are only of the type referred to in clause (3) of the definition of Permitted Collateral Liens). For purposes of determining compliance with this ‘‘Incurrence of Indebtedness and Issuance of Preferred Stock’’ covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (18) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Issuer, in its sole discretion, will be permitted to classify such item of Indebtedness on the date of its incurrence and only be required to include the amount and type of such Indebtedness in one of such clauses and will be permitted on the date of such incurrence to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described in the first and second paragraphs of this covenant, and from time to time to reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant. Indebtedness incurred under the Revolving Credit Facility outstanding on the Issue Date will initially be deemed to have been incurred on such date in reliance on clause (1) of the definition of Permitted Debt and may not be reclassified. The accrual of interest or preferred stock dividends, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on preferred stock or Disqualified Stock in the form of additional shares of the same class of preferred stock or Disqualified

181 Stock will not be deemed to be an incurrence of Indebtedness or an issuance of preferred stock or Disqualified Stock for purposes of this covenant. For purposes of determining compliance with any euro-denominated restriction on the incurrence of Indebtedness, the euro equivalent principal amount of Indebtedness denominated in a different currency shall be utilized, calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred; provided, however, that (i) if such Indebtedness denominated in non-euro currency is subject to a Currency Exchange Protection Agreement with respect to euros the amount of such Indebtedness expressed in euros will be calculated so as to take account of the effects of such Currency Exchange Protection Agreement; and (ii) the euro equivalent of the principal amount of any such Indebtedness outstanding on the Issue Date shall be calculated based on the relevant currency exchange rate in effect on the Issue Date. The principal amount of any refinancing Indebtedness incurred in the same currency as the Indebtedness being refinanced will be the euro equivalent of the Indebtedness refinanced determined on the date such Indebtedness was originally incurred, except that to the extent that: (1) such euro equivalent was determined based on a Currency Exchange Protection Agreement, in which case the refinancing Indebtedness will be determined in accordance with the preceding sentence; and (2) the principal amount of the refinancing Indebtedness exceeds the principal amount of the Indebtedness being refinanced, in which case the euro equivalent of such excess will be determined on the date such refinancing Indebtedness is being incurred. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Issuer or any Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values. The amount of any Indebtedness outstanding as of any date will be: (1) in the case of any Indebtedness issued with original issue discount, the amount of the liability in respect thereof determined in accordance with IFRS; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (a) the Fair Market Value of such assets at the date of determination; and (b) the amount of the Indebtedness of the other Person.

Anti-Layering Neither the Issuer nor any Guarantor will incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Issuer or such Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes and the applicable Note Guarantee on substantially identical terms; provided, however, that no Indebtedness will be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Issuer or any Guarantor solely by virtue of being unsecured or by virtue of being secured with different collateral or by virtue of being secured on a junior priority basis or by virtue of the application of waterfall or other payment ordering provisions affecting different tranches of Indebtedness.

Liens The Issuer will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Indebtedness upon any of their property or assets, now owned or hereafter acquired, except (1) in the case of any property or asset that does not constitute Collateral, (a) Permitted Liens, or (b) if such Lien is not a Permitted Lien, to the extent that all payments due under the Indenture, the Notes and the Note Guarantees are secured on an equal and ratable pari passu basis with the obligations so secured (and if such obligations so secured are subordinated in right of payment to either the Notes or any Note Guarantee, on a senior priority basis) until such time as such obligations are no longer secured by a Lien, and (2) in the case of any property or asset that constitutes Collateral, Permitted Collateral Liens.

182 Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries The Issuer will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Issuer or any Restricted Subsidiary, or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Issuer or any Restricted Subsidiary; (2) make loans or advances to the Issuer or any Restricted Subsidiary; or (3) sell, lease or transfer any of its properties or assets to the Issuer or any Restricted Subsidiary, provided that (x) the priority of any preferred stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on common stock and (y) the subordination of (including the application of any standstill period to) loans or advances made to the Issuer or any Restricted Subsidiary to other Indebtedness incurred by the Issuer or any Restricted Subsidiary, in each case, shall not be deemed to constitute such an encumbrance or restriction. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) agreements as in effect on the Issue Date and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the Issue Date (as determined in good faith by the Board of Directors or a member of senior management of the Issuer); (2) the Indenture, the Notes, the Note Guarantees, the Intercreditor Agreement, any Additional Intercreditor Agreement and the Security Documents; (3) agreements with respect to Indebtedness permitted to be incurred under the provisions of the covenant described above under the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’ and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the restrictions therein are not materially less favorable, taken as a whole, to the holders of the Notes than is customary in comparable financings (as determined in good faith by the Board of Directors or a member of senior management of the Issuer); (4) applicable law, rule, regulation or order or the terms of any license, authorization, concession or permit; (5) any agreement or other instrument governing Indebtedness or Capital Stock of a Person (including its subsidiaries) acquired by the Issuer or any Restricted Subsidiary as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired (including its subsidiaries); provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred; (6) customary non-assignment and similar provisions in contracts, leases and licenses entered into in the ordinary course of business; (7) purchase money obligations and mortgage financings for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of the preceding paragraph; (8) any agreement for the sale or other disposition of the Capital Stock or all or substantially all of the property and assets of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (9) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a

183 whole, than those contained in the agreements governing the Indebtedness being refinanced (as determined in good faith by the Board of Directors or a member of senior management of the Issuer); (10) Liens permitted to be incurred under the provisions of the covenant described above under the caption ‘‘—Liens’’ that limit the right of the debtor to dispose of the assets subject to such Liens; (11) customary provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements in the ordinary course of business (including agreements entered into in connection with a Restricted Investment), which limitation is applicable only to the assets that are the subject of such agreements; (12) encumbrances or restrictions effected in connection with any Qualified Securitization Financing; (13) encumbrances or restrictions on cash or other deposits or net worth imposed by customers or suppliers or required by insurance, surety or bonding companies, in each case, under contracts entered into in the ordinary course of business; and (14) any encumbrance or restriction existing under any agreement that extends, renews, refinances or replaces the agreements containing the encumbrances or restrictions in the foregoing clauses (1) through (13), or in this clause (14); provided that the terms and conditions of any such encumbrances or restrictions are not materially less favorable than those under or pursuant to the agreement so extended, renewed, refinanced or replaced (as determined in good faith by the Board of Directors or a member of senior management of the Issuer).

Merger, Consolidation or Sale of Assets The Issuer will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Issuer is the surviving corporation) or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of the Issuer and its Restricted Subsidiaries taken as a whole, in either case, in one or more related transactions, to another Person, unless: (1) at the time of, and immediately after giving effect to any such transaction or series of transactions, either: (a) the Issuer will be the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or to which such sale, assignment, transfer, conveyance, lease or other disposition has been made is an entity organized or existing under the laws of any member state of the Pre-Expansion European Union, Bulgaria, Switzerland, Canada, any state of the United States or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger with the Issuer (if other than the Issuer) or the Person to which such sale, assignment, transfer, conveyance, lease or other disposition has been made assumes all the obligations of the Issuer under the Notes, the Indenture, the Intercreditor Agreement, any Additional Intercreditor Agreement and the Security Documents to which the Issuer is a party; (3) immediately after such transaction, no Default or Event of Default exists; (4) the Issuer or the Person formed by or surviving any such consolidation or merger (if other than the Issuer), or to which such sale, assignment, transfer, conveyance, lease or other disposition has been made would, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period (a) be permitted to incur at least A1.00 of additional Indebtedness pursuant to the Consolidated Leverage Ratio test set forth in clause (1) of the first paragraph of the covenant described above under the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’ or (b) have a Consolidated Leverage Ratio no greater than it was immediately prior to giving effect to such transaction; and (5) the Issuer delivers to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officer’s Certificate and opinion of counsel, in each case, stating that such consolidation, merger or transfer and such supplemental indenture (if applicable) comply with this covenant and that the Indenture and the Notes constitute legal, valid and binding obligations of the Issuer or the Person formed by or surviving any such consolidation or merger (as applicable) enforceable in accordance with their terms.

184 A Guarantor (other than a Guarantor whose Note Guarantee is to be released in accordance with the terms of the Note Guarantee and the Indenture as described under ‘‘—Note Guarantees’’) will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not such Guarantor is the surviving corporation) or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of such Guarantor and its Subsidiaries that are Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person, unless: (1) either: (a) such Guarantor is the surviving Person; or (b) either (i) the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) or the Person to which such sale, assignment, transfer, conveyance, lease or other disposition has been made assumes all the obligations of such Guarantor under its Note Guarantee, the Indenture, the Intercreditor Agreement, any Additional Intercreditor Agreement and the Security Documents to which it is a party; or (ii) in the case of a sale, assignment, transfer, lease, conveyance or otherwise disposal of all or substantially all of the properties or assets of such Guarantor, the Net Proceeds of such sale or other disposition are applied in compliance with the covenant described under ‘‘—Redemption at Option of Holders—Asset Sales’’; (2) immediately after giving pro forma effect to such transaction or transactions (and treating any Indebtedness which becomes an obligation of the surviving corporation as a result of such transaction as having been incurred by the surviving corporation at the time of such transaction or transactions), no Default or Event of Default exists; and (3) the Issuer delivers to the Trustee an Officer’s Certificate and opinion of counsel, in each case, stating that such consolidation, merger or transfer and such supplemental indenture (if applicable) comply with this covenant and the Indenture and the Note Guarantee constitute legal, valid and binding obligations of the Guarantor or the Person formed by or surviving any such consolidation and merger (as applicable) enforceable in accordance with their terms. In addition, neither the Issuer nor any Guarantor will, directly or indirectly, lease all or substantially all of the properties and assets of it and its Subsidiaries which are Restricted Subsidiaries taken as a whole, in one or more related transactions, to any other Person. This ‘‘Merger, Consolidation or Sale of Assets’’ covenant will not apply to (1) any consolidation or merger of any Restricted Subsidiary that is not a Guarantor into the Issuer or a Guarantor, (2) any consolidation or merger among Guarantors and (3) any consolidation or merger among the Issuer and any Guarantor; provided that, if the Issuer is not the surviving entity of such merger or consolidation, the relevant Guarantor is an entity organized or existing under the laws of any member state of the Pre-Expansion European Union, Bulgaria, Switzerland, Canada, any state of the United States or the District of Columbia and clauses (2) and (5) of the first paragraph of this covenant will be complied with. Clauses (3) and (4) of the first paragraph and clause (2) of the second paragraph of this covenant will not apply to any merger or consolidation of the Issuer or any Guarantors with or into an Affiliate solely for the purpose of reincorporating the Issuer or such Guarantor in another jurisdiction.

Transactions with Affiliates The Issuer will not, and will not cause or permit any Restricted Subsidiary to, make any payment to or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Issuer (each, an ‘‘Affiliate Transaction’’) involving aggregate payments or consideration in any single Affiliate Transaction or series of related Affiliate Transactions in excess of A2.0 million, unless: (1) the Affiliate Transaction is on terms, taken as a whole, that are not materially less favorable to the Issuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction on an arm’s-length basis by the Issuer or such Restricted Subsidiary with an unrelated Person (as determined in good faith by the Board of Directors or a member of senior management of the Issuer); and

185 (2) the Issuer delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of A7.5 million, a resolution of the Board of Directors of the Issuer set forth in an Officer’s Certificate certifying that such Affiliate Transaction complies with clause (1) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of the Issuer; and, in addition, (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of A20.0 million, a written opinion of an accounting, appraisal or investment banking firm of international standing, or other recognized independent expert of international standing with experience appraising the terms and conditions of the type of transaction or series of related transactions for which an opinion is required, stating that the transaction or series of related transactions is (i) fair from a financial point of view taking into account all relevant circumstances or (ii) on terms not less favorable than might have been obtained in a comparable transaction at such time on an arm’s length basis from a Person who is not an Affiliate. The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement, collective bargaining agreement, consultant, employee benefit arrangements with any employee, consultant, officer or director of the Issuer or any Restricted Subsidiary, including under any stock option, stock appreciation rights, stock incentive or similar plans, entered into in the ordinary course of business; (2) transactions between or among the Issuer and/or the Restricted Subsidiaries; (3) transactions with a Person (other than an Unrestricted Subsidiary) that is an Affiliate of the Issuer solely because the Issuer owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person; (4) payment of reasonable and customary fees and reimbursements of expenses to, and customary indemnities and employee benefits and pension expenses provided on behalf of, officers, directors, employees or consultants of the Issuer or any Restricted Subsidiary; (5) (A) any issuance of Equity Interests (other than Disqualified Stock) of the Issuer to Affiliates of the Issuer or any Subordinated Shareholder Debt and (B) any amendment, waiver or other transaction with respect to Subordinated Shareholder Debt; (6) any Restricted Payment that does not violate the provisions of the Indenture described above under the caption ‘‘—Restricted Payments’’; (7) any Permitted Investment (other than Permitted Investments described in clauses (3), (10) and (17) of the definition thereof); (8) the incurrence of any Subordinated Shareholder Debt; (9) transactions pursuant to, or contemplated by any agreement or arrangement in effect on the Issue Date and transactions pursuant to any amendment, modification, supplement or extension to such agreement or arrangement, so long as such amendment, modification, supplement or extension, taken as a whole, is not-materially more disadvantageous to the holders of the Notes than the original agreement or arrangement as in effect on the Issue Date; (10) Management Advances and the payment of Management Fees; (11) transactions with customers, banks, lenders, clients, suppliers, or purchasers or sellers of goods or services or providers of employees or other labor, in each case, in the ordinary course of business and otherwise in compliance with the terms of the Indenture that are fair to the Issuer or the Restricted Subsidiaries, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated Person (in the good faith determination of the Board of Directors or a member of senior management of the Issuer), provided however, that if the transaction concerned is with a shareholder of the Issuer or any of its Restricted Subsidiaries, it is otherwise in compliance with clause (1) of the first paragraph of this covenant; (12) any transaction effected as part of a Qualified Securitization Financing;

186 (13) transactions pursuant to any tax sharing agreement or arrangement among the Issuer or any of its Restricted Subsidiaries and any other Person with which the Issuer or any of its Restricted Subsidiaries files or filed a consolidated tax return or with which the Issuer or any of its Restricted Subsidiaries is or was part of a consolidated group for tax purposes; provided, however, that such payments, and the value of such transactions, shall not exceed the lesser of (a) the net amount of the relevant tax that the Issuer or such Restricted Subsidiaries would owe to the appropriate taxing authority without taking into account such other Person and (b) the amount of the relevant tax (including any penalties and interest) that the Issuer or such Restricted Subsidiaries would owe if the Issuer or such Restricted Subsidiaries were filing a separate tax return (or a separate consolidated or combined return with its Subsidiaries that are members of the consolidated or combined group), taking into account any carryovers and carrybacks of tax attributes (such as net operating leases) of the Issuer and such Subsidiaries from other taxable years; and (14) any of the transactions including the use of proceeds from the offering as contemplated in the section entitled ‘‘Use of Proceeds’’ in this Offering Circular.

Additional Guarantees The Issuer will not cause or permit any Restricted Subsidiary that is not a Guarantor, directly or indirectly, to guarantee the payment of, assume or in any manner become liable with respect to any other Indebtedness of the Issuer or a Guarantor unless such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture providing for the guarantee of the payment of the Notes by such Restricted Subsidiary, which guarantee will be senior to or pari passu with such Restricted Subsidiary’s guarantee of such other Indebtedness. Each additional Note Guarantee will be limited as necessary to recognize certain defenses generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally) or other considerations under applicable law. Notwithstanding the foregoing, the Issuer shall not be obligated to cause such Restricted Subsidiary to guarantee the Notes to the extent that such guarantee by such Restricted Subsidiary would reasonably be expected to give rise to or result in (a) a violation of applicable law which, in any case, cannot be prevented or otherwise avoided through measures reasonably available to the Issuer or the Restricted Subsidiary (including ‘‘whitewash’’ or similar procedures) or any liability for the officers, directors or shareholders of such Restricted Subsidiary; provided that the Issuer will procure that the relevant Restricted Subsidiary becomes a Guarantor at such time as such restriction would no longer apply to the provision of the Note Guarantee or no longer would prohibit such Restricted Subsidiary from becoming a Guarantor (or prevent the Issuer from causing such Restricted Subsidiary to become a Guarantor) or (b) any significant cost, expense, liability or obligation (including with respect to Taxes but other than reasonable out-of-pocket expenses and other than reasonable expenses incurred in connection with any governmental regulatory filings required as a result of, or any measures pursuant to clause (a) of this paragraph undertaken in connection with such guarantee) of the Issuer and the Restricted Subsidiaries to the extent such costs, expenses, liabilities and/or other obligations are disproportionate to the benefit obtained by the holders of the Notes with respect to the receipt of the guarantee (as determined in good faith by the Issuer), which, in any case under clauses (a) and (b) of this paragraph, cannot be avoided through measures reasonably available to the Issuer or a Restricted Subsidiary.

No Impairment of Security Interest The Issuer will not, and will not cause or permit any Restricted Subsidiary to, take or knowingly or negligently omit to take, any action which action or omission would have the result of materially impairing the security interest with respect to the Collateral (it being understood that the incurrence of Liens on the Collateral permitted by the definition of Permitted Collateral Liens shall under no circumstances be deemed to materially impair the security interest with respect to the Collateral) for the benefit of the Trustee and the holders of the Notes, and the Issuer will not, and will not cause or permit any Restricted Subsidiary to, grant to any Person other than the Security Agent, for the benefit of the Trustee and the holders of the Notes and the other beneficiaries described in the Security Documents and the Intercreditor Agreement, any interest whatsoever in any of the Collateral; provided that (a) nothing in this provision will restrict the discharge or release of the Collateral in accordance with the Indenture, the Security Documents and the Intercreditor Agreement and (b) the Issuer and the Restricted Subsidiaries may incur

187 Permitted Collateral Liens; and provided further, however, that no Security Document may be amended, extended, renewed, restated, supplemented or otherwise modified or replaced, unless contemporaneously with such amendment, extension, replacement, restatement, supplement, modification or renewal, the Issuer delivers to the Trustee, one of the following: (1) a solvency opinion from an internationally recognized investment bank or accounting firm, in form and substance reasonably satisfactory to the Trustee confirming the solvency of the Issuer and its Subsidiaries, taken as a whole, after giving effect to any transactions related to such amendment, extension, renewal, supplement, modification or replacement; (2) a certificate from the Board of Directors or Chief Financial Officer of the Issuer (acting in good faith) substantially in the form attached to the Indenture that confirms the solvency of the Issuer and the Restricted Subsidiaries, taken as a whole on a consolidated basis, after giving effect to any transaction related to such amendment, extension, renewal, restatement, supplement, modification or replacement; or (3) an opinion of counsel, in form and substance reasonably satisfactory to the Trustee (subject to customary exceptions and qualifications), confirming that, after giving effect to any transactions related to such amendment, extension, renewal, restatement, supplement, modification or replacement, the Lien or Liens securing the Notes created under the Security Documents so amended, extended, renewed, restated, supplemented, modified or replaced are valid and perfected Liens not otherwise subject to any limitation, imperfection or new hardening period, in equity or at law, and that such Lien or Liens were not otherwise subject to immediately prior to such amendment, extension, renewal, restatement, supplement, modification or replacement. At the direction of the Issuer and without the consent of the holders of Notes, the Security Agent may from time to time enter into one or more amendments to the Security Documents to: (i) cure any ambiguity, omission, defect or inconsistency therein, (ii) (but subject to compliance with the first paragraph of this covenant) provide for Permitted Collateral Liens, (iii) add to the Collateral or (iv) make any other change thereto that does not adversely affect the rights of the holders of the Notes in any material respect. In the event that the Issuer complies with this covenant, the Trustee and the Security Agent will (subject to customary protections and indemnifications) consent to such amendment, extension, renewal, restatement, supplement, modification or replacement with no need for instructions from holders of the Notes.

Collateral The Issuer will, and will procure that each of its Subsidiaries and will use its commercially reasonable efforts to procure that Viva Telecom Bulgaria EAD (with respect to the contemplated share pledge) will, at its own expense, promptly execute and do all such acts and things and provide such assurances as the Security Agent may reasonably require (1) for registering any Security Documents in any required register (including without limitation, the Bulgarian Business Register, the Bulgarian Central Register of Special Pledges, and the Central Depository) within 20 business days of the Issue Date for liens on relevant going concerns and assets different from real property, and for perfecting or protecting the security intended to be afforded by such Security Documents related to such liens (including any renewal of registration before the expiration of the effective term of the initial entry); and (2) if such Security Documents have become enforceable, for facilitating the realization of all or any part of the assets which are subject to such Security Documents and for facilitating the exercise of all powers, authorities and discretions vested in the Security Agent or in any receiver of all or any part of those assets. The Issuer will, and will procure that each of its Subsidiaries and will use its commercially reasonable efforts to procure that Viva Telecom Bulgaria EAD (with respect to the contemplated share pledge) will, promptly execute all transfers, conveyances, assignments and releases of that assets whether to the Security Agent or to its nominees and promptly give all notices, orders and directions which the Security Agent may reasonably request. The Issuer shall use its commercially reasonable efforts to register the real property liens under the Security Documents within 30 business days of the Issue Date and to deregister the existing real property liens set up in connection with the Existing Senior Facility or to the benefit of the Privatization and Post-Privatization Control Agency of Bulgaria, as the case may be, within 90 business days as of the Issue Date.

188 Designation of Restricted and Unrestricted Subsidiaries The Board of Directors of the Issuer may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Issuer and the Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the covenant described above under the caption ‘‘—Restricted Payments’’ or under one or more clauses of the definition of Permitted Investments, as determined by the Issuer. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Issuer may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default. Any designation of a Subsidiary of the Issuer as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a copy of a resolution of the Issuer’s Board of Directors giving effect to such designation and an Officer’s Certificate certifying that such designation complies with the preceding conditions and was permitted by the covenant described above under the caption ‘‘—Restricted Payments.’’ If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock,’’ the Issuer will be in default of such covenant. The Board of Directors of the Issuer may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock,’’ calculated on a pro forma basis as if such designation had occurred at the beginning of the applicable reference period; and (2) no Default or Event of Default would be in existence following such designation.

Payments for Consent The Issuer will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes, unless such consideration is offered to be paid and is paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

Maintenance of Listing Each of the Issuer and the Guarantors will use its commercially reasonable efforts maintain the listing of the Notes on the Irish Stock Exchange and admission to trading on the Main Securities Market for so long as such Notes are outstanding; provided that if at any time the Issuer determines that it will not maintain such listing, it will obtain prior to the delisting of the Notes from the Main Securities Market, and thereafter use its best efforts to maintain, a listing of such Notes on another ‘‘recognised stock exchange’’ as defined in Section 1005 of the Income Tax Act 2007 of the United Kingdom.

Reports For so long as any Notes are outstanding, the Issuer will furnish to the Trustee the following reports: (1) within 120 days after the end of the Issuer’s fiscal year beginning with the fiscal year ending December 31, 2013, annual reports containing the following information with a level of detail that is substantially comparable to this Offering Circular: (a) audited consolidated balance sheet of the Issuer as of the end of the two most recent fiscal years and audited consolidated income statements and statements of cash flow of the Issuer for the two most recent fiscal years, including complete notes to such financial statements and the report of the independent auditors on the financial statements; (b) pro forma income statement and balance sheet information of the Issuer (which need not comply with Article 11 of Regulation S-X under the U.S. Exchange Act), together with explanatory notes, for any material acquisitions, dispositions or recapitalizations that have occurred since the beginning of

189 the most recently completed fiscal year as to which such annual report relates (unless such pro forma information has been provided in a previous report pursuant to clause (2) or (3) below (provided that such pro forma financial information will be provided only to the extent available without unreasonable expense, in which case, the Issuer will provide, in the case of a material acquisition, acquired company financials)); (c) an operating and financial review of the audited financial statements, including a discussion of the results of operations (including a discussion by business segment), financial condition and liquidity and capital resources, and a discussion of material commitments and contingencies and critical accounting policies; (d) a description of the business, management and shareholders of the Issuer, material affiliate transactions and material debt instruments; and (e) material risk factors and material recent developments; (2) within 60 days following the end of each of the first three fiscal quarters in each fiscal year of the Issuer beginning with the fiscal quarter ending March 31, 2014, quarterly reports containing the following information: (a) an unaudited condensed consolidated balance sheet as of the end of such quarter and unaudited condensed statements of income and cash flow for the quarterly and year to date periods ending on the unaudited condensed balance sheet date, and the comparable prior year periods for the Issuer, together with condensed note disclosure; (b) pro forma income statement and balance sheet information of the Issuer (which need not comply with Article 11 of Regulation S-X under the U.S. Exchange Act), together with explanatory notes, for any material acquisitions, dispositions or recapitalizations that have occurred since the beginning of the most recently completed fiscal quarter as to which such quarterly report relates (provided that such pro forma financial information will be provided only to the extent available without unreasonable expense, in which case, the Issuer will provide, in the case of a material acquisition, acquired company financials); (c) an operating and financial review of the unaudited financial statements (including a discussion by business segment), including a discussion of the consolidated financial condition of the Issuer and any material change as at the end of the current quarter compared to the end of the most recent fiscal year and a discussion of the results of operations of the Issuer and any material change between the current quarterly period and the corresponding period of the prior year; and (d) material recent developments; and (3) promptly after the occurrence of any material acquisition, disposition or restructuring of the Issuer and its Restricted Subsidiaries, taken as a whole, or any changes of the Chief Executive Officer or Chief Financial Officer at the Issuer or change in auditors of the Issuer or any other material event that the Issuer announces publicly, a report containing a description of such event, provided, however, that the reports set forth in clauses (1) through (3) above will not be required to (i) contain any reconciliation to U.S. generally accepted accounting principles or (ii) include separate financial statements for any Guarantors or non-guarantor Subsidiaries of the Issuer. In addition, if the Issuer has designated any of its Subsidiaries as Unrestricted Subsidiaries and such Subsidiaries are Significant Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the notes thereto, of the financial condition and results of operations of the Issuer and the Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Issuer. All financial statements will be prepared in accordance with IFRS. Except as provided for above, no report need include separate financial statements for the Issuer or Subsidiaries of the Issuer or any disclosure with respect to the results of operations or any other financial or statistical disclosure not of a type included in this Offering Circular. In addition, for so long as any Notes remain outstanding, the Issuer has agreed that it will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the U.S. Securities Act. Contemporaneously with the furnishing of each such report discussed above, the Issuer will also (a) file a press release with the appropriate internationally recognized wire services in connection with such report and (b) post such report on the Issuer’s website. The Issuer will also make available copies of all reports required by clauses (1) through (3) of the first paragraph of this covenant, if and so long as the Notes are listed on the Official List of the Irish Stock Exchange and admitted for trading on the Main Securities Market.

190 Suspension of Certain Covenants when Notes Rated Investment Grade If on any date following the Issue Date: (1) the Notes have achieved Investment Grade Status; and (2) no Default or Event of Default shall have occurred and be continuing on such date, then, beginning on that day and continuing until such time, if any, at which the Notes cease to have Investment Grade Status (such period, the ‘‘Suspension Period’’), the covenants specifically listed under the following captions in this Offering Circular will no longer be applicable to the Notes and any related default provisions of the Indenture will cease to be effective and will not be applicable to the Issuer and the Restricted Subsidiaries: (1) ‘‘—Repurchase at the Option of Holders—Asset Sales’’; (2) ‘‘—Restricted Payments’’; (3) ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’; (4) ‘‘—Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries’’; (5) ‘‘—Designation of Restricted and Unrestricted Subsidiaries’’; (6) ‘‘—Transactions with Affiliates’’; and (7) clause (4) of the first paragraph of the covenant described under ‘‘—Merger, Consolidation or Sale of Assets.’’ Such covenants will not, however, be of any effect with regard to the actions of Issuer and the Restricted Subsidiaries properly taken during the continuance of the Suspension Period; provided that (1) with respect to the Restricted Payments made after any such reinstatement, the amount of Restricted Payments will be calculated as though the covenant described under the caption ‘‘—Restricted Payments’’ had been in effect prior to, but not during, the Suspension Period and (2) all Indebtedness incurred, or Disqualified Stock or preferred stock issued, during the Suspension Period will be classified to have been incurred or issued pursuant to clause (2) of the second paragraph of the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock.’’ Upon the occurrence of a Suspension Period, the amount of Excess Proceeds shall be reset at zero. The Issuer shall notify the Trustee that the conditions set forth in the first paragraph of this caption has been satisfied; provided that, no such notification shall be a condition for the suspension of the covenants described under this caption to be effective. There can be no assurance that the Notes will ever achieve or maintain an Investment Grade Status.

Events of Default and Remedies Each of the following is an ‘‘Event of Default’’: (1) default for 30 days in the payment when due of interest or Additional Amounts, if any, with respect to the Notes; (2) default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, the Notes; (3) failure by the Issuer or relevant Guarantor to comply with the provisions described under the caption ‘‘—Certain Covenants—Merger, Consolidation or Sale of Assets’’; (4) failure by the Issuer or relevant Guarantor for 60 days after written notice (a) to the Issuer by the Trustee or (b) to the Issuer and the Trustee by the holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class to comply with any of the agreements in the Indenture, the Intercreditor Agreement, any Additional Intercreditor Agreement or the Security Documents (other than a default in performance, or breach, or a covenant or agreement which is specifically dealt with in clauses (1), (2), (3) or (8)); (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuer or any Restricted Subsidiary (or the payment of which is guaranteed by the Issuer or any Restricted

191 Subsidiary), whether such Indebtedness or guarantee now exists, or is created after the Issue Date, if that default: (a) is caused by a failure to pay principal of, or interest or premium, if any, on, such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a ‘‘Payment Default’’); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, either (i) the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates A20.0 million or more or (ii) such Indebtedness incurred pursuant to clause (1) of the second paragraph of the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’ and is secured by a Permitted Collateral Lien pursuant to clause (2)(a) thereof; (6) failure by the Issuer or any Restricted Subsidiary to pay final judgments entered by a court or courts of competent jurisdiction aggregating in excess of A20.0 million (exclusive of any amounts that a solvent insurance company has acknowledged liability for), which judgments shall not have been discharged or waived and there shall have been a period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of an appeal, waiver or otherwise, shall not have been in effect; (7) except as permitted by the Indenture (including with respect to any limitations), any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor, or any Person acting on behalf of any such Guarantor, denies or disaffirms its obligations under its Note Guarantee; (8) (a) any security interest created by any Security Document ceases to be in full force and effect (except as permitted by the terms of the Indenture, the Intercreditor Agreement, any Additional Intercreditor Agreement and the Security Documents) with respect to Collateral having a Fair Market Value in excess of A5.0 million or any assertion by the Issuer or any Restricted Subsidiary that any Collateral having a Fair Market Value in excess of A5.0 million is not subject to a valid, perfected security interest (except as permitted by the terms of the Indenture, the Intercreditor Agreement, any Additional Intercreditor Agreement and the Security Documents); or (b) the repudiation by the Issuer or any Restricted Subsidiary of any of its material obligations under any Security Document; and (9) certain events of bankruptcy or insolvency described in the Indenture with respect to the Issuer or any Restricted Subsidiary that is a Significant Subsidiary or any group of the Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary. In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Issuer, any Guarantor or any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice or other act on the part of the Trustee or any holders of Notes. If any other Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes by written notice to the Issuer (and to the Trustee if such notice is given by the holders) may and the Trustee, upon the written request of such holders, shall declare all amounts in respect of the Notes to be due and payable immediately. Subject to certain limitations, holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or Additional Amounts or premium, if any. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any holders of Notes unless such holders have offered to the Trustee indemnity or security (including by way of pre-funding) satisfactory to the Trustee against any loss, liability or expense. Except (subject to the provisions described under ‘‘—Amendment, Supplement and Waiver’’) to enforce the right to receive payment of principal, premium, if any, or interest or Additional

192 Amounts when due, no holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless: (1) such holder has previously given the Trustee notice that an Event of Default is continuing; (2) holders of at least 25% in aggregate principal amount of the then outstanding Notes have requested, in writing, that the Trustee pursue the remedy; (3) such holders have offered the Trustee security (including by way of pre-funding) and/or indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security (including by way of pre-funding) and/or indemnity; and (5) holders of a majority in aggregate principal amount of the then outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. The holders of not less than a majority in aggregate principal amount of the Notes outstanding may, on behalf of the holders of all outstanding Notes, waive any past default under the Indenture and its consequences, except a continuing default in the payment of the principal of premium, if any, any Additional Amounts or interest on any Note held by a non-consenting holder (which may only be waived with the consent of each holder of Notes affected). The Issuer will be required to deliver to the Trustee after the end of each financial year an Officer’s Certificate indicating whether the signors thereof know of any Default that occurred during the previous year.

No Personal Liability of Directors, Officers, Employees and Stockholders No director, officer, employee, incorporator or stockholder of the Issuer or any Guarantor, as such, will have any liability for any obligations of the Issuer or the Guarantors under the Notes, the Indenture or the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under applicable securities laws.

Legal Defeasance and Covenant Defeasance The Issuer may at any time, at the option of its Board of Directors evidenced by a resolution set forth in an Officer’s Certificate, elect to have all of its obligations discharged with respect to the outstanding Notes and all obligations of the Guarantors discharged with respect to their Note Guarantees (‘‘Legal Defeasance’’) except for: (1) the rights of holders of outstanding Notes to receive payments in respect of the principal of, or interest (including Additional Amounts) or premium, if any, on, such Notes when such payments are due from the trust referred to below; (2) the Issuer’s obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust; (3) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuer’s and the Guarantors’ obligations in connection therewith; and (4) the Legal Defeasance and Covenant Defeasance provisions of the Indenture. In addition, the Issuer may, at its option and at any time, elect to have the obligations of the Issuer and the Guarantors released with respect to certain covenants (including its obligation to make Change of Control Offers and Asset Sale Offers) that are described in the Indenture (‘‘Covenant Defeasance’’) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, all Events of Default described under ‘‘—Events of Default and Remedies’’ (except those relating to payments on the Notes or, solely with respect to the Issuer, bankruptcy or insolvency events) will no longer constitute an Event of Default with respect to the Notes.

193 In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the Issuer must irrevocably deposit with the Trustee (or such other entity designated or appointed (as agent) by the Trustee for this purpose), in trust, for the benefit of the holders of the Notes, cash in euro, non-callable European Government Obligations or a combination of cash in euro and non-callable European Government Obligations, in amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest (including Additional Amounts and premium, if any) on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Issuer must specify whether the Notes are being defeased to such stated date for payment or to a particular redemption date; (2) in the case of Legal Defeasance, the Issuer must deliver to the Trustee an opinion reasonably acceptable to the Trustee of United States tax counsel of recognized standing confirming that (a) the Issuer has received from, or there has been published by, the U.S. Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion of tax counsel will confirm that, the holders and beneficial owners of the outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Legal Defeasance and will be subject to tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, the Issuer must deliver to the Trustee an opinion reasonably acceptable to the Trustee of United States tax counsel of recognized standing confirming that the holders and beneficial owners of the outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) the Issuer must deliver to the Trustee an Officer’s Certificate stating that the deposit was not made by the Issuer with the intent of preferring the holders of Notes over the other creditors of the Issuer or the Guarantors with the intent of defeating, hindering, delaying or defrauding any creditors of the Issuer, the Guarantors or others; and (5) the Issuer must deliver to the Trustee an Officer’s Certificate and an opinion of counsel, subject to customary assumptions and qualifications, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

Amendment, Supplement and Waiver Except as provided otherwise in the succeeding paragraphs, the Indenture, the Notes, the Note Guarantees, the Intercreditor Agreement, any Additional Intercreditor Agreement and the Security Documents may be amended or supplemented with the consent of the holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing Default or Event of Default or compliance with any provision of the Indenture, the Notes, the Note Guarantees, the Intercreditor Agreement, any Additional Intercreditor Agreement or any Security Document may be waived with the consent of the holders of a majority in aggregate principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Unless consented to by the holders of at least 90% of the aggregate principal amount of then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), without the consent of each holder of Notes affected, an amendment, supplement or waiver may not (with respect to any Notes held by a non-consenting holder): (1) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption ‘‘—Repurchase at the Option of Holders’’); (3) reduce the rate of or change the time for payment of interest, including default interest, on any Note;

194 (4) impair the right of any holder of Notes to receive payment of principal of and interest on such holder’s Notes on or after the due dates therefore or to institute suit for the enforcement of any payment on or with respect to such holder’s Notes or any guarantee in respect thereof; (5) waive a Default or Event of Default in the payment of principal of, or interest, Additional Amounts or premium, if any, on, the Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the Payment Default that resulted from such acceleration); (6) make any Note payable in money other than that stated in the Notes; (7) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Notes to receive payments of principal of, or interest, Additional Amounts or premium, if any, on, the Notes; (8) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption ‘‘—Repurchase at the Option of Holders’’); (9) release any Guarantor from any of its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture and the Intercreditor Agreement; (10) release all or substantially all of the Liens on the Collateral granted for the benefit of the holders of Notes, except in accordance with the terms of the relevant Security Document, the Indenture and the Intercreditor Agreement; or (11) make any change in the preceding amendment and waiver provisions. Notwithstanding the preceding, without the consent of any holder of Notes, the Issuer, the Guarantors and the Trustee may amend or supplement the Indenture, the Notes, the Note Guarantees, the Intercreditor Agreement, any Additional Intercreditor Agreement or any Security Document: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to provide for the assumption of the Issuer’s or a Guarantor’s obligations to holders of Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuer’s or such Guarantor’s assets, as applicable; (4) to make any change that would provide any additional rights or benefits to the holders of Notes or that does not adversely affect the legal rights under the Indenture of any such holder in any material respect; (5) to conform the text of the Indenture, the Note Guarantees, the Notes or the Security Documents to any provision of this ‘‘Description of Notes’’ to the extent that such provision in this ‘‘Description of Notes’’ was intended to be a verbatim recitation of a provision of the Indenture, the Note Guarantees, the Notes or the Security Documents; (6) to release any Note Guarantee in accordance with the terms of the Indenture; (7) to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture as of the Issue Date; (8) to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes; (9) to enter into additional or supplemental Security Documents; (10) to add additional parties to the Intercreditor Agreement, any Additional Intercreditor Agreement or any Security Document to the extent permitted hereunder or thereunder; or (11) to evidence and provide the acceptance of the appointment of a successor Trustee or the Security Agent under the Indenture or to evidence and provide the acceptance of the appointment of a Security Agent under the Intercreditor Agreement, any Additional Intercreditor Agreement or any Security Document. The consent of the holders of Notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment.

195 In formulating its opinion on such matters, the Trustee shall be entitled to rely absolutely on such evidence as it deems appropriate, including an opinion of counsel and an Officer’s Certificate.

Additional or Amended Intercreditor Agreement The Indenture will provide that, subject to the covenants contained therein, at the request of the Issuer, at or prior to any time that the Issuer or a Guarantor incurs or guarantees any Indebtedness permitted to be secured by a Lien on the Collateral pursuant to the definition of Permitted Collateral Liens, the Issuer, the Guarantors, the Security Agent and the Trustee shall either amend and/or restate the Intercreditor Agreement or enter into with the creditors and/or agents of creditors with respect to such Indebtedness an additional intercreditor agreement (each, an ‘‘Additional Intercreditor Agreement’’) on substantially the same terms as the Intercreditor Agreement (or an amendment or restatement of the Intercreditor Agreement in lieu thereof), in either such case, to permit such Indebtedness to be subject to (and benefit from) substantially similar terms with respect to the release of the Collateral and Note Guarantees, enforcement of security interests, turnover and limitations on enforcement and other rights as contained in the Intercreditor Agreement in effect as of the Issue Date (or, in the case of any such terms, terms more favorable to the holders of the Notes); provided that such Intercreditor Agreement or Additional Intercreditor Agreement will not impose any personal obligations on the Trustee or the Security Agent or adversely affect the rights, duties, liabilities or immunities of the Trustee under the Indenture, any Additional Intercreditor Agreement or the Intercreditor Agreement. Only one such intercreditor agreement shall be outstanding at any one time or, if more than one such intercreditor agreement is outstanding at any one time, the collective terms of such intercreditor agreements must not conflict and must be no more disadvantageous to the holders of the Notes than if all such Indebtedness was a party to one such agreement. The Indenture will also provide that, at the direction of the Issuer and without the consent of the holders of the Notes, the Trustee and the Security Agent shall upon the direction of the Issuer from time to time enter into one or more amendments and/or restatements of the Intercreditor Agreement or any such Additional Intercreditor Agreement to: (1) cure any ambiguity, omission, defect or inconsistency therein; (2) increase the amount of Indebtedness permitted to be incurred or issued under the Indenture of the types covered thereby that may be incurred by the Issuer or any Guarantors that is subject thereto (including the addition of provisions relating to new Indebtedness); (3) add Guarantors thereto; (4) further secure the Notes (including any Additional Notes); or (5) make any other such change thereto that does not adversely affect the rights of holders of the Notes in any material respect. The Issuer will not otherwise direct the Trustee or the Security Agent to enter into any amendment and/or restatements of the Intercreditor Agreement or, if applicable, any Additional Intercreditor Agreement, without the consent of the holders of a majority in principal amount of the outstanding Notes. The Indenture will provide that each holder of a Note, by accepting such Note, will be deemed to have agreed to and accepted the terms and conditions of each Intercreditor Agreement and Additional Intercreditor Agreement, to have authorized the Trustee and the Security Agent to become a party to any such Intercreditor Agreement and Additional Intercreditor Agreement, and any amendment referred to in the preceding paragraph and the Trustee or the Security Agent will not be required to seek the consent of any holders of Notes to perform its obligations under and in accordance with this covenant.

Satisfaction and Discharge The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when: (1) either: (a) all Notes that have been authenticated and delivered, except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has been deposited in trust and thereafter repaid to the Issuer or discharged from such trust as provided for in the Indenture, have been delivered to the Paying Agent for cancellation; or (b) all Notes that have not been delivered to the Paying Agent for cancellation have become due and payable by reason of the mailing of a notice of redemption by the Trustee in the name, and at the expense, of the Issuer or otherwise or will become due and payable within one year and the Issuer or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee (or such other entity designated or appointed (as agent) by the Trustee for this purpose) as trust funds in

196 trust solely for the benefit of the holders, cash in euro, non-callable European Government Obligations or a combination of cash in euro and non-callable European Government Obligations, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Additional Amounts, if any, and accrued interest to the date of maturity or redemption; (2) the Issuer or any Guarantor has paid or caused to be paid all sums payable by the Issuer and the Guarantors under the Indenture; and (3) the Issuer has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the Notes at maturity or on the redemption date, as the case may be. In addition, the Issuer must deliver an Officer’s Certificate and an opinion of independent counsel to the Trustee stating that all conditions precedent in the Indenture relating to satisfaction and discharge of the Indenture have been satisfied and such satisfaction and discharge will not result in a breach or violation of, or constitute a default under, the Indenture or any other material agreement or instrument governed by New York law to which the Issuer, any Guarantor or any Subsidiary is a party or by which the Issuer, any Guarantor or any Subsidiary is bound; provided that any such counsel may rely on any Officer’s Certificate as to matters of fact (including as to compliance with the foregoing clauses (1), (2) and (3)).

Judgment Currency Any payment on account of an amount that is payable in euro which is made to or for the account of any holder or the Trustee in lawful currency of any other jurisdiction (the ‘‘Judgment Currency’’), whether as a result of any judgment or order or the enforcement thereof or the liquidation of the Issuer or any Guarantor, shall constitute a discharge of the Issuer or the Guarantor’s obligation under the Indenture and the Notes or Note Guarantee, as the case may be, only to the extent of the amount of euro that such holder or the Trustee, as the case may be, could purchase in the London foreign exchange markets with the amount of the Judgment Currency in accordance with normal banking procedures at the rate of exchange prevailing on the first Business Day following receipt of the payment in the Judgment Currency. If the amount of euro that could be so purchased is less than the amount of euro originally due to such holder or the Trustee, as the case may be, the Issuer and the Guarantors shall indemnify and hold harmless the holder or the Trustee, as the case may be, from and against all loss or damage arising out of, or as a result of, such deficiency. This indemnity shall constitute an obligation separate and independent from the other obligations contained in the Indenture or the Notes, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any holder or the Trustee from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due hereunder or under any judgment or order.

Concerning the Trustee The Issuer shall deliver written notice to the Trustee as soon as reasonably practicable after becoming aware of the occurrence of a Default or an Event of Default. If the Trustee becomes a creditor of the Issuer or any Guarantor, the Indenture limits the right of the Trustee to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days or resign as Trustee. The holders of a majority in aggregate principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture shall provide that in case an Event of Default occurs and is continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. The Issuer and the Guarantors jointly and severally will indemnify the Trustee for certain claims, liabilities and expenses incurred without gross negligence or willful misconduct on its part, arising out of or in connection with its duties.

197 Listing Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on the Main Securities Market.

Additional Information Anyone who receives this Offering Circular may, following the Issue Date, obtain a copy of the Indenture, the form of Note, the Security Documents, the Intercreditor Agreement and any Additional Intercreditor Agreement without charge by writing to the Issuer, 115i Tsarigradsko Shose Boulevard, 1784 Sofia, Bulgaria. So long as the Notes are listed on the Official List of the Irish Stock Exchange and admitted for trading on the Main Securities Market and the rules of the Irish Stock Exchange so require, copies, current and future, of all of the Issuer’s annual audited consolidated financial statements and the Issuer’s unaudited consolidated interim financial statements may be obtained, free of charge, during normal business hours at the offices of the Paying Agent.

Governing Law The Indenture, the Notes and the Note Guarantees will be governed by, and construed in accordance with, the laws of the State of New York. The Intercreditor Agreement will be governed by English law and the Revolving Credit Facility and the Security Documents will be governed by Bulgarian law.

Consent to Jurisdiction and Service of Process The Indenture will provide that the Issuer and each Guarantor, will appoint Corporation Service Company, 1180 Avenue of the Americas, Suite 210, New York, NY 10036, as its agent for service of process in any suit, action or proceeding with respect to the Indenture, the Notes and the Notes Guarantees brought in any U.S. federal or New York state court located in the City of New York and will submit to such jurisdiction.

Enforceability of Judgments Since a substantial portion of the assets of the Issuer and the Guarantors are outside the United States, any judgment obtained in the United States against the Issuer or any Guarantor, may not be collectable within the United States. See ‘‘Service of Process and Enforcement of Civil Liabilities.’’

Prescription Claims against the Issuer or any Guarantor for the payment of principal or Additional Amounts, if any, on the Notes will be prescribed ten years after the applicable due date for payment thereof. Claims against the Issuer or any Guarantor for the payment of interest on the Notes will be prescribed six years after the applicable due date for payment of interest.

Certain Definitions Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all defined terms used therein, as well as any other capitalized terms used herein for which no definition is provided. ‘‘Acquired Debt’’ means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. ‘‘Affiliate’’ of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, ‘‘control,’’ as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership

198 of voting securities, by agreement or otherwise. For purposes of this definition, the terms ‘‘controlling,’’ ‘‘controlled by’’ and ‘‘under common control with’’ have correlative meanings. ‘‘Applicable Premium’’ means, with respect to any Note on any redemption date, the greater of: (1) 1.0% of the principal amount of the Note; or (2) the excess of: (a) the present value at such redemption date of (i) the redemption price of the Note at November 15, 2015 (such redemption price being set forth in the table appearing above under the caption ‘‘—Optional Redemption’’), plus (ii) all required interest payments due on the Note through November 15, 2015 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Bund Rate as of such redemption date plus 50 basis points; over (b) the principal amount of the Note. The calculation of the Applicable Premium shall be performed by the Issuer or on behalf of the Issuer by such Person as the Issuer may engage. For the avoidance of doubt, calculation of the Applicable Premium shall not be a duty or obligation of the Trustee or the Paying Agent. ‘‘Asset Sale’’ means: (1) the sale, lease, conveyance or other disposition of any assets by the Issuer or any Restricted Subsidiary; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Issuer and the Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption ‘‘—Repurchase at the Option of Holders—Change of Control’’ and/or the provisions described above under the caption ‘‘—Certain Covenants—Merger, Consolidation or Sale of Assets’’ and not by the provisions described under the caption ‘‘—Repurchase at the Option of Holders—Asset Sales’’; and (2) the issuance of Equity Interests by any Restricted Subsidiary or the sale by the Issuer or any Restricted Subsidiary of Equity Interests in any Subsidiary of the Issuer (in each case, other than directors’ qualifying shares). Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale: (1) any single transaction or series of related transactions that involves assets or Equity Interests having a Fair Market Value of less than A7.5 million; (2) a transfer of assets or Equity Interests between or among the Issuer and any Restricted Subsidiary; (3) an issuance of Equity Interests by a Restricted Subsidiary to the Issuer or to another Restricted Subsidiary; (4) the sale, lease or other transfer of accounts receivable, inventory, trading stock, communications capacity or other assets in the ordinary course of business and any sale or other disposition of damaged, worn-out, obsolete or surplus assets or equipment or assets that are no longer useful in the conduct of the business of the Issuer or any of its Restricted Subsidiaries; (5) licenses and sublicenses by the Issuer or any Restricted Subsidiary in the ordinary course of business; (6) any surrender or waiver of contract rights or settlement, release, recovery on or surrender of contract, tort or other claims in the ordinary course of business; (7) the granting of Liens not prohibited by the covenant described above under the caption ‘‘—Liens’’; (8) the sale or other disposition of cash or Cash Equivalents; (9) a Restricted Payment that does not violate the covenant described above under the caption ‘‘—Certain Covenants—Restricted Payments’’ or a Permitted Investment; (10) the disposition of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements;

199 (11) any sale, transfer or other disposition of Securitization Assets and related assets in connection with any Qualified Securitization Financing and any factoring transaction in the ordinary course of business; (12) the foreclosure, condemnation or any similar action with respect to any property or other assets or a surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind; and (13) the disposition of assets to a Person who is providing services (the provision of which have been or are to be outsourced by the Issuer or any Restricted Subsidiary to such Person) related to such assets. ‘‘Asset Sale Offer’’ has the meaning assigned to that term in the Indenture governing the Notes. ‘‘Beneficial Owner’’ has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the U.S. Exchange Act, except that in calculating the beneficial ownership of any particular ‘‘person’’ (as that term is used in Section 13(d)(3) of the U.S. Exchange Act), such ‘‘person’’ will be deemed to have beneficial ownership of all securities that such ‘‘person’’ has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms ‘‘Beneficially Owns’’ and ‘‘Beneficially Owned’’ have corresponding meanings. ‘‘Board of Directors’’ means: (1) with respect to the use of such term in the definition of ‘‘Continuing Directors’’ and clause (4) of the definition of ‘‘Change of Control,’’ the supervisory board of directors of the Issuer; (2) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board (and for the avoidance of doubt, the Board of Directors of the Issuer shall be deemed to be the management board of directors of the Issuer); (3) with respect to a partnership, the board of directors of the general partner of the partnership; (4) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and (5) with respect to any other Person, the board or committee of such Person serving a similar function. ‘‘Bund Rate’’ means, with respect to any redemption date, the rate per annum equal to the equivalent yield to maturity as at such redemption date of the Comparable German Bund Issue, assuming a price for the Comparable German Bund Issue (expressed as a percentage of its principal amount) equal to the Comparable German Bund Price for such redemption date, where: (1) ‘‘Comparable German Bund Issues’’ means the German Bundesanleihe security selected by any Reference German Bund Dealer as having a fixed maturity most nearly equal to the period from such redemption date to November 15, 2015 and that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of euro-denominated corporate debt securities in a principal amount approximately equal to the then outstanding principal amount of the Notes and of a maturity most nearly equal to November 15, 2015; provided that if the period from such redemption date to November 15, 2015, is less than one year, a fixed maturity of one year shall be used; (2) ‘‘Comparable German Bund Price’’ means, with respect to any redemption date, the average of the Reference German Bund Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference German Bund Dealer Quotations, or if the Issuer obtains fewer than four such Reference German Bund Dealer Quotations, the average of all such quotations; (3) ‘‘Reference German Bund Dealer’’ means any dealer of German Bundesanleihe securities appointed by the Issuer in good faith; and (4) ‘‘Reference German Bund Dealer Quotations’’ means, with respect to each Reference German Bund Dealer and any redemption date, the average as determined by the Issuer of the bid and offered prices for the Comparable German Bund issue (expressed, in each case, as a percentage of its principal amount) quoted in writing to the Issuer by such Reference German Bund Dealer at 3.30 p.m. Frankfurt, Germany time on the third business day preceding such redemption date. ‘‘Business Day’’ means a day other than a Saturday, Sunday or other day on which banking institutions in Sofia or London or a place of payment under the Indenture are authorized or required by law to close.

200 ‘‘Capital Lease Obligation’’ means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet (excluding the notes thereto) prepared in accordance with IFRS, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. ‘‘Capital Stock’’ means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock. ‘‘Cash Equivalents’’ means: (1) direct obligations (or certificates representing an interest in such obligations) issued by, or unconditionally guaranteed by, the government of a member state of the Pre-Expansion European Union, the United States of America or Switzerland (including, in each case, any agency or instrumentality thereof), as the case may be, the payment of which is backed by the full faith and credit of the relevant member state of the Pre-Expansion European Union, Bulgaria or the United States of America or Switzerland, as the case may be, and which are not callable or redeemable at the Issuer’s option; (2) overnight bank deposits, time deposit accounts, certificates of deposit, banker’s acceptances and money market deposits with maturities (and similar instruments) of 12 months or less from the date of acquisition issued by a bank or trust company which is organized under, or authorized to operate as a bank or trust company under, the laws of a member state of the Pre-Expansion European Union, Bulgaria or of the United States of America or any state thereof or Switzerland; (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (1) and (2) above entered into with any financial institution meeting the qualifications specified in clause (2) above; (4) with respect to a jurisdiction in which (a) the Issuer or a Restricted Subsidiary conducts its business or is organized and (b) it is not commercially practicable to make investments in clauses (1), (2) or (3) of this definition, demand or time deposit accounts, certificates of deposit, overnight or call deposits and money market deposits with any bank, trust company or similar entity, which would rank, in terms of combined capital and surplus and undivided profits or the ratings on its long term debt, among the top five banks in such jurisdiction, in an amount not to exceed cash generated in or reasonably required for operation in such jurisdiction; (5) commercial paper having one of the two highest ratings obtainable from Moody’s or S&P and, in each case, maturing within one year after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (4) of this definition. ‘‘Change of Control’’ means the occurrence of any of the following: (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Issuer and its Subsidiaries, taken as a whole, to any Person (including any ‘‘person’’ (as that term is used in Section 13(d) of the U.S. Exchange Act)) other than the Permitted Holders (other than any such sale, lease, transfer, conveyance or other disposition of all or substantially all of the assets of the Issuer to an Affiliate of the Issuer for the purpose of reincorporating the Issuer in another jurisdiction provided that such transaction complies with the covenant described under the caption ‘‘—Certain Covenants—Merger, Consolidation or Sale of Assets’’);

201 (2) the adoption of a plan relating to the liquidation or dissolution of the Issuer; (3) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any Person (including any ‘‘person’’ (as defined above)), other than the Permitted Holders, becomes the Beneficial Owner, directly or indirectly, of more than 50.0% of the Voting Stock of the Issuer, measured by voting power rather than number of shares; or (4) on and at any time after the first Public Equity Offering, then, during any 24-month period, a majority of the members of the Board of Directors of the Issuer does not consist of Continuing Directors. ‘‘Change of Control Offer’’ has the meaning assigned to that term in the Indenture governing the Notes. ‘‘Chief Financial Officer’’ means a chief financial officer, finance director, or individual in an equivalent position responsible for financial and accounting matters of the Issuer. ‘‘Collateral’’ means the rights, property and assets securing the Notes and the Note Guarantees as described in the section entitled ‘‘—Security’’ and any rights, property or assets over which a Lien has been granted to secure the Obligations of the Issuer and the Guarantors under the Notes, the Note Guarantees and the Indenture. ‘‘Consolidated EBITDA’’ means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus the following to the extent deducted in calculating such Consolidated Net Income, without duplication: (1) taxes based on income or profits of such Person and its Subsidiaries which are Restricted Subsidiaries for such period; plus (2) the Fixed Charges of such Person and its Subsidiaries which are Restricted Subsidiaries for such period; plus (3) depreciation, amortization (including, without limitation, amortization of intangibles and deferred financing fees) and other non-cash charges and expenses (including without limitation write downs and impairment of property, plant, equipment, receivables, trading stock, inventory and intangibles and other assets and the impact of purchase accounting on the Issuer and the Restricted Subsidiaries for such period) of the Issuer and the Restricted Subsidiaries (excluding any such non-cash charge or expense to the extent that it represents an accrual of or reserve for cash charges or expenses in any future period or amortization of a prepaid cash charge or expense that was paid in a prior period) for such period; plus (4) any expenses, charges or other costs related to the issuance of any Equity Interests, any Investment, acquisition, disposition, recapitalization, listing or the incurrence of Indebtedness permitted to be incurred under the covenant described above under the caption ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’ (including refinancing thereof) whether or not successful, including (a) such fees, expenses or charges related to any incurrence of Indebtedness issuance and (b) any amendment or other modification of any incurrence; plus (5) any foreign currency translation losses (including losses related to currency remeasurements of Indebtedness) of the Issuer and the Restricted Subsidiaries; plus (6) (a) any extraordinary, exceptional, non-recurring or unusual loss or charge (in each case, as determined in good faith by the Issuer, including with respect to acquisitions or dispositions) or (b) any non-cash charges or reserves in respect of any integration; plus (7) the amount of any minority interest expense consisting of subsidiary income attributable to minority equity interests of third parties in any non-wholly owned Restricted Subsidiary in such period or any prior period, except to the extent of dividends declared or paid on, or other cash payments in respect of, Equity Interests held by such parties; plus (8) all expenses incurred directly in connection with any early extinguishment of Indebtedness; minus (9) any foreign currency translation gains (including gains related to currency remeasurements of Indebtedness) of the Issuer and the Restricted Subsidiaries; minus (10) non-cash items increasing such Consolidated Net Income for such period (other than any non-cash items increasing such Consolidated Net Income pursuant to clauses (1) through (11) of the definition of Consolidated Net Income), other than the reversal of a reserve for cash charges in a future period in the ordinary course of business,

202 in each case, on a consolidated basis and determined in accordance with IFRS. ‘‘Consolidated Leverage’’ means, with respect to any specified Person as of any date of determination, the sum of (1) the total amount of Indebtedness of such Person and its Restricted Subsidiaries on a consolidated basis, plus (2) an amount equal to the greater of the liquidation preference or the maximum fixed redemption or repurchase price of all Disqualified Stock of such Person and all Preferred Stock of Restricted Subsidiaries of such Person. ‘‘Consolidated Leverage Ratio’’ means, with respect to any specified Person as of any date of determination, the ratio of (a) the Consolidated Leverage of such Person on such date to (b) the Consolidated EBITDA of such Person for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of determination. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems Disqualified Stock or preferred stock subsequent to the commencement of the period for which the Consolidated Leverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Consolidated Leverage Ratio is made (for purposes of this definition, the ‘‘Calculation Date’’), then the Consolidated Leverage Ratio will be calculated giving pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Issuer) to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Disqualified Stock or preferred stock, and the use of proceeds therefrom, as if the same had occurred at the beginning of the applicable four quarter reference period. In addition, for purposes of calculating the Consolidated EBITDA for such period: (1) acquisitions that have been made by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, including through mergers or consolidations, or by any Person or any of its Subsidiaries which are Restricted Subsidiaries acquired by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, and including all related financing transactions and including increases in ownership of Subsidiaries which are Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Issuer and may include anticipated expense and cost reduction synergies) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded; (3) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; and (4) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period. ‘‘Consolidated Net Income’’ means, with respect to any specified Person for any period, the aggregate of the net income (loss) of such Person and its Subsidiaries which are Restricted Subsidiaries for such period, on a consolidated basis (excluding the net income (loss) of any Unrestricted Subsidiary), determined in accordance with IFRS and without any reduction in respect of preferred stock dividends; provided that: (1) the net income (loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary which is a Subsidiary of the Person; (2) solely for the purpose of determining the amount available for Restricted Payments under clause (c)(i) of the first paragraph under the caption ‘‘—Certain Covenants—Restricted Payments,’’ any net income (loss) of any Restricted Subsidiary (other than any Guarantor) will be excluded if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Issuer (or any Guarantor that holds the Equity Interests of such Restricted Subsidiary, as applicable) by operation of the terms of such Restricted Subsidiary’s charter or any agreement, instrument, judgment, decree, order, statute or

203 governmental rule or regulation applicable to such Restricted Subsidiary or its shareholders (other than (a) restrictions that have been waived or otherwise released, (b) restrictions pursuant to the Notes or the Indenture, (c) contractual restrictions in effect on the Issue Date with respect to the Restricted Subsidiary and other restrictions with respect to such Restricted Subsidiary that taken as a whole, are not materially less favorable to the Holders of the Notes than such restrictions in effect on the Issue Date, or (d) any restriction listed under clauses (1), (3) and (4) of the ‘‘—Certain Covenants—Limitation on dividend and other payment restrictions affecting Restricted Subsidiaries’’ covenant, except that the Issuer’s equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash or Cash Equivalents actually distributed or that could have been distributed by such Restricted Subsidiary during such period to the Issuer or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend to another Restricted Subsidiary (other than any Guarantor), to the limitation contained in this clause); (3) any one-time non-cash charges or any amortization or depreciation resulting from purchase accounting, in each case, in relation to any acquisition of, or merger or consolidation with, another Person or business or resulting from any reorganization or restructuring involving the Issuer or its Subsidiaries will be excluded; (4) the cumulative effect of a change in accounting principles will be excluded; (5) any extraordinary, exceptional or nonrecurring gains or losses or any charges, expenses or reserves in respect of any restructuring, redundancy or severance (in each case, as determined in good faith by the Issuer) will be excluded; (6) any unrealized gains or losses in respect of Hedging Obligations or any ineffectiveness recognized in earnings related to qualifying hedge transactions or the fair value or changes therein recognized in earnings for derivatives that do not qualify as hedge transactions, in each case, in respect of Hedging Obligations will be excluded; (7) any non-cash compensation charge or expenses arising from any grant of stock, stock options or other equity-based awards will be excluded; (8) any goodwill or other intangible asset impairment charges will be excluded; (9) all deferred financing costs written off and premium paid or other expenses incurred in connection with any early extinguishment of Indebtedness and any net gain or loss from any write-off or forgiveness of Indebtedness will be excluded; (10) the impact of any capitalized interest (including accreting or pay-in-kind interest) on any Subordinated Shareholder Debt and any non-cash charges relating to Subordinated Shareholder Debt or Equity Interests of the Issuer, will be excluded; and (11) any expenses, charges, reserves or other costs relating to the issuance and sale of the Notes and the repayment of Indebtedness with the proceeds therefrom. ‘‘Consolidated Senior Secured Leverage’’ means, with respect to any specified Person as of any date of determination, the sum of the total amount of Senior Secured Indebtedness of such Person and its Restricted Subsidiaries on a consolidated basis. ‘‘Consolidated Senior Secured Leverage Ratio’’ means, with respect to any specified Person as of any date of determination, the ratio of (a) the Consolidated Senior Secured Leverage of such Person on such date to (b) the Consolidated EBITDA of such Person for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems Disqualified Stock or preferred stock subsequent to the commencement of the period for which the Consolidated Senior Secured Leverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Consolidated Senior Secured Leverage Ratio is made (for the purposes of this definition, the ‘‘Calculation Date’’), then the Consolidated Senior Secured Leverage Ratio will be calculated giving pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Issuer) to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Disqualified Stock or preferred

204 stock, and the use of proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Consolidated EBITDA for such period: (1) acquisitions that have been made by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, including through mergers or consolidations, or by any Person or any of its Subsidiaries which are Restricted Subsidiaries acquired by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, and including all related financing transactions and including increases in ownership of Subsidiaries which are Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Issuer and may include anticipated expense and cost reduction synergies) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded; (3) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; and (4) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period. ‘‘Contingent Obligations’’ means, with respect to any Person, any obligation of such Person guaranteeing in any manner, whether directly or indirectly, any operating lease, dividend or other obligation that, in each case, does not constitute Indebtedness (‘‘primary obligations’’) of any other Person (the ‘‘primary obligor’’), including any obligation of such Person, whether or not contingent: (1) to purchase any such primary obligation or any property constituting direct or indirect security therefor; (2) to advance or supply funds: (a) for the purchase or payment of any such primary obligation; or (b) to maintain the working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or (3) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof. ‘‘continuing’’ means, with respect to any Default or Event of Default, that such Default or Event of Default has not been cured or waived. ‘‘Continuing Directors’’ means, as of any date of determination, any member of the Board of Directors of the Issuer, who: (1) was a member of such Board of Directors on the Issue Date; or (2) was nominated for election or elected to such Board of Directors by any of the Permitted Holders. ‘‘Credit Facility’’ means, one or more debt facilities, instruments or arrangements incurred (including the Revolving Credit Facility or commercial paper facilities and overdraft facilities) or commercial paper facilities or indentures or trust deeds or note purchase agreements, in each case, with banks, other institutions, funds or investors, providing for revolving credit loans, term loans, performance guarantees, receivables financing (including through the sale of receivables to such institutions or to special purpose entities formed to borrow from such institutions against such receivables), letters of credit, bonds, notes debentures or other corporate debt instruments or other Indebtedness, in each case, as amended, restated, modified, renewed, refunded, replaced, restructured, refinanced, repaid, increased or extended in whole or in part from time to time (and whether in whole or in part and whether or not with the original administrative agent and lenders or another administrative agent or agents or trustees or other banks or institutions and whether provided under the Revolving Credit Facility or one or more other credit or other agreements, indentures, financing agreements or otherwise) and, in each case, including all agreements,

205 instruments and documents executed and delivered pursuant to or in connection with the foregoing (including any notes and letters of credit issued pursuant thereto and any guarantee and collateral agreement, patent and trademark security agreement, mortgages or letter of credit applications and other guarantees, pledges, agreements, security agreements and collateral documents). Without limiting the generality of the foregoing, the term ‘‘Credit Facilities’’ shall include any agreement or instrument (1) changing the maturity of any Indebtedness incurred thereunder or contemplated thereby, (2) adding Subsidiaries of the Issuer as additional borrowers, issuers or guarantors thereunder, (3) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder or (4) otherwise altering the terms and conditions thereof. ‘‘Currency Exchange Protection Agreement’’ means, in respect of any Person, any foreign exchange contract, currency swap agreement, currency option, cap, floor, ceiling or collar or agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates as to which such Person is a party. ‘‘Default’’ means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. ‘‘Disqualified Stock’’ means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, (1) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the six-month anniversary of the date that the Notes mature or (2) provides for, either mandatorily or at the option of the holder of the Capital Stock, the payment of dividends or distributions (other than in the form of Equity Interests that are not Disqualified Stock). Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the issuer thereof to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the issuer thereof may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption ‘‘—Certain Covenants—Restricted Payments.’’ For purposes hereof, the amount of Disqualified Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Disqualified Stock, such Fair Market Value to be determined as set forth herein. ‘‘Enterprise Pledges’’ means the Issuer Enterprise Pledge and the Guarantor Enterprise Pledge. ‘‘Equity Bridge’’ means a A150,000,000 Secured Term Loan entered into amongst, inter alios, InterV Investment S.a` r.l., V2 Investment S.a` r.l, Viva Telecom Bulgaria EAD, and VTB Capital plc. ‘‘Equity Interests’’ means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). ‘‘Equity Investors’’ means (1) Bromak Telecom Invest AD and any trustee, custodian, nominee or other successor in title to all or substantially all of the assets comprising Bromak Telecom Invest AD (‘‘Bromak’’), (2) Crusher Investments Limited and any trustee, custodian, nominee or other successor in title to all or substantially all of the assets comprising Crusher Investments Limited (‘‘Crusher’’) and (3) their respective Affiliates, and any funds or limited partnerships, any trust, fund, company, partnership or Person owned, managed or sponsored by Bromak and Crusher or any of their respective Affiliates or direct or indirect Subsidiaries. ‘‘Equity Offering’’ means an underwritten sale of Capital Stock (other than Disqualified Stock) of the Issuer or a Parent Holdco of the Issuer pursuant to which the net cash proceeds are contributed to the Issuer in the form of a subscription for, or a capital contribution in respect of, Capital Stock (other than Disqualified Stock) of the Issuer or as Subordinated Shareholder Debt of the Issuer. ‘‘euro’’ or ‘‘A’’ means the lawful currency of the member states of the European Union that participate in the third stage of the European Economic and Monetary Union. ‘‘Euro Equivalent’’ means, with respect to any monetary amount in a currency other than euro, at any time for the determination thereof, the amount of euro obtained by converting such foreign currency involved in such computation into euro at the spot rate for the purchase of euro with the applicable foreign currency

206 as published under ‘‘Currency Rates’’ in the section of The Financial Times entitled ‘‘Currencies, Bonds & Interest Rates’’ on the date two Business Days prior to such determination. ‘‘European Government Obligations’’ means direct obligations (or certificates representing an ownership interest in such obligations) of a member state of the European Union (including any agency or instrumentality thereof) for the payment of which the full faith and credit of such government is given; provided that such country (or agency or instrumentality) has a long-term government debt rating of at least ‘‘Aa3’’ or higher by Moody’s and ‘‘AA’’ or higher by S&P’s or the equivalent rating category of another internationally recognized rating agency as of the date of investment. ‘‘Excluded Contributions’’ means the net cash proceeds, property or assets received by the Issuer after the Issue Date from: (1) contributions to its Equity Interests; and (2) the sale (other than to a Subsidiary of the Issuer) of Capital Stock (other than Disqualified Stock) of the Issuer, in each case, designated as ‘‘Excluded Contributions’’ pursuant to an Officer’s Certificate (which shall be designated no later than the date on which such Excluded Contribution has been received by the Issuer), the net cash proceeds of which are excluded from the calculation set forth in the clause (c)(ii) of the first paragraph of the covenant described under the caption ‘‘Certain Covenants—Restricted Payments’’ hereof. ‘‘Existing Senior Facility’’ means the senior facility made available pursuant to the senior facilities agreement, as amended and restated on October 31, 2012 among inter alios the Issuer as borrower and the Royal Bank of Scotland plc as agent and security agent. ‘‘Fair Market Value’’ means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress of either party, determined in good faith by the Issuer’s Chief Executive Officer, Chief Financial Officer or responsible accounting or financial officer of the Issuer. ‘‘Fixed Charges’’ means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense (net of interest income) of such Person and its Subsidiaries which are Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt discount (but not debt issuance costs, commissions, fees and expenses), non-cash interest payments (but excluding any non-cash interest expense attributable to the movement in the mark to market valuation of Hedging Obligations or other derivative instruments), the interest component of deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings; plus (2) the consolidated interest expense (but excluding such interest on Subordinated Shareholder Debt) of such Person and its Subsidiaries which are Restricted Subsidiaries that was capitalized during such period; plus (3) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries which are Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries which are Restricted Subsidiaries; plus (4) net payments and receipts (if any) pursuant to interest rate Hedging Obligations (excluding amortization of fees) with respect to Indebtedness; plus (5) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of any Restricted Subsidiary, other than dividends on Equity Interests payable to the Issuer or a Restricted Subsidiary. ‘‘guarantee’’ means a guarantee other than by endorsement of negotiable instruments for collection or deposit in the ordinary course of business, of all or any part of any Indebtedness (whether arising by agreements to keep-well, to take or pay or to maintain financial statement conditions, pledges of assets or otherwise). ‘‘Guarantor Enterprise Pledge’’ means the enterprise pledge granted by BTC Net EOOD. ‘‘Guarantors’’ means (1) BTC Net EOOD and (2) any other Subsidiary of the Issuer that executes a Note Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of the Indenture.

207 ‘‘Hedging Obligations’’ means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to manage interest rates or interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates, including Currency Exchange Protection Agreements, or commodity prices. ‘‘IFRS’’ means International Financial Reporting Standards issued by the International Accounting Standards Board and its predecessors as endorsed by the European Union and in effect on the date of any calculation or determination required hereunder. ‘‘Indebtedness’’ means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables): (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments for which such Person is responsible or liable; (3) representing reimbursement obligations in respect of letters of credit, bankers’ acceptances or similar instruments (except to the extent such reimbursement obligations relate to trade payables and such obligations are satisfied within 30 days of incurrence); (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than one year after such property is acquired or such services are completed; (6) representing any Hedging Obligations; and (7) Obligations under or in respect of Qualified Securitization Financings, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet (excluding the notes thereto) of the specified Person prepared in accordance with IFRS. In addition, the term ‘‘Indebtedness’’ includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the guarantee by the specified Person of any Indebtedness of any other Person. The term ‘‘Indebtedness’’ shall not include: (1) Subordinated Shareholder Debt; (2) any lease of property which would be considered an operating lease under IFRS as of the Issue Date and any guarantee given by the Issuer or a Restricted Subsidiary in the ordinary course of business solely in connection with, and in respect of, the obligations of the Issuer or a Restricted Subsidiary under any operating lease; (3) Contingent Obligations in the ordinary course of business; (4) in connection with the purchase by the Issuer or any Restricted Subsidiary of any business, any post-closing payment adjustments to which the seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment depends on the performance of such business after the closing; or (5) for the avoidance of doubt, any contingent obligations in respect of workers’ compensation claims, early retirement or termination obligations, pension fund obligations or contributions or similar claims, obligations or contributions or social security or wage Taxes. ‘‘Intercreditor Agreement’’ means the intercreditor agreement dated on or about the Issue Date made between, among others, the Security Agent, the agent for the Revolving Credit Facility, lenders under the Equity Bridge, the Trustee and the other parties named therein, as amended, restated or otherwise modified or varied from time to time. ‘‘Investment Grade Status’’ shall occur when the Notes are rated ‘‘Baa3’’ or better by Moody’s and ‘‘BBB’’ or better by S&P (or, if either such entity ceases to rate the Notes, the equivalent investment

208 grade credit rating from any other ‘‘nationally recognized statistical rating organization’’ within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the U.S. Exchange Act selected by the Issuer as a replacement agency). ‘‘Investments’’ means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including guarantees or other obligations, but excluding advances or extensions of credit to customers or suppliers made in the ordinary course of business), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as Investments on a balance sheet (excluding the notes) prepared in accordance with IFRS. If the Issuer or any Restricted Subsidiary sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary, the Issuer will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Issuer’s Investments in such Restricted Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption ‘‘—Certain Covenants—Restricted Payments.’’ The acquisition by the Issuer or any Restricted Subsidiary of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Issuer or such Restricted Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption ‘‘—Certain Covenants—Restricted Payments.’’ Except as otherwise provided in the Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value and, to the extent applicable, shall be determined based on the equity value of such Investment. ‘‘Issue Date’’ means November 22, 2013. ‘‘Issuer Enterprise Pledge’’ means the enterprise pledge granted by the Issuer (and which includes inter alia security over the shares in BTC Net EOOD). ‘‘Issuer Share Pledge’’ means the share pledge (as a financial collateral arrangement) over all of the shares in the Issuer and earnings therefrom as owned at present or in the future by Viva Telecom Bulgaria EAD, as the Issuer’s single shareholder. ‘‘Lien’’ means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement or any lease in the nature thereof. ‘‘Management Advances’’ means loans or advances made to, or guarantees with respect to loans or advances made to, directors, officers or employees of the Issuer or any Restricted Subsidiary: (1) in respect of travel, entertainment or moving related expenses incurred in the ordinary course of business; (2) in respect of moving related expenses incurred in connection with any closing or consolidation of any facility or office; or (3) in the ordinary course of business and (in the case of this clause (3)) not exceeding A2.0 million in the aggregate outstanding at any time. ‘‘Management Fees’’ means customary fees and related expenses for the performance of transaction, management, consulting, financial or other advisory services or underwriting, placement or other investment banking activities, including in connection with mergers, acquisitions, dispositions or joint ventures, by any of the Equity Investor or any of their Affiliates for the Issuer or any Restricted Subsidiary, which payments have been approved by a majority of the disinterested members of the Board of Directors of the Issuer; provided that such fees will not, in the aggregate, exceed A2.0 million per annum (inclusive of out of pocket expenses). ‘‘Mobile Network Infrastructure’’ means assets constituting land, active and passive mobile telecommunications equipment and other physical structures (including, without limitation, towers, roof sites) on which telecommunications and/or other equipment is placed, provided that such structures are suitable for the placing of telecommunication and transmission equipment. ‘‘Moody’s’’ means Moody’s Investors Service, Inc. ‘‘Net Proceeds’’ means the aggregate cash proceeds received by the Issuer or any Restricted Subsidiary in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other

209 disposition of any non-cash consideration or Cash Equivalents substantially concurrently received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, and all distributions and other payments required to be made to minority interest holders (other than the Issuer or any of its Subsidiaries) in Subsidiaries or joint ventures as a result of such Asset Sale, and any reserve for adjustment or indemnification obligations in respect of the sale price of such asset or assets established in accordance with IFRS. ‘‘Non-Recourse Debt’’ means Indebtedness as to which neither the Issuer nor any Restricted Subsidiary (1) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (2) is directly or indirectly liable as a guarantor or otherwise. ‘‘Note Guarantee’’ means the guarantee by each Guarantor of the Issuer’s obligations under the Indenture and the Notes, executed pursuant to the provisions of the Indenture. ‘‘Obligations’’ means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. ‘‘Officer’’ means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer or a responsible accounting or financial officer of such Person. ‘‘Officer’s Certificate’’ means a certificate signed on behalf of the Issuer by an Officer of the Issuer that meets the requirements of the Indenture. ‘‘Parent Holdco’’ means any Person (other than a natural person) which legally and beneficially owns more than 50% of the Voting Stock and/or Capital Stock of another Person, either directly or through one or more Subsidiaries. ‘‘Permitted Business’’ means (1) any businesses, services or activities engaged in by the Issuer or any of the Restricted Subsidiaries on the Issue Date and (2) any businesses, services and activities engaged in by the Issuer or any of the Restricted Subsidiaries that are related, complementary, incidental, ancillary or similar to any of the foregoing or are extensions or developments of any thereof. ‘‘Permitted Collateral Liens’’ means: (1) Liens on the Collateral to secure the Notes (or the Note Guarantees) (but not any Additional Notes (or any guarantee of Additional Notes)) issued on the Issue Date; (2) Liens on the Collateral to secure (a) Indebtedness under Credit Facilities that is permitted by either clause (1) or (18) of the definition of Permitted Debt and (b) Senior Secured Indebtedness of the Issuer and the Guarantors permitted by the first paragraph of the covenant entitled ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’; provided that, in each case, all property and assets (including, without limitation, the Collateral) securing such Indebtedness also secures the Notes or the Note Guarantees on a pari passu or senior basis (provided however, in the case of Indebtedness to be incurred pursuant to clause (1) of the definition of Permitted Debt, the liens on the Collateral securing the Notes may rank junior with respect to distributions of proceeds of any enforcement of that Collateral); provided further, that if the Permitted Collateral Lien relates to the Capital Stock of the Issuer, each of the parties thereto will have entered into the Intercreditor Agreement or an Additional Intercreditor Agreement; (3) Liens on the Collateral securing the Issuer’s or any Restricted Subsidiary’s obligations under Hedging Obligations (other than Hedging Obligations in respect of commodity prices) permitted by clause (8) of the definition of Permitted Debt to the extent such Hedging Obligations relate to Indebtedness referred to in clauses (1) or (2) above or clause (4) below and such Indebtedness is also secured by the Collateral on a pari passu or senior basis, provided, however, such security may rank junior with respect to distribution of proceeds of any enforcement of Collateral; provided further that the property and assets (including, without limitation, the Collateral) securing such Indebtedness or Hedging Obligations will also secure the Notes or the Notes Guarantees, provided further, that if the Permitted Collateral Lien relates to the Capital Stock of the Issuer, each of the parties thereto will have entered into the Intercreditor Agreement or an Additional Intercreditor Agreement; (4) Liens on the Collateral to secure Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace or discharge, any Indebtedness which

210 is secured by a Lien on the Collateral pursuant to the preceding clauses (1) or (2)(b); provided that all property and assets (including, without limitation, the Collateral) securing such Indebtedness also secures the Notes and the Note Guarantees with priority with respect to the Permitted Refinancing Indebtedness which is substantially similar to that of the Indebtedness that is being exchanged, renewed, refunded, refinanced, replaced or discharged; provided further, that if the Permitted Collateral Lien relates to the Capital Stock of the Issuer each of the parties thereto will have entered into the Intercreditor Agreement; (5) Liens on the Capital Stock of the Issuer to secure the Equity Bridge and Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace or discharge, the Equity Bridge; provided that such Lien is junior to the Liens on the Capital Stock of the Issuer and that each of the creditors with respect thereto will have entered into the Intercreditor Agreement or an Additional Intercreditor Agreement as a ‘‘Equity Bridge Facility Creditor’’ (as defined therein); and (6) Liens on the Collateral that are described in one or more of clauses (3), (4), (7), (8), (9), (12), (13), (14), (15), (16), (17), (18), (19), (20), (21), (22), (23), (24), (25), (26), (27) and (28) of the definition of ‘‘Permitted Liens’’ and that, in each case, would not materially interfere with the ability of the Security Agent to enforce any Lien over the Collateral. ‘‘Permitted Holders’’ means the Equity Investors and Related Parties. Any person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of the Indenture will thereafter, together with its Affiliates, constitute an additional Permitted Holder. ‘‘Permitted Investments’’ means: (1) any Investment in the Issuer or in a Restricted Subsidiary; (2) any Investment in cash and Cash Equivalents; (3) any Investment by the Issuer or any Restricted Subsidiary in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Issuer or a Restricted Subsidiary; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption ‘‘—Repurchase at the Option of Holders—Asset Sales’’; (5) any Investment solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Issuer, Subordinated Shareholder Debt or Capital Stock of any Parent Holdco; (6) any Investments received in compromise or resolution of (a) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Issuer or any Restricted Subsidiary, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (b) litigation, arbitration or other disputes; (7) Investments in receivables owing to the Issuer or any Restricted Subsidiary created or acquired in the ordinary course of business, including receivables related to the lease of trading stock and telecommunications equipment (including handsets) created in the ordinary course of business; (8) Investments represented by Hedging Obligations, which obligations are permitted by clause (8) of the second paragraph of the covenant entitled ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’; (9) Investments in the Notes and any other Indebtedness of the Issuer or any Restricted Subsidiary; (10) any guarantee of Indebtedness permitted to be incurred by the covenant described above under the caption ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’ and (other than with respect to, or given in connection with the incurrence of, Indebtedness) guarantees, keepwells and similar arrangements in the ordinary course of business;

211 (11) any Investment in connection with a Qualified Securitization Financing, including Investments of funds held in accounts permitted or required by the arrangements governing such Qualified Securitization Financing or any related Indebtedness; (12) any Investment existing on, or made pursuant to binding commitments existing on, the Issue Date and any Investment consisting of an extension, modification or renewal of any Investment existing on, or made pursuant to a binding commitment existing on, the Issue Date; provided that the amount of any such Investment may be increased (a) as required by the terms of such Investment as in existence on the Issue Date or (b) as otherwise permitted under the Indenture; (13) Investments acquired after the Issue Date as a result of the acquisition by the Issuer or any Restricted Subsidiary of another Person, including by way of a merger, amalgamation or consolidation with or into the Issuer or any Restricted Subsidiary in a transaction that is not prohibited by the covenant described above under the caption ‘‘—Certain Covenants—Merger, Consolidation or Sale of Assets’’ after the Issue Date to the extent that such Investments were not made in contemplation of such acquisition, merger, amalgamation or consolidation and were in existence on the date of such acquisition, merger, amalgamation or consolidation; (14) Management Advances; (15) Investments consisting of purchases and acquisitions of inventory, supplies, materials and equipment or licenses and leases of intellectual property, in any case, in the ordinary course of business; (16) any Investment made as a result of the contribution of the Mobile Network Infrastructure into a Towers Entity (including any Investment in a Towers Entity where such Investment was acquired by the Issuer or any of its Restricted Subsidiaries in exchange for the contribution of the Mobile Network Infrastructure into a Towers Entity) and any Investment constituting Equity Interests in a Towers Entity; provided that (a) the value of such Investment at the time such Investment is made is at least equal to the Fair Market Value of the consideration paid or exchanged for the Investment by the Issuer or any of its Restricted Subsidiaries; (b) the Issuer and its Restricted Subsidiaries will have a right to use the Mobile Network Infrastructure after the contribution to the Towers Entity for the purpose of operating its business in the same manner as prior to such contribution; and (c) the Issuer, acting in good faith, believes that such Investment is in the best interest of the Issuer and its Restricted Subsidiaries; and (17) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (17) that are at the time outstanding not to exceed A20.0 million; provided that if an Investment is made pursuant to this clause in a Person that is not a Restricted Subsidiary and such Person subsequently becomes a Restricted Subsidiary or is subsequently designated a Restricted Subsidiary pursuant to the covenant described above under the caption ‘‘—Certain Covenants—Restricted Payments,’’ such Investment shall thereafter be deemed to have been made pursuant to clause (1) or (3) of the definition of ‘‘Permitted Investments’’ and not this clause. ‘‘Permitted Liens’’ means: (1) Liens in favor of the Issuer or any Restricted Subsidiary; (2) Liens on property (including Capital Stock) of a Person existing at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Issuer or any Restricted Subsidiary; provided that such Liens were in existence prior to the contemplation of such Person becoming a Restricted Subsidiary or such merger or consolidation, were not incurred in contemplation thereof and do not extend to any assets other than those of the Person that becomes a Restricted Subsidiary or is merged with or into or consolidated with the Issuer or any Restricted Subsidiary; (3) Liens to secure the performance of statutory obligations, trade contracts, insurance, surety or appeal bonds, workers compensation obligations, leases (including, without limitation, statutory and common law landlord’s liens), performance bonds, surety and appeal bonds or other obligations of a like nature incurred in the ordinary course of business (including Liens to secure letters of credit issued to assure payment of such obligations);

212 (4) Liens to secure Indebtedness permitted by clause (4) of the second paragraph of the covenant entitled ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’ covering only the assets acquired with or financed by such Indebtedness; (5) Liens securing Indebtedness under Hedging Obligations, which obligations are permitted by clause (8) of the second paragraph of the covenant described above under the caption ‘‘—Certain Covenants— Incurrence of Indebtedness and Issuance of Preferred Stock’’; (6) Liens existing on the Issue Date; (7) Liens for taxes, assessments or governmental charges or claims that (a) are not yet due and payable or (b) are being contested in good faith by appropriate proceedings; (8) Liens imposed by law, such as carriers’, warehousemen’s, landlords’ and mechanics’ Liens, in each case, incurred in the ordinary course of business; (9) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (10) Liens created for the benefit of (or to secure) the Notes (or the Note Guarantees); (11) Liens to secure any Permitted Refinancing Indebtedness (excluding Liens to secure Permitted Refinancing Indebtedness initially secured pursuant to clause (29) of this definition) permitted to be incurred under the Indenture; provided, however, that: (a) the new Lien is limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to such property or proceeds or distributions thereof); and (b) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged with such Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge; (12) Liens on insurance policies and proceeds thereof, or other deposits, to secure insurance premium financings; (13) filing of Uniform Commercial Code financing statements under U.S. state law (or similar filings under other applicable laws) in connection with operating leases in the ordinary course of business; (14) bankers’ Liens, rights of setoff or similar rights and remedies as to deposit accounts, Liens arising out of judgments, awards or other judiciary acts not constituting an Event of Default and notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings and for which adequate reserves have been made; (15) Liens on cash, Cash Equivalents or other property arising in connection with the defeasance, discharge or redemption of Indebtedness; (16) Liens on specific items of inventory or other goods (and the proceeds thereof) of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created in the ordinary course of business for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (17) leases (including operating leases), licenses, subleases and sublicenses of assets and rights of construction or rights of use in the ordinary course of business; (18) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of assets entered into in the ordinary course of business; (19) (a) mortgages, liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord or other third party on property over which the Issuer or any Restricted Subsidiary has easement rights or on any real property leased by the Issuer or any

213 Restricted Subsidiary and subordination or similar agreements relating thereto and (b) any condemnation or eminent domain proceedings or compulsory purchase order affecting real property; (20) Liens on property or assets under construction (and related rights) in favor of a contractor or developer or arising from progress or partial payments by a third party relating to such property or assets; (21) Liens securing or arising by reason of any netting or set-off arrangement entered into in the ordinary course of banking or other trading activities; (22) Liens (including put and call arrangements) on Capital Stock or other securities of any Unrestricted Subsidiary that secure Indebtedness of such Unrestricted Subsidiary; (23) pledges of goods, the related documents of title and/or other related documents arising or created in the ordinary course of the Issuer or any Restricted Subsidiary’s business or operations as Liens only for Indebtedness to a bank or financial institution directly relating to the goods or documents on or over which the pledge exists; (24) Liens over cash paid into an escrow account pursuant to any purchase price retention arrangement as part of any permitted disposal by the Issuer or a Restricted Subsidiary on condition that the cash paid into such escrow account in relation to a disposal does not represent more than 15% of the net proceeds of such disposal; (25) limited recourse Liens in respect of the ownership interests in, or assets owned by, any joint ventures which are not Restricted Subsidiaries securing obligations of such joint ventures; (26) Liens on any proceeds loan made by the Issuer or any Restricted Subsidiary in connection with any future incurrence of Indebtedness permitted under the Indenture and securing that Indebtedness; (27) Liens created on any asset of the Issuer or a Restricted Subsidiary established to hold assets of any stock option plan or any other management or employee benefit or incentive plan or unit trust of the Issuer or a Restricted Subsidiary securing any loan to finance the acquisition of such assets; (28) Liens on Securitization Assets and related assets incurred in connection with any Qualified Securitization Financing; and (29) Liens incurred in the ordinary course of business of the Issuer or any Restricted Subsidiary securing Indebtedness of the Issuer and the Restricted Subsidiaries that does not exceed A15.0 million at any one time outstanding. ‘‘Permitted Parent Payments’’ means, without duplication as to amounts, cash payments, advances, loans or expense reimbursements made to any Parent Holdco of the Issuer to permit such entity to pay: (1) customary indemnification obligations of any Parent Holdco of the Issuer owing to directors, officers, employees or other Persons under its charter or by-laws or pursuant to written agreements with any such Person to the extent relating to the Issuer and its Subsidiaries; (2) obligations of any Parent Holdco of the Issuer in respect of directors’ fees, remuneration and other operating expenses (including director and officer insurance (including premiums therefore) incurred in the ordinary course of business) to the extent relating to the Issuer and its Subsidiaries; (3) professional fees and expenses of any Parent Holdco of the Issuer related to the ownership of the Capital Stock of the Issuer and, indirectly through the Issuer, its Subsidiaries (including, without limitation, accounting, legal, audit corporate reporting, and administrative expenses and other reasonable and normal course expenses required to maintain such Parent Holdco’s corporate existence or its holding of the Capital Stock of the Issuer); and (4) expenses incurred by any Parent Holdco of the Issuer in connection with any public offering or other sale of Capital Stock or Indebtedness, (a) where the net proceeds of such offering or sale are intended to be received by or contributed to the Issuer or a Subsidiary of the Issuer; or (b) in a pro-rated amount of such expenses in proportion to the amount of such net proceeds intended to be so received or contributed. ‘‘Permitted Refinancing Indebtedness’’ means any Indebtedness of the Issuer or any Restricted Subsidiary issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace,

214 exchange, defease or discharge other Indebtedness of the Issuer or any Restricted Subsidiary (other than intercompany Indebtedness (other than any proceeds loan)); provided that: (1) the aggregate principal amount (or accreted value, if applicable), or if issued with original issue discount, aggregate issue price) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable, or if issued with original issue discount, aggregate issue price) of the Indebtedness renewed, refunded, refinanced, replaced, exchanged, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has (a) a final maturity date that is either (i) no earlier than the final maturity date of the Indebtedness being renewed, refunded, refinanced, replaced, exchanged, defeased or discharged or (ii) after the final maturity date of the Notes and (b) has a Weighted Average Life to Maturity that is equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; (3) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is expressly or contractually subordinated in right of payment to the Notes or the Note Guarantees, as the case may be, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes or the Note Guarantees, as the case may be, on terms at least as favorable to the holders of Notes or the Note Guarantees, as the case may be, as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, exchanged, defeased or discharged; and (4) if the Issuer or any Guarantor was the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged, such Indebtedness is incurred either by the Issuer or by a Guarantor. ‘‘Person’’ means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, limited liability company or government or other entity. ‘‘Pre-Expansion European Union’’ means the European Union as of January 1, 2004, including the countries of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom, but not including any country which became or becomes a member of the European Union after January 1, 2004. ‘‘Public Equity Offering’’ means, with respect to any Person, a bona fide underwritten public offering of the ordinary shares or common equity of such Person (the ‘‘Public Equity Offering Entity’’), either: (1) pursuant to a flotation on the Bulgarian Stock Exchange—Sofia or the main market of any other nationally recognized stock exchange or listing authority in a member state of the European Union; or (2) pursuant to an effective registration statement under the U.S. Securities Act (other than a registration statement on Form S-8 or otherwise relating to Equity Interests issued or issuable under any employee benefit plan). ‘‘Public Market’’ shall be deemed to exist any time after: (1) a Public Equity Offering has been consummated; and (2) at least 20% of the total issued and outstanding ordinary shares or common equity of the Issuer (or a Parent Holdco of the Issuer) has been distributed to investors other than the Equity Investors or any other direct or indirect shareholders of the Issuer as of the Issue Date. ‘‘Qualified Securitization Financing’’ means any financing pursuant to which the Issuer or any Restricted Subsidiary may sell, convey or otherwise transfer to any other Person (a ‘‘Receivable Entity’’) or grant a security interest in, any Securitization Assets (and related assets) in any aggregate principal amount equivalent to the Fair Market Value of such Securitization Assets (and related assets) of the Issuer or any Restricted Subsidiary; provided that (1) the covenants, events of default and other provisions applicable to such financing shall be on market terms (as determined in good faith by the Issuer’s Board of Directors or senior management) at the time such financing is entered into, (2) the interest rate applicable to such financing shall be a market interest rate (as determined in good faith by the Issuer’s Board of Directors or senior management) at the time such financing is entered into and (3) such financing shall be non-recourse to the Issuer or any Restricted Subsidiary except to a limited extent customary for such transactions. ‘‘Receivable Entity’’ has the meaning assigned thereto in the definition of ‘‘Qualified Securitization Financing.’’

215 ‘‘Related Party’’ means: (1) any controlling stockholder, partner or member, or any 50% (or more) owned Subsidiary, or immediate family member (in the case of an individual), of any Equity Investor; and (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a 50% or more controlling interest of which consist of any one or more Equity Investors and/or such other Persons referred to in the immediately preceding clause. ‘‘Restricted Investment’’ means an Investment other than a Permitted Investment. ‘‘Restricted Subsidiary’’ means any Subsidiary of the Issuer that is not an Unrestricted Subsidiary. ‘‘Revolving Credit Facility’’ means that certain Revolving Credit Facility Agreement, dated on or about the Issue Date by and among inter alios, the Issuer, BTC Net EOOD and Societe Generale Expressbank AD, as lender, providing for up to A35.0 million of revolving credit borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, restated, modified, renewed, refunded, replaced in any manner (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. ‘‘S&P’’ means Standard & Poor’s Ratings Group. ‘‘Securitization Assets’’ means any accounts receivable, inventory, royalty or revenue streams from sales of inventory subject to a Qualified Securitization Financing. ‘‘Securitization Fees’’ means distributions or payments made directly or by means of discounts with respect to any participation interest issued or sold in connection with, and other fees paid to a Person that is not the Issuer or a Restricted Subsidiary in connection with any Qualified Securitization Financing. ‘‘Securitization Repurchase Obligation’’ means any obligation of a seller of Securitization Assets in a Qualified Securitization Financing to repurchase Securitization Assets arising as a result of a breach of a representation, warranty or covenant or otherwise, including as a result of a receivable or portion thereof becoming subject to any asserted defense, dispute, off-set or counterclaim of any kind as a result of any action taken by, any failure to take action by or any other event relating to the seller. ‘‘Security Agent’’ means U.S. Bank Trustees Limited as security agent pursuant to the Intercreditor Agreement, or any successor or replacement security agent acting in such capacity. ‘‘Security Documents’’ means (1) the financial collateral arrangement over all of the shares in the Issuer and earnings therefrom as owned at present or in the future granted by Viva Telecom Bulgaria EAD, (2) the enterprise pledge granted by the Issuer (which includes, inter alia security over the shares in the Guarantor), (3) the enterprise pledge granted by the Guarantor, (4) the pledge over certain of the Issuer’s bank accounts and insurance policies’ receivables granted by the Issuer as further described under ‘‘—Security’’ and (5) any other instrument and document executed and delivered pursuant to the Indenture or otherwise or any of the foregoing, as the same may be amended, supplemented or otherwise modified from time to time and pursuant to which the Collateral is pledged, assigned or granted to or on behalf of the Security Agent for the benefit of the holders of the Notes and the Trustee or notice of such pledge, assignment or grant is given. ‘‘Senior Secured Indebtedness’’ means, as of any date of determination, the principal amount of any Indebtedness that is either (1) secured by a Lien and/or (2) Indebtedness of a Restricted Subsidiary of the Issuer that is not a Guarantor. ‘‘Significant Subsidiary’’ means, at the date of determination, any Restricted Subsidiary that together with its Subsidiaries that are Restricted Subsidiaries (1) for the most recent fiscal year, accounted for more than 10% of the consolidated revenues of the Issuer; or (2) as of the end of the most recent fiscal year, was the owner of more than 10% of the consolidated assets of the Issuer. ‘‘Stated Maturity’’ means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Issue Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.

216 ‘‘Subordinated Shareholder Debt’’ means, collectively, any debt provided to the Issuer by any direct or indirect Parent Holdco of the Issuer or any Permitted Holder, in exchange for or pursuant to any security, instrument or agreement other than Capital Stock, together with any such security, instrument or agreement and any other security or instrument other than Capital Stock issued in payment of any obligation under any Subordinated Shareholder Debt; provided that such Subordinated Shareholder Debt: (1) does not (including upon the happening of any event) mature or require any amortization or other payment of principal prior to the first anniversary of the maturity of the Notes (other than through conversion or exchange of any such security or instrument for Equity Interests of the Issuer (other than Disqualified Stock) or for any other security or instrument meeting the requirements of the definition); (2) does not (including upon the happening of any event) require the payment of cash interest prior to the first anniversary of the maturity of the Notes; (3) does not (including upon the happening of any event) provide for the acceleration of its maturity nor confers on its shareholders any right (including upon the happening of any event) to declare a default or event of default or take any enforcement action, in each case, prior to the first anniversary of the maturity of the Notes; (4) is not secured by a Lien on any assets of the Issuer or a Restricted Subsidiary and is not guaranteed by any Subsidiary of the Issuer; (5) is subordinated in right of payment to the prior payment in full in cash of the Notes and any Note Guarantee in the event of any default, bankruptcy, reorganization, liquidation, winding up or other disposition of assets of the Issuer, in any event such that; (a) the Issuer shall make no payment in respect of such Subordinated Shareholder Debt (whether in cash, securities or otherwise, except as permitted by clause (1) above) and may not acquire such Subordinated Shareholder Debt except as permitted by the Indenture until the prior payment in full in cash of all obligations in respect of the Notes, any Note Guarantee and the Indenture; (b) upon any total or partial liquidation, dissolution or winding up of the Issuer or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Issuer or its property, the holders of the Notes shall be entitled to receive payment in full in cash of the Obligations under the Notes or any Note Guarantee before the holders of such Subordinated Shareholder Debt shall be entitled to receive any payment in respect of such Subordinated Shareholder Debt; (c) such Subordinated Shareholder Debt may not be amended such that it would cease to qualify as a Subordinated Shareholder Debt until a date that is after the prior payment in full in cash of all Obligations in respect of the Notes, any Note Guarantee and the Indenture; (d) the holders of such Subordinated Shareholder Debt shall assign any rights to vote, including by way of power of attorney, in a bankruptcy, insolvency or similar proceeding to the trustee under the Indenture to the extent necessary to give effect to the priority and subordination provisions described in this definition; and (e) the holders of such Subordinated Shareholder Debt shall agree that, in the event any payment on such Subordinated Shareholder Debt is received by such holder in contravention of the terms of this Indenture and the Intercreditor Agreement and any applicable Additional Intercreditor Agreement, then such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the Trustee, on behalf of the holders of the Notes; (6) has been granted as security for the Notes by the obligee thereunder; (7) does not (including upon the happening of any event) restrict the payment of amounts due in respect of the Notes or Note Guarantees or compliance by the Issuer or any Guarantor with its obligations under the Notes, the Indenture, the Intercreditor Agreement, any Additional Intercreditor Agreement, the Security Documents or any Credit Facility; (8) does not (including upon the happening of an event) constitute Voting Stock; and (9) is not (including upon the happening of any event) mandatorily convertible or exchangeable, or convertible or exchangeable at the option of the holder, in whole or in part, prior to the date on which the Notes mature other than into or for Capital Stock (other than Disqualified Stock) of the Issuer,

217 provided, however, that any event or circumstance that results in such Indebtedness ceasing to qualify as Subordinated Shareholder Debt, such Indebtedness shall constitute an incurrence of such Indebtedness by the Issuer, and any and all Restricted Payments made through the use of the net proceeds from the incurrence of such Indebtedness since the date of the original issuance of such Subordinated Shareholder Debt shall constitute new Restricted Payments that are deemed to have been made after the date of the original issuance of such Subordinated Shareholder Debt. ‘‘Subsidiary’’ means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership or limited liability company of which (a) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise, and (b) such Person or any Subsidiary of such Person is a controlling general partner or otherwise controls such entity. ‘‘Tax’’ means any tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and any other additions thereto, and, for the avoidance of doubt, including any withholding or deduction for, or on account of, Tax). ‘‘Taxes’’ shall be construed to have corresponding meanings. ‘‘Total Assets’’ mean, with respect to any specified Person as of any date, the total assets of such Person and its Restricted Subsidiaries, calculated on a consolidated basis in accordance with IFRS, excluding all intra- group items and investments in Subsidiaries of such Person or by such Person or any of its Restricted Subsidiaries as shown on the most recent balance sheet (excluding the notes thereto) of such Person for which internal financial statements are available. ‘‘Towers Entity’’ means a Person formed for the primary purpose of operating the Mobile Network Infrastructure. ‘‘U.S. Exchange Act’’ means the U.S. Securities Exchange Act of 1934, as amended. ‘‘Unrestricted Subsidiary’’ means any Subsidiary of the Issuer that is designated by the Board of Directors of the Issuer as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) except as permitted by the covenant described above under the caption ‘‘—Certain Covenants— Transactions with Affiliates,’’ is not party to any agreement, contract, arrangement or understanding with the Issuer or any Restricted Subsidiary unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Issuer or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Issuer; and (3) is a Person with respect to which neither the Issuer nor any Restricted Subsidiary has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results. ‘‘Voting Stock’’ of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. ‘‘Weighted Average Life to Maturity’’ means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amounts of such Indebtedness.

218 BOOK-ENTRY, DELIVERY AND FORM General Notes sold within the United States to ‘‘qualified institutional buyers’’ pursuant to Rule 144A under the U.S. Securities Act will initially be represented by a global note in registered form without interest coupons attached (the ‘‘Rule 144A Global Note’’). Notes sold outside the United States pursuant to Regulation S under the U.S. Securities Act will initially be represented by a global note in registered form without interest coupons attached (the ‘‘Regulation S Global Note’’ and, together with the Rule 144A Global Note, the ‘‘Global Notes’’). The Global Notes will be deposited, on the closing date, with, or on behalf of, a common depositary and registered in the name of the nominee of the common depositary for the accounts of Euroclear and Clearstream. Except as set forth below, the Notes will be issued in registered global form in minimum denominations of A100,000 and integral multiples of A1,000 thereof. Ownership of interests in the Rule 144A Global Note (the ‘‘Rule 144A Book-Entry Interests’’) and ownership of interests in the Regulation S Global Note (the ‘‘Regulation S Book-Entry Interests’’ and, together with the Rule 144A Book-Entry Interests, the ‘‘Book-Entry Interests’’) will be limited to persons that have accounts with Euroclear and/or Clearstream or persons that may hold interests through such participants. The Book-Entry Interests will be shown on, and transfers thereof will be effected only through, records maintained in book-entry form by Euroclear and Clearstream and their participants. Except under the limited circumstances described below, the Book-Entry Interests will not be held in definitive form. Instead, Euroclear and Clearstream will credit on their respective book-entry registration and transfer systems a participant’s account with the interest beneficially owned by such participant. The laws of some jurisdictions, including certain states of the United States, may require that certain purchasers of securities take physical delivery of such securities in definitive form. The foregoing limitations may impair your ability to own, transfer or pledge Book-Entry Interests. In addition, owners of interest in the Global Notes will not have the Notes registered in their names, will not receive physical delivery of the Notes in certificated form and will not be considered the registered owners or ‘‘holders’’ of Notes under the Indenture for any purpose. So long as the Notes are held in global form, the common depositary for Euroclear and Clearstream (or its nominees), as applicable, will be considered the sole holder of the Global Notes for all purposes under the Indenture. In addition, participants must rely on the procedures of Euroclear and Clearstream, and indirect participants must rely on the procedures of Euroclear and Clearstream and the participants through which they own Book-Entry Interests, to transfer their interests or to exercise any rights of holders of Notes under the Indenture. None of us, the Paying Agent, the Transfer Agent, the Registrar or the Trustee will have any responsibility, or be liable, for any aspect of the records relating to the Book-Entry Interests.

Definitive Registered Notes Under the terms of the Indenture, owners of the Book-Entry Interests will receive definitive registered Notes in certificated form (‘‘Definitive Registered Notes’’) only in the following circumstances: (1) if either Euroclear or Clearstream notifies us that it is unwilling or unable to continue to act as depositary and a successor depositary is not appointed by the Issuer within 120 days; or (2) if the owner of a Book-Entry Interest requests such exchange in writing delivered through Euroclear or Clearstream following an event of default under the Indenture and enforcement action is being taken in respect thereof under the Indenture. In such an event, the Issuer will instruct the Registrar to issue Definitive Registered Notes, registered in the name or names and issued in any approved denominations, requested by or on behalf of Euroclear, Clearstream or us, as applicable (in accordance with their respective customary procedures and based upon directions received from participants reflecting the beneficial ownership of Book-Entry Interests), and such Definitive Registered Notes will bear the restrictive legend as provided in the Indenture, unless that legend is not required by the Indenture or applicable law. To the extent permitted by law, we, the Trustee, the Paying Agent, the Transfer Agent and the Registrar shall be entitled to treat the registered holder of any Global Note as the absolute owner thereof and no person will be liable for treating the registered holder as such. Ownership of the Global Notes will be

219 evidenced through registration from time to time at the registered office of the Issuer, and such registration is a means of evidencing title to the Notes. We will not impose any fees or other charges in respect of the Notes; however, owners of the Book-Entry Interests may incur fees normally payable in respect of the maintenance and operation of accounts in Euroclear and Clearstream.

Redemption of the Global Notes In the event that any Global Note (or any portion thereof) is redeemed, Euroclear and/or Clearstream, as applicable, will distribute the amount received by it in respect of the Global Notes so redeemed to the owners of the Book-Entry Interests in such Global Note from the amount received by them in respect of the redemption of such Global Note. The redemption price payable in connection with the redemption of such Book-Entry Interests will be equal to the amount received by Euroclear and Clearstream, as applicable, in connection with the redemption of such Global Note (or any portion thereof). We understand that, under the existing practices of Euroclear and Clearstream, if fewer than all of the Notes are to be redeemed at any time, Euroclear and Clearstream will credit their participants’ accounts on a proportionate basis (with adjustments to prevent fractions), by lot or on such other basis as they deem fair and appropriate (including the pool factor); provided, however, that no Book-Entry Interest of less than A100,000, as applicable, principal amount at maturity, or less, may be redeemed in part.

Payments on Global Notes We will make payments of any amounts owing in respect of the Global Notes (including principal, premium, interest, additional interest and additional amounts) to the Paying Agent. The Paying Agent will, in turn, make such payments to the common depository for Euroclear or Clearstream, which will distribute such payments to participants in accordance with their respective procedures. Under the terms of the Indenture, we, the Trustee, the Registrar and the Paying Agent will treat the registered holder of the Global Notes (i.e., Euroclear or Clearstream (or their respective nominees)) as the owner thereof for the purpose of receiving payments and for all other purposes. Consequently, none of us, the Trustee, the Paying Agent, the Transfer Agent, the Registrar or any of their respective agents has or will have any responsibility or liability for: • any aspect of the records of (or maintaining, supervising or reviewing the records of) Euroclear, Clearstream or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest, for any such payments made by Euroclear, Clearstream or any participant or indirect participant, or for maintaining, supervising or reviewing; • any other matter relating to the actions and practices of Euroclear, Clearstream or any participants or indirect participants; • the records of Euroclear, Clearstream or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest; or • the common depositary, Euroclear, Clearstream or any participant or indirect participant. Payments by participants to owners of Book-Entry Interests held through participants are the responsibility of such participants.

Currency and Payment for the Global Notes The principal of, premium, if any, and interest on, and all other amounts payable in respect of, the Global Notes, will be paid to holders of interest in such Notes through Euroclear and/or Clearstream in euro.

Action by Owners of Book-Entry Interests Euroclear and Clearstream have advised us that they will take any action permitted to be taken by a holder of Notes only at the direction of one or more participants to whose account the Book-Entry Interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. Euroclear and Clearstream will not exercise any discretion in the granting of consents, waivers or the taking of any other action in respect of the Global Notes. However, if there is an event of default under the Notes, each of Euroclear

220 and Clearstream reserves the right to exchange the Global Notes for Definitive Registered Notes in certificated form, and to distribute such Definitive Registered Notes to their respective participants.

Transfers The Global Notes will bear a legend to the effect set forth in ‘‘Transfer Restrictions’’ below. Book-Entry Interests in the Global Notes will be subject to the restrictions on transfer referred to in ‘‘Transfer Restrictions.’’ Book-Entry Interests in the 144A Global Note may be transferred to a person who takes delivery in the form of Book-Entry Interests in the Regulation S Global Note only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Regulation S under the U.S. Securities Act. Prior to 40 days after the date of initial issuance of the Notes, ownership of Regulation S Book-Entry Interests will be limited to persons that have accounts with Euroclear or Clearstream or persons who hold interests through Euroclear or Clearstream, and any sale or transfer of such interest to U.S. persons shall not be permitted during such periods unless such resale or transfer is made pursuant to Rule 144A under the U.S. Securities Act. Regulation S Book-Entry Interests may be transferred to a person who takes delivery in the form of 144A Book-Entry Interests only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made to a person who the transferor reasonably believes is a ‘‘qualified institutional buyer’’ within the meaning of Rule 144A under the U.S. Securities Act in a transaction meeting the requirements of Rule 144A under the U.S. Securities Act or otherwise in accordance with the transfer restrictions described under ‘‘Transfer Restrictions’’ and in accordance with any applicable securities laws of any other jurisdiction. Subject to the foregoing, and as set forth in ‘‘Transfer Restrictions,’’ Book-Entry Interests may be transferred and exchanged as described under ‘‘Description of Notes—Transfer and Exchange.’’ Any Book-Entry Interest in one of the Global Notes that is transferred to a person who takes delivery in the form of a Book-Entry Interest in the other Global Note will, upon transfer, cease to be a Book-Entry Interest in the first-mentioned Global Note and become a Book-Entry Interest in the other Global Note, and accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests in such other Global Note for as long as that person retains such a Book-Entry Interest. Definitive Registered Notes may be transferred and exchanged for Book-Entry Interests in a Global Note only as described under ‘‘Description of Notes—Transfer and Exchange’’ and, if required, only if the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such Notes. See ‘‘Transfer Restrictions.’’

Information Concerning Euroclear and Clearstream All Book-Entry Interests will be subject to the operations and procedures of Euroclear or Clearstream, as applicable. We have provided the summaries of those operations and procedures provided in this Offering Circular solely for the convenience of investors. The operations and procedures of each settlement system are controlled by that settlement system and may be changed at any time. Neither us nor the Initial Purchasers are responsible for those operations or procedures. Euroclear and Clearstream hold securities for participating organizations. They also facilitate the clearance and settlement of securities transactions between their respective participants through electronic book-entry changes in the accounts of such participants. Euroclear and Clearstream provide various services to their participants, including, among other things, the safekeeping, administration, clearance, settlement, lending and borrowing of internationally traded securities. Euroclear and Clearstream interface with domestic securities markets. Euroclear and Clearstream participants are financial institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain other organizations. Indirect access to Euroclear and Clearstream is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Euroclear and Clearstream participant, either directly or indirectly. Because Euroclear and Clearstream can only act on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of an owner of a beneficial interest to pledge such interest to persons or entities that do not participate in the Euroclear or Clearstream systems, or otherwise take actions in respect of such interest, may be limited by the lack of a definite certificate for that interest. The laws of some jurisdictions require that certain persons take physical delivery of securities in definitive

221 form. Consequently, the ability to transfer beneficial interests to such person may be limited. In addition, owners of beneficial interests through the Euroclear or Clearstream systems will receive distributions attributable to the 144A Global Notes only through Euroclear or Clearstream participants.

Global Clearance and Settlement under the Book-Entry System The Notes represented by the Global Notes are expected to be listed on the Official List of the Irish Stock Exchange and admitted for trading on the Main Securities Market. Transfers of interests in the Global Notes between participants in Euroclear or Clearstream will be effected in the ordinary way in accordance with their respective system’s rules and operating procedures. Although Euroclear and Clearstream currently follow the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants in Euroclear or Clearstream, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued or modified at any time. None of the Issuer, any Guarantor, the Initial Purchasers, the Trustee, the Transfer Agent, the Registrar or the Paying Agent will have any responsibility for the performance by Euroclear, Clearstream or their participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

Initial Settlement Initial settlement for the Notes will be made in euro. Book-Entry Interests owned through Euroclear or Clearstream accounts will follow the settlement procedures applicable to conventional Eurobonds in registered form. Book-Entry Interests will be credited to the securities custody accounts of Euroclear and Clearstream holders on the business day following the settlement date against payment for value on the settlement date.

Secondary Market Trading The Book-Entry Interests will trade through participants of Euroclear or Clearstream and will settle in same-day funds. Since the purchase determines the place of delivery, it is important to establish at the time of trading of any Book-Entry Interests where both the purchaser’s and the seller’s accounts are located to ensure that settlement can be made on the desired value date.

222 TRANSFER RESTRICTIONS You are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of any of the Notes offered hereby. The Notes and the Note Guarantee have not been and will not be registered under the U.S. Securities Act or the securities laws of any other jurisdiction, and, unless so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act or the securities laws of any other jurisdiction. Accordingly, the Notes offered hereby are being offered and sold only to (i) ‘‘qualified institutional buyers’’ (‘‘QIBs’’) (as defined in Rule 144A under the U.S. Securities Act) in reliance on an exemption from the registration requirements of the U.S. Securities Act provided by Rule 144A under the U.S. Securities Act; or (ii) non U.S. persons outside the United States in offshore transactions in reliance on Regulation S under the U.S. Securities Act. We use the terms ‘‘offshore transaction,’’ ‘‘United States’’ and ‘‘U.S. Person’’ with the meanings given to them in Regulation S under the U.S. Securities Act. Each purchaser of the Notes hereunder (other than each of the Initial Purchasers) will be deemed to have acknowledged, represented and agreed with us, the Issuer and the Initial Purchasers as follows: (1) it understands and acknowledges that the Notes and the Note Guarantee have not been registered under the U.S. Securities Act or any other applicable securities laws and that the Notes are being offered for resale in transactions not requiring registration under the U.S. Securities Act or any other securities laws, including sales pursuant to Rule 144A under the U.S. Securities Act, and, unless so registered, may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the U.S. Securities Act and any other applicable securities laws or pursuant to an exemption therefrom and in each case in compliance with the conditions for transfer set forth in paragraphs (4) and (5) below; (2) it is not an ‘‘affiliate’’ (as defined in Rule 144 under the U.S. Securities Act) of the Issuer or acting on the Issuer’s behalf and it is either (a) a qualified institutional buyer and is aware that any sale of these Notes to it will be made in reliance on Rule 144A under the U.S. Securities Act, and such acquisition will be for its own account or for the account of a qualified institutional buyer; or (b) it is not a U.S. person (and is not purchasing the Notes for the account or benefit of a U.S. person) and is purchasing the Notes in an offshore transaction pursuant to Regulation S; (3) it acknowledges that none of the Initial Purchasers, the Issuer or we, nor any person representing the Initial Purchasers, the Issuer or us has made any representation to it with respect to us, the Issuer or the offer or sale of any Notes, other than the information contained in this Offering Circular, which Offering Circular has been delivered to it and upon which it is relying in making its investment decision with respect to the Notes. It has had access to such financial and other information concerning us, the Issuer and the Notes as it has deemed necessary in connection with its decision to purchase any of the Notes, including an opportunity to ask questions of, and request information from, the Initial Purchasers and us. It acknowledges that no person other than the Issuer makes any representation or warranty as to the accuracy or completeness of this Offering Circular; (4) it is purchasing the Notes for its own account, or for an account with respect to which it exercises sole investment discretion and for which it is acting as a fiduciary or agent, in each case for investment, and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the U.S. Securities Act or any other applicable securities laws, subject to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and subject to its or their ability to resell such Notes pursuant to Rule 144A or Regulation S or any other exemption from registration available under the U.S. Securities Act; (5) it understands and agrees that if in the future it decides to resell, pledge or otherwise transfer any Notes or any beneficial interests in any Notes it will do so only (i) to the Issuer, (ii) pursuant to a registration statement which has been declared effective under the U.S. Securities Act, (iii) for so long as the Notes are eligible for resale pursuant to Rule 144A under the U.S. Securities Act, to a person it reasonably believes is a QIB that purchases for its own account or for the account of a QIB to whom notice is given that the transfer is being made in reliance on Rule 144A under the U.S. Securities Act, (iv) to persons other than U.S. persons, outside the United States in an offshore transaction in reliance on Regulation S under the U.S. Securities Act and (v) pursuant to any other available exemption from the registration requirements of the U.S. Securities Act, and in the case of (iii) and

223 (iv) the purchaser will, and each subsequent holder is required to, notify the subsequent purchaser of the Notes from it of the resale restrictions applicable to the Notes; (6) it understands that the Notes will bear a legend substantially in the following form: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘U.S. SECURITIES ACT’’), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF, (1) REPRESENTS THAT (A) IT IS A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ (AS DEFINED IN RULE 144A (‘‘RULE 144A’’) UNDER THE U.S. SECURITIES ACT OR (B) IT IS ACQUIRING THIS NOTE IN AN ‘‘OFFSHORE TRANSACTION’’ TO A PERSON WHO IS NOT A U.S. PERSON WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT (‘‘REGULATION S’’) IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTES REPRESENTED HEREBY IN RESPECT HEREOF OF THE RESALE RESTRICTIONS REFERRED TO ABOVE, (2) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR FOR WHICH IT HAS PURCHASED SECURITIES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS [IN THE CASE OF RULE 144A NOTES: ONE YEAR] [IN THE CASE OF REGULATION S NOTES: 40 DAYS] AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) ONLY (A) TO THE ISSUER, THE GUARANTOR OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE U.S. SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE U.S. SECURITIES ACT (‘‘RULE 144A’’), TO A PERSON IT REASONABLY BELIEVES IS A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, AND ANY APPLICABLE LOCAL LAWS AND REGULATIONS, AND FURTHER SUBJECT TO THE ISSUER’S AND THE TRUSTEE’S RIGHTS PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE; AND (III) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT EITHER (A) IT IS NOT AND FOR SO LONG AS IT HOLDS THE NOTE REPRESENTED HEREBY (OR ANY INTEREST HEREIN) WILL NOT BE (I) AN ‘‘EMPLOYEE BENEFIT PLAN’’ AS DEFINED IN SECTION 3(3) OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974,

224 AS AMENDED (‘‘ERISA’’) THAT IS SUBJECT TO TITLE I OF ERISA, (II) A ‘‘PLAN’’ AS DEFINED IN AND SUBJECT TO SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE ‘‘CODE’’), (III) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR OTHER PLAN SUBJECT TO SECTION 4975 OF THE CODE (WITHIN THE MEANING OF 29 C.F.R. SECTION 2510.3-103 AS MODIFIED BY SECTION 3(42) OF ERISA OR OTHERWISE), OR (IV) A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN WHICH IS SUBJECT TO ANY STATE, LOCAL, OTHER FEDERAL LAW OF THE UNITED STATES OR NON-U.S. LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, OR (B) ITS ACQUISITION, HOLDING AND DISPOSITION OF THE NOTE REPRESENTED HEREBY WILL NOT RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, OR, IN THE CASE OF SUCH A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN, ANY SUCH SUBSTANTIALLY SIMILAR STATE, LOCAL, OTHER FEDERAL LAW OF THE UNITED STATES OR NON-U.S. LAW, FOR WHICH AN EXEMPTION IS NOT AVAILABLE. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF, (1) UNDERSTANDS AND ACKNOWLEDGES THAT THE NOTES MAY BE OFFERED OR SOLD ONLY TO PERSONS WHO ARE (A) LEGAL ENTITIES WITHIN THE MEANING OF THE BULGARIAN CORPORATE TAXATION ACT OR PERSONS TREATED FOR THE PURPOSE OF BULGARIAN CORPORATE TAXATION AS LEGAL ENTITIES (AS SPECIFIED IN ARTICLE 2 OF THE BULGARIAN CORPORATE TAXATION ACT LIKE NON-PERSONALIZED COMPANIES, AS WELL AS, IN THE CASES WHEN THE OWNER OF THE INCOME CANNOT BE IDENTIFIED, TRUSTS, FUNDS AND OTHER SIMILAR ORGANIZATIONS WHICH INDEPENDENTLY PURSUE BUSINESS ACTIVITY OR MAKE OR MANAGE INVESTMENTS) OR (B) NATURAL PERSONS ESTABLISHED FOR TAX PURPOSES WITHIN A EUROPEAN UNION (‘‘EU’’) MEMBER STATE OR EUROPEAN ECONOMIC AREA (‘‘EEA’’) COUNTRY (COLLECTIVELY, ‘‘PERMITTED INVESTORS’’) AND, FOR AVOIDANCE OF DOUBT, THE NOTES MAY NOT BE OFFERED OR SOLD TO NATURAL PERSONS ESTABLISHED FOR TAX PURPOSES OUTSIDE AN EU MEMBER STATE OR EEA COUNTRY, (2) REPRESENTS THAT (A) IT IS A PERMITTED INVESTOR OR (B) IT IS ACQUIRING THIS NOTE FOR THE ACCOUNT OR A PERSON WHO IS PERMITTED INVESTOR, (3) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR FOR WHICH IT HAS PURCHASED NOTES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE ONLY (A) TO THE ISSUER, THE GUARANTOR OR ANY SUBSIDIARY THEREOF, OR (B) TO PERSON WHICH IT REASONABLY BELIEVES IS A PERMITTED INVESTOR. If it purchases Notes, it will also be deemed to acknowledge that the foregoing restrictions apply to holders of beneficial interests in these Notes as well as to holders of these Notes. (7) it agrees that it will, and each subsequent holder is required to, give to each person to whom it transfers Notes, notice of any restrictions on the transfer of such Notes; (8) if a purchaser in a sale that occurs outside the United States within the meaning of Regulation S, it acknowledges that until the expiration of the ‘‘distribution compliance period’’ (as defined below), you shall not make any offer or sale of Notes to a U.S. person or for the account or benefit of a U.S. person within the meaning of Rule 902 under the U.S. Securities Act. The ‘‘distribution compliance period’’ means the 40-day period following the Issue Date for the Notes. (9) it acknowledges that until the expiration of 40 days after the commencement of the Offering, any offer or sale of the Notes within the United States by a broker/dealer (whether or not participating in the offering) may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A under the U.S. Securities Act or pursuant to another exemption from registration under the U.S. Securities Act; (10) it acknowledges that the registrar will not be required to accept for registration of transfer any Notes acquired by it except upon presentation of evidence satisfactory to us and the registrar that the restrictions set forth therein have been complied with;

225 (11) it represents and covenants that: (a) it is not and for so long as it holds a Note (or any interest therein) will not be (i) an ‘‘employee benefit plan’’ as defined in Section 3(3) of ERISA that is subject to Title I of ERISA, (ii) a ‘‘plan’’ as defined in and subject to Section 4975 of the Internal Revenue Code of 1986, as amended to the date hereof (the ‘‘Code’’), (iii) an entity whose underlying assets include the assets of any such employee benefit plan subject to ERISA or other plan subject to Section 4975 of the Code (within the meaning of 29 C.F.R. Section 2510.3-103 as modified by Section 3(42) of ERISA or otherwise), or (iv) a governmental, church or non-U.S. plan which is subject to any state, local, other federal law of the United States or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code, or (b) its acquisition, holding and disposition of the Notes will not result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code, or, in the case of such a governmental, church or non-U.S. plan, any such substantially similar state, local, other federal law of the United States or non-U.S. law, for which an exemption is not available. (12) it acknowledges that the Initial Purchasers, the Issuer and others will rely upon the truth and accuracy of its acknowledgements, representations, warranties and agreements and agrees that if any of the acknowledgements, representations, warranties and agreements deemed to have been made by its purchase of the Notes cease to be accurate and complete, it shall promptly notify us and the Initial Purchasers in writing. If it is acquiring any Notes (as a fiduciary or agent for one or more investor accounts), it represents that it has sole investment discretion with respect to each such investor account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such investor account; and (13) it understands that no action has been taken in any jurisdiction (including the United States) by the Initial Purchasers, the Issuer or us that would result in a public offering of the Notes or the possession, circulation or distribution of this Offering Circular or any other material relating to us or the Notes in any jurisdiction where action for such purpose is required. Consequently, any transfer of Notes will be subject to the selling restrictions set forth in this section of the Offering Circular and/or in the front of the Offering Circular under ‘‘Notice to U.S. Investors,’’ ‘‘Notice to Certain European Investors,’’ ‘‘Notice to New Hampshire Residents’’ and ‘‘Plan of Distribution.’’

226 CERTAIN TAX CONSIDERATIONS Prospective purchasers of the Notes are advised to consult their own tax advisors as to the tax consequences, under the tax laws of the country in which they are resident, of a purchase of Notes including, without limitation, the consequences of receipt of interest and premium, if any, on and sale or redemption of, the Notes or any interest therein. References in this discussion to Notes acquired, owned, held or disposed of by noteholders include, except where otherwise expressly stated, the Book-Entry Interests held by purchasers in the Notes in global form deposited with, and registered in the name of the nominee for, the common depositary for Euroclear and/or Clearstream.

EU Directive on the Taxation of Savings Income On June 3, 2003, the EU Council of Economic and Finance Ministers adopted the European Union Savings Directive (Council Directive 2003/48/EC of 3rd June 2003 on taxation of savings income in the form of interest payments; the ‘‘European Union Savings Directive’’) effective from July 1,2005. Under the directive, each Member State is required to provide to the tax authorities of another Member State details of payments of interest within the meaning of the European Union Savings Directive or other similar income paid by a paying agent within the meaning of the European Union Savings Directive, to, or collected by such paying agent for an individual resident or certain limited types of entities, established in that other Member State (or certain dependent or associated territories). For a transitional period, however, Austria and Luxembourg are permitted to apply an optional information reporting system whereby if a beneficial owner, within the meaning of the European Union Savings Directive, does not comply with one of two procedures for information reporting, Austria or Luxembourg, as applicable will levy a withholding tax on payments to such beneficial owner. The tax rate of the withholding is 35%. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-European Union countries to the exchange of information relating to such payments. In April 2013, the Luxembourg government announced its intention to abolish the withholding system with effect from January 1, 2015, in favor of automatic exchange of information under the European Union Savings Directive. A number of non-European Union countries (Switzerland, Andorra, Liechtenstein, Monaco and San Marino) and certain dependent or associated territories (including Jersey, Guernsey, Isle of Man, Anguilla, Montserrat, British Virgin Islands, Cayman Islands, Turks and Caicos Islands, Cura¸cao, Saba, Sint Eustatius, Bonaire, Sint Maarten and Aruba) have agreed to adopt similar measures (either provision of information or transitional withholding) in relation to payments made by a paying agent (within the meaning of the European Union Savings Directive) within its jurisdiction to, or collected by such a paying agent for, an individual resident or certain limited types of entities established in a Member State. In addition, the Member States have entered into reciprocal provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a paying agent (within the meaning of the European Union Savings Directive) in a Member State to, or collected by such a paying agent for, an individual resident or certain limited types of entities established in one of those territories. On November 13, 2008, the European commission published a proposal to amend the European Union Savings Directive. The proposal included a number of suggested changes, which if implemented, would amend or broaden the scope of the European Union Savings Directive. The European Parliament approved an amended version of this proposal on April 24, 2009. Investors who are in any doubt as to their position should consult their professional advisers.

Bulgarian Tax Considerations The following is a general summary of certain Bulgarian tax considerations relevant to the purchase, ownership and disposition of the Notes. The summary is based on the laws of Bulgaria in effect on the date of this Offering Circular. The summary is not comprehensive and is intended only as a general guide; therefore, it is not intended to be, nor should it be considered to be, legal or tax advice to any noteholders. In particular, the summary does not seek to address the availability of double tax treaty relief in respect of the Notes, or practical difficulties involved in claiming such double tax treaty relief. Prospective investors should consult their own tax advisors regarding the tax consequences of investing in the Notes in their own particular circumstances. No representation with respect to the Bulgarian tax consequences to any particular holder of the Notes is made hereby.

227 General For the purposes of this summary, a ‘‘Resident Noteholder’’ means: • An individual Noteholder whose permanent place of residence is in Bulgaria, or who spends inside the territory of Bulgaria more than 183 days in each period of 12 consecutive months, or who resides abroad on assignment of the Bulgarian State, its authorities and/or its organizations, or Bulgarian establishments, and the members of his/her family shall also be local natural persons, or who has his/her center of vital interests in Bulgaria; • A legal entity established under Bulgarian law; companies established under Regulation (EC) No. 2157/2001 of the Council, and cooperative societies established under Regulation (EC) No. 1435/2003 of the Council where they have their registered office within the country and are entered in a Bulgarian register. Individuals and foreign entities (except for in the cases where they are acting through a permanent establishment in Bulgaria) other than those listed above are ‘‘Non-Resident Noteholders.’’ Resident Noteholders shall be obliged to pay taxes on income from all sources within Bulgaria or abroad. Non-Resident Noteholders shall be obliged to pay taxes on income from a source within Bulgaria. In addition, the non-resident legal entities shall be taxed under the laws of Bulgaria in respect of their profit realized through a permanent establishment in Bulgaria, or from administration of property in such a permanent establishment. Prospective investors should note that certain substantive and procedural provisions of Bulgarian tax legislation are rather general and their interpretation and application by the Bulgarian tax authorities may be more inconsistent and subject to more unpredictable change than in more matured market economies or more developed taxation systems. Interpretation by different units of the tax administration may be inconsistent or contradictory and may constitute imposition of conditions, requirements or restrictions not expressly provided by the existing legislation. Similarly, court rulings on tax and related matters by different Bulgarian courts relating to the same or similar circumstances may also be inconsistent or contradictory.

Non-Resident Noteholders: Bulgarian tax treatment According to Bulgarian law, since the Issuer is a Bulgarian tax resident, income from the Notes, as well as gain realized on disposition of such bonds, originate from a source within Bulgaria.

Interest income With respect to interest paid on the Notes to a legal entity which is a Non-Resident Noteholder, a 10% withholding tax shall be levied upon the gross amount of the interest, subject to reduction or elimination pursuant to the terms of an applicable double tax treaty (see ‘‘—Non-Resident Noteholders: Tax Treaty Relief’’ below). According to an amendment of the corporate tax law voted on by the Bulgarian Parliament on November 5, 2013, as of January 1, 2014, the withholding tax on interest income realized on notes admitted to trading on a regulated market under the meaning of Directive 2004/39/EC of the European Parliament and of the Council (MiFID), received by corporate Noteholders (and persons treated as corporate entities for the purpose of corporate taxation) has been repealed. If an interest income or proceeds of disposition of the Notes are considered as being received through a permanent establishment in Bulgaria of a non-Bulgarian legal entity, it shall be treated by Bulgarian law as a Resident Noteholder and subject to taxation as a local legal entity (see ‘‘—Taxation of Resident Noteholders’’). The broad definition of ‘‘permanent establishment’’ in Bulgarian law provides that it comprises: (i) a definite place (owned, rented or used on another ground), through which the foreign person implements fully or partially an economic activity in the country, e.g. place of management, branch, trade representative office registered in the country; office; chamber; studio; shop and others; (ii) activity in Bulgaria by persons (other than certain representatives with independent statute), authorized to conclude contracts on behalf of foreign persons; (iii) execution of commercial transactions with place of fulfillment in Bulgaria in a lasting manner, even when the foreign person has no permanent representative or a definite place in the country. Individual noteholders, residents for tax purposes in an EU Member State or EAA country, shall benefit from the preferential treatment granted to resident individuals and their interest income on the Notes shall not be taxable (see below ‘‘—Taxation of Resident Noteholders’’). Individual Noteholders, established for tax

228 purposes outside of an EU Member State or EAA country shall be subject to one-time withholding tax in Bulgaria at the rate of 10%.

Capital Gains Capital gains realized on sale or other disposition of the Notes (determined as the positive difference between the disposition price and the acquisition price) received by a legal entity which is a Non-Resident Noteholder or by an individual Non-Resident Noteholder are subject to a one-time withholding tax in Bulgaria at the rate of 10% unless reduced or exempted under a double tax treaty (see below). Although the law names this tax on capital gains a ‘‘withholding tax’’, it is provided to be paid by the recipient of the income. Payment is due on a quarterly basis, in arrears, until the end of the month following the calendar quarter, with the income recipient being subject to an obligation to file a form tax return to the Sofia Territorial Office of the Bulgarian National Revenue Agency, and pay the tax due. A National Revenue Agency is to issue a certificate for the tax paid, upon request. Where the sale price is paid partly and the income recipient is a Non-Resident individual, the capital gains tax is levied on the positive difference between the received part of the sale proceeds and the documented acquisition price of the Notes corresponding to such received selling price. Since the payment of this tax may pose various practical questions, we do advise you to consult a professional tax advisor for any requested help.

Non-Resident Noteholders: Tax Treaty Relief A reduction in the rate of Bulgarian withholding tax or complete exemption from the applicable Bulgarian taxation may be provided under a double tax treaty between Bulgaria and the country of which the Non-Resident Noteholder is a resident. To obtain a benefit of such tax treaty a Noteholder must provide Bulgarian tax authorities (or the payer of the income, in case the respective income does not exceed BGN 500,000 per year) with a certificate of tax residence issued by the competent tax authority of the relevant treaty country, an affidavit for being the beneficial owner of the income and that does not have permanent establishment in Bulgaria, as well as any other documents and information as set out in tax laws and regulations or requested by the tax authorities in the course of the tax clearance procedure. If tax authorities are satisfied by the documentary evidence submitted they issue an opinion for application of the tax treaty (tax relief). This tax relief, in principle, is valid for all identical income received under the same relationship (e.g. for all interest payments on the Notes), unless changes in relevant circumstances occur; however, according to certain court rulings the certificate of tax residence and affidavits must be renewed on an annual basis. Because of uncertainties related to the substantive and procedural requirements, including their interpretation by the concrete tax officials, Non-Resident Noteholders in practice may not be able to obtain advance treaty relief on receipt of proceeds from a source within Bulgaria. Whilst a procedure is provided for in the law to obtain a refund of taxes withheld, in practice this can be difficult and uncertain. Please see Annex B hereto for a list of countries with which Bulgaria currently has double taxation treaties.

Taxation of Resident Noteholders A Resident Noteholder will be subject to all applicable Bulgarian taxes in respect of gains from disposition of the Notes and interest income received on the Notes. With respect to a Resident Noteholder, which is a legal entity, the gross amount of interest on the Notes, as well as any capital gains from sale or other disposition of Notes (specified as the positive difference between the sale price and the reporting price) shall be included in the entity’s total taxable base, which is generally taxed at a rate of 10%. Capital losses reduce the taxable base. However, some categories of institutional investors, including collective investment schemes and pension funds, are not liable for corporate tax, including in respect of their income originating from interest or disposition of financial instruments. A Resident Noteholder, who is an individual, shall not be taxed for interest income received on the Notes. However, a capital gain (determined as the positive difference between the disposition price and the acquisition price) is included in his or her annual taxable income and is subject to personal income tax at a rate of 10%. Capital losses from disposal of the Notes may be offset before application of the tax rate.

229 Taxation of Payments to the Noteholders from the Guarantor In case of a default by the Issuer, the Guarantee may be enforced and the Guarantor caused to make direct payments to the benefit of the Noteholders. Bulgarian law is silent regarding the tax treatment of such payments and we are not aware of any publicly available guidelines of the tax authorities addressing this matter. If payments are made by the Guarantor under the Note Guarantee, such payments may, for Bulgarian tax purposes, or the parts of such payments referable to interest on the Notes, be re-qualified as payments of interest income and be subjected to the abovementioned withholding tax of 10% (absent tax treaty relief, see ‘‘—Non-Resident Noteholders: Tax Treaty Relief’’).

Certain United States Federal Income Tax Considerations The discussion of tax matters in this Offering Circular is not intended or written to be used, and cannot be used by any person, for the purpose of avoiding U.S. federal, state or local tax penalties, and was written to support the promotion or marketing of the Notes. Each taxpayer should seek advice based on such person’s particular circumstances from an independent tax adviser. The following summary discusses certain U.S. federal income tax consequences of the acquisition, ownership and disposition of the Notes. This discussion applies only to: • Notes purchased in this offering at their issue price (the first price at which a substantial amount of Notes is sold to investors for cash, not including sales to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers); • Notes held as capital assets; and • U.S. Holders (as defined below). This discussion does not describe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances or to U.S. Holders subject to special rules, such as financial institutions, insurance companies, real estate investment trusts, regulated investment companies, investors liable for the alternative minimum tax, U.S. expatriates, individual retirement accounts and other tax-deferred accounts, partnerships or other pass-through entities for U.S. federal income tax purposes, tax-exempt organizations, dealers in securities or currencies, securities traders that elect mark-to-market tax accounting, investors that will hold the Notes as part of constructive sales, straddles, hedging, integrated or conversion transactions for U.S. federal income tax purposes or investors whose ‘‘functional currency’’ is not the U.S. dollar. This summary is based on the Internal Revenue Code of 1986, as amended to the date hereof (the ‘‘Code’’), administrative pronouncements, judicial decisions and final, temporary and proposed U.S. Treasury Regulations all as of the date of this Offering Circular and any of which may at any time be repealed, revised or subject to differing interpretation, possibly retroactively so as to result in U.S. federal income tax consequences different from those described below. Persons considering the purchase of the Notes should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular situations as well as any tax consequences arising under other U.S. federal tax laws (such as the U.S. federal estate and gift taxes or the Medicare contribution tax) or the laws of any state, local or non-U.S. taxing jurisdiction. As used herein, the term ‘‘U.S. Holder’’ means a beneficial owner of a Note that is for U.S. federal income tax Purposes: • an individual who is a citizen or resident of the United States; • a corporation created or organized in or under the laws of the United States or of any state thereof or the District of Columbia; • an estate the income of which is subject to U.S. federal income taxation regardless of its source; or • a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust. If an entity that is classified as a partnership for U.S. federal income tax purposes holds Notes, the U.S. federal income tax treatment of a partner in such a partnership will generally depend on the status of the partner and upon the activities of the partnership. Partners of partnerships considering an investment in

230 the Notes should consult their own tax advisers regarding the U.S. federal tax consequences of an investment in the Notes. This discussion assumes that certain features of the Notes do not cause them to be subject to the U.S. federal income tax rules that apply to contingent payment debt instruments. If the Notes were subject to the contingent payment debt instrument rules, this would affect the character, timing and amount (in a given tax period) of income earned by a U.S. Holder, possibly negatively. However, no ruling will be sought from the U.S. Internal Revenue Service with respect to the discussion below.

Payments of Stated Interest Subject to the foreign currency rules discussed below, stated interest (without deduction for any taxes withheld therefrom and including any additional amounts) paid on a Note will be taxable to a U.S. Holder as non-U.S. source ordinary interest income at the time it accrues or is received in accordance with such U.S. Holder’s method of accounting for U.S. federal income tax purposes. A U.S. Holder that uses the cash method of accounting for U.S. federal income tax purposes and that receives a payment of stated interest with respect to the Notes will be required to include in income (as ordinary income) the U.S. dollar value of such payment (determined by translating the Euros received at the spot rate on the date the payment is received) regardless of whether such payment is in fact converted from Euro to U.S. dollars at that time. A cash basis U.S. Holder generally will not recognize any foreign currency gain or loss on receipt of an interest payment in Euro. An accrual method U.S. Holder will include in income (as ordinary income) for each accrual period the U.S. dollar value of the Euro interest that has accrued during such accrual period, determined by translating the payment into U.S. dollars at the average exchange rate for the accrual period (or, with respect to an accrual period that spans two taxable years, using the average exchange rate for the partial period within the relevant taxable year). Alternatively, the U.S. Holder can elect to translate stated interest into U.S. dollars at the spot exchange rate on the last day of the stated interest accrual period (or, in the case of a partial accrual period, the spot rate on the last day of the accrual period in such taxable year) or on the date the stated interest payment is received if such date is within five business days of the end of the accrual period. A U.S. Holder that makes such an election must apply it consistently to all debt instruments from year to year and cannot change the election without the consent of the Internal Revenue Service (the ‘‘IRS’’). In addition, upon receipt of a stated interest payment on a Note (including, upon the sale or other taxable disposition of a Note, amounts attributable to accrued but unpaid interest), an accrual method U.S. Holder will recognize U.S. source exchange rate gain or loss, taxable as ordinary income or loss, in an amount equal to the difference if any between the U.S. dollar value of the amount received (translated from Euros into U.S. dollars at the spot rate on the date of receipt) and the U.S. dollar value of the amount previously accrued with respect to such payment, regardless of whether the payment is in fact converted into U.S. dollars. If there is any withholding of non-U.S. taxes, a U.S. Holder may be entitled to deduct or credit any tax withheld and not eligible for refund, subject to certain limitations. U.S. Holders are urged to consult their own tax adviser regarding the availability of the foreign tax credit or deductions under their particular circumstances.

Sale, Exchange, Retirement, Redemption, or Other Taxable Disposition of a Note A U.S. Holder generally will recognize gain or loss upon the sale, exchange, retirement, redemption or other taxable disposition of a Note in an amount equal to the difference, if any, between the U.S. dollar value of the amount realized upon such disposition (other than amounts attributable to accrued and unpaid stated interest, which will be treated like a payment of interest and be accounted for in the manner described above under ‘‘—Payments of Stated Interest’’) and such U.S. Holder’s adjusted tax basis in the Note. A U.S. Holder’s adjusted tax basis in a Note will generally be its U.S. dollar cost for the Note. U.S. Holders should consult their own tax advisers about the method for calculating the amount realized and adjusted tax basis when such amounts are paid or received in a foreign currency. In particular, a U.S. Holder may be required to account for such amounts based on the U.S. dollar value on the trade date or settlement date of the transaction and may have an option to choose which date to use. A U.S. Holder will recognize U.S. source exchange rate gain or loss, taxable as ordinary income or loss, on the disposition of a Note equal to the difference, if any, between the U.S. dollar value of the issue price at

231 the spot rate (i) on the date of disposition and (ii) the date on which the U.S. Holder acquired the Note. Any such exchange gain or loss (along with any exchange gain or loss with respect to interest paid or deemed paid, if any, at that time) will be realized only to the extent of total gain or loss realized on the disposition of the Note. Any remaining gain or loss realized on the sale, exchange, retirement, redemption or other taxable disposition of a Note will generally be U.S. source capital gain or loss and will be long-term capital gain or loss if at the time of disposition the U.S. Holder has held the Note for more than one year. If there is any withholding of non-U.S. taxes, a U.S. Holder may be entitled to deduct or credit any tax withheld and not eligible for refund, subject to certain limitations. As foreign tax credits generally can only be applied against foreign source income, a U.S. Holder may not be able to benefit from any credit that might otherwise be allowed unless it has excess foreign source income of a similar kind from other sources. U.S. Holders are urged to consult their own tax advisor regarding the availability of the foreign tax credit or deductions under their particular circumstances. Capital gains of non-corporate U.S. Holders derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding Information returns may be filed with the IRS in connection with payments of interest on the Notes and the proceeds from a sale or other disposition of the Notes. A U.S. Holder may be subject to U.S. backup withholding on the foregoing amounts if it fails to provide its tax identification number to the paying agent and comply with certain certification procedures. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.

Additional Disclosure Requirements U.S. Holders should consult their own tax advisers about any additional reporting obligations that may apply as a result of the acquisition, holding or disposition of the Notes. For example, there are special reporting rules that may apply when a U.S. Holder has an account with a financial institution outside the United States or recognizes a significant foreign currency loss in a particular tax year. Failure to comply with certain reporting obligations could result in the imposition of substantial penalties.

232 CERTAIN ERISA CONSIDERATIONS The following is a summary of certain considerations associated with the acquisition and holding of Notes by an employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (‘‘ERISA’’)) that is subject to Title I of ERISA (an ‘‘ERISA Plan’’), a plan described in and subject to Section 4975 of the Code (together with ERISA Plan, ‘‘Plans’’), including an individual retirement account (‘‘IRA’’) or a Keogh plan, a plan subject to provisions under applicable federal, state, local, non-U.S. or other laws or regulations that are similar to the provisions of Section 406 of Title I of ERISA or Section 4975 of the Code (‘‘Similar Laws’’) and any entity whose underlying assets include ‘‘plan assets’’ (within the meaning of 29 C.F.R. Section 2510.3-103 as modified by Section 3(42) of ERISA (collectively, the ‘‘Plan Asset Regulations’’) or otherwise) by reason of any such employee benefit plans or plan’s investment in such entity.

General Fiduciary Matters ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan subject to Title I of ERISA or Section 4975 of the Code and prohibit certain transactions involving the assets of a Plan with its fiduciaries or other interested parties, In general, under ERISA and the Code, any person who exercises any discretionary authority or control over the administration of such a Plan or the management or disposition of the assets of such a Plan, or who renders investment advice for a fee or other compensation (direct or indirect) to such a Plan, is generally considered to be a fiduciary of the Plan. Plans that are governmental plans (as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA or Section 4975(g)(3) of the Code) and non-U.S. plans (as described in Section 4(b)(4) of ERISA) are not subject to the requirements of ERISA or Section 4975 of the Code but may be subject to similar prohibitions under Similar Laws (a ‘‘Similar Law Plan’’). In considering the acquisition, holding and, to the extent relevant, disposition of Notes with a portion of the assets of a Plan or a Similar Law Plan, a fiduciary should determine whether the investment is in accordance with the documents and instruments governing the Plan or Similar Law Plan and the applicable provisions of ERISA, the Code or any Similar Law relating to a fiduciary’s duties to the Plan or Similar Law including, without limitation, the prudence, diversification, delegation of control and prohibited transaction provisions of ERISA, the Code and any other applicable Similar Laws.

Prohibited Transaction Issues Section 406 of ERISA prohibits ERISA Plans from engaging in and fiduciaries from causing ERISA Plans to engage in specified transactions involving plan assets with persons or entities who are ‘‘parties in interest,’’ within the meaning of Section 3(14) of ERISA, and Section 4975 of the Code imposes an excise tax on certain ‘‘disqualified persons,’’ within the meaning of Section 4975 of the Code, who engage in similar transactions, in each case unless an exemption is available. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to other penalties and liabilities under ERISA and/or the Code. In addition, a fiduciary of a Plan that engages in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and/or the Code. In the case of an IRA, the occurrence of a prohibited transaction could cause the IRA to lose its tax-exempt status. The U.S. Department of Labor has promulgated the Plan Asset Regulations, describing what constitutes the assets of a Plan with respect to the Plan’s investment in an entity for purposes of certain provisions of ERISA and Section 4975 of the Code, including the fiduciary responsibility provisions of Title I of ERISA and Section 4975 of the Code. The Initial Purchasers or the Issuer may be parties in interest or disqualified persons with respect to Plans, and the purchase and/or holding of Notes may be characterized as an extension of credit by the purchaser or holder to the Issuer. The acquisition, holding and, to the extent relevant, disposition of Notes by a Plan with respect to which the Initial Purchasers or the Issuer is considered a party in interest or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless the investment is acquired, held and disposed of in accordance with an applicable statutory, class or individual prohibited transaction exemption. In this regard, the U.S. Department of Labor has issued prohibited transaction class exemptions, or ‘‘PTCEs,’’ that may apply to the acquisition and holding of the Notes. These class exemptions (as may be amended from time to time) include, without limitation, PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting insurance company pooled separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE 95-60 respecting life insurance company general accounts and PTCE 96-23 respecting transactions determined by in-house asset managers.

233 In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code each provides a limited exemption, commonly referred to as the ‘‘service provider exemption,’’ from the prohibited transaction provisions of ERISA and Section 4975 of the Code for certain transactions, provided that neither the issuer of the securities nor any of its affiliates (directly or indirectly) have or exercise any discretionary authority or control or render any investment advice with respect to the assets of any Plan involved in the transaction and provided further that the Plan pays no more than adequate consideration in connection with the transaction. There can be no assurance that all of the conditions of any such exemptions will be satisfied at the time that the Notes are acquired by a purchaser, or thereafter. Governmental plans (as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA or Section 4975(g)(3) of the Code) and non-U.S. plans (as described in Section 4(b)(4) of ERISA) are not subject to the requirements of ERISA or Section 4975 of the Code but may be subject to similar prohibitions under Similar Laws, fiduciaries of such plans should consult with their counsel before acquiring the Notes. The Notes should not be acquired, held or disposed of by any person investing ‘‘plan assets’’ of any Plan (within the meaning of the Plan Asset Regulations or otherwise), unless such acquisition, holding and disposition will not constitute a non-exempt prohibited transaction under ERISA or Section 4975 of the Code or similar violation of any applicable Similar Laws.

Representation Each purchaser or holder of a Note, and each fiduciary who causes any entity to purchase or hold a Note, shall be deemed to have represented and warranted, on each day such purchaser or holder holds such Notes, that either (i) it is neither a Plan nor a Similar Law Plan and it is not purchasing or holding Notes on behalf of or with the assets of any Plan or Similar Law Plan; or (ii) its purchase, holding and subsequent disposition of such Notes shall not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA, the Code or a violation of any provision of Similar Law. The foregoing discussion is general in nature and is not intended to be all-inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons considering purchasing Notes on behalf of, or with the assets of, any Plan or Similar Law Plan, consult with their counsel regarding the potential applicability of ERISA, Section 4975 of the Code and any Similar Laws to such investment and whether an exemption would be applicable to the purchase and holding of the Notes. The acquisition, holding and, to the extent relevant, disposition of Notes by or to any Plan or Similar Law Plan is in no respect a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to investments by such Plans generally or any particular Plan or Similar Law Plan, or that such an investment is appropriate for Plans or Similar Law Plans generally or any particular Plan or Similar Law Plan.

234 SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES The Issuer is organized under the laws of Bulgaria. The Guarantor of the Notes is organized under the laws of Bulgaria. The security documents relating to the Collateral will be governed by the laws of Bulgaria. The Indenture (including the Guarantees) and the Notes will be governed by New York law. The Intercreditor Agreement will be governed by the law of England and Wales. All of the directors and executive officers of the Issuer and the Guarantor are non-residents of the United States. Since all of the assets of the Issuer and the Guarantor, and its directors and executive officers, are located outside the United States, any judgment obtained in the United States against the Issuer or a Guarantor or any such other person, including judgments with respect to the payment of principal, premium (if any) and interest on the Notes or any judgment of a U.S. court predicated upon civil liabilities under U.S. federal or state securities laws, may not be collectible in the United States. Furthermore, although the Issuer and the Guarantor will appoint an agent for service of process in the United States and will submit to the jurisdiction of New York courts, in each case, in connection with any action in relation to the Notes and the Indenture or under U.S. securities laws, it may not be possible for investors to effect service of process on us or on such other persons as mentioned above within the United States in any action, including actions predicated upon the civil liability provisions of U.S. federal securities laws. If a judgment is obtained in a U.S. court against the Issuer or a Guarantor or a security provider, investors will need to enforce such judgment in jurisdictions where the relevant company has assets. Even though the enforceability of U.S. court judgments outside the United States is described below for the country in which the Issuer and the Guarantor are located, you should consult with your own advisors in any pertinent jurisdictions as needed to enforce a judgment in those countries or elsewhere outside the United States.

Bulgaria Recognition of U.S. and English Court Judgments Recognition and Admission to Enforcement of U.S. Court Judgments Under Bulgarian law, a U.S. court judgment may be recognized and enforced in Bulgaria unless (i) the judgment has deprived a Bulgarian court of exclusive jurisdiction under Bulgarian law or the U.S. court could not have jurisdiction over the dispute heard, in accordance with general Bulgarian rules on jurisdiction, or in respect of monetary disputes, the U.S. court jurisdiction is based solely on the citizenship of the claimant or its registration in the U.S., (ii) there are pending legal proceedings (initiated before the non-Bulgarian court proceedings) before, or a final judgment of, a Bulgarian court resolving the same dispute between the same parties, (iii) certain basic principles of Bulgarian law regarding the right of defense have been violated, including rules regarding the proper service of a complaint and summons of the parties, or (iv) the judgment contravenes Bulgarian public policy. The party seeking the recognition and enforcement of a judgment rendered by a U.S. court, including when the jurisdiction of the U.S. court is based on the contractual choice by the parties to an agreement, is required to file a claim for the recognition and enforcement of the judgment before the Sofia City Court (‘‘SCC’’). The SCC would not review the merits of the dispute and would recognize the U.S. court judgment provided that the requirements of the Bulgarian law mentioned in the preceding paragraph are met. The defendant may only raise objections that subsequent facts have terminated the defendant’s obligation (e.g. payment), as the defendant may raise such objections only prior to the judgment of the SCC recognizing and allowing enforcement has entered into force. The decision of the SCC in relation to the recognition of a U.S. court judgment is subject to appeal before the Sofia Appellate Court. The decision of the Sofia Appellate Court is subject to appeal before the Supreme Court of Cassation. The cassation procedure is conditional on the prior admission for appeal and the party challenging the appellate decision should provide evidence for the presence of the statutory grounds for cassation. The Supreme Court of Cassation grants the appellant leave to appeal before considering the cassation appeal on its merits. The cassation appeal to the Supreme Court of Cassation does not suspend execution of the judgment of the appellate court. Thus, the judgment of the Sofia Court of Appeal shall be enforceable and a party may initiate effective enforcement proceedings immediately after the judgment of the appellate court.

235 Recognition and Admission to Enforcement of English Court Judgments A judgment rendered in an EU Member State, including in England and Wales, related to commercial or civil matters, is recognizable and enforceable in Bulgaria in accordance with EU law and, more specifically, with Council Regulation (EC) No 44/2001 (the ‘‘Brussels I Regulation’’) and subject to its limitations. An English court judgment may be recognized and enforced in Bulgaria unless: (i) if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought; (ii) where the foreign judgment was issued in absentia and the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defense, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so; (iii) if it is irreconcilable with a judgment given in a dispute between the same parties in Bulgaria; and (iv) if it is irreconcilable with an earlier judgment given in another Member State or in a third State involving the same cause of action and between the same parties, provided that the earlier judgment fulfills the conditions necessary for its recognition in Bulgaria. An English court judgment shall be respected and recognized on the basis of a duplicate copy authenticated by the rendering English court. In line with the Brussels I Regulation, Bulgarian authorities are generally obligated to recognize directly, without any special procedure, EU Member State court judgments, including English court judgments. As an exception, if a dispute related to the direct recognition arises and a Bulgarian authority denies recognition of an English court judgment, any interested party may apply before the district court for recognition of the judgment. Under no circumstances may the English court judgment be reviewed as to its substance by the Bulgarian court in which recognition is sought. The Bulgarian court order for recognition of an English court judgment has the relevance of a judgment rendered in an action procedure. This order could be appealed according to the Bulgarian law’s general rules for appealing court judgments. An application for admission to enforcement of the English court judgment shall be submitted to the district court exercising jurisdiction over the permanent address of the person against whom enforcement is sought, over its registered office or over the place of enforcement. The court shall examine the application in camera. It verifies the conditions for admission to enforcement solely on the basis of the copy of the judgment of the court and its translation into the Bulgarian language. The court sets a time limit for appeal of the order by the person against whom enforcement is sought in accordance with the time limits in the Brussels I Regulation. Anticipatory enforcement of the order is not allowed. The court shall also pronounce on the interim and precautionary measures which are sought, if any. The order on the admission again, as in the recognition procedure, has the relevance of a judgment rendered in an action procedure. The court’s order is subject to appellate review before the Sofia Appellate Court. The judgment of the Sofia Appellate Court shall be subject to cassation appellate review before the Supreme Court of Cassation.

Enforcement Once the U.S. court judgment is recognized, it is subject to enforcement pursuant to the general rules of Bulgarian law. The procedure includes issuance of a writ of execution and enforcement by a bailiff where the respondent fails to perform voluntarily. The procedure for issuance of a writ of execution on the basis of the recognized foreign court judgment is very straightforward. No other restrictions on enforcement apply.

Out of Court Enforcement of Collateral Enforcement of secured claims under Bulgarian law governed special pledges and financial collateral arrangements do not generally involve Bulgarian courts (unless the security rights are in legal dispute), or court bailiffs, and provide for relatively time-efficient enforcement mechanism such as: • The law allows the seizure of pledged assets under a special pledge to take place as early as two weeks after formal commencement of foreclosure proceedings (requiring Central Register for Special Pledges); • Enforcing rights under a Bulgarian law financial collateral arrangement is by law designed to involve only the pledgee and the institution keeping the relevant accounts, in line with the European Financial Collateral Arrangements Directive; and • Enforcement in respect of enterprise pledges takes place either through (i) taking control of the enterprise assets and piecemeal sales, or (ii) taking control of the enterprise management (including

236 possible sale of the going concern as a whole). If the Security Agent as pledge choose to satisfy its claim from enterprise assets, in accordance with previous clause (i), the Security Agent must first enforce against such assets, the sale of which would least affect the operation of the enterprise. Delays and complications in enforcement, however, may not be ruled out, particularly if the debtor raises a dispute as to the matter of whether enforcement rights exist. It should be pointed out that the relevant laws and practices in Bulgaria are relatively recent, which is why even simple disputes concerning enforcement actions could result in significant delays.

237 LIMITATIONS ON VALIDITY AND ENFORCEABILITY OF THE GUARANTEE AND THE COLLATERAL AND CERTAIN INSOLVENCY LAW CONSIDERATIONS Set out below is a summary of certain limitations on the enforceability of the Note Guarantee and the security interests relating to the Notes, and of certain insolvency law considerations in each of the jurisdictions in which the Issuer, the Guarantor and the providers of security are organized or incorporated. It is a summary only. Bankruptcy or insolvency proceedings or a similar event could be initiated in any of these jurisdictions and/or in the jurisdiction of organization or incorporation of a future guarantor under the Notes. The application of these various laws in multiple jurisdictions could trigger disputes over which jurisdictions’ law should apply and could adversely affect your ability to enforce your rights and to collect payment in full under the Notes, the Guarantees and any security securing the Notes. The application of these various laws in multiple jurisdictions could trigger disputes over which jurisdictions’ law should apply and could adversely affect your ability to enforce your rights and to collect payment in full under the Notes. See also ‘‘Risk Factors—Risks related to the Notes and our Structure—The Note Guarantee and the Collateral will be subject to certain limitations on enforcement and may be limited by applicable laws or subject to certain defenses that may limit its validity and enforceability.’’

European Union Pursuant to Council Regulation (EC) no. 1346/2000 on insolvency proceedings (the ‘‘EU Insolvency Regulation’’), the court which shall have jurisdiction to open insolvency proceedings in relation to a company is the court of the EU Member State (other than Denmark) where the company concerned has its ‘‘center of main interests’’ (as that term is used in Article 3(1) of the EU Insolvency Regulation). The determination of where any such company has its ‘‘center of main interests’’ is a question of fact on which the courts of the different EU Member States may have differing and even conflicting views. The term ‘‘center of main interests’’ is not a static concept. Although there is a rebuttable presumption under Article 3(1) of the EU Insolvency Regulation that any such company has its ‘‘center of main interests’’ in the EU Member State in which it has its registered office, Preamble 13 of the EU Insolvency Regulation states that the ‘‘center of main interests’’ of a debtor should correspond to the place where the debtor conducts the administration of its interests on a regular basis and ‘‘is therefore ascertainable by third parties.’’ In that respect, factors such as where board meetings are held, the location where the company conducts the majority of its business and the perception of the company’s creditors as regards the center of the company’s business operations may all be relevant in the determination of the place where the company has its ‘‘center of main interests.’’ If the ‘‘center of main interests’’ of a company is and will remain located in the state in which it has its registered office, the main insolvency proceedings in respect of the company under the EU Insolvency Regulation would be commenced in such jurisdiction and accordingly a court in such jurisdiction would be entitled to commence the types of insolvency proceedings referred to in Annex A to the EU Insolvency Regulation with these proceedings being governed by the lex fori concursus, i.e. the local laws of the court opening such main insolvency proceedings. Insolvency proceedings opened in one EU Member State under the EU Insolvency Regulation are to be recognized in the other EU Member States (other than Denmark), although secondary proceedings may be opened in another EU Member State. The effects of those main proceedings, however, do not affect third-party rights in rem situated within a territory or other Member State, in accordance with Article 5 of the EU Insolvency Regulation. If the ‘‘center of main interests’’ of a debtor is in one EU Member State (other than Denmark), under Article 3(2) of the EU Insolvency Regulation, the courts of another EU Member State (other than Denmark) have jurisdiction to open ‘‘territorial proceedings’’ only in the event that such debtor has an ‘‘establishment’’ in the territory of such other EU Member State. The effects of those territorial proceedings are restricted to the assets of the debtor situated in the territory of such other EU Member State. If the company does not have an establishment in any other EU Member State, no court of any other EU Member State has jurisdiction to open territorial proceedings in respect of such company under the EU Insolvency Regulation. In the event that any one or more of the Issuer or the Guarantor experience financial difficulty, it is not possible to predict with certainty in which jurisdiction or jurisdictions insolvency or similar proceedings would be commenced, or the outcome of such proceedings. Applicable insolvency laws may affect the enforceability of the obligations and the security of the Issuer.

Bulgaria Under Bulgarian law bankruptcy proceedings could be initiated with respect to a company that is either (i) insolvent or (ii) over-indebted (which applies in the case of limited liability companies, joint stock

238 companies and partnerships limited by shares only). The two tests are alternative and only one of them needs to be satisfied for commencement of the bankruptcy process. A company will be considered insolvent provided that (i) it is not able to repay an obligation under or related to a commercial transaction (including obligations for payment damages for breaches of obligations thereunder, or obligations arising as a result of the nullity or invalidation of such a transaction), or a public obligation to the state or the municipalities connected to the debtor’s business activities or a private obligation to the state, and (ii) such obligation is due and payable. The debtor’s capability to make partial payments or payments to only certain creditors does not bar the initiation of bankruptcy proceedings. Furthermore, a company is presumed to be insolvent if it has stopped payments to its creditors. There is no requirement, whatsoever, for a certain time period to pass after the due date of the obligation or after the company stopping its payments and the filing of a bankruptcy petition (from the creditor under the respective obligation). A company is considered over-indebted where its assets are not sufficient to cover its cash liabilities. Bankruptcy proceedings may be opened on the request of (i) creditors who have legal interest in putting the company under bankruptcy administration, (ii) the National Revenue Agency (only with respect to public liabilities towards the state or the municipalities related to the business activities of the debtor or in respect of non-public claims of the state), (iii) the management of the company, or (iv) a liquidator, if in the course of liquidation proceedings (generally relating to solvent debtors) the company’s assets are insufficient for the repayment of creditor obligations. When bankruptcy is requested on the grounds of insolvency only, creditors who have an outstanding claim, which is not paid on the due date and arises under a commercial transaction can file the petition. If bankruptcy is requested only on the grounds of over-indebtedness, any creditor who has an outstanding claim against the company, even if the claim is not yet due and payable could file for bankruptcy. The management of the company is under the obligation to file for bankruptcy within 30 days as from the date it becomes insolvent or over-indebted. If the court establishes that a company is insolvent or over-indebted, it issues a judgment on the opening of bankruptcy proceedings. However, if the court considers that the financial difficulties of the debtor are of a temporary nature or the debtor owns sufficient assets to cover the claims of all creditors and there is no danger that the interests of creditors would be prejudiced, the court would reject the opening of bankruptcy proceedings. By issuing a judgment opening bankruptcy proceedings, the bankruptcy court, among others, (i) sets the initial date of the insolvency/ over-indebtedness; (ii) appoints a temporary bankruptcy trustee, and (iii) approves injunctions with respect to the bankruptcy estate (if so requested in the petition). Often the insolvency date precedes significantly the opening of bankruptcy proceedings. The importance of the insolvency date is that certain transactions (as discussed below) may be declared invalid vis-a-vis` the bankruptcy creditors for the sole reason of being executed between a date falling on or after the insolvency date, and (typically) the date for application for commencement of bankruptcy (the ‘‘suspect period’’). The time limits of the suspect period, as set by the latest statutory amendments in 2013, are one year for most cases, and do not exceed three years, counting backwards from the date of filing of the bankruptcy application. Thus, the start of the suspect period is in most cases, the later of (i) the insolvency date, or (ii) the commencement date of such statutory period set as a time period prior to the bankruptcy application. Once a company is subject to bankruptcy proceedings, its business and operations are administered by a bankruptcy trustee (receiver), subject to the approval of certain actions by the bankruptcy court. Before the first creditors’ meeting takes place the court appoints a temporary bankruptcy trustee. The permanent bankruptcy trustee is elected at the creditors’ meeting and is appointed by the court. The bankruptcy trustee is entitled to: (i) represent the company; (ii) manage the ongoing business; (iii) supervise the company’s activity in case the management of the company has not been entrusted exclusively with the bankruptcy trustee; (iv) find and evaluate the company’s property; (v) terminate or cancel certain agreements; (vi) participate in court proceedings involving the debtor or initiate such proceedings; (vii) collect the company’s receivables and assets; (viii) liquidate the company’s assets; (ix) convene the creditors’ meetings upon resolution of the court; (x) propose a reorganization (rehabilitation) plan, etc. The bankruptcy trustee is required to perform its obligations with the diligence of a prudent merchant. Under Bulgarian law, every creditor, including secured creditors (except for employees and subject to other exceptions set out in the paragraph below), is required to lodge its claim before the bankruptcy court no later than one month from the announcement in the Business Register with the Registry Agency of the judgment on the institution of bankruptcy proceedings. Creditors who lodge their claim before the court within a one month period are entitled to (i) participate in the first creditors’ meeting that appoints the

239 permanent bankruptcy trustee and (ii) contest claims lodged by other creditors. Claims that are not lodged within the prescribed one month period may be filed within an additional two month period, but in this case, the filing creditor will not be able to contest accepted claims of competing creditors or the distribution of liquidation proceeds that have been made. Claims that are lodged within the additional two month period but after the liquidation of the company’s assets (converting the company’s assets into cash) can lose their ranking and participate in the distribution only with proceeds that are not already distributed. The bankruptcy trustee is entitled to review each lodged claim and to decide whether to accept it in full, partially or to reject its acceptance. The acceptance or non-acceptance of claims by the trustee may be challenged before the bankruptcy court by any interested creditor or the debtor. The bankruptcy court approves the list of accepted claims and if it finds that the objections made to the list (if any) are reasonable, approves the list of accepted claims with the respective amendment to take into account the objections. Creditors whose claims are rejected by the bankruptcy court have the right to start full litigation proceedings before another panel of the same court to establish the existence of their claims and the bankruptcy trustee must establish a special reserve in order to meet all such claims, if recognized later by a final court judgment. As a general rule, the opening of bankruptcy proceedings imposes an automatic stay on all pending enforcement, court or arbitration proceedings against the debtor company related to commercial and civil property matters. Claimants, as well as all other creditors, are then required to lodge their respective claims with the bankruptcy court under the general procedure for lodging claims. If these receivables are included in the list of accepted claims, the enforcement, court or arbitration proceedings are terminated and the creditors become entitled to participate in the bankruptcy proceedings. The only exceptions to the automatic stay are: (i) enforcement proceedings under a registered pledge that have commenced prior to the opening of the bankruptcy proceedings and according to the practices of some of the local courts (which may be subject to change), enforcement proceedings under all registered pledges even when such proceedings are commenced after the opening of bankruptcy proceedings, (ii) foreclosure under financial collateral arrangements, (iii) foreclosure by the state in respect of public obligations of the debtor where debtor’s assets have been attached prior to the opening of bankruptcy proceedings (such that there is no stay in respect of such assets), and (iv) enforcement proceedings allowed by the bankruptcy court. In the course of the bankruptcy proceedings, the insolvent company is only entitled to enter into new transactions upon approval by the bankruptcy trustee. In some cases the court may entrust the bankruptcy trustee with the management of the company and fully deprive the insolvent company’s management of their management rights. Under Bulgarian law, bankruptcy proceedings lead either to the restructuring/reorganization of the company or its liquidation. According to the law, unless the debtor company has insufficient assets to cover the costs of the bankruptcy process, liquidation of the company can start only if no restructuring plan is proposed within one month as of the announcement of the first list of accepted claims or if the proposed plan is not approved by the creditors or endorsed by the bankruptcy court. The restructuring plan can provide for the partial or full discharge of liabilities, rescheduling of liabilities, restructuring of the debtors company, conversion of debt into equity, change of management as well as any other appropriate measures or transactions. A restructuring plan can be proposed by each of (i) the debtor, (ii) the trustee, (iii) creditors who hold at least a third of the accepted secured claims, (iv) creditors who hold at least a third of the unsecured accepted claims, (v) shareholders holding at least a third of the capital of the debtor or (vi) 20% of the employees of the company. In order for the plan to become effective it has to be (a) approved by the creditors’ meeting and (b) endorsed by the bankruptcy court. In order for the restructuring plan to be approved by the creditors’ meeting it has to receive the affirmative vote of the majority of all creditors holding accepted claims against the bankruptcy estate as well as the majority of at least one class of creditors who will not be repaid in full under the restructuring plan. Among other requirements of the law, the plan must put the dissenting creditor or the dissenting debtor in as good of a financial position (size of payments allocated for them) under the plan, as they would be in if the proceedings lead to the liquidation of the company. The bankruptcy court endorses the vote if it complies with the provisions of the law as to its contents and procedure for approval. Once the restructuring plan is endorsed, it becomes effective with respect to all third parties, including the dissenting creditors and leads to termination of the bankruptcy proceedings. In case the debtor does not perform the restructuring (cure) plan, the bankruptcy proceedings may be reopened upon an application by the creditors without any further possibilities for application of a second restructuring (cure) plan.

240 In addition to the in-bankruptcy restructuring, the debtor can enter into an out-of-court settlement agreement in writing with all recognized creditors arranging for the payment of monetary obligations. Following the execution of such agreement, the court will issue a decision on termination of the bankruptcy proceedings. If the creditors do not agree on a restructuring plan or the court does not approve such cure plan or if such cure plan is not fulfilled by the debtor, the court has to declare the bankruptcy of the debtor and to order liquidation of its assets. Creditors with accepted claims are entitled to participate in the distribution of proceeds in accordance with their ranking as specified by the law. Secured creditors are awarded first ranking (only up to the value of their respective security), even ahead of employees and public claims for taxes and social security. Subsequent ranks are entitled to participate in the distribution of liquidation proceeds only after the preceding rank has received full repayment. Though not expressly provided for in legal provisions, subordination or sharing arrangements between creditors are not contrary to Bulgarian law or Bulgarian public policy, however has yet to be tested in the Bulgarian courts as to whether such arrangements have a binding effect (other than as between creditors) and would be honored by bankruptcy trustees. Bulgarian law provides that certain transactions entered into by the insolvent debtor prior to the opening of the bankruptcy proceedings could be avoided in bankruptcy. Transactions and legal actions, which result in preferential treatment of a creditor as compared to the treatment the same creditor should have received according to the general distribution rules in the insolvency proceedings (i.e. if the preferential transaction does not exist), including those specified below, may be claimed void, if effected by the debtor in the suspect period, but not earlier than the insolvency date: • fulfillment of an immature pecuniary obligation within a one year term before the date of filing the bankruptcy application (or within a two year term if the creditor has been aware that the debtor is insolvent), but, unless (i) the fulfillment of the obligation is effected in the course of the ordinary business activity of the debtor; and (ii) the debtor has received an equivalent consideration; • establishment of security by the debtor to secure its own previously unsecured obligation within a one year term before the date of filing the bankruptcy application (or within a two year term if the creditor has been aware that the debtor is insolvent), unless such security is (i) established before or simultaneously with extension of credit to the debtor; (ii) replacing valid security; or (iii) is securing the acquisition of the asset subject to the security; • fulfillment of a mature pecuniary obligation within a six month term before the date of filing the bankruptcy application (or within a one year term if the creditor has been aware that the debtor is insolvent), unless (i) the fulfillment of the obligation is effected in the course of the ordinary business activity of the debtor; and (ii) the debtor has received an equivalent consideration. In addition, certain other transactions and legal actions, which are typically regarded as detrimental to the creditors, including these specified below, may also be claimed void if effected by the debtor in the suspect period, but generally not earlier than the insolvency date: • transactions with no consideration or with substantially lower consideration effected within a two year (or in certain cases, within a three year) term before the date of filing the bankruptcy application; • establishment of a security/guarantee by the debtor to secure a third-party obligation within a one year term before the date of filing the bankruptcy application (or within a two year term if the creditor is an affiliated to the debtor); • transactions with an affiliated party to the debtor, which is detrimental to the creditors, effected within a two year term before the date of filing the bankruptcy application. Transactions under the above three scenarios are also voidable if they are made between the date of filing the bankruptcy application and the date of the court resolution for the opening of bankruptcy proceedings.

Limitations on Enforcement of the Note Guarantee and Security Interests General Invalidation Rules Under Bulgarian law the granting of security interest or the undertaking of obligations may be limited by the statutory right of the creditors of a Bulgarian company to challenge transactions, which are detrimental to the rights of such creditors (actio Pauliana). This right is established in parallel with the insolvency- related rules on voidability of transactions and acts (see the preceding paragraphs). A creditor challenging

241 the security interest or obligations, as the case may be, has to demonstrate that (i) its interests have been harmed (i.e. by diminishing its possibility for satisfaction from the assets of the security provider) by the provision of such security or undertaking of obligation by the Bulgarian company, and that (ii) the Bulgarian company knew or ought to have known about the detrimental effect of the transaction on the creditor’s interest. In case of a transaction for consideration, the creditor has to demonstrate that the third- party also knew about the detrimental effect.

Term of Validity of Security Interest Registration Under the rules of Bulgarian law, a special pledge has to be recorded in the Central Register of Special Pledges and/or other relevant registers in order to be perfected with regards to third parties. The registration shall be effective for a term of five years following the initial entry, and its validity may be extended through renewal of registration, if made before the expiry date. The secured party is authorized to perform such renewal alone, without the need of assistance from or the consent of the grantor of security. In contrast to a special pledge, the Bulgarian law implementing Directive 2002/47/EC on financial collateral arrangements, provides that the term of validity of a financial collateral is not dependent on an entry in a public register or any other formal act.

Capital Maintenance Bulgarian law prohibits limited liability companies to distribute the quotas of their shareholders prior to the liquidation of the company. Based on similar provisions, the courts in other jurisdictions such as Austria and Germany have ruled that guarantees granted for the benefit of a parent for an amount that exceeds the distributable reserves of the limited liability company breach the said capital maintenance requirement. Currently the said position is not supported by Bulgarian courts and existing legal doctrine. However, it may be possible in the future Bulgarian courts to reverse their position and assume similar interpretation of the capital maintenance requirements for limited liability companies.

Use of Security Agent and Parallel Debt In Bulgaria, there are concerns that the security interests in the Collateral may not be granted directly to the holders of the Notes, but in favor of a noteholders trustee, as beneficiary of parallel debt and as a person acting in its own name but on behalf of a changing group of noteholders (i.e. creditors of the underlying debt). Practical risks under local law exist regarding the recognition of the validity of the security interest set up for the benefit of a security agent, who is not a creditor under the secured debt and not appointed as the noteholders’ trustee. For that reason, the Intercreditor Agreement provides for the creation of the parallel debt structure, which is governed by English law. The parallel debt created under the Intercreditor Agreement would be validly secured under Bulgarian law insofar as, and only to the extent to which, the parallel debt obligations are valid, binding and enforceable obligations under the laws of England, which are expressed to govern the Intercreditor Agreement, and the laws of New York, which are expressed to govern the Notes, the Note Guarantee and the Indenture. However, there is no assurance that such a structure will be effective before Bulgarian courts as there is no judicial or other guidance regarding the enforceability of parallel debt obligations. Therefore the ability of the Security Agent to enforce the Collateral may be restricted. Furthermore, the rights of the Security Agent will cease to exist or to be enforceable when the parallel debt obligations cease to exist or cease to be valid and enforceable, due to a various reasons, which include an event of invalidation or the expiration of the obligation to make payment of any receivable on the grounds of an applicable statute of limitations.

Uncertainties Related to the Enterprise Pledges securing the Notes and Note Guarantee The validity and enforceability of the Security Documents may be challenged in Bulgaria on different legal theories, and the risk of such challenge being successful is exacerbated by several factors, including misinterpretation of the law or fact by courts or other public institutions, inexperience, overload or improper influences. In particular, with respect to the going concern (enterprise) pledges to be provided by the Issuer and the Guarantor as part of the Collateral, there is a risk of misinterpretation of a statutory rule contained in the Bulgarian securities laws. This rule prohibits debt securities in an initial public offering or listing to be

242 secured by a going concern (enterprise) pledge, or by non-first ranking collateral. We believe that this rule should be read as only relevant to cases when the Bulgarian Financial Supervision Commission (the regulatory and supervisory authority for the non-banking financial sector) is the competent authority for the purposes of the Prospectus Directive and the securities are being publicly offered or listed in Bulgaria and/or the debt securities are governed by Bulgarian law. However, because of imprecise drafting surrounding this rule, it is susceptible to misinterpretation. The Business Register may refuse to register the enterprise pledges intended to secure the Notes and the Note Guarantee by the Guarantor and appeal of such denial may be unsuccessful, or a Bulgarian court may resolve that due to the implied protective nature of said rule’s restriction and imperative wording, it is to be interpreted broadly to override foreign legal orders, and to the effect that the restriction also covers off-shore securities offerings of Bulgarian entities, where the securities are governed by foreign law and collateralized by a going concern pledge governed by Bulgarian law, like the Notes and Note Guarantee. We believe that such pledge registration denial, or challenges before court should be devoid of merits (as it would misinterpret the law). Yet the practical risks of a Bulgarian court invalidating the enterprise pledges or the Business Register denying their registration, cannot be excluded. If these risks materialize, the enterprise pledge agreements intended to secure the Notes and the Note Guarantee will either lack perfection (i.e. have no effect and priority as against third parties) or be adjudicated as invalid.

243 PLAN OF DISTRIBUTION The Issuer, the Guarantor and Credit Suisse Securities (Europe) Limited, VTB Capital plc, Barclays Bank PLC, Deutsche Bank AG, London Branch and Societ´ e´ Gen´ erale´ (together, the ‘‘Initial Purchasers’’), have entered into a purchase agreement dated the date hereof (the ‘‘Purchase Agreement’’), with respect to the Notes. Subject to the terms and conditions set forth in the Purchase Agreement between the Issuer has agreed to sell to the Initial Purchasers and the Initial Purchasers have agreed, severally and not jointly, to purchase from the Issuer, all the Notes offered hereby. The Purchase Agreement provides that the obligations of the Initial Purchasers to pay for and accept delivery of the Notes are subject to, among other conditions, the delivery of certain legal opinions. The Initial Purchasers have advised us that they propose to offer the Notes initially at the price indicated on the cover page of this Offering Circular and may also offer the Notes to selling group members at the offering price less a selling concession. After the initial offering, the offering price and other selling terms of the Notes may be varied by the Initial Purchasers at any time without notice. Sales of the Notes may be made through affiliates of the Initial Purchasers or through registered broker-dealers. The Purchase Agreement provides that the Issuer will indemnify and hold harmless the Initial Purchasers against certain liabilities, including liabilities under the U.S. Securities Act, and will contribute to payments that the Initial Purchasers may be required to make in respect thereof. The Issuer has agreed to pay the Initial Purchasers certain customary fees for their services in connection with this Offering and to reimburse them for certain out-of-pocket expenses. Persons who purchase Notes from the Initial Purchasers may be required to pay stamp duty, taxes and other charges in accordance with the laws and practice of the country of purchase in addition to the offering price set forth on the cover page hereof.

The Notes and the Note Guarantee are not being registered under the U.S. Securities Act The Notes and the Note Guarantee have not been and will not be registered under the U.S. Securities Act and may not be offered or sold in the United States or to, or for account or benefit of, U.S. persons except to (i) ‘‘qualified institutional buyers’’ (as defined in Rule 144A under the U.S. Securities Act (‘‘Rule 144A’’)) in reliance on Rule 144A and (ii) to certain non-U.S. persons (as defined in Regulation S under the U.S. Securities Act (‘‘Regulation S’’)) outside the United States in offshore transactions in reliance on Regulation S. In addition, with respect to the Notes initially sold outside the United States in compliance with Regulation S, until the expiration of 40 days after the commencement of this Offering, an offer or sale of the Notes within the United States by a broker/dealer (whether or not participating in this offering) may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A under the U.S. Securities Act or pursuant to another exemption from registration under the U.S. Securities Act. Resales of the Notes are restricted as described under ‘‘Transfer Restrictions.’’ Each purchaser of the Notes will be deemed to have made acknowledgments, representations and agreements as described under ‘‘Transfer Restrictions.’’ No action has been taken in any jurisdiction, including the United States and the United Kingdom, by any of the Issuer or the Initial Purchasers that would permit a public offering of the Notes or the possession, circulation or distribution of this Offering Circular or any other material relating to us or the Notes in any jurisdiction where action for this purpose is required. Accordingly, the Notes may not be offered or sold, directly or indirectly, and neither this Offering Circular nor any other offering material or advertisements in connection with the Notes may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules and regulations of any such country or jurisdiction. This Offering Circular does not constitute an offer to sell or a solicitation of an offer to purchase in any jurisdiction where such offer or solicitation would be unlawful. Persons into whose possession this Offering Circular comes are advised to inform themselves about and to observe any restrictions relating to the Offering, the distribution of this Offering Circular and resale of Notes. See ‘‘Notice to Certain European Investors.’’ The Issuer has also agreed that it will not at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances in which such offer, sale, pledge,

244 contract or disposition would cause the exemption afforded by Section 4(2) of the U.S. Securities Act or the safe harbor of Rule 144A and Regulation S under the U.S. Securities Act to cease to be applicable to the offer and sale of the Notes.

United Kingdom In the Purchase Agreement, each Initial Purchaser has, severally and not jointly, also represented and agreed that: (i) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or instrument to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the Financial Services and Markets Act 2000 does not apply to the Issuer or the Guarantor; and (ii) it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

No Sale of Similar Securities We have agreed, subject to certain exceptions that we or our affiliates will not, directly or indirectly, offer, sell, contract to sell or otherwise dispose of any debt or convertible securities for a period of 180 days from the date the Notes are issued without first obtaining the written consent of the Initial Purchasers.

New Issue of Notes The Notes are a new issue of securities with no established trading market. We have applied to have the Notes listed on the Official List of the Irish Stock Exchange and admitted to trading on the Main Securities Market of that exchange, though we cannot assure you that the Notes will be approved for listing or that such listing will be maintained. The Initial Purchasers have advised us that they presently intend to make a market in the Notes after completion of this Offering. However, the Initial Purchasers are under no obligation to do so and may discontinue any market-making activities at any time without notice. In addition, any such market-making activity will be subject to the limits imposed by the U.S. Securities Act and the U.S. Exchange Act. Accordingly, we cannot assure you that any market for the Notes will develop, or that it will be liquid if it does develop, or that you will be able to sell any Notes at a particular time or at a price which will be favorable to you. See ‘‘Risk Factors—Risks Related to the Notes and our Structure— There may not be an active trading market for the Notes, in which case your ability to sell the Notes may be limited.’’

Price Stabilization and Short Positions In connection with the offering, Credit Suisse Securities (Europe) Limited (the ‘‘Stabilizing Manager’’) (or persons acting on its behalf) may purchase and sell Notes in the open market. These transactions may include over-allotment, stabilizing transactions, covering transactions and penalty bids. Over-allotment involves sales in excess of the offering size, which creates a short position for the Initial Purchasers. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Covering transactions involve purchases of the Notes in the open market after the distribution has been completed in order to cover short position. Penalty bids permit the Initial Purchasers to reclaim a selling concession from a broker/dealer when the Notes originally sold by such broker/dealer are purchased in a stabilizing or covering transaction to cover short positions. These transactions may be effected in the over-the-counter market or otherwise. These activities may stabilize, maintain or otherwise affect the market price of the Notes. As a result, the price of the Notes may be higher than the prices that otherwise might exist in the open market. None of the Initial Purchasers or us makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Notes. In addition, there is no obligation on the Stabilizing Managers to engage in such transactions and none of the Initial Purchasers or us makes any representation that the Stabilizing Manager will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. See ‘‘Risk Factors—Risks Related to the Notes and our Structure—There may not be an active trading market for the Notes, in which case your ability to sell the Notes may be limited.’’

245 Initial Settlement It is expected that delivery of the Notes will be made against payment on the Notes on or about the date specified on the cover page of this Offering Circular, which will be five business days (as such term is used for purposes of Rule 15c6-1 of the U.S. Exchange Act) following the date of pricing of the Notes (this settlement cycle being referred to as ‘‘T+5’’). Under Rule 15c6-1 of the U.S. Exchange Act, trades in the secondary market generally are required to settle in three business days unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Notes on the date of this Offering Circular or the next two succeeding business days will be required to specify an alternative settlement cycle at the time of any such trade to prevent a failed settlement. Purchases of the Notes who wish to make such trades should consult their own advisors.

Other Relationships The Initial Purchasers or their respective affiliates, from time to time, have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us and our affiliates. They have received, and expect to receive, customary fees and commissions in connection these transactions. The Initial Purchasers or their respective affiliates may also receive allocations of the Notes. Affiliates of each of Corporate Commercial Bank and VTB Capital plc own a controlling stake in Bulgarian Telecommunications Company EAD. VTB Capital plc will also act as arranger, agent and security agent under the Equity Bridge. VTB Capital plc is also a lender under the Senior Facilities Agreement, which is being repaid and discharged as described under ‘‘Use of Proceeds.’’ Deutsche Bank AG, London Branch has historically acted as lender to the Company and performed certain agency related functions for the Company. Deutsche Bank AG, London Branch has also in the past, and may currently hold, certain debt and/or equity interests in the Company. Societ´ e´ Gen´ erale´ will act as lender under the Revolving Credit Facility, and also has a leasing line in place with respect to the Company. Furthermore, certain of the Initial Purchasers may engage in hedging transactions with the Company.

246 LEGAL MATTERS The validity of the Notes and the Note Guarantee and certain other legal matters are being passed upon for the Issuer and the Company by Clifford Chance LLP with respect to matters of U.S. federal, New York state and English law. Certain legal matters will be passed upon for the Initial Purchasers by Latham & Watkins (London) LLP with respect to matters of U.S. federal and New York state and English law.

INDEPENDENT AUDITORS PricewaterhouseCoopers Audit OOD with its registered office in Sofia, 9-11 Maria Louisa Blvd., audited the consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for the years ended December 31, 2010, 2011 and 2012, included in this Offering Circular, and issued independent auditor’s reports on the aforementioned financial statements. The independent auditor’s report on the consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for the year ended December 31, 2010 contains an emphasis of uncertainty with respect to the going concern assumption. Please refer to the independent auditor’s report on the consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for the year ended December 31, 2010, included elsewhere in this Offering Circular. The independent auditor’s report on the consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for the year ended December 31, 2011 contains an emphasis of uncertainty with respect to the going concern assumption. Please refer to the independent auditor’s report on the consolidated and separate financial statements of Bulgarian Telecommunications Company EAD for the year ended December 31, 2011, included elsewhere in this Offering Circular. PricewaterhouseCoopers Audit OOD is a member of the Institute of Certified Public Accountants in Bulgaria. On July 1, 2013, the decision was taken at the annual general meeting of Bulgarian Telecommunications Company EAD to replace PricewaterhouseCoopers Audit OOD with KPMG Bulgaria OOD as the Company’s independent auditors. The unaudited consolidated and separate financial statements of Bulgarian Telecommunications Company EAD and its subsidiaries as at and for the nine months ended September 30, 2013, included in this Offering Circular, have been reviewed by KPMG Bulgaria OOD, independent auditors, as stated in their report appearing herein. KPMG Bulgaria OOD is a member of the Institute of Certified Public Accountants in Bulgaria, with its registered office at 45/A, Bulgaria Blvd., 1404 Sofia, Bulgaria. KPMG Bulgaria OOD, has given and not withdrawn its consent to the inclusion of its report on certain pro forma financial information set out in the Statement of Unaudited Pro Forma Consolidated Financial Information appearing elsewhere in this Offering Circular, in the form and context in which it appears.

WHERE YOU CAN FIND ADDITIONAL INFORMATION Each purchaser of the Notes from an Initial Purchaser will be furnished with a copy of this Offering Circular and any related amendments or supplements to this Offering Circular. Each person receiving this Offering Circular and any related amendments or supplements to the Offering Circular acknowledges that: (1) such person has been afforded an opportunity to request from us, and to review and has received, all additional information considered by it to be necessary to verify the accuracy and completeness of the information herein; (2) such person has not relied on the Initial Purchasers or any person affiliated with the Initial Purchasers in connection with its investigation of the accuracy of such information or its investment decision; and (3) except as provided pursuant to (1) above, no person has been authorized to give any information or to make any representation concerning the Notes offered hereby other than those contained herein and, if given or made, such other information or representation should not be relied upon as having been authorized by us or the Initial Purchasers. For so long as any of the Notes are ‘‘restricted securities’’ within the meaning of the Rule 144(a)(3) under the U.S. Securities Act, we will, during any period in which we are neither subject to the reporting requirements of Section 13(a) or 15(d) of the U.S. Exchange Act, nor exempt from the reporting requirements under Rule 12g3-2(b) of the U.S. Exchange Act, provide to the holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner, in each case upon the written request of such holder, beneficial owner or

247 prospective purchaser, the information required to be provided by Rule 144A(d)(4) under the U.S. Securities Act. Any such request should be directed to the Issuer at 115i Tsarigradsko Shose Boulevard., 1784 Sofia, Bulgaria. We are not currently subject to the periodic reporting and other information requirements of the U.S. Exchange Act. However, pursuant to the Indenture governing the Notes and so long as the Notes are outstanding, we will furnish periodic information to holders of the Notes. See ‘‘Description of Notes— Certain Covenants—Reports.’’

248 LISTING AND GENERAL INFORMATION Listing Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on the Main Securities Market. There can be no assurance that the Issuer will be able to effect such admission of the Notes to trading on the Main Securities Market. Notice of any optional redemption, change of control or any change in the rate of interest payable on the Notes will be published on the Irish Stock Exchange official website (www.ise.ie). It is expected that the total expenses relating to the application for admission of the Notes are listed onto the Official List of the Irish Stock Exchange and admitted to trading on the Main Securities Market will be approximately A5,190. For as long as the Notes are listed on the Official List of the Irish Stock Exchange and are traded on the Main Securities Market thereof, copies of the following documents may be inspected, in electronic form and obtained free of charge at the specified office of the paying and transfer agent in Ireland during normal business hours on any weekday: • the organizational documents of the Issuer and the Guarantor; • the audited consolidated financial statements of the Issuer as at and for the years ended December 31, 2011 and 2012; • the Indenture relating to the Notes (which includes the form of the Notes); and • the Note Guarantee. Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer (and not on its own behalf) in connection with the application to the Irish Stock Exchange.

Clearing Information The Notes sold pursuant to Regulation S and the Notes sold pursuant to Rule 144A in this Offering have been accepted for clearance through the facilities of Euroclear and Clearstream under common codes 099499303 and 099499362, respectively. The ISIN for the Notes sold pursuant to Regulation S is XS0994993037 and the ISIN for the Notes sold pursuant to Rule 144A is XS0994993623.

Legal Information Legal Information regarding the Issuer Bulgarian Telecommunications Company EAD is a single shareholder joint stock company, incorporated under the laws of Bulgaria on December 24, 1992, registered in the Commercial Register of the Registry Agency under UIC No. 831642181. Bulgarian Telecommunications Company EAD’s registered office is at 115i Tsarigradsko Shose Boulevard., 1784 Sofia, Bulgaria and its telephone number is +359 2 949 43 31. The Issuer has obtained all necessary consents, approvals and authorizations in connection with the issuance and performance of the Notes.

Legal Information regarding the Guarantor BTC Net EOOD is a limited liability company organized under the laws of Bulgaria on October 27, 2004, registered in the Commercial Register of the Registry Agency under UIC No. 131320608. BTC Net EOOD’s registered office is at 115i Tsarigradsko Shose Boulevard., 1784 Sofia, Bulgaria and its telephone number is +359 2 949 43 31. The Guarantor has obtained all necessary consents, approvals and authorizations in connection with the issuance and performance of the Note Guarantee.

General Absence of Significant Change There has been no material adverse change in the prospects of the Issuer and the Guarantor since December 31, 2012 (being the last day of the period in respect of which it published its latest annual audited consolidated financial statements) and no significant change in the financial or trading position of

249 the Guarantor since September 30, 2013 (being the last day of the period in respect of which it published its latest interim consolidated financial statements).

Absence of Litigation Neither the Issuer nor the Guarantor have been involved in any legal, governmental, litigation or arbitration proceedings, in the previous twelve months in the case of the Issuer and the Guarantor, which have or may have in the recent past, significant effects on the Issuer or Guarantor’s financial position of profitability, except as otherwise disclosed in the Offering Circular, and, so far as the Issuer and the Guarantor are aware, no such proceedings are pending or threatened.

Documents Incorporated by Reference No documents or contents of any website are incorporated by reference in this Offering Circular.

250 APPENDIX A: GLOSSARY OF TECHNICAL TERMS The following technical terms and abbreviations when used in this Offering Circular have the definitions ascribed to them opposite below.

Abbreviation Definitions ‘‘2G’’...... Second Generation Mobile System, which is based on the GSM universal standard. ‘‘3G’’...... Third Generation Mobile System, which is based on the UMTS universal standard. ‘‘4G’’...... Fourth Generation Mobile System, which is based on the LTE universal standard. ‘‘analog’’...... The first generation of mobile telecommunications technology in which radio signals are modulated proportionally by the strength and frequency of audio sounds. ‘‘ADSL’’ or ‘‘Asymmetric Digital Subscriber Line.’’...... ADSL is a type of DSL broadband communications technology used for connecting to the Internet. ADSL allows more data to be sent over existing copper telephone lines (POTS), when compared to traditional modem lines. A special filter, called a microfilter, is installed on a subscriber’s telephone line to allow both ADSL and regular voice (telephone) services to be used at the same time. ‘‘AMOU’’ or ‘‘average minutes of use’’...... Average minutes of use is a telecom industry metric generally calculated by dividing sum of the total traffic (in minutes) in a certain period divided by the average number of subscribers for that period. See ‘‘Industry, Market and Subscriber Data’’ for an explanation of our calculation methodology for AMOU. ‘‘ATM’’...... Asynchronous transfer mode, a digital network transport technology. ‘‘ARPU’’ or ‘‘average revenue per user’’...... Average revenue per user is a telecom industry metric generally calculated by dividing recurring revenue (which includes airtime (i.e., time elapsed between the start and termination of a call) usage, monthly subscription fees and other recurring service fees) during a period by the average number of subscribers during a period. See ‘‘Industry, Market and Subscriber Data’’ for an explanation of our calculation methodology for mobile ARPU, fixed telephony ARPU and fixed broadband ARPU. ‘‘backbone’’...... A high speed line, or a series of connections forming a major communication pathway within a network, which uses a much faster protocol than that employed by a single local area network and has the highest traffic intensity. ‘‘band’’...... In wireless communication, band refers to a frequency or contiguous range of frequencies. ‘‘bit’’...... The smallest unit of binary information. ‘‘bps’’...... Bits per second. ‘‘broadband’’...... Broadband refers to telecommunication that provides multiple channels of data over a single communications medium, typically using some form of frequency or wave division multiplexing.

A-1 Abbreviation Definitions ‘‘BTS’’ or ‘‘base transceiver station’’...... Fixed transmitter/receiver equipment in each geographic area or cell of a mobile telecommunications network that communicates by radio signal with mobile telephones in the cell. ‘‘byte’’...... A sequence of usually eight bits (enough to represent one character of alphanumeric data) processed by a computer as a single unit of information. ‘‘capacity’’...... The amount of bandwidth or throughput that can be handled by a network element. ‘‘cellular’’...... Cellular refers most basically to the structure of the wireless transmission networks that are comprised of cells or transmission sites. ‘‘channel’’...... A path of communication, either electrical or electromagnetic, between two or more points. Also called a circuit, facility, line, link or path. ‘‘churn’’...... A telecom industry measure of the proportion of subscribers that disconnect from a telecommunication providers’ service over a period of time. See ‘‘Industry, Market and Subscriber Data’’ for an explanation of the calculation methodology used. ‘‘convergence’’...... Convergence merger of telecom, data processing and imaging technologies, where fixed, mobile, and IP service providers can offer content and media services, and equipment providers can offer services directly to the subscriber. It is the combination of different media into one operating platform. ‘‘CPE’’ or ‘‘customer premises equipment’’ or ‘‘customer provided equipment’’...... Any terminal and associated telecommunications equipment located at a subscriber’s premises such as telephones, routers, switches, residential gateways, set-top boxes, fixed mobile convergence products, home networking adaptors and internet access gateways. ‘‘digital’’ ...... A signaling technology in which a signal is encoded into digits for transmission. ‘‘digital subscriber line access multiplexer’’ or ‘‘DSLAM’’ . . . A network device that receives signals from multiple customer DSL connections and puts the signals on a high-speed backbone line using multiplexing techniques. ‘‘DSL’’ or ‘‘Digital Subscriber Line’’...... A technology enabling a local loop copper pair to transport high-speed data between a central office and the subscribers’ premises. ‘‘DTH’’ or ‘‘Direct to Home’’ . . . A satellite television signal transmitted directly to the home, rather than to a broadcast television station or to a cable television provider for retransmission to the subscriber. ‘‘DTT’’ or ‘‘digital terrestrial television’’ ...... Digital television broadcast entirely over earthbound circuits. A satellite is not used for any part of the link between the broadcaster and the end user ‘‘dual-play’’...... Dual-play is the bundling of mobile and fixed telephony services into one contract. ‘‘EDGE’’...... Enhanced Data rates for GSM Evolution; EDGE is a technology, which elevates GPRS download speeds to above 100 kbps.

A-2 Abbreviation Definitions ‘‘Ethernet’’...... Standard for 10 Mbps local area networks. ‘‘fiber optic cable’’...... Fiber-optic cable is a transmission medium composed of extremely pure and uniform glass. Digital signals are transmitted across fiber optic cable as pulses of light. While signals transmitted over fiber optic cable travel at the same speed as those transmitted over traditional copper cable, fiber optic cable benefits from greater transmission capacity and lower distortion of signals transmitted.. ‘‘fixed-line’’...... A physical line connecting the subscriber to the telephone exchange. In addition, fixed-line includes fixed wireless systems, in which the users are in fixed locations using a wireless connection (i.e., cordless telephones) to the telephone exchange. ‘‘frequency’’...... The rate at which an electrical current alternates, usually measured in Hertz (Hz). Also the way to note a description of a general location on the radio frequency spectrum such as 800 MHz, 900 MHz or 1900 MHz. ‘‘FTR’’ or ‘‘fixed termination rates’’...... A voice termination charge levied against the origination network by the receiving network at a rate that is agreed between the two networks. The FTR is usually subject to regulatory limits. ‘‘FTTB’’ or ‘‘fiber to the building’’...... FTTB is an access network architecture in which the final part of the connection goes to a point on a shared property and other cabling provides the connection to homes, offices or other spaces. ‘‘FTTH’’ or ‘‘fiber to the home’’ . FTTH is an access network architecture in which the final part of the connection to the home is optical fiber. ‘‘FTTx’’ or ‘‘fiber to the x’’.... A generic term for any broadband network architecture using optical fiber to provide all or part of the local loop used for last mile telecommunications. The term is a generalization for several configurations of fiber deployment. ‘‘GB’’...... A gigabyte, equal to 1 billion bytes. ‘‘GPRS’’ or ‘‘General Packet Radio Services’’...... A packet-based telecommunications service designed to send and receive data at rates from 56 Kbps to 114 Kbps that allows continuous connection to the Internet for mobile phone and computer users. GPRS is a specification for data transfer over GSM networks. ‘‘GPS’’ or ‘‘Global Positioning System’’...... A space-based satellite navigation system that provides location and time information in all weather conditions, anywhere on or near the Earth where there is an unobstructed line of sight to 4 or more GPS satellites ‘‘GSM’’ or ‘‘Global System for Mobile Communications’’ . . . A comprehensive digital network for the operation of all aspects of a cellular telephone system. ‘‘GSM 1800’’ or ‘‘GSM 900’’ . . . GSM operating at a frequency of 1800 MHz or 900 MHz. Used in Europe, the Middle East, Africa, much of Asia and certain South American countries. ‘‘Hertz’’...... A unit of frequency of one cycle per second. ‘‘Homes passed’’...... The number of homes that a service provider has capability to connect in a service area through fiber.

A-3 Abbreviation Definitions ‘‘HSDPA’’ or ‘‘High Speed Downlink Packet Access’’.... A 3G mobile telephone protocol which allows networks based Universal Mobile Telecommunication System to have higher data transfer speeds and capacity. ‘‘HSPA’’ or ‘‘High Speed Packet Access’’...... A mix of two mobile telephony protocols, high speed download Packet Access (HSDPA) and High Speed Uplink Packet Access (HSUPA) that extends and improves the performance of existing protocols. ‘‘HSPA+’’ or ‘‘evolved high speed packet access’’ or..... A set of 3G / UMTS technology enhancements allowing for very fast data transmission between network and mobile devices. Supports speeds of up to 42 Mbps from network to mobile devices and up to 11 Mbps from mobile devices to network. ‘‘interconnection’’...... The way in which networks are connected to each other and the charges payable by one network operation for accepting traffic from or delivering traffic to another. See ‘‘Regulation—Access and Interconnection.’’ ‘‘Internet Protocol’’ or ‘‘IP’’.... Internet Protocol is a protocol used for communicating data across a packet-switched network. It is used for transmitting data over the internet and other similar networks. The data is broken down into data packets, each data packet is assigned an individual address, then the data packets are transmitted independently and finally reassembled at the destination. ‘‘IPTV’’ or ‘‘Internet Protocol Television’’...... IPTV is a system through which television services are delivered using the internet protocol suite over a packet-switched network such as the internet. ‘‘IP-VPN’’ or ‘‘Internet Protocol Virtual Private Network’’.... IP-VPN offers a secured and private network using IP-based infrastructure. ‘‘ISDN’’ or ‘‘Integrated Services Data Network’’...... A set of communication standards for simultaneous digital transmission of voice, video, data, and other network services over the traditional circuits of the public switched telephone network. ‘‘ISP’’...... An ISP is a company that provides individuals and companies access to the internet. ‘‘Kbps’’...... Kilobits per second. ‘‘LAN’’ or ‘‘Local Area Network’’ A computer network that interconnects computers in a limited area such as a home, school, computer laboratory, or office building using network media. ‘‘LBS’’ or ‘‘location-based services’’...... A general class of computer program-level services used to include specific controls for location and time data as control features in computer programs. ‘‘LLU’’ or ‘‘local loop unbundling’’...... Local loop unbundling, is where the incumbent grants access to third- party operators of the part of the communications circuit between the subscriber’s equipment and the equipment of the local exchange (known as the local loop). Where such access is granted by the incumbent, the incumbent may charge the third-party operator a regulated fee for the interconnection service.

A-4 Abbreviation Definitions ‘‘LTE’’ or ‘‘Long Term Evolution’’...... LTE refers to a new mobile telephony technology that succeeds 3G. 3GPP (Third Generation Partnership Project) Long Term Evolution, is a new high performance air interface for cellular mobile communication systems. LTE is the last step toward the fourth generation (4G) of radio technologies designed to increase the capacity and speed of mobile telephone networks. ‘‘M2M’’ or ‘‘Machine-to-Machine’’..... M2M refers to the data communication between wireless and wired systems and other wireless and wired systems. ‘‘MAN’’ or ‘‘Metropolitan Area Network’’...... A computer network in which two or more computers or communicating devices or networks which are geographically separated but in same metropolitan city. ‘‘MB’’...... A megabit. ‘‘Mbps’’...... Megabits per second. ‘‘MHz’’...... Megahertz; a unit of frequency equal to 1 million Hertz. ‘‘microwave’’...... The main form of radio used for transmission in telecom networks as an alternative to copper or fiber cables. ‘‘MMS’’ or ‘‘Multimedia Messaging Service’’...... An evolution of SMS that enables users to send multimedia content including images, audio and video clips to other users. ‘‘MNO’’ or ‘‘Mobile Network Operator’’...... An MNO is a company that has frequency allocations and all the required infrastructure to run an independent mobile network. ‘‘MPLS’’ or ‘‘Multi Protocol Label Switching’’...... A method used to speed up data communication over combined IP / ATM networks. ‘‘MRC’’...... Monthly Recurring Charges. ‘‘MTR’’ or ‘‘mobile termination rates’’...... A voice, or SMS or MMS, as applicable termination charge levied against the origination network by the receiving network at a rate that is agreed between the two networks. The MTR is usually subject to regulatory limits. ‘‘MVNO’’ or ‘‘mobile virtual network operator’’...... A mobile operator that does not own its own spectrum and usually does not have its own network infrastructure. Instead, MVNOs have business arrangements with traditional mobile operators to buy minutes of use for sale to their own subscribers. ‘‘network’’...... An interconnected collection of telecom components consisting of switches connect to each other and to customer equipment by real or virtual transmission links. Transmission links may be based on fiber optic or metallic cable or point-to-point radio connections. ‘‘NFC’’ or ‘‘near field communication’’...... A set of standards for smartphones and similar devices to establish radio communication with each other by touching them together or bringing them into proximity, usually no more than a few inches. ‘‘number portability’’...... A facility provided by telecommunications operators that enables customers to keep their full telephone numbers when they change operators.

A-5 Abbreviation Definitions ‘‘operator’’...... A term for any company engaged in the business of building and running its own network facilities. ‘‘OTT’’ or ‘‘Over The Top Content’’...... Broadband delivery of video and audio without a multiple system operator being involved in the control or distribution of the content itself. ‘‘penetration’’...... A measurement of access to telecommunications, normally calculated by dividing the number of subscribers to a particular service by the population and multiplying by 100. ‘‘PoP’’ or ‘‘Point of Presence’’ . . Point of Presence. An artificial demarcation point or interface point between communicating entities. ‘‘PSTN’’ or ‘‘Public Switched Telephone Network’’...... PSTN is the traditional telephone system that runs through copper cables (voice up to 64 Kbps, data up to 56 Kbps). ‘‘quadruple-play’’...... Quadruple-play is the bundling of mobile, fixed telephony, fixed broadband and pay-TV services into one contract. ‘‘roaming’’...... Roaming is the transfer of mobile traffic from one network to another, referring to the exchange of mobile international traffic. ‘‘service provider’’...... A term usually employed to distinguish a company which offers telecommunications services over another company’s infrastructure from one which owns and operates its own network. ‘‘smartphone’’...... A smartphone is a mobile phone built on a mobile computing platform and includes high-resolution (touch) screens, web browsers that can access and properly display standard web pages and high speed data access via Wi-Fi and mobile broadband. ‘‘SMS’’ or ‘‘Short Message Service’’...... A text message service which enables users to send short messages (160 characters or less) to other users. ‘‘spectrum’’...... A continuous range of frequencies, usually wide in extent within which waves have some certain common characteristics. ‘‘Subscriber Identity Module card’’ or ‘‘SIM card’’...... A SIM is a chip card inserted into a mobile phone, which contains information such as telephone numbers and memory for storing a directory. ‘‘subscriber’’...... A person or entity who is party to a contract with the provider of telecommunications services for the supply of such services. See ‘‘Industry, Market and Subscriber Data’’ for an explanation of our calculation of our mobile, fixed telephony and fixed broadband subscriber bases. ‘‘termination rate’’...... The tariff chargeable by operators for terminating calls on their networks as set forth by the CRC. See ‘‘Regulation.’’ ‘‘triple-play’’...... Triple-play is the bundling of mobile, fixed telephony and fixed broadband services into one contract. ‘‘Universal Mobile Telecommunications System’’ or ‘‘UMTS’’...... UMTS is one of the major third generation mobile communications systems being developed. UMTS is suited to deliver voice, text, music and animated images. Data can be sent via UMTS at approximately 6 times the speed of ISDN.

A-6 Abbreviation Definitions ‘‘Unstructured Supplementary Service Data’’ or ‘‘USSD’’ . . . Protocol used by GSM based mobile phones to communicate with the network operator’s computer. USSD can be used for WAP browsing, prepaid callback service, mobile-money services, location-based content services, menu-based information services, and as part of configuring the phone on the network. ‘‘USB’’ or ‘‘universal serial bus’’ A connection technology for attaching peripheral devices to a computer, providing fast data exchange. ‘‘Value-added services’’ or ‘‘VAS’’...... All non-core services provided by an operator that are beyond standard voice calls and transmissions, such as e-mail, music downloads, roaming, SMS and MMS and interactive advertising. ‘‘VoIP’’ or ‘‘Voice over IP’’..... A telephone service via Internet, or via transmission control/Internet Protocol, which can be accessed using a computer, a sound card, adequate software and a modem. ‘‘VPN’’ or ‘‘Virtual Private Network’’...... A VPN is a virtual network constructed from logic connections that are separated from other users ‘‘Wi-Fi’’...... Wi-Fi is a technology that allows an electronic device to exchange data wirelessly over a computer network, including broadband internet connections. Wi-Fi is a trademark of the Wi-Fi Alliance. ‘‘WiMAX’’...... Worldwide Interoperability for Microwave Access. A wireless network standard with the maximum capacity of approximately 75 Mbps.

A-7 APPENDIX B: LIST OF BULGARIA’S DOUBLE TAXATION TREATIES WITH OTHER COUNTRIES

ALBANIA IRELAND SINGAPORE ALGERIA ISRAEL SLOVAKIA ARMENIA ITALY SLOVENIA AUSTRIA JAPAN SOUTH AFRICA AZERBAIJAN JORDAN SPAIN BAHRAIN KAZAKHSTAN SWEDEN BELARUS DEMOCRATIC PEOPLE’S SWISS CONFEDERATION REPUBLIC OF KOREA BELGIUM REPUBLIC OF KOREA SYRIA CANADA KUWAIT THAILAND CHINA LATVIA TURKEY CROATIA LEBANON UKRAINE CYPRUS LITHUANIA UNITED ARAB EMIRATES CZECH REPUBLIC LUXEMBOURG UNITED KINGDOM DENMARK MACEDONIA UNITED STATES OF AMERICA EGYPT MALTA UZBEKISTAN ESTONIA MOLDOVA VIETNAM FINLAND MONGOLIA FEDERAL REPUBLIC OF YUGOSLAVIA FRANCE MOROCCO ZIMBABWE GEORGIA NETHERLANDS GERMANY NORWAY GREECE POLAND HUNGARY PORTUGAL INDIA QATAR INDONESIA ROMANIA IRAN RUSSIAN FEDERATION

B-1 INDEX TO FINANCIAL INFORMATION

Unaudited Interim Consolidated and Separate Financial Statements of Bulgarian Telecommunications Company EAD for the nine month period ended September 30, 2013: Interim consolidated and separate statement of financial position ...... F-3 Interim consolidated and separate statement of comprehensive income ...... F-4 Interim consolidated and separate statement of changes in equity ...... F-5 Interim consolidated and separate cash flow statement ...... F-6 Notes to the consolidated and separate interim financial statements ...... F-7 Independent auditor’s report on review of interim financial information ...... F-37 Audited Consolidated and Separate Financial Statements and the Consolidated and Separate Annual Activities Report of Bulgarian Telecommunications Company AD for the year ended December 31, 2012: Annual activities report ...... F-40 Consolidated and separate balance sheet ...... F-60 Consolidated and separate statement of comprehensive income ...... F-61 Consolidated and separate statement of changes in equity ...... F-62 Consolidated and separate cash flow statement ...... F-63 Notes to the consolidated and separate financial statements ...... F-64 Independent auditor’s report ...... F-116 Audited Consolidated and Separate Financial Statements and the Consolidated and Separate Annual Activities Report of Bulgarian Telecommunications Company AD for the year ended December 31, 2011: Annual activities report ...... F-120 Consolidated and separate balance sheet ...... F-139 Consolidated and separate statement of comprehensive income ...... F-140 Consolidated and separate statement of changes in equity ...... F-141 Consolidated and separate cash flow statement ...... F-142 Notes to the consolidated and separate financial statements ...... F-143 Independent auditor’s report ...... F-196 Audited Consolidated and Separate Financial Statements and the Consolidated and Separate Annual Activities Report of Bulgarian Telecommunications Company AD for the year ended December 31, 2010: Annual activities report ...... F-200 Consolidated and separate balance sheet ...... F-219 Consolidated and separate statement of comprehensive income ...... F-220 Consolidated and separate statement of changes in equity ...... F-221 Consolidated and separate cash flow statement ...... F-222 Notes to the consolidated and separate financial statements ...... F-223 Independent auditor’s report ...... F-279 Statement of Unaudited Pro Forma Consolidated Financial Information: Pro Forma condensed consolidated statement of financial position ...... F-282 Independent auditor’s report on unaudited pro forma financial information ...... F-284 Unaudited Separate Condensed Financial Statements of BTC Net EOOD for the year ended December 31, 2012: Unaudited separate condensed statement of comprehensive income ...... F-285 Unaudited separate condensed statement of financial position ...... F-286

F-1 BULGARIAN TELECOMMUNICATIONS COMPANY AD CONDENSED SEPARATE AND CONSOLIDATED INTERIM FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IAS 34

30-Sep-2013

F-2 F-3 F-4 F-5 F-6 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

1. General information

The Parent Company – Bulgarian Telecommunications Company AD

Bulgarian Telecommunications Company AD (“BTC”, the “Parent Company” or the “Company”) is a public joint stock company, domiciled in Bulgaria, with its registration address: 115 I, Tzarigradsko shausse Blvd, Hermes park, building A, 1784 Sofia. BTC’s activities include development, operation and maintenance of the national fixed and mobile network and data system for the Republic of Bulgaria.

The Ultimate Parent Company is V Telecom Investment S.C.A. (“V Telecom”) which indirectly owns 100% of the shares of Viva Telecom Bulgaria EAD which is the Parent of the Company as at 30 September 2013. As per the publicly disclosed tender offer documentation published by Viva Telecom Bulgaria EAD on 15 July 2013 there are two shareholders which own more than 5% of the share capital of V Telecom none of which exercise control over V Telecom: Bromak Telecom Invest AD (indirectly wholly owned by Mr Tsvetan Radoev Vasilev) holding 43,264% of the share capital of V Telecom and Crusher Investment Limited (indirectly wholly owned by OJSC VTB Bank which is majority owned by the Russian Federation) holding 33,307% of the share capital of V Telecom, and a number of shareholders (being lenders of the present and/or previous owners of the Company’s group companies) holding less than 5% share individually.

The Group

As at 30 September 2013 and 2012 and 31 December 2012 the Group includes the subsidiary entity BTC Net EOOD.

BTC Security EOOD/ Renamed to BTC Net EOOD

The subsidiary was registered in the Register of commercial companies of Sofia City Court on 27 October 2004 with share capital of BGN 5 thousand. Its main activity is provision of security services to BTC AD and the companies controlled by it. BTC is the sole owner of this company.

The registered subject of business activity of BTC Net is building and operation of data transfer networks for the provision of domestic and international value added services and sale of telecommunication network facilities, development and exploitation of other telecommunication networks, and provision of other telecommunications services, as well as any other commercial activities.

On September 30, 2009 BTC Net EOOD was merged into BTC Security EOOD.

The legal merger of the entities was registered in the Commercial Register on October 15, 2009. As a result, BTC Net has ceased to exist as a separate legal entity, by virtue of law BTC Security has become universal legal successor of BTC Net and all assets, rights and obligations of BTC Net have passed to BTC automatically as of that date. On October 16, 2009 the successor BTC Security was renamed to BTC Net EOOD.

F-7 5 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

2. Functional and Presentation Currency

These financial statements are prepared in thousand Bulgarian Levs (BGN), unless otherwise stated, whereas the Bulgarian Lev has been accepted as presentation currency for the presentation of Group’s consolidated financial statements. Effective from 1 January 1999, the Bulgarian Lev was fixed to the EUR at a rate BGN 1.95583 = EUR 1.00.

3. Summary of significant accounting policies

This condensed interim consolidated and separate financial report has been prepared in accordance with IAS 34, ‘Interim financial reporting’. The interim condensed financial report should be read in conjunction with the annual financial statements for the year ended 31 December 2012.

The same accounting policies and methods of calculation are applied in the present interim separate and consolidated financial statement, as in the annual consolidated financial statements of the Group for the year ended 31 December 2012, except as disclosed below.

The Group has adopted IFRS 13 Fair Value Measurement with a date of initial application of 1 January 2013. IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such disclosures are required or permitted by other IFRSs. It also replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7. As a result the Group has included additional disclosures in this regard (see notes 9 and 29). In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurements of the Group’s assets and liabilities.

4. Cash and cash equivalents

As at 30 September 2013 and 31 December 2012 the components of the cash and cash equivalents are:

Consolidated financial Separate financial statements statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Current accounts and cash in hand Held in BGN 11 511 9 351 8 988 5 499 Held in EUR 3 173 3 427 3 141 3 426 Held in foreign currencies other than EUR 1 284 426 1260 285

Total current accounts and cash in hand 15 968 13 204 13 389 9 210

Deposits Held in BGN 117 732 50 682 116 642 50 142 Total deposits 117 732 50 682 116 642 50 142

Total cash and cash equivalents 133 700 63 886 130 031 59 352

As disclosed in Note 15 BTC secured the payments related to Company’s liabilities under the amended loan agreement by establishing a pledge on the receivables on bank accounts and from its insurers of the Group.

BGN 114,500 thousand and BGN 113,500 thousand (for the consolidated and for the separate financial statements) from the cash and cash equivalents as of 30 September 2013 are deposited in a bank, a member of the Bromak EOOD Group. (31 December 2012: BGN 49,979 thousand and BGN 46,145 thousand)

Money kept in bank deposits can be withdrawn at any time on demand of the Company and is held to meet short term operational needs.

F-8 6 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

5. Trade and other receivables As at 30 September 2013 and 31 December 2012 trade and other receivables include: Consolidated financial Separate financial statements statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Trade receivables 129 457 142 731 126 919 136 166 incl. international settlement receivables 4 252 6 600 2 073 1 651 Intercompany receivables (Note 26) 2 680 9 6 083 516 Other receivables 6 098 7 472 1 056 7 439 Total 138 235 150 212 134 058 144 121 Allowance for impairment of receivables (58 915) (65 888) (58 896) (65 745) Total Trade and other receivables 79 320 84 324 75 162 78 376 Incl: Non-current portion: trade receivables 8 972 5 616 8 972 5 616 Allowance for impairment of receivables (626) (544) (626) (544) Total non-current portion: trade receivables 8 346 5 072 8 346 5 072 Current portion trade receivables 129 263 144 596 125 086 138 505 Allowance for impairment of receivables (58 289) (65 344) (58 270) (65 201) Total current portion: trade and other receivables 70 974 79 252 66 816 73 304 Other receivables as of 30 September 2013 and 31 December 2012 include respectively BGN 133 thousand and BGN 77 thousand term cash deposits with maturity greater than three months for the consolidated financial statements and BGN 133 thousand and BGN 47 thousand for the separate financial statements. All non-current receivables are due within two years from the end of the reporting period and relate to sales of mobile phone sets on finance lease agreements with customers. The net investment in finance leases for the Group and BTC may be analyzed as follows: Gross receivables from Net investment in finance finance leases leases 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Finance leases receivables with maturity: Within one year 19 649 12 176 18 231 11 324 Within two years 9 233 5 627 8 947 5 440 Total receivables 28 882 17 803 27 178 16 764 Less: unearned finance income (1 704) (1 039) - - Allowance for impairment of receivables (1 902) (1 676) (1 902) (1 676) Net investment in finance leases 25 276 15 088 25 276 15 088 Movement of the allowance for impairment of accounts receivables as at 30 September 2013 and 31 December 2012 is as follows: Consolidated financial Separate financial statements statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Balance at the beginning of the period 65 888 64 197 65 745 64 110 Accrued impairment 7 957 19 351 8 032 19 268 Impairment of receivables written off (14 930) (17 660) (14 881) (17 633) Balance at the end of the period 58 915 65 888 58 896 65 745

F-9 7 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

5. Trade and other receivables (continued) Presented by class of customer the figures above are as follows:

Consolidated financial Separate financial Business customers statements statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Balance at the beginning of the period 20 078 19 364 19 935 19 277 Accrued impairment 4 422 8 679 4 497 8 596 Impairment of receivables written off (6 006) (7 965) (5 957) (7 938) Balance at the end of the period 18 494 20 078 18 475 19 935

Consolidated financial Separate financial Residential customers statements statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Balance at the beginning of the period 45 810 44 833 45 810 44 833 Accrued impairment 3 535 10 672 3 535 10 672 Impairment of receivables written off (8 924) (9 695) (8 924) (9 695) Balance at the end of the period 40 421 45 810 40 421 45 810

Related parties balances are shown in note 26. As of 30 September 2013 and 31 December 2012 receivables of the Group and the Company at the amount of BGN 9,465 and 9,241 thousand were assessed individually and the impairment amounts to BGN 9,431 and BGN 9,185 thousand.

As of 30 September 2013 and 31 December 2012 the age structure of overdue receivables not impaired is as follows:

Consolidated financial Separate financial statements statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 From 60 to 90 days 582 544 571 196 From 91 to 180 days 530 177 532 177 From 181 to 360 days 891 330 628 330 Above 1 year 548 165 548 165 Total 2 550 1 216 2 278 868

As of the reporting date the accounts with major (the five biggest) counterparties in the trade receivables for the Group and the Company are as follows:

Consolidated and separate financial statements Gross book value of the receivable as of Type 30.9.2013 31.12.2012 In the country 3 516 1 471 In the country 639 360 In the country 611 151 In the country 464 186 In the country 445 1 570

F-10 8 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

6. Inventories

The materials and supplies as of 30 September 2013 and 31 December 2012 are as follows:

Consolidated and Separate financial statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Materials and supplies, net 9 553 5 524 4 839 5 199 Merchandise and other, net 24 344 25 592 36 499 26 788 Total materials and supplies 33 897 31 116 41 338 31 987

For the nine months ended 30 September 2013 the write-down of inventories to net realisable value amounted to BGN 100 thousand (for the nine months ended 30 September 2012: nil). The reversal of write-downs amounted to BGN 5 thousand (for the nine months ended 30 September 2012: nil). The write-downs and reversals are included in Other operating expenses.

7. Assets classified as held for sale Consolidated and Separate financial statements 30.9.2013 31.12.2012

Real estates, held for sale 1 825 2 127 Total assets held for sale 1 825 2 127

As of 30 September 2013 and 31 December 2012 BTC has signed several preliminary agreements for the sale of real estates. Their net book value is reported in the statement of financial position as Assets classified as held for sale.

8. Other current assets As of 30 September 2013 and 31 December 2012 other current asets are as follows: Consolidated financial Separate financial statements statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Deferred expenses and prepayments 12 649 9 540 12 649 9 540 VAT and other current assets 2 876 5 147 2 876 5 002 Total other current assets 15 525 14 687 15 525 14 542

Deferred expenses and prepayments 1 384 1 089 1 384 1 089 Total other current assets - non-current 1 384 1 089 1 384 1 089

Prepaid license fees to the CRC for the year are included in Deferred expenses and prepayments above as of 30 September 2013, which for the Group and the Company amount to BGN 2,980 thousand. (31 December 2012: nil) Subscriber acquisition costs, representing mainly fees paid to distributors, are included in other current assets above, which for the Group and the Company are BGN 2,876 thousand as of 30 September 2013. As of 31 December 2012 they amount to BGN 4,199 thousand. The amortization expense related to these subscriber acquisition costs is amounting to BGN 6,019 thousand and BGN 5,877 thousand for the nine months ended 30 September 2013 and 2012.

F-11 9 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

9. Property, plant and equipment

The composition of property, plant and equipment for the Group as of 30 September 2013 and 31 December 2012 is as follows:

General Construction Switching Transmission Land Total support in progress

Gross Book Value At 31 December 2011 1 389 414 895 541 271 964 12 351 33 482 2 602 752 Revaluation - - (2 767) - (2 767) Additions 964 - 3 - 138 116 139 083 Transfers 89 594 16 709 13 212 - (119 515) - Transfer of impairment - - - - 1 619 1 619 Impairment - - - (173) 623 450 Assets held for sale - - (75) (228) - (303) Disposals (85 811) (46 091) (24 183) (2) (386) (156 473) At 31 December 2012 1 394 161 866 159 260 921 9 181 53 939 2 584 361 Additions 216 - 65 - 73 671 73 952 Transfers 49 828 15 135 10 385 - (75 348) - Transfer of impairment - - - - 24 24 Impairment - - - - 87 87 Assets held for sale - - 30 - - 30 Disposals (14 084) (13 847) (5 490) - (490) (33 911) At 30 September 2013 1 430 121 867 447 265 911 9 181 51 883 2 624 543 Accumulated depreciation and impairment At 31 December 2011 830 712 597 632 167 039 - - 1 595 383 Depreciation charged 136 800 24 404 24 817 - - 186 021 Transfer of impairment 1 501 18 100 - - 1 619 Impairment 28 754 27 120 1 175 - - 57 049 Assets held for sale - - (42) - - (42) Disposals (75 186) (42 153) (22 939) - - (140 278) At 31 December 2012 922 581 607 021 170 150 - - 1 699 752 Depreciation charged 91 835 14 429 18 795 - - 125 059 Transfer of impairment 13 5 - - 18 Impairment 123 - - - - 123 Assets held for sale - - (11) - - (11) Disposals (11 745) (13 704) (5 235) - - (30 684) At 30 September 2013 1 002 807 607 751 183 699 - - 1 794 257

Net book value At 31 December 2012 471 580 259 138 90 771 9 181 53 939 884 609 At 30 September 2013 427 314 259 696 82 212 9 181 51 883 830 286

F-12 10 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

9. Property, plant and equipment (continued)

The composition of property, plant and equipment on BTC stand alone basis as of 30 September 2013 and 31 December 2012 is as follows:

General Construction Switching Transmission Land Total support in progress

Gross Book Value At 31 December 2011 1 389 414 895 541 272 500 12 351 33 482 2 603 288 Revaluation - - (2 767) - (2 767) Additions 964 - 3 - 138 116 139 083 Transfers 89 594 16 709 13 212 - (119 515) - Transfer of impairment - - - - 1 619 1 619 Impairment - - - (173) 623 450 Assets held for sale - - (75) (228) - (303) Disposals (85 811) (46 091) (24 183) (2) (386) (156 473) At 31 December 2012 1 394 161 866 159 261 457 9 181 53 939 2 584 897 Additions 216 - 65 - 73 657 73 938 Transfers 49 828 15 135 10 371 - (75 334) - Transfer of impairment - - - - 24 24 Impairment - - - - 87 87 Assets held for sale - - 30 - - 30 Disposals (14 084) (13 847) (5 490) - (490) (33 911) At 30 September 2013 1 430 121 867 447 266 433 9 181 51 883 2 625 065 Accumulated depreciation and impairment At 31 December 2011 830 712 597 632 167 575 - - 1 595 919 Depreciation charged 136 800 24 404 24 817 - - 186 021 Transfer of impairment 1 501 18 100 - - 1 619 Impairment 28 754 27 120 1 175 - - 57 049 Assets held for sale - - (42) - - (42) Disposals (75 186) (42 153) (22 939) - - (140 278) At 31 December 2012 922 581 607 021 170 686 - - 1 700 288 Depreciation charged 91 835 14 429 18 794 - - 125 058 Transfer of impairment 13 5 - - 18 Impairment 123 - - - - 123 Assets held for sale - - (11) - - (11) Disposals (11 745) (13 704) (5 235) - - (30 684) At 30 September 2013 1 002 807 607 751 184 234 - - 1 794 792

Net book value At 31 December 2012 471 580 259 138 90 771 9 181 53 939 884 609 At 30 September 2013 427 314 259 696 82 199 9 181 51 883 830 273

On the base of § 8 Para 1 of Transitional and concluding provisions to the Law for amendment and supplement of the law for privatization and post-privatization control the Agency for Privatization and Post-privatization Control imposed statutory mortgage on 565 properties of BTC with a net book value as of 30 September 2013 amounting to BGN 18,898 thousand (BGN 24,464 thousand for for 694 properties as of 31 December 2012). They are included in General support above except for 6 properties with net book value as of 30 September 2013 amounting to BGN 1,806 thousand which are included in Assets classified as held for sale (BGN 2,057 thousand for for 8 properties as of 31 December 2012).

Transfer of impairment represents the amount of impairment previously recognised for asstes under construction, which is transferred to the respective asset class upon capitalisation of the asset.

As disclosed in note 15 BTC has signed an agreement to secure payments related to the Parent company’s liabilities under the amended loan agreement by establishing a pledge on real estate property, which net book value as of 30 September 2013 amounted to BGN 14,117 thousand, and as of 31 December 2012 their net book value was BGN 15,385 thousand.

F-13 11 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

9. Property, plant and equipment (continued)

Measurement of fair value Fair value hierarchy Land is measured at fair value, in accordance with the revaluation model of IAS 16. The fair value of land was determined as at 31 December 2012 by external, independent property valuers, having appropriate recognized professional qualification and recent experience in the location and category of the property being valued.

The fair value measurement for land of BGN 9,181 thousand has been categorised as a Level 3 fair value based on the inputs to the valuation technique used. During the nine months ended 30 September 2013, there have been no movements within the Level 3 category. Valuation technique and significant unobservable inputs

The valuation technique used is Market comparison - the fair value is based on the market price of properties with similar location and category. At the date of valuation no active market existed and the market value was determined based on offers to sell similar plots under the assumption that these are the end prices. The offered prices have been adjusted with: discount rate ranging from 10% to 15% to reflect the actual reduction in the offered price, based on the trends of actual transactions; adjustment coefficients, derived on the basis of characteristics of the respective plots like size, environmental and geomorphologic condition, level of development and transport accessibility, and improvements of the land. The estimated fair value of the individual properties would increase/(decrease) had the respective discount rate were lower/(higher) and the adjustments coefficients were higher/(lower).

10. Intangible assets

As of 30 September 2013 and 31 December 2012 intangible assets of the Group are as follows

Other Intangible Licenses Software intangible assets under Total assets construction

Gross book value At 31 December 2011 119 770 543 419 20 263 3 362 686 814 Additions(Transfers) 14 266 43 097 9 748 (1 658) 65 453 Disposals (7 658) (25 326) (366) - (33 350) At 31 December 2012 126 378 561 190 29 645 1 704 718 917 Additions(Transfers) 93 17 303 6 680 192 24 268 Disposals - (6 641) (4 020) - (10 661) At 30 September 2013 126 471 571 852 32 305 1 896 732 524

Accumulated depreciation and impairment At 31 December 2011 40 954 335 601 5 337 - 381 892 Amortization charge 7 388 70 276 6 016 - 83 680 Impairment - 990 317 - 1 307 Disposals (7 658) (25 156) (198) - (33 012) At 31 December 2012 40 684 381 711 11 472 - 433 867 Amortization charge 5 471 50 407 6 430 - 62 308 Disposals - (6 640) (3 763) - (10 403) At 30 September 2013 46 155 425 478 14 139 - 485 772

Net book value At 31 December 2012 85 694 179 479 18 173 1 704 285 050 At 30 September 2013 80 316 146 374 18 166 1 896 246 752

F-14 12 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

10. Intangible assets (continued)

As of 30 September 2013 and 31 December 2012 intangible assets on BTC stand alone bases are as follows:

Other Intangible Licenses Software intangible assets under Total assets construction

Gross book value At 31 December 2011 119 715 543 264 20 263 3 361 686 603 Additions(Transfers) 14 266 43 097 9 748 (1 657) 65 454 Disposals (7 658) (25 171) (366) - (33 195) At 31 December 2012 126 323 561 190 29 645 1 704 718 862 Additions(Transfers) 93 17 303 6 680 192 24 268 Disposals - (6 641) (4 020) - (10 661) At 30 September 2013 126 416 571 852 32 305 1 896 732 469

Accumulated depreciation and impairment At 31 December 2011 40 908 335 446 5 336 - 381 690 Amortization charge 7 387 70 276 6 016 - 83 679 Impairment - 990 317 - 1 307 Disposals (7 658) (25 001) (197) - (32 856) At 31 December 2012 40 637 381 711 11 472 - 433 820 Amortization charge 5 471 50 407 6 430 - 62 308 Disposals - (6 640) (3 763) - (10 403) At 30 September 2013 46 108 425 478 14 139 - 485 725 Net book value At 31 December 2012 85 686 179 479 18 173 1 704 285 042 At 30 September 2013 80 308 146 374 18 166 1 896 246 744

The majority of other intangible assets represents the acquired distribution network in the business combination with Kimimpex – TL OOD and the capitalized customer acquisition and retention expenses with contractual period longer than one year. Their net book value as of 30 September 2013 is respectively BGN 8,107 thousand and BGN 7,550 thousand. (31 December 2012: BGN 9,227 thousnad and BGN 5,994 thousand)

F-15 13 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

11. Investments

Investments available for sale on the Group level as of 30 September 2013 and 31 December 2012 are as follows:

Entity Share 30.9.2013 31.12.2012 Eutelsat 0.08% 7 831 143 Intersputnik 4.79% 178 178 Sofia Commodity Exchange 5% 14 14 Total investment 8 023 335

The investment in Eutelsat as of 30 September 2013 is presented at fair value based on the market price of the shares at the reporting date. As at 31 December 2012 all available for sale financial assets were measured at cost, as their fair value was not reliably measurable. In the separate financial statements the investments in subsidiaries are measured at cost, less any impairment.

Share 30.9.2013 31.12.2012 Subsidiaries BTC Net 100% 799 799 Total investments in subsidiaries 799 799 Other investments 8 023 335 Total investments 8 822 1 134

12. Trade payables

The payables to suppliers as of 30 September 2013 and 31 December 2012 are as follows:

Consolidated financial Separate financial statements statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Payables to suppliers of non current assets 17 658 33 715 17 658 33 715 Payables to international telecom operators - interconnect 12 712 20 003 11 639 16 995 Payables to suppliers of network maintenance 5 111 4 807 5 111 4 807 Payables to domestic telecom operators 452 2 424 231 355 Payables to related parties (Note 26) - - 1 508 1 161 Others 32 429 29 021 32 413 29 016 Total trade payables 68 362 89 970 68 560 86 049

Other payables include outstanding balances of suppliers of fuel, utilities, advertising, inventories, and other.

F-16 14 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

13. Other payables

Other payables as of 30 September 2013 and 31 December 2012 are as follows:

Consolidated financial Separate financial statements statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Deferred income 19 280 18 056 19 280 18 056 Payables to employees 11 520 14 234 11 520 14 234 VAT 6 671 - 6 579 - Social securities 1 889 2 008 1 889 2 008 Personal income tax payable 1 012 940 1 012 940 Advances from clients 713 1 116 713 1 091 Withholding and other taxes 661 187 661 187 Cable project MECMA 294 2 211 294 2 211 Payables for license fee 273 321 265 316 Interest payable 44 119 44 119 Others 3 282 3 543 3 287 3 543 Total other payables 45 639 42 735 45 544 42 705

The liabilities under Cable projects MECMA amounting to BGN 294 and 2,211 thousand originated as a result of BTC’s role as a Central Billing Party in the MECMA 2004 Agreement for maintenance of submarine cables in the Mediterranean Sea, Red Sea and Black Sea area.

14. Provisions for other liabilities and charges

Consolidated and Separate financial statements

Decommissio Restructuring Legal claims Total ning At 1 January 2013 8 662 1 005 6 478 16 145 Charged to profit and loss - - 771 771 Recognised in the statement of financial position 216 - - 216 Used during the year (29) (431) (838) (1 298) Unwinding of discount 292 - - 292 At 30 September 2013 9 141 574 6 411 16 126

Analysis of provision in consolidated financial statements

30.9.2013 31.12.2012 Non-current (decommissioning costs) 9 141 8 662 Current 6 985 7 483 Total 16 126 16 145

F-17 15 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

14. Provisions for other liabilities and charges(continued)

Decommissioning

A provision has been recognised for decommissioning costs associated with mobile sites. The provision has been capitalized to the cost of the sites with the amount of the present value of the expected decommissioning obligation after ceasing operation. The discount rate used for 2013 and 2012 was 4.5%.

Restructuring The Provision for employment termination is related to the decision from 2012 for restructuring the activities of the Group in 2013 and was recognised as staff cost in the profit or loss for the year ended 2012.

Legal claims

The amounts represent a provision for labour disputes, legal claim of customers and certain penalties imposed on the Group by the Commission for Protection of Competition (CPC) and Communications Regulation Commission (CRC). 15. Borrowings

The debts in the consolidated and separate financial statements are as follows: 30.9.2013 31.12.2012 Syndicated credit facility 882 257 891 537 Financial lease 1 370 2 659 Total borrowings 883 627 894 196 including: Current borrowings 43 939 31 629 Non current borrowings 839 688 862 567

On 17 August 2007 BTC became a party to a loan agreement together with (but not limited to) NEF Telecom Bulgaria OOD and its parent NEF Telecom Company B.V. The loan is organized by Royal Bank of Scotland, Deutsche Bank AG, London branch, UBS Limited and Bank Austria Creditanstalt AG with a mandate to organize syndicated financing. On the extraordinary general meeting of the Company held on 8 October 2012 the shareholders approved the proposed amendments to the loan agreement for the fulfilment of certain actions for restructuring of the existing debt. As a result of the proposed restructuring the total bank loans of NEF group (including BTC) were reduced from EUR 1,784 million (BTC loans amounting to EUR 478,436 thousand) to EUR 588 million through a combination of debt repayment, equity conversion and an outright debt write off, as well as in a change of the ownership of BTC (Viva Telecom Bulgaria EAD acquired 93.99 % of BTC shares and assumed the loans of NEF Telecom Company B.V., which were reduced from EUR 1,306 million to EUR 136 million). The existing credit facilities of BTC under the loan agreement were consolidated into a single facility, whereas the aggregate principal amount of the Company’s borrowings was reduced to EUR 452,099 thousand following a prepayment in the amount of EUR 26,337 thousand on 5 November 2012. The new facility is repayable by the Company in instalments, the first one of which amounting to EUR 4,519 thousand is due 9 months as of 9 November 2012, the date of coming into effect of the amendment of the loan agreement dated 31 October 2012 (the “amendment date”) with a final maturity date for full repayment of all borrowings of the Company under the amended loan agreement being 5 years as of the amendment date (the “termination date”).

F-18 16 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

15. Borrowings (continued)

In addition, the amended loan agreement allows the Company and its holding company to borrow a revolving credit facility in the amount of up to EUR 20,000 thousand, under which the Company may borrow funds for its working capital purposes and which shall be available up to the date falling one month prior the termination date. The Company has the right to select interest periods which can be of the duration of 3 months for the new facility and 3 or 6 months for the revolving credit facility.

The interest on the principal amounts owing by the Company under the amended loan agreement is payable at the end of each interest period and shall be the aggregate of EURIBOR for the respective interest period, plus mandatory costs, plus a margin not exceeding 5.50% per year. The liabilities of the Company under the amended loan agreement are secured by the same scope and type of security provided by the Company to secure its obligations to the lenders under the original loan agreement, namely a first ranking non-possessory pledge in accordance with the Special Pledges Act on the entire enterprise of the Company ( as a going concern i.e. as an aggregation of all rights, obligations and factual relations), which includes among other assets the shares of the Company in BTC Net, certain real estates and receivables of the Company under certain insurance policies, and a first ranking pledge in accordance with the Agreements on Financial Collateral Act on receivables of the Company under certain bank accounts and insurance policies, as well as an additional security provided by BTC Net in a form of a first ranking non-possessory pledge in accordance with the Special Pledges Act over its going concern which includes among other assets the receivables of BTC Net under certain bank accounts. The shares of the Company owned by Viva Telecom Bulgaria EAD are pledged to secure the obligations of the majority shareholder and the Company to the lenders under the loan agreement in accordance with the Agreements on Financial Collateral Act.

Obligations under Finance lease

Certain part of BTC’s software is leased under the terms of finance lease. The average lease term is 3 years and the average effective borrowing rate is 4.95%.

The fair value of Group’s and Company’s lease obligations approximates their carrying amount.

Present value of minimum Minimum lease payments lease payments 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Finance lease payables with maturity: Within one year 1 436 1 449 1 370 1 320 In the second to fifth years inclusive - 1 405 - 1 339 Total payables 1 436 2 854 1 370 2 659 Less: future finance charges (66) (195) - - Present value of lease obligations 1 370 2 659 1 370 2 659

The net book value of the assets acquired under finance lease arrangements as of 30 September 2013 is BGN 1,760 thousand.

F-19 17 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

16. Deferred tax assets and liabilities

As of 30 September 2013 and 2012 the deferred tax, are as it follows: Consolidated financial statements Allowance for Tax loss Property, plant, equipment Expense Deferred tax assets impairment carried Total and intangible assets accruals of forward receivables At 1 January 2012 - 9 64 - 73 Charged/(credited) to the profit/(loss) for the period - (2) (64) - (66) At 30 September 2012 - 7 - - 7 At 1 January 2013 - 14 - - 14 Charged/(credited) to the profit/(loss) for the period - (12) - - (12) At 30 September 2013 - 2 - - 2

Allowance for Retirement Property, plant, equipment Expense Deferred tax liabilities impairment benefit Total and intangible assets accruals of obligations receivables At 1 January 2012 38 554 (6 406) (161) (4 777) 27 210 Charged/(credited) to the profit/(loss) for the period (3 584) (83) (7) 1 651 (2 023) Charged to other comprehens income for the period (4) - - (59) (63) At 30 September 2012 34 966 (6 489) (168) (3 185) 25 124 At 1 January 2013 33 406 (6 569) (167) (9 559) 17 111 Charged/(credited) to the profit/(loss) for the period (1 734) 685 (10) 1 210 151 Charged to other comprehens income for the period - - - (4) (4) At 30 September 2013 31 672 (5 884) (177) (8 353) 17 258

Deferred tax charge(credit) to the profit/(loss) for the period Nine months ended 30.9.2013 30.9.2012 Deferred tax liabilities (151) 2 023 Deferred tax assets (12) (66) Total charged to the profit/(loss) for the period (163) 1 957

F-20 18 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

16. Deferred tax assets and liabilities(continued)

Separate financial statements Allowance for Retirement Property, plant, equipment Expense Deferred tax liabilities impairment benefit Total and intangible assets accruals of obligations receivables At 1 January 2012 38 554 (6 406) (161) (4 777) 27 210 Charged/(credited) to the profit/(loss) for the period (3 584) (83) (7) 1 651 (2 023) Charged to other comprehens income for the period (4) - - (59) (63) At 30 September 2012 34 966 (6 489) (168) (3 185) 25 124

At 1 January 2013 33 406 (6 569) (167) (9 559) 17 111 Charged/(credited) to the profit/(loss) for the period (1 734) 685 (10) 1 210 151 Charged to other comprehens income for the period - - - (4) (4) At 30 September 2013 31 672 (5 884) (177) (8 353) 17 258

Deferred tax charge(credit) to the profit/(loss) for the period Nine months ended 30.9.2013 30.9.2012 Deferred tax liabilities (151) 2 023 Total charged to the profit/(loss) for the period (151) 2 023

Deferred tax related to fair value reserve of cash flow hedges is included in Expense accruals above ( 30 September 2013: deferred tax asset amounting to BGN 5 thousnad and 1 January 2013: deferred tax asset amointing to BGN 9 thousnad).

Deferred tax assets and liabilities for different taxable entities are not offset as they can not be settled on a net basis and it is not expected that the assets will be realised and the liabilities will be settled simultaneously in the future.

Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The deferred tax assets and liabilities as of 30 September 2013 and 31 December 2012 are calculated in these financial statements at 10% tax rate which has been effective since 1 January 2007.

The last period audited by the tax authorities for BTC is 2006.

F-21 19 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

17. Retirement benefit obligations

In compliance with the Labour Code, the Parent company owes compensation at retirement to all the employees. The compensations of the employees with a 10 years experience in the Company is 6 gross monthly salaries; for the employees having under 10 years experience the compensation is 2 gross monthly salaries.

Currently no assets have been allocated for covering the long-term staff revenue in a separate fund and there are no legal requirements for the establishment of such.

The present consolidated and separate financial statements include a provision for employee benefits obligation which is measured applying the projected unit credit method.

The movement of the liability, recognized in the balance sheet, is as follows:

Consolidated and Separate financial statements 30.9.2013 31.12.2012 30.9.2013 31.12.2012 Liability at the beginning of the period 1 917 1 570 1 674 1 610 Past service cost - (75) - (95) Current service cost 247 532 88 116 Interest cost 18 79 40 54 Total cost recognized in profit or loss 265 536 128 75 Payments to retirees (44) (189) (32) (11) Liability at the end of the period 2 138 1 917 1 770 1 674

The following principal assumptions have been used in the estimation of the liability:

30.9.2013 31.12.2012 Discount rate 4.50% 4.50% Future salary increases per year from 2.5% to 3% from 2.5% to 3% Average age of retirement – male employees 65 65 Average age of retirement – female employees 63 63

The Management has used in the estimation of the liability for retirement benefit obligations the assumption that voluntary leave of personnel, without any compensation, will be negligible.

Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics. Mortality assumptions are based on the statistical information, provided by the National Statistical Institute for the total mortality of the population in Bulgaria for the period 2009 – 2010.

18. Share capital and dividends

30.9.2013 31.12.2012 Number of shares 288 764 840 288 764 840 Par value per share (in BGN) 1 1 Share capital per BTC’s registration 288 765 288 765 Share capital 288 765 288 765

F-22 20 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

18. Share capital and dividends (continued) Structure of the share capital: 30.9.2013 %

Number of ordinary shares: Viva Telecom Bulgaria EAD 288 764 839 100.00% Other shareholders - 0.00% Total ordinary shares 288 764 839 100% Number of preference shares: The Republic of Bulgaria 1 100% Total number of shares 288 764 840 100%

As of 30 September 2013, the share capital of BTC comprises 288,764,839 ordinary registered shares and a single preference share, held by the Government through the Ministry of Transport and Communications. The nominal share value is BGN 1. Consolidated financial Separate financial Earnings per share statements statements Nine months ended Nine months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Profit for the period 10 250 32 921 9 484 28 492 Total profit for distribution 10 250 32 921 9 484 28 492 Weighted average number of ordinary shares 288 765 288 765 288 765 288 765 Earnings per share (BGN (basic and diluted)) 0.04 0.11 0.03 0.10

Dividends payable 30.9.2013 31.12.2012 Dividend approved by the General shareholders’ meeting - - Non-distributed dividends for prior years 10 158 092 Tax on dividend - - Net dividends paid - (158 082) Total dividend payable 10 10

F-23 21 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

19. Revenue

Revenue of the Group and the Company for the nine months ended 30 September 2013 and 2012 consist of:

Consolidated financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Recurring charges 262 264 251 325 88 410 84 222 Outgoing traffic 107 188 129 692 37 086 43 949 Leased lines and data transmission 90 365 97 296 29 302 32 166 Interconnect 49 543 109 527 15 322 23 672 Other revenue 96 286 62 593 36 559 24 954 Total revenue 605 646 650 433 206 679 208 963

Separate financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Recurring charges 262 264 251 332 88 410 84 209 Outgoing traffic 107 188 129 691 37 086 43 949 Leased lines and data transmission 90 839 97 462 29 460 32 323 Interconnect 31 815 101 359 9 564 15 496 Other revenue 97 355 62 942 36 918 25 299 Total revenue 589 461 642 786 201 438 201 276

Revenue from sales of mobile handsets is included in Other revenue above, which for the nine months ended 30 September 2013 amount to BGN 39,179 thousand for the Group and the Company (2012: BGN 22,398 thousand) . Revenue from rent of terrestrial network (ducts) and provision of pay TV services (DTH and IPTV) are also insluded in this category. The significant decrease in Interconect revenue and Interconnect expenses in 2013 is mainly a result of lower termination rates as mandated by the CRC. During the periods observed, termination rates were decreased on 1 July 2012, 31 December 2012 and 1 July 2013.

20. Other operating expenses

Other operating expenses for the nine months ended 30 September 2013 and 2012 consist of:

Consolidated financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Maintenance and repairs 61 101 65 373 20 761 22 265 Advertising, customer service, billing and collection 40 741 38 219 13 709 13 426 Facilities 33 128 30 159 10 978 10 316 Administrative expenses 11 591 5 618 7 294 (1 718) License fees 10 162 9 728 3 372 3 266 Vehicles and transport 2 618 2 716 799 906 Leased lines and data transmission 2 378 2 871 765 1 072 Professional fees 2 030 5 118 511 1 614 Other, net 13 222 14 668 5 559 9 338 Total other operating expenses 176 971 174 470 63 748 60 485

F-24 22 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

20. Other operating expenses(continued)

Separate financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Maintenance and repairs 61 101 65 372 20 761 22 265 Advertising, customer service, billing and collection 40 807 38 290 13 731 13 448 Facilities 33 128 30 159 10 978 10 316 Administrative expenses 11 589 5 616 7 293 (1 719) License fees 10 143 9 714 3 363 3 255 Vehicles and transport 2 618 2 716 799 906 Leased lines and data transmission 2 378 2 871 765 1 072 Professional fees 2 030 5 118 511 1 614 Other, net 13 296 14 660 5 564 9 332 Total other operating expenses 177 090 174 516 63 765 60 489

Other expenses comprise the charged provisions for impairment of assets net of reversals, allowance for impairment of receivables and legal provisions net of reversals, and the net book value of the scrapped inventories and fixed assets.

21. Staff costs

Staff costs for the nine months ended 30 September 2013 and 2012 consist of:

Consolidated financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Salaries and wages 41 938 41 613 14 125 14 417 Pension, health and unemployment fund contributions 6 732 6 332 2 197 2 059 Other benefits 1 952 1 888 637 618 Other staff costs 1 020 980 314 380 Total staff costs 51 642 50 813 17 273 17 474

F-25 23 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

21. Staff costs(continued)

Separate financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Salaries and wages 41 934 41 610 14 124 14 417 Pension, health and unemployment fund contributions 6 731 6 332 2 196 2 059 Other benefits 1 952 1 888 637 618 Other staff costs 1 020 980 314 380 Total staff costs 51 637 50 810 17 271 17 474

As stated in note 17 the amounts of post employment benefits included in salaries and wages above for the consolidated and separate financial statements for the nine months ended 30 September 2013 and 2012 are respectively BGN 88 thousand and BGN 51 thousand.

22. Finance income and costs

Financial income and costs for the nine months ended 30 September 2013 and 2012 consist of:

Consolidated financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Finance costs Interest expense: 38 799 23 690 13 024 7 234 -Bank borrowings 38 412 23 245 12 894 7 077 -Finance lease 55 88 17 33 -Provisions 332 337 113 115 -Other - 20 - 9 Foreign exchange loss - 138 - 35 Loss on cash flow hedges - ineffective portion of changes in fair value 7 - (11) - Other finance costs 206 179 69 62 Total finance cost 39 012 24 007 13 082 7 331

Finance income Interest income: 4 277 7 040 1 694 2 023 -Bank deposits 3 014 6 000 1 185 1 715 -Finance lease 1 168 801 463 248 -Other 95 239 46 60 Gains on cash flow hedges - ineffective portion of changes in fair value - 23 - 6 Foreign exchange gains 60 - 78 - Equity investments income 25 - - - Total finance income 4 362 7 063 1 772 2 029 Net finance costs 34 650 16 944 11 310 5 302

F-26 24 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

22. Finance income and costs(continued)

Separate financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Finance costs Interest expense: 38 799 23 690 13 024 7 234 -Bank borrowings 38 412 23 245 12 894 7 077 -Finance lease 55 88 17 33 -Provisions 332 337 113 115 -Other - 20 - 9 Foreign exchange loss - 138 - 35 Loss on cash flow hedges - ineffective portion of changes in fair value 7 - (11) - Other finance costs 201 179 67 63 Total finance cost 39 007 24 007 13 080 7 332

Finance income Interest income: 4 173 7 033 1 647 2 023 -Bank deposits 2 932 5 993 1 160 1 715 -Finance lease 1 168 801 463 248 -Other 73 239 24 60 Gains on cash flow hedges - ineffective portion of changes in fair value - 23 - 6 Foreign exchange gains 56 - 75 - Equity investments income 6 125 - - - Total finance income 10 354 7 056 1 722 2 029 Net finance costs 28 653 16 951 11 358 5 303

Dividend distributed from the subsidiary of the Company amounting to BGN 6,100 thousand is included in Equity investment income for the nine months ended 30 September 2013 in the separate financial statements. 23. Other gains, net

Other gains, net for the nine months ended 30 September 2013 and 2012 consist of:

Consolidated and Separate financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Gains from sales of non-current assets 2 603 6 879 1 138 2 394 incl.: income 3 207 8 525 1 140 2 464 net book value (604) (1 646) (2) (70) Gain from sales of materials 32 12 31 1 incl.: income 36 25 34 1 net book value (4) (13) (3) - Total other gains, net 2 635 6 891 1 169 2 395

F-27 25 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

24. Tax expense

Income tax expenses for the nine months ended 30 September 2013 and 2012 consist of: a) amounts recognised in profit or loss

Consolidated financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Current income tax charge 1 375 5 693 844 2 460 Deferred tax 163 (1 957) (471) (2 053) Total tax expense 1 538 3 736 373 407

Separate financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Current income tax charge 624 5 277 479 2 044 Deferred tax 151 (2 023) (489) (2 118)

Total income tax (expense)/benefit 775 3 254 (10) (74)

Total tax expense can be reconciled to the accounting profit as follows:

Consolidated financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Profit before tax 11 788 36 657 3 317 5 773 Total profit before tax 11 788 36 657 3 317 5 773 Tax rate 10% 10% 10% 10% Tax at the applicable tax rate 1 179 3 666 332 577 Non-deductible expenses 180 77 39 (159) Tax exempt income (4) (1) (1) - Change in recognised deductible temporary differences 183 (6) 3 (11) Income tax expense 1 538 3 736 373 407 Effective tax rate 13.05% 10.19% 11.25% 7.05% Income tax expense in the profit or loss (1 538) (3 736) (373) (407) Total income tax expense (1 538) (3 736) (373) (407)

F-28 26 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

24. Tax expense(continued)

Separate financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Profit/(loss) before tax 10 259 31 746 (510) 858 Total profit before tax 10 259 31 746 (510) 858 Tax rate 10% 10% 10% 10% Tax at the applicable tax rate 1 026 3 175 (51) 86 Non-deductible expenses 180 77 40 (160) Tax exempt income (614) (1) (1) - Change in recognised deductible temporary differences 183 3 2 - Income tax expense/(benefit) 775 3 254 (10) (74) Effective tax rate 7.55% 10.25% 1.96% -8.62% Income tax (expense)/benefit in the profit or loss (775) (3 254) 10 74 Total income tax (expense)/benefit (775) (3 254) 10 74

b) amounts recognised in other comprehensive income

Consolidated and separate financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Cash flow hedges – effective portion of changes in fair value 4 59 19 30 Loss on revaluation of land - 4 - -

Total tax benefit 4 63 19 30

25. Segment information

Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The business, considered on a product perspective is currently organized into two lines of business – Fixed line of business and Mobile line of business. Principal activities are as follows: • Fixed line of business – voice and data services over the fixed network; • Mobile line of business – mobile services (GSM, and UMTS Standards)

The Board of Directors assesses the performance of the business segments based on a measure of gross margin. Revenue and gross margin information as reviewed by the Board of directors for the nine months ended 30 September 2013 and 2012 is presented below.

F-29 27 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

25. Segment information(continued)

Nine months ended 30 September 2013 Consolidated financial statements Fixed line of Mobile line Total business of business

Revenue 300 922 304 724 605 646 Cost of sales (44 466) (99 673) (144 139) Gross margin 256 456 205 051 461 507 Operating expenses (172 676) Staff costs (51 642) Depreciation and amortization (193 386) Financial expenses, net (34 650) Other gains, net 2 635 Profit before tax 11 788 Income tax expense (1 538) Net profit for the year 10 250

Nine months ended 30 September 2012 Consolidated financial statements Fixed line of Mobile line Total business of business

Revenue 354 666 295 767 650 433 Cost of sales (75 749) (93 543) (169 292) Gross margin 278 917 202 224 481 141

Operating expenses (174 301) Staff costs (50 813) Depreciation and amortization (209 317) Financial expenses, net (16 944) Other gains, net 6 891 Profit before tax 36 657 Income tax expense (3 736) Net profit for the year 32 921

Operating expenses comprise materials and consumables and other operating expenses not included in cost of sales

F-30 28 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

26. Related parties

The Group’s related parties are considered to be the following: • shareholders of which the Company is a subsidiary or an associate, directly or indirectly, and subsidiaries and associates of these shareholders; • members of the Company’s statutory and supervisory bodies and parties close to such members, including the subsidiaries and associates of the members and their close parties; • joint ventures in which the Company is a venturer For the stand alone statements as a related parties are considered all consolidated subsidiaries as well.

Balances The following table summarizes the balances of receivables and payables with related parties as of 30 September 2013 and 31 December 2012:

For the Group Note Receivables Payables 30.9.2013 31.12.2012 30.9.2013 31.12.2012

Members of Bromak Telecom Invest AD GroupOther RP - 9 - - Total for BTC group - 9 - -

For BTC Note Receivables Payables 30.9.2013 31.12.2012 30.9.2013 31.12.2012

BTC Net EOODSubsidiary 1 056 507 1 508 1 161 Members of Bromak Telecom Invest AD GroupOther RP - 9 - - Total for BTC 1 056 516 1 508 1 161

Transactions The following table summarizes services received by BTC from related parties:

For the Group Note Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012

Members of - - Bromak Telecom Invest AD GroupOther RP 8 - 8 - Total for BTC group 8 - 8 -

For BTC Note Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012

BTC Net EOODSubsidiary 8 324 3 724 2 894 3 675 Members of Bromak Telecom Invest AD GroupOther RP 8 - 8 -

Total for BTC 8 332 3 724 2 902 3 675

F-31 29 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

26. Related parties(continued)

The realised revenue from related parties is as follows:

For the Group Note Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012

Members of Bromak Telecom Invest AD GroupOther RP 387 - 122 - Viva Telecom Bulgaria EAD Parent 6 - 1 - NEF Telecom Bulgaria OODParent - 16 - 10 NEF Telecom Company B.V.Parent - 11 - 11 Total for BTC group 393 27 123 21

For BTC Note Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012

BTC Net EOODSubsidiary 5 247 3 562 1 304 3 514 Members of Bromak Telecom Invest AD GroupOther RP 387 - 122 - Viva Telecom Bulgaria EAD Parent 6 - 1 - NEF Telecom Bulgaria OODParent - 16 - 10 NEF Telecom Company B.V.Parent - 11 - 11 Total for BTC 5 640 3 589 1 427 3 535

Borrowings Members of Bromak EOOD Group and VTB Bank OJSC Group participate in the amended syndicated loan facility as disclosed in note 15. The amounts related to them are shown below:

Loan Interest Interest principal expense payable Members of As of and for the year ended 31 December 2012 - - - VTB Bank OJSC Group For the nine months ended 30 September 2013 - 7 477 - As of 30.09.2013 166 500 - 1 377

Members of As of and for the year ended 31 December 2012 - - - Bromak EOOD Group For the nine months ended 30 September 2013 - 1 194 - As of 30.09.2013 - - -

As per Loan Agrement dated 08 August 2013 BTC Net provided to Viva Telecom Bulgaria AD a revolving credit facilty for the amount of up to EUR 3,000 thousnad. The aplicable interest rate shall be the aggregate of 3M Euribor plus a margin of 5.5% p.a. The total outstanding principal amount and accumulated interest shal be fully repaid on 7 February 2014. The amounts related to the loan are shown below:

Loan Interest Interest principal income receivable Viva Telecom As of and for the year ended 31 December 2012 - - - Bulgaria EAD For the nine months ended 30 September 2013 - 22 - As of 30.09.2013 2 658 - 22

F-32 30 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

26. Related parties(continued) Interest income Part of the cash availability of the Group and the Company is deposited in a bank, member of Bromak Telecom Invest AD Group as disclosed in Note 4. Interest income from such bank deposits for the nine months ended 30 September 2013 is BGN 2,696 thousand and BGN 2,676 thousand in the consolidated and separate financial statements.

Management remunerations There is no compensation paid by the company to the members of the Board of Directors as of 30 September 2012. Remuneration amounting to BGN 3,827 thousand relating to the members of the Board of Directors and to key management personnel has been accrued as of 30 September 2013 (30 September 2012: BGN 5,366 thousand).

27. Commitments and contingencies

Contractual commitments for the acquisition of property, plant and equipment

The parent company has entered into agreements with various suppliers relating to the capital expenditure as approved in the investment program. Certain agreements have not been completed as of the balance sheet date. A summary of the main commitments to acquire equipment under such contracts, effective as of 30 September 2013, for the Group and the Company is presented in the table below:

Aggregate Delivered till Commitments Equipment description contracted 30.09.2013 outstanding amount Hardware and software 12 156 6 748 5 408 Construction and assembly works of the BTC 27 099 8 758 18 341 Network equipment 85 901 63 443 22 458 Total 125 156 78 949 46 207

Contingencies The Company is a participant in several lawsuits and administrative proceedings. Based on the information available, management is satisfied that there is no material unprovided liability arising from these lawsuits and administrative proceedings.

The Group has bank guarantees issued to third parties which amount to BGN 801 thousand as of 30 September 2013 (31 December 2012: BGN 1,393 thousand).

28. Operating lease

Minimum lease payments under operating leases recognized as an expense for the period are as follows:

Consolidated and Separate financial statements Nine months ended Three months ended 30.9.2013 30.9.2012 30.9.2013 30.9.2012 Minimum lease payments 7 030 7 127 2 285 2 410

BTC has outstanding commitments under non-cancellable operating leases, which fall due as follows:

30.9.2013 31.12.2012

Within one year 10 062 9 168 In the second to fifth years inclusive 33 466 29 653 Later than five years 83 397 86 546 Total commitments 126 925 125 367

Operating lease payments represent rentals payable for certain part of the vehicles of the Group and the Company. Leases and rentals are negotiated for an average term of three years. In the amount of the non-cancellable operating lease payables are included payments related to contract for lease of administrative building that commenced in 2010 and the leasing term is above 5 years.

F-33 31 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

29. Financial instruments

The following table shows the carrying amounts and fair values of the group's financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

30-Sep-2013 Carrying amount Fair value Fair value – hedging Loans and Available Other financial instruments receivables for sale liabilities Total Level 1 Level 2 Level 3 Total

Financial assets measured at fair value Forward exchange contracts used for hedging - - Equity securities 7 831 7 831 7 831 7 831 F-34 Total financial assets measured at fair value - - 7 831 - 7 831 Financial assets not measured at fair value Trade receivables 79 320 79 320 - Cash and cash equivalents 133 700 133 700 -

Total financial assets not measured at fair value - 213 020 - - 213 020

Financial liabilities measured at fair value Forward exchange contracts used for hedging 130 130 130 130 Total financial liabilities measured at fair value - - 130 - 130

Financial liabilities not measured at fair value - - Syndicated credit facility 882 257 882 257 882 257 882 257 Finance lease liabilities 1 370 1 370 1 319 1 319 Trade payables 73 752 73 752 Total financial liabilities not measured at fair value - - - 957 379 957 379

32 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

29. Financial instruments(continued)

31-Dec-2012 Carrying amount Fair value Fair value – hedging Loans and Available Other financial instruments receivables for sale liabilities Total Level 1 Level 2 Level 3 Total

Financial assets measured at fair value Forward exchange contracts used for hedging ------Equity securities ------

Total financial assets measured at fair value - - - - - Financial assets not measured at fair value F-35 Trade receivables 84 324 84 324 - Cash and cash equivalents 63 886 63 886 -

Total financial assets not measured at fair value - 148 210 - - 148 210

Financial liabilities measured at fair value Forward exchange contracts used for hedging 58 58 58 58 Total financial liabilities measured at fair value - - 58 - 58

Financial liabilities not measured at fair value - - Syndicated credit facility 891 537 891 537 - Finance lease liabilities 2 659 2 659 - Trade payables 95 704 95 704 Total financial liabilities not measured at fair value - - - 989 900 989 900

33 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE INTERIM CONSOLIDATED AND SEPARATE CONDENSED FINANCIAL STATEMENTS For the nine months ended 30 September 2013 All amounts are in thousand BGN, unless otherwise stated

29. Financial instruments(continued)

The following tables show the valuation techniques used in measuring Level 2 and Level 3 fair values, as well as the significant unobservable inputs used.

Financial instruments measured at fair value Type Valuation technique Significant unobservable inputs

Forward exchange contracts The fair values are based on broker Not applicable. quotes. Similar contracts are traded in an active market and the quotes reflect the actual transactions in similar instruments.

Financial instruments not measured at fair value Type Valuation technique Significant unobservable inputs

Other financial liabilities Discounted cash flows Interest rate

Other financial liabilities include secured bank loans and finance lease liabilities

The loan terms have been amended less than a year ago. The management of the Company has estimated on the base of performed analisys that the market interest rates as of 30 September 2013 are similar to the agreed and as a result the carrying amount of the loan is a reasonable approximation of its fair value.

30. ȿvents after the reporting date

The extraordinary general meeting of shareholders of BɌC held on 30 September 2013 took the following resolutions: (a) the conversion of the second-class preference share from the share capital of BTC defined in Art. 8 of the Statutes of the Company as the “Special Share”, owned by the Republic of Bulgaria, represented by the Minister of Transport, Information Technologies and Communications into a common registered book entry form voting share from the share capital of the company; (b) the change of the company name of the company from Bulgarian Telecommunications Company AD to Bulgarian Telecommunications Company EAD under the condition that all shares from the share capital of BTC are acquired by Viva Telecom Bulgaria EAD; and (c) adoption of respective changes in the Statutes of the Company. The changes were registered in the Commercial Register to the Registry Agency on 7 and 21 October 2013 respectively.

F-36 34 F-37

BULGARIAN TELECOMMUNICATIONS COMPANY AD

CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS CONSOLIDATED AND SEPARATE ANNUAL ACTIVITIES REPORT INDEPENDENT AUDITOR’S REPORT

31 December 2012

F-38

TABLE OF CONTENTS

Page Annual activities report 3 Consolidated and separate balance sheet 21 Consolidated and separate statement of comprehensive income 22 Consolidated and separate statement of changes in equity 23 Consolidated and separate cash flow statement 24 Notes to the consolidated and separate financial statements 25 Independent auditor’s report

F-39

Bulgarian Telecommunications Company AD

------CONSOLIDATED AND SEPARATE ANNUAL ACTIVITIES REPORT ------

2012

F-40

CONTENTS

I. INFORMATION ABOUT THE COMPANY’S FINANCIAL RESULTS, ACTIVITY AND DEVELOPMENT

II. INFORMATION ABOUT THE COMPANY’S BOARD OF DIRECTORS AND SUPERVISORY BOARD

III. INFORMATION ABOUT THE COMPANY’S SHARES

IV. INFORMATION ABOUT GOOD CORPORATE GOVERNANCE PROGRAM IMPLEMENTATION

V. ADDITIONAL INFORMATION

F-41 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT For the year ended 31 December 2012

This document reflects the activity in the reporting period of Bulgarian Telecommunications Company AD (“VIVACOM” or the “Company”) on an individual and consolidated basis.

I. INFORMATION ABOUT THE FINANCIAL RESULTS, ACTIVITY AND DEVELOPMENT OF THE COMPANY AND THE GROUP

1. OVERVIEW OF THE ACTIVITY OF THE COMPANY AND THE GROUP

Bulgarian Telecommunications Company AD (“VIVACOM” or the “Company”) is a public joint stock company, domiciled in Bulgaria, with its registration address: 115I “Tsarigradsko Shose” blvd., 1784 Sofia. VIVACOM’s activities include development, operation and maintenance of national fixed and mobile network and data system for the Republic of Bulgaria.

As at 31 December 2012 the group includes VIVACOM and its subsidiary entity BTC Net EOOD (the “Group” or “VIVACOM Group”).

On 9 November 2012 Viva Telecom Bulgaria EAD acquired 93.99% of Vivacom shares following the receipt of relevant EC and other regulatory approvals. The transaction became a fact as a result of the approval of a comprehensive scheme for the sale and restructuring of the Company and its group.

VIVACOM offers high-quality converged services and versatile telecommunication solutions, including fixed telephony, mobile services, Internet and TV services.

The Company remains the biggest landline operator despite strong competition for fixed-line offers from the alternative providers and the mobile operators as well.

VIVACOM keeps its leading position on the strongly fragmented broadband Internet market, despite the fact that the market is currently saturated. Following the demand for high-speed bandwidth capacity, VIVACOM has speeded up the investments in its optical infrastructure and has covered more than 400 000 households.

VIVACOM has provided free Internet access at more than 3 000 public locations throughout Bulgaria. The Company works for full broadband coverage in compliance with the European Union requirements and is currently the only company that offers national Internet coverage.

Being the third arrival on the mobile market, the company is constantly increasing its market share offering the lowest prices and boosting the competitiveness in the mobile services sector in the country.

VIVACOM has ended its 3G network development program for 2012 with 99.41% coverage of the population and 95.95% of the Bulgarian territory. VIVACOM's 3G network has increased its maximum speed for downloading data and it now provides speed of 42 Mbps for 22% of Bulgaria's population. Its main advantage is the assured connection of at least 100 Mbps to all 3G base stations, which gives VIVACOM the possibility to maintain high speeds of mobile Internet.

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F-42 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

The use of mobile data services is growing faster than the number of subscribers, which is due to the higher data transfer speed offered by VIVACOM in its entire network and the country-wide 3G coverage with capability of 21 Mbps for download and 5.74 Mbps for upload. Customers of VIVACOM's mobile data services increase by 71.6% on a yearly basis.

The number of VIVACOM mobile subscribers increased by over 17% in 2012 compared to 2011. The main reasons for that are the growing interest in mobile internet services, the increase in numbers ported in the mobile network, as well as the strong growth in the business segment.

The strong interest in VIVACOM's bundled services, as well as the launch of the new IPTV platform led to a steady growth of the TV subscribers, which increased by more than 84% over the same period.

In March 2012 VIVACOM launched its own TV channel which offers a unique combination of films and sport.

VIVACOM FUND distributed over BGN 1.7 million to support sports, culture, education and health and social projects over the course of 2012.

For a fourth consecutive year VIVACOM is awarded by the Bulgarian Association for Management and Human Resource Development (BAMHRD). The Company won the award for best use of social media and technology in human resource development, due to the implementation of a comprehensive system for managing the processes associated with human resources and the effective use of the corporate website and social networks.

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F-43 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

2. FINANCIAL CONDITION AND RESULTS FOR 2012

The Group ended the financial year 2012 with a positive result of BGN 17,870 thousand, (the Company - with a positive result of BGN 11,749 thousand) prior to impairment loss related to the Fixed business. At a comparable basis this represents an increase by 145% of the identical result for the Group compared to last year numbers mainly due to optimisation of costs and better positioning of its products and services portfolio. As a result of the annual impairment review BGN 56,607 thousand impairment loss was recognized in other operating expenses for the year which after adjusting for the tax effects has led to a loss for the year of BGN 33,242 thousand (VIVACOM Group) and BGN 39,363 thousand (VIVACOM). In 2012 forecast future cash flows for the Fixed business have declined as a result of stricter termination price regulation and competitive market pressures as disclosed in Note 4 to the present consolidated and separate financial statement.

At the end of 2012 the Company's financial position remained strong with ample liquidity and a slight decrease in total revenues. VIVACOM's revenues from mobile services increased steadily by 5.6% on annual basis to 397.3 million BGN, despite the reduction in the termination rates. The Company maintains strong revenue growth in mobile and TV services, while reducing the cost and applying lower prices to end-customers. This approach allowed the Group to compensate for the decline in fixed telephony revenues and that led to a decrease in total revenues by only 4.3% to 857.7 million BGN in 2012.

At 31 December 2012, cash and cash equivalents amounted to BGN 63,886 thousand (VIVACOM Group) and BGN 59,352 thousand (VIVACOM), comprising current accounts and cash in hand and deposits.

The companies within VIVACOM Group hold cash in BGN, EUR and USD in view of the fact that their short-term liabilities originate in these currencies. Thus the risk of a change in exchange rates is managed and relevant potential losses are minimized.

Cash flows from operating activities for 2012 amounted to BGN 334,042 thousand for VIVACOM Group (8% increase compared to 2011) and BGN 329,786 thousand for VIVACOM (7% increase on 2011 year- end).

The net cash flow used in investment activities for the Group and the Company was BGN 142.3 million, including BGN 143,142 thousand for purchase of plant, property and equipment and BGN 65,453 thousand for purchase of other non-current assets. The above was partially offset by BGN 11,595 thousand proceeds from property, plant and equipment as well as BGN 54,430 thousand proceeds from term deposits with maturity greater than three months.

The net cash used in financing activities for VIVACOM and the Group was BGN 269,518 thousand, including 158,087 thousand payments of dividends and BGN 110,679 thousand repayments of long-term borrowings.

At the General Meeting of Shareholders, held on June 28, 2012 it was voted not to distribute dividends for the year.

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F-44 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

On 21 August 2007 VIVACOM refinanced its liabilities on the existing syndicated loan to the total amount of EUR 350 million. On 17 August 2007 VIVACOM became a party to a new loan arranged by Royal Bank of Scotland, Deutsche Bank AG, London Branch, UBS Limited and Bank Austria Creditanstalt AG with a mandate for arranging syndicated finance.

On the extraordinary general meeting of the Company held on 8 October 2012 the shareholders approved the proposed amendments to the loan agreement for the fulfilment of certain actions for restructuring of the existing debt. As a result of the proposed restructuring the total bank loans of NEF group (including VIVACOM) were transferred to the new group and reduced from EUR 1 784 million to EUR 588 million through a combination of debt repayment, equity conversion and an outright debt write off, as well as in a change of the ownership of VIVACOM.

The existing credit facilities of VIVACOM under the loan agreement were consolidated into a single facility, whereas the aggregate principal amount of the Company’s borrowings was reduced to EUR 452,099 thousand following a prepayment in the amount of EUR 26,337 thousand. The new facility is repayable by the Company in instalments, the first one of which is due 9 months as of the date of coming into effect of the amendment of the loan agreement (the “amendment date”) with a final maturity date for full repayment of all borrowings of the Company under the amended loan agreement being 5 years as of the amendment date (the “termination date”). In addition, the amended loan agreement provides for the Company and its holding company to borrow a revolving credit facility in the amount of up to EUR 20,000 thousand under which the Company may borrow funds for its working capital purposes and which shall be available up to the date falling one month prior the termination date. The Company has the right to select interest periods which can be of the duration of 3 months for the new facility and 3 or 6 months for the revolving credit facility.

In 2012 VIVACOM maintained a structure of assets and liabilities that allowed its smooth operation. In order to control the threat of liquidity risk, the Company applied planning techniques, including with daily liquidity reports, short-term and medium-term cash flow forecasts.

CAPITAL RESOURCES

The Group manages its equity in order to perform its activity as a going concern and to maximize return on equity of shareholders by optimizing the debt to equity ratio in medium term.

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F-45 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

REVENUES

The total amount of consolidated revenues from continuing operations for 2012 amounted to approximately BGN 857.7 million, 4.3 % less than in 2011.

The Company’s revenues are generated from five main sources.

Recurring charges

Monthly rental revenues increased slightly in 2012 for VIVACOM and the Group as a result of the growth of mobile subscribers, TV services and convergent services.

Outgoing traffic revenue

Outgoing traffic revenue of VIVACOM decreased by approximately 6% in 2012 compared to 2011, on an individual and consolidated basis, as a result of the line losses and shrinking fixed traffic.

Interconnect revenue

Interconnect revenue decreased by 28% for VIVACOM and 17% for the Group compared to 2011 as a result of the termination price reductions.

The price re-balancing based on rules approved by the regulatory authority – Communications Regulation Commission (CRC) – will further influence the regulated services revenue next year.

Leased lines and data transmission revenue

Leased lines and data transmission revenue of VIVACOM and VIVACOM Group marked approximately 12% drop compared to 2011. This is mainly attributable to the migration of customers from leased lines to other complex data services, where price competition is fierce.

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F-46 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

Other revenue

In 2012 other revenue from sales marked an increase by 23% compared to 2011 (for the Group and VIVACOM) mainly due to the mobile phones sales growth.

EXPENSES

Staff costs

In 2012 staff costs of VIVACOM Group and VIVACOM increased by approximately 7% on 2011 mainly due to headcount increase.

Interconnect costs

Interconnect costs has decreased compared to 2011 by 16% for the Group and 23% for VIVACOM, led by the decrease in termination rates.

Other operating expenses

In 2012 other operating expenses for the Group and VIVACOM decreased by approximately 11% compared to 2011 prior to impairment of the Fixed business, as a result of the optimisation in maintenance and repairs costs as well as less administrative and other expenses.

Materials and consumables expenses

Higher materials and consumables expenses in 2012 compared to prior year mainly as a result of higher cost of mobile handsets sold outǤ

Corporate tax

The corporate tax turned positive BGN 3,336 thousand compared to prior year due the deferred tax benefits recognised in 2012.

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F-47 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

3. MAIN CATEGORIES OF SERVICES

The services provided by the Company and the Group include:

Converged services – VIVACOM’s bundles offer a wide range of variety of combinations that include mobile, fixed, Internet and TV services. The bundles provide best value, convenience and ease-of-use for the end-customers.

Mobile services

Mobile telephony – a service enabling the clients to make mobile calls via the mobile network of VIVACOM.

VivaMail – professional e-mail hosting service via the mobile network of VIVACOM.

BlackBerry - a complete communication solution allowing, distance and continuous connection with electronic mail, working with corporate databases and different types of files sent electronically and all basic functions and services for a mobile device. The service is provided via the VIVACOM mobile network in cooperation with the service vendor Research In Motion.

VIP Business – an integrated voice service, based on IP connectivity.

3G Videocall - a service allowing two users to see each other on the display of their handsets in real time via the mobile network of VIVACOM.

Business SMS – a service enabling VIVACOM business customers to generate various SMSs via web based application.

VIVA Bipper – child security service, which gives opportunity to the parents to use their children’s mobile phones to control the communication, localize them and have immediate contact in emergency situations. The service is offered in partnership with Bipper Norway.

VIVA Books – portal for e-books purchase and rental. The payment is with the monthly invoice for other VIVACOM services. E-books could be read on PCs, laptops, mobile phones, tablets and e-book readers. VIVA Books portal contains Bulgarian literature and is developed as affinity product with Ciela Publishing.

VIVA Team – specially designed service for the business customers in order to localize and optimize the spent for telecom services of the company employee.

VIVA Fleet – specially designed service for the business customers for managing their fleet. The service provides GPS tracking device, communication and web-based platform for real-time locating and alarming in case of broken rules as well as reporting for the usage of the vehicles and information for past tracks.

Mobile internet – a service enabling the clients to upload and download data within the mobile network of VIVACOM.

VIVA Apps – the first of its kind portal in Bulgaria for Android Application, which offers customers access to the best local selection of mobile applications, which are available directly from the menu all VIVACOM Android smartphones.

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F-48 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

Additional services included in VIVACOM mobile portfolio are SMS, MMS, VAS, Voice mail, International roaming, Shared data, bolt ons, VIVA TV Box etc.

Fixed voice services

Fixed telephony – a service enabling the clients to make local, long-distance, national calls to other fixed and mobile operators and international calls via the fixed network of VIVACOM. Clients with numbers from digital telephone exchanges are offered a number of additional services.

Value Added Service 0900 – a service used for providing information or public entertainment services to suppliers of Value Added Services.

Green telephone 0800 – the service enables clients to provide voice information services free of charge for their customers.

Universal number 0700 – the service enables clients to provide voice information services and the price of the telephone call is shared between them and their customers.

Integrated services digital network (ISDN) provides digital user-to-user connectivity with an option for access to voice services and services for transmission of data, text, movable and fixed images as well as various additional services.

VPN fix – the service provides the clients with the benefits of a closed user group across the country’s territory, where members of the group call everybody else in the group with short code dialing and telephone calls among them are billed at preferential prices.

+MOBI is a mobile number that is added to an existing fixed line. The service offers to customers fixed and mobile services on one and the same terminal, without any further action from their part.

VIP Business – an integrated voice service, based on IP connectivity.

Additional services included in VIVACOM fixed voice portfolio are Office plans, Audio Conference, Centrex, etc.

Digital TV

VIVACOM TV is a digital television based on both satellite technology (DTH) and Internet connectivity (IPTV).

DTH (Direct-To-Home) technology delivers TV content directly to the client's home. Satellite TV can be used in any part of the country.

IPTV is a fully digitalized platform delivering TV content via Internet connectivity, which provides variety of TV channels, video applications and a wide range of interactive features.

Internet services

VIVACOM Net – the service offers to clients a high-speed and reliable access to Internet simultaneously and independently from standard telephone services via the same subscribed line.

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F-49 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

VIVACOM Wi-Fast – the service offers to clients a high speed and reliable Internet access (up to 20MBps) through Wi-Fi technology.

VIVACOM FiberNet – the service offers to clients a high speed Internet access (up to 100MBps) on separate optical infrastructure.

VIVACOM Tooway – satellite Internet for customers in rural areas.

Data and Professional Internet services

Digital Leased Lines – provision of infrastructure by VIVACOM to a client, including transmission facilities and transmission environment via which a transparent channel with a specific capacity between end points in the network defined by the client is provided.

MAN is a high-speed optic network for data transmission over Ethernet protocol. The service “Building of a client virtual local network for data transmission – Metropolitan Network” is provided via MAN, connecting separate segments of the local network or separate networks of client/clients included in a virtual network – VLAN. MAN Intercity is a service based on the optical network of VIVACOM and provides link between the branches of customers located in different cities and already users of MAN.

VIVACOM IP-VPN (virtual private network) – the service provides high-quality, high-speed connectivity between remote offices of the client/clients located in a single settlement. VPN Net – the service provides high-quality, high-speed and cheap IP environment for transfer of voice, video and business data between geographically remote offices of users within the country. The service is provided in two versions - IP VPN Net and L2 VPN Net.

Additional services included in VIVACOM data and internet portfolio are professional internet services, Remote access to IP-VPN, SLA (Service Level Agreement), etc.

Other services

Use of duct network – a service allowing installation along underground routes of telecommunication cables from other licensed telecommunications operators for the purposes of their business.

Collocation of customer equipment – the service enables users to install and operate their communication equipment in dedicated VIVACOM centres.

Interconnect – Provides possibilities to other licensed telecommunications operators to connect their networks with the network of VIVACOM for the purpose of mutual exchange of traffic.

Bitstream – Provides possibilities to other licensed telecommunications operators to deliver ADSL access to Internet for their customers using VIVACOM’s access network and MAN infrastructure.

Local loop unbundling - Provides possibilities to other licensed telecommunications operators to use the last mile of VIVACOM’s access network to deliver telecom services to their customers.

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F-50 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

4. MAIN RISKS

Investment in securities involves different types of risks. Every investor should carefully read and analyse the information presented below and should make his own independent research and assessments before taking a decision on acquiring shares issued by VIVACOM.

This document contains certain projections and estimates which refer to future uncertain events. The projections are made on the basis of the current information available to the authors of this document and on the estimates they consider justifiable. Actual results may differ, even materially, from the estimates stated in this document, as they depend on a number of risk factors described in the paragraphs below. Not all risk factors can be predicted or described and some of these risk factors are outside the abilities of the issuer to counteract.

The main risk factors that could affect the Company’s activity and results are described below.

General risk

General risk is considered in the broadest economic and political context in which the Company operates (e.g. risk related to the development of the global economy, the development of the local economy, inflation risk, general political risks, domestic policy, foreign policy and general trends). Therefore, some of these risks are not subject to management or mitigation by the Company’s management. They affect VIVACOM’s activity with different weight and emerge in different, usually unpredictable patterns.

Macroeconomic risks

The macroeconomic environment in Bulgaria and the European Union economy will continue to affect indirectly VIVACOM’s results. Tightening credit condition and increasing unemployment lowered consumer confidence and affected Company’s performance and cash flows, albeit the Company performed better than competitors.

Inflation risk

Inflation is a factor determining the actual return on the investment. This means that at a level of inflation exceeding the nominal rate of annual return during the year, the actual rate of return on the investment denominated in the national currency would be negative during the year.

Market risk

Market risk is associated with changes in the earnings of a specific security as a result of changes in the market earnings as a whole. The specific change in the price of a share as a result of a specific change in the market earnings as a whole depends on the sensitivity or elasticity of the earnings of such security against changes in the market earnings. The value of that ratio for the shares of a specific company is determined on the basis of a regression analysis of the change in the earnings per specific share and of the market as a whole. As the existing information is not representative given the short history of the capital market in Bulgaria and its low liquidity, whereby it is very difficult to form a fair market value, this risk cannot be calculated correctly for the shares of VIVACOM.

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F-51 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

Political risks

The political process is a significant factor affecting the return on investments. The degree of political risk is associated with the probability of changes in the economic policy pursued by the government, which could lead to negative changes in the investment climate, as well as the probability of emergence of regional or global armed conflicts or terrorism, social unrest or political tension. Apart from this is the probability of adverse changes in the legal regulation of economic activity. Bulgarian government resigned on February 20, 2013 after two weeks of public protests. New elections are now expected in May 2013.

Specific Company risks

Specific Company risks are the risks associated directly with its activity, which is strictly regulated. They include:

Regulatory risk

Regulatory risk exists both in respect of the telecommunications regulation and the general regulation in the area of competition law. The regulatory practice of the Commission for Protection of Competition (CPC) and that of the Communications Regulation Commission (CRC) is not always concerted and can provoke conflicting decisions in the area of electronic communications. This could result in market uncertainty, lack of clear criteria and in many cases could lead to excessive regulation for VIVACOM.

Following market analyses procedures that were carried out by the Communications Regulation Commission, VIVACOM was recognized as a company having significant market power (SMP) on the following markets: origination and termination on fixed network, access and local, long distance and international calls for fixed voice service, call termination for the mobile voice service. VIVACOM is still obliged to have and officially publish standard offers for interconnection, unbundling access to the subscription line. In addition VIVACOM was obliged to provide another wholesale services – wholesale line rental, bitstream, leased lines, duct rental and collocation of equipment.

The lack of strict regulation allows the mobile operators with dominant position to provide many complex and bundled offers at lower prices than the one VIVACOM is allowed to provide due to its regulated activity.

Fixed Number Portability (FNP) was officially launched in July 2009. In 2012 the CRC made amendments to the fixed portability process. The risk associated with this process is a possible decrease of the number of VIVACOM’s subscribers of fixed voice service as well as the possibility of Vivacom’s subscribers to port out their numbers without paying penalties.

Potential risks during the course of the year could be the appeal of VIVACOM’s new commercial offers and converged services in the CPC. It should be noted that in case of infringement, CPC has power to stop services and advertisements which may affect the whole sector.

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F-52 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

Unfair competition

Unfair competition from a number of alternative operators poses a risk to the Company. Their typical behaviour is anti-competitive associations for concerted market behaviour, forbidden and hidden advertising, negative advertising and unfair acquisition of clients as a result of the low price promotions.

From the perspective of competition law as a major risk may be indicated that different operators tend to attack advertising campaigns of their competitors before CPC. Also different associations and NGOs are used as a cover for collusive practices of competitors.

As current trends in the sector may be indicated that this year we expect CPC to consider some legal disputes related to market of broadcasting of television programs.

There still exists the problem that some operators that provide internet access build their cable networks in contradiction with imperative stipulation of Bulgarian legislation. Examples of such practices are networks built over the air in cities with more than 10 000 inhabitants, in violation of the Electronic Communications Act.

Proliferation of illegal content by TV operators which underreport the number of their subscribers and thus not paying the full price for content represents risk for the Company and the industry as a whole.

Legal framework

More market analyses of CRC are due to become effective which shall most probably confirm some of VIVACOM’s existing specific obligations.

The measures which the CPC may impose will have material weight and in practice could affect seriously not only one company but the whole sector. The maximum amount of pecuniary penalties could reach 10% of a company’s turnover.

Credit risks

Credit risks or the risk of counterparty defaulting is reduced partly by the application of monthly subscription, credit limits and monitoring procedures. The Company has a policy of obtaining collateral from its retail customers where risk is perceived and from distributors. Credit risk is managed on VIVACOM Group level. The credit exposure of VIVACOM consists of the total value of trade and other receivables and short-term deposits. There is no significant concentration of credit risk related to accounts receivable.

Liquidity risks

Liquidity risk arises from the mismatch of contractual maturity of monetary assets and liabilities and the possibility that debtors may not be able to settle obligations to the Company within the normal terms of trade. To manage such risk, the Company uses planning techniques, including but not limited to, arrangement of overdraft facilities, daily liquidity reports, and short and medium-term cash forecasts.

Currency risk

The main objective of Company currency risk management is to minimise adverse effects of market volatility on exchange rates so as to provide the maximum value of foreign currency net income and under approved risk level.

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F-53 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

Currency risk (continued)

Due to the fact that the companies within Vivacom Group use mainly BGN and EUR as operating currencies they are not significantly exposed to currency risk. Most of the income is generated in BGN while long term borrowings, interest expenses and part of the capital expenses are in EUR. This mismatch has not been a problem for the past 15 years as the Bulgarian lev is pegged to the euro. At the same time the stability of the currency board needs to be monitored closely since a potential free floating of the local currency and devaluation of the Lev will significantly affect the financial situation of the Group.

Company identifies currency risk, arising as a result of significant exposure in USD. According to the Treasury policy of the Company and in compliance with its foreign exchange risk management strategy, the foreign exchange risk arising from the highly probable forecasted purchases is hedged. The hedges are cash flow hedges and classified as financial assets at fair value through profit or loss.

When significant foreign currency exposure arises, the Company takes into account the following factors: • Future outlook on volatility of financial market variables. These are modelled by Treasury and in accordance with best practice analytical techniques and economic models; • ȿffect of the given foreign exchange exposure on total Company financial results; • Cost of foreign exchange exposure hedging

Vivacom’s Treasury department uses mainly forward contracts to hedge foreign exchange risk. All derivatives are entered into with credible counterparties and are in compliance with the Treasury policy of the Company.

Other specific risks

Other specific risk identified by the management is the risk of unethical behavior of employees of the Company. To address this risk the management has developed and adopted a Code of Ethics that entered into force on July 1, 2010. It guides the employees to act responsibly, ethically and lawfully and in compliance with the Code of Ethics, as well as all other policies, laws and regulations that apply to the Company.

5. IMPORTANT EVENTS AFTER THE REPORTING PERIOD

On 16 January 2013 Viva Telecom Bulgaria EAD has submitted to the Financial Supervision Commission a corrected tender offer for the acquisition of all voting shares issued by Vivacom pursuant to Art. 149, Para 1, item 1, Para 6 and 7 of Public Offering of Securities Act. As a result of the tender offer Viva Telecom Bulgaria EAD increased its stake in VIVACOM to 99.72%.

6. EXPECTED DEVELOPMENT

In 2013 the activity of the Group will continue to be carried out in accordance with the main objectives of the Company:

x VIVACOM will continue to work on consolidating its position as mobile data market leader by further investments in its 3G network; x VIVACOM will continue to deploy its fibre network and to develop its portfolio of Internet services in order to support today's growing demands for high speed bandwidth capacity; x VIVACOM plans to continue the investments in high quality digital television services;

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F-54 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

II. INFORMATION ABOUT THE COMPANY’S BOARD OF DIRECTORS AND SUPERVISORY BOARD.

1. Changes in the Company’s Managing Board and Supervisory Board.

From the beginning of the financial year to the end of the reporting period there were no changes in the managing and supervisory bodies of the Company.

2. Members of the Company’s Managing Board and Supervisory Board at 31 December 2012 a) At 31 December 2012 the members of the Managing Board of VIVACOM are:

Mr. Pierre François Georges Mellinger - Chairman of the Managing Board Mr. Bernard Jean Luc Moscheni - Member of the Managing Board and Chief Executive Officer Mr. Rossen Borisov Hadjiev - Member of the Managing Board Mr. Tomasz Jakub Wojtaszek - Member of the Managing Board Mr. Donald Weir Muir - Member of the Managing Board b) At 31 December 2012 the members of the Supervisory Board of VIVACOM are:

Mr. Vladimir Penkov Penkov - Chairman of the Supervisory Board Mr. Ivan Lyubomirov Markov - Member of the Supervisory Board Ms. Krasimira Stoyanova - Member of the Supervisory Board

3. The members of the Managing Board and the Supervisory Board have not received remuneration, awards and/or other benefits paid by the Company or its subsidiaries for 2012. The remunerations of the management team are disclosed in the financial statements.

4. The members of the Managing Board, the Supervisory Board and the senior management of the Company did not acquire, hold and transfer shares and bonds of VIVACOM in 2012. The members of the Managing Board and the Supervisory Board are not entitled to acquire shares or bonds of VIVACOM.

5. Participation of the members of the Managing Board and the Supervisory Board in companies as general partners, holdings of more than 25% of the capital in another company, as well as participations in the management of other companies or co-operations as procurators, managing directors or board members is duly disclosed in accordance with the provisions of the Commerce Act and the Public Offering of Securities Act.

6. The contracts referred to in Article 240b of the Commerce Act were concluded in 2012 after the due authorization by the Managing Board of VIVACOM.

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F-55 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

III. INFORMATION ABOUT THE COMPANY’S SHARES

Changes in the prices of shares

The chart below shows the changes in the price of the Company’s shares in 2012.

BTC (5BT) 2012 - Price / Volume

Volume Price Volume BGN

1 200 000 7.00

6.00 1 000 000

5.00

800 000

4.00

600 000

3.00

400 000

2.00

200 000 1.00

0 0.00

Number and nominal value of the shares

The share capital of VIVACOM is comprised of 288,764,839 ordinary registered shares and one preferential share owned by the State through the Ministry of Transport, Information Technology and Communications. The nominal value of one share is BGN 1.

The sale of 271 423 451 shares in Vivacom, which Viva Telecom Bulgaria EAD acquired on November 9, 2012, is part of a series of transactions connected with the restructuring of the debt of the Company and its group (i.e. NEF Telecom Company B.V. and its subsidiary companies "Old Vivacom Group"), which are regulated by the schemes of arrangement governed by the English law. Under the English law a scheme of arrangement is an agreement between the company and its creditors that is approved by a court. Although the Old Vivacom Group companies are not incorporated under the English law, the fact that these companies are parties to the Senior Facilities Agreement, governed by the English law, is sufficient for the applicability of the English law scheme of arrangement to the Old Vivacom Group.

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F-56 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

In this particular case the scheme of arrangement in relation to NEF Telecom Company B.V. and the scheme of arrangement in relation to Vivacom are bundled in a single document (the Schemes), which is submitted to the High court of England and Wales on 8 August 2012. The Old Vivacom Group companies, the companies of its parent companies as well as the creditors of the Old Vivacom Group consented to be bound by Schemes. The High court of England and Wales approved the Schemes on 6 September 2012.

The Ultimate Parent Company is V Telecom Investment S.C.A. (“V Telecom”) which indirectly owns 100% of the shares of Viva Telecom Bulgaria EAD which is the Parent of the Company as at 31 December 2012. As per the publicly disclosed tender offer documentation published by Viva Telecom Bulgaria EAD on 28 January 2013 there are two shareholders which own more than 5% of the share capital of V Telecom none of which exercise control over V Telecom: Bromak EOOD (wholly owned by Mr Tsvetan Radoev Vasilev) holding 43,264% of the share capital of V Telecom and Crusher Investment Limited (indirectly wholly owned by OJSC VTB Bank which is majority owned by the Russian Federation) holding 33,307% of the share capital of V Telecom, and a number of shareholders (being lenders of the present and/or previous owners of the Company’s group companies) holding less than 5% share individually.

Viva Telecom Bulgaria EAD increased its shareholding by 288, 765 shares to 94.09% of Vivacom shares in two transactions on 14 November 2012 with a settlement date of 15 November 2012.

In 2013 Viva Telecom Bulgaria EAD increased its shareholding by 16, 247, 640 shares to 99.72% of Vivacom shares as a result of the tender offer.

18

F-57 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2012

IV. INFORMATION ABOUT GOOD CORPORATE GOVERNANCE PROGRAM IMPLEMENTATION

Since 2005 VIVACOM has had and has adhered to a program for application of internationally recognized standards for good corporate governance.

VIVACOM complied, in all material respects, throughout the period under review, with the legal requirements for public companies and with the best practices and principles applicable to Bulgarian companies.

Internal control

The Managing Board of VIVACOM exercises independent supervision over the activities and the internal control established by the Company. The Internal Audit Department was established in 2005 and began operating the same year. The objective of the internal control system is to manage rather than eliminate the risk of failure to achieve corporate objectives. Accordingly, it can only provide reasonable, but not absolute, assurance against possible misstatements and losses. The Managing Board of VIVACOM ensured ongoing identification, evaluation and management of the material risks faced by the business. At the General Meeting of Shareholders held on 29 June 2009 a decision was taken for establishing an Audit Committee with liabilities and responsibilities according to the Independent Financial Audit Act.

V. ADDITIONAL INFORMATION

1. The Company has no branches in the country or abroad.

2. General information on the capital structure of the Company, the rights and the obligations of the shareholders, the managing and the supervisory bodies of the Company can be found in the document prepared in accordance with item 4 of Article 32 (1) and Appendix No. 11 of Ordinance No. 2 of 17 September 2003 regarding the prospectuses upon public offering and admission to trade on a regulated market of securities and information disclosure from publicly listed companies and other issuers of securities.

3. The Company has no information about pending judicial, administrative or arbitration proceedings regarding liabilities or receivables of the Company amounting to at least 10% of its equity.

4. Data about the Investor Relations Director:

Bogdan Bogdanov

115I “Tsarigradsko Shose” blvd. “Hermes Park – Sofia”, Building A, 1784 Sofia, Bulgaria Tel. +359 2 949 4331 ȿ-mail: [email protected]

19

F-58 F-59 F-60 F-61 F-62 F-63 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

1. General information

The Parent Company – Bulgarian Telecommunications Company AD

Bulgarian Telecommunications Company AD (“BTC”, the “Parent Company” the “Company” or “Vivacom”) is a public joint stock company, domiciled in Bulgaria, with its registration address: 115 I, Tzarigradsko shausse Blvd, Hermes park, building A, 1784 Sofia. BTC’s activities include development, operation and maintenance of the national fixed and mobile network and data system for the Republic of Bulgaria.

The Ultimate Parent Company is V Telecom Investment S.C.A. (“V Telecom”) which indirectly owns 100% of the shares of Viva Telecom Bulgaria EAD which is the Parent of the Company as at 31 December 2012. As per the publicly disclosed tender offer documentation published by Viva Telecom Bulgaria EAD on 28 January 2013 there are two shareholders which own more than 5% of the share capital of V Telecom none of which exercise control over V Telecom: Bromak EOOD (wholly owned by Mr Tsvetan Radoev Vasilev) holding 43,264% of the share capital of V Telecom and Crusher Investment Limited (indirectly wholly owned by OJSC VTB Bank which is majority owned by the Russian Federation) holding 33,307% of the share capital of V Telecom, and a number of shareholders (being lenders of the present and/or previous owners of the Company’s group companies) holding less than 5% share individually.

As of 31 December, 2012 and 2011 the Parent company had 3,406 and 3,253 employees, respectively.

As a result of the privatization transaction concluded on 20 February 2004 between the Privatization Agency of Republic of Bulgaria and Viva Ventures Holding GmbH, Austria (‘Viva Ventures’) which was finalized on June 11, 2004, 65% of the Company’s registered shares were acquired by Viva Ventures. Viva Ventures was 100% owned by Advent International Corporation, a global private equity investment fund.

On May 3, 2007 an agreement between Novator, Viva Ventures and AIG Global Investment Group (AIGGIG) (through its company AIG Capital Partners, Inc.) was signed for the acquisition on behalf of AIGGIG of the 65% share of Viva Ventures in BTC. On August 21, 2007 a deal on the acquisition by AIGGIG through NEF Telecom Bulgaria OOD (‘NEF’) of the 90% share of BTC from Viva Ventures and from minority shareholders has been registered after obtaining the respective approvals on behalf of EU and other regulatory bodies.

As a result of the approval of a comprehensive scheme for the sale and restructuring of BTC group with its creditors on 9 November 2012 Viva Telecom Bulgaria EAD acquired 93.99% of BTC shares following the receipt of relevant EC and other regulatory approvals.

The Group

As at 31 December 2012 and 2011 the Group includes the subsidiary entity BTC Net EOOD.

BTC Security EOOD/ Renamed to BTC Net EOOD

The subsidiary was registered in the Register of commercial companies of Sofia City Court on 27 October 2004 with share capital of BGN 5 thousand. Its main activity is provision of security services to BTC AD and the companies controlled by it. BTC is the sole owner of this company.

The registered subject of business activity of BTC Net is building and operation of data transfer networks for the provision of domestic and international value added services and sale of telecommunication network facilities, development and exploitation of other telecommunication networks, and provision of other telecommunications services, as well as any other commercial activities.

25 F-64 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

1. General information (continued)

On September 30, 2009 BTC Net EOOD was merged into BTC Security. The legal merger of the entities was registered in the Commercial Register on October 15, 2009. As a result, BTC Net has ceased to exist as a separate legal entity, by virtue of law BTC Security has become universal legal successor of BTC Net and all assets, rights and obligations of BTC Net have passed to BTC automatically as of that date.

On October 16, 2009 the successor BTC Security was renamed to BTC Net.

Regulations

Regulatory framework x Fixed line telecommunications

In May 2007 a new Electronic Communications Act (ECA) was adopted, which implemented the new EU 2002 regulatory framework in the field of electronic communications.

In 2008 the following secondary legislation acts which play significant role in the activities of BTC were adopted: - Methodology for determination of prices and price packages of Universal service (US); - Ordinance No 6 for the requirements and the quality parameters of US, special measures for disabled people and terms and conditions for selection of undertakings providing universal service; - Functional specifications for portability of geographic numbers when changing the supplier of fixed telephony service and/or changing the address within one geographic national code; - Rules for provision of carrier selection service; - Methodology for the terms and conditions for defining, analyzing and evaluation of the relevant markets and criteria for defining undertakings with significant market power.

In 2009 the preparation and adoption of secondary legislation acts continued and Ordinance No 1 for the terms and conditions for carrying out access and interconnection was also adopted.

According to the procedures set out in ECA and the Methodology for market definition and analysis the Communications Regulation Commission (CRC) sent notifications to the European Commission for the following market analyses: - Access to fixed voice telephony services and markets of local, long distance and international calls; - Markets for origination and termination in fixed networks; - Market for termination in mobile networks

In 2010 secondary legislation was developed through modification of already existing ordinances and through issuing of new ones: - Ordinance ʋ 1 of 22 July 2010 for distribution rules and procedures for primary and secondary provision for use, reservation and withdrawal of numbers, addresses and names; - Amendment of Ordinance ʋ 1 on the procedures for accessing and / or interconnection; - Amendment of Functional specifications for the implementation of portability of nationally significant numbers for changing of service provider of public mobile telephone service; - Amendment of functional specifications for the implementation of portability of non-geographic numbers when changing service provider providing the service - Amendment of functional specifications for portability of geographic numbers for switching to a fixed telephone service and / or change of address within a geographic country code for direction.

In December 2011 a new Law Amendment of ECA was adopted, which implemented the new EU 2009 regulatory framework in the field of electronic communications.

26 F-65 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

1. General information (continued)

Regulations (continued)

In 2011 the Communications Regulation Commission (CRC) sent notifications to the European Commission for the following market analyses: - Market for wholesale (physical) network infrastructure access - Market for wholesale broadband access

In 2012 the following secondary legislation acts were adopted or modified: - Methodology for the terms and procedure of relevant markets definition, analysis and assessment, and criteria for designating undertakings with significant market power - Ⱥmendment of Functional specifications for portability of geographic numbers when changing the supplier of fixed telephony service and/or changing the address within one geographic national code - Amendment of Ordinance no 6 for the universal service according to law of electronic communication - Amendment of ordinance ʋ 1 of 22 July 2010 for distribution rules and procedures for primary and secondary provision for use, reservation and withdrawal of numbers, addresses and names; - Amendment of general requirements for provision of public electronic communications - Amendment of rules for the conditions and procedure for transferring of authorizations for use of individually assigned scarce resource

In 2012 the Communications Regulation Commission (CRC) sent notifications to the European Commission for the following market analyses: - Markets for origination and termination in fixed networks; - Market for termination in mobile networks - Market for terminating segment of leased lines - Market for trunk segment of leased lines - Market for retail leased lines

Licenses x Fixed line communications

On 28 January 2005 the CRC re-issued BTC’s license for usage and development of telecommunications network on the territory of Bulgaria and rendering of telecommunication services through the network. The term of the license is until February 2019.

An annual license fee, calculated on the base of the annual revenue from telecommunication services billed to subscribers is payable quarterly in arrears. During 2012 and 2011 the annual fee is 0.2% of nominal annual revenue from provision of electronic communications networks and/or services without VAT included and after deduction of transferring payments to other companies for interconnection of networks and access, transit, roaming, valuated services, as well as expenses for settling copyrights and related rights for radio and television programs.

An annual fee is to be paid to the CRC for access to limited frequency resources such as the radio- frequency spectrum. This fee is calculated on the basis of technical data and is payable quarterly in arrears as well. During 2012 and 2011 the fee was BGN 2,720 thousand and BGN 2,499 thousand, respectively. The fees are regulated by the CRC and relevant Council of Ministers Ordinances.

27 F-66 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

1. General information (continued)

Regulations (continued)

x Mobile telecommunications

In June 2004 the Communications Regulation Commission (CRC) granted BTC AD the license for building, exploitation and maintenance of a cellular mobile telecommunications network under the GSM standard with national coverage. The issued license is valid for the period of 20 years and granted the right of using radio frequency 900 and 1 800 MHz. According to the license BTC AD undertook the commitment to ensure coverage of not less than 20% of the population within 12 months, not less than 40% within 24 months and not less than 65% within 3 years. BTC paid BGN 54,160 thousand for the GSM license.

In June 2005 BTC AD transferred the license to BTC Mobile after the CRC’s approval.

In April 2005 CRC granted BTC AD the license for building cellular mobile telecommunication network under the UMTS standard with national coverage. The issued license is valid for 20 years and gives the right to use the following radio frequencies: x 1930 – 1935 MHZ (total of 5 MHz) for the territory of Bulgaria for transmitting from end mobile devices to base stations; x 2120 – 2125 MHz (total of 5 MHz) for the territory of Bulgaria for transmitting from base stations to end mobile devices; and x 2015 – 2020 MHz (total of 5 MHz) for the territory of Bulgaria

According to the license BTC AD undertook the commitment to ensure coverage of not less than 15% of the population within 2 years and 144 kbps guaranteed speed of information transfer and not less than 50% within 5 years and 144 kbps guaranteed speed of information transfer and for Sofia, Plovdiv, Varna, Bourgas and Ruse the guaranteed speed of information transfer has to be minimum 384 kbps. BTC paid BGN 42,000 thousand for the UMTS license. In August 2006 BTC AD transferred the license to BTC Mobile after the CRC’s approval.

Based on the filed application, with decision No 1391 from 04 August 2008 CRC approved the transfer of both the licenses to BTC and the respective permission for using individually determined limited resource was issued consequently.

In 2012 CRC granted BTC AD an additional spectrum of 5 MHz and exchanged the position of previously submitted spectrum. At present BTC has the right to use the following spectrum: x 1945 – 1955 MHZ (total of 10 MHz) for the territory of Bulgaria for transmitting from end mobile devices to base stations; x 2135 – 2145 MHz (total of 10 MHz) for the territory of Bulgaria for transmitting from base stations to end mobile devices; and x 2015 – 2020 MHz (total of 5 MHz) for the territory of Bulgaria

An annual fee, calculated based on the annual revenue from telecommunication services provided to the subscribers is paid quarterly. In 2012 and 2011 the annual fee is 0.2% from the annual gross revenue from providing electronic communication networks and/of services, VAT excluded after subtracting the transfer payments to other companies for interconnection of networks and access, transit, roaming, value- added services, as well as costs for authority and related rights for radio and television programmes.

For 2012 and 2011 the fees paid for frequency bands for the GSM license were respectively BGN 4,028 thousand and BGN 4,031 thousand and for the UMTS license - BGN 1,679 thousand and BGN 1,425 thousand.

28 F-67 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated and separate financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated

2.1. Basis of preparation

The consolidated and separate financial statements of BTC have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union.

The financial statements have been prepared under the historical cost convention, as modified for the revaluation of land and available-for-sale financial assets at fair value through other comprehensive income, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. Consolidated financial information, including subsidiaries, has been prepared using uniform accounting policies for similar transactions and other events in similar circumstances.

The presentation of the financial statements requires management to make the critical accounting estimates, accruals and assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates (Note 4).

ƒ New and amended standards adopted by the group

There are no new standards and amendments to standards accepted by the Group for application for the financial year, beginning 1 January 2012.

ƒ Amendments effective in 2012 but not relevant:

The following improvements and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2012 but are not relevant to the Group’s operations(although they may affect the accounting for future transactions and events):

Disclosures—Transfers of Financial Assets – Amendments to IFRS 7 (issued in October 2010 and effective for annual periods beginning on or after 1 July 2011). The amendment requires additional disclosures in respect of risk exposures arising from transferred financial assets. The amendment includes a requirement to disclose by class of asset the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party, yet remain on the entity's balance sheet. Disclosures are also required to enable a user to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. Where financial assets have been derecognized, but the entity is still exposed to certain risks and rewards associated with the transferred asset, additional disclosure is required to enable the effects of those risks to be understood. The Group does not expect the amendments to have any material effect on its financial statements.

29 F-68 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

ƒ Standards, amendments and interpretations to existing standards that are not effective and have not been early adopted:

IFRS 10, Consolidated Financial Statements (issued in May 2011 and effective for annual periods beginning on or after 1 January 2014), replaces all of the guidance on control and consolidation in IAS 27 “Consolidated and separate financial statements” and SIC-12 “Consolidation - special purpose entities”. IFRS 10 changes the definition of control so that the same criteria are applied to all entities to determine control. This definition is supported by extensive application guidance. The Group does not expect the new standard to have any material effect on its financial statements.

IFRS 12, Disclosure of Interest in Other Entities, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2014), applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. IFRS 12 sets out the required disclosures for entities reporting under the two new standards: IFRS 10, Consolidated financial statements, and IFRS 11, Joint arrangements, and replaces the disclosure requirements currently found in IAS 28, Investments in associates. IFRS 12 requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. To meet these objectives, the new standard requires disclosures in a number of areas, including significant judgments and assumptions made in determining whether an entity controls, jointly controls, or significantly influences its interests in other entities, extended disclosures on share of non-controlling interests in group activities and cash flows, summarized financial information of subsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities. The Group does not expect the new standard to have any material effect on its financial statements.

IFRS 13, Fair value measurement, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), aims to improve consistency and reduce complexity by providing a revised definition of fair value, and a single source of fair value measurement and disclosure requirements for use across IFRSs. The Group is currently assessing the impact of the standard on its financial statements.

IAS 27, Separate Financial Statements, (revised in May 2011 and effective for annual periods beginning on or after 1 January 2014), was changed and its objective is now to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The guidance on control and consolidated financial statements was replaced by IFRS 10, Consolidated Financial Statements. The Group does not expect the new standard to have any material effect on its financial statements.

Amendments to IAS 1, Presentation of Financial Statements (issued June 2011, effective for annual periods beginning on or after 1 July 2012), changes the disclosure of items presented in other comprehensive income. The amendments require entities to separate items presented in other comprehensive income into two groups, based on whether or not they may be reclassified to profit or loss in the future. The suggested title used by IAS 1 has changed to ‘statement of profit or loss and other comprehensive income’. The Group expects the amended standard to change presentation of its financial statements, but have no impact on measurement of transactions and balances.

30 F-69 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

ƒ Standards, amendments and interpretations to existing standards that are not effective and have not been early adopted (continued):

Amended IAS 19, Employee Benefits (issued in June 2011, effective for periods beginning on or after 1 January 2013), makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits. The standard requires recognition of all changes in the net defined benefit liability (asset) when they occur, as follows: (i) service cost and net interest in profit or loss; and (ii) remeasurements in other comprehensive income. The Group is currently assessing the impact of the amended standard on its financial statements.

Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2014). The amendment added application guidance to IAS 32 to address inconsistencies identified in applying some of the offsetting criteria. This includes clarifying the meaning of ‘currently has a legally enforceable right of set-off’ and that some gross settlement systems may be considered equivalent to net settlement. The Group is considering the implications of the amendment, the impact on the Group and the timing of its adoption by the Group.

Disclosures—Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2013). The amendment requires disclosures that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off. The amendment will have an impact on disclosures but will have no effect on measurement and recognition of financial instruments.

Other changes in standards and interpretations, which are not expected to have any impact on these financial statements:

IFRS 1 “First time adoption of IFRS – amendment regarding severe hyperinflation and elimination of references to fixed dates for some exceptions and exemptions (issued in December 2010 and effective for annual periods beginning on or after 1 January 2013).

IAS 12 “Income tax” (issued in December 2010 and effective for annual periods beginning on or after 1 January 2013) – the amendment introduced a rebuttable presumption that an investment property carried at fair value is recovered entirely through sale.

IFRS 11, Joint Arrangements, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2014).

IAS 28, Investments in Associates and Joint Ventures, (revised in May 2011 and effective for annual periods beginning on or after 1 January 2014) - accounting for investments in joint ventures using the equity method.

IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, (issued in October 2011 and effective for annual periods beginning on or after 1 January 2013).

Amendments to IFRS 1 First-time adoption of International Financial Reporting Standards - Government loans (effective for annual periods beginning on or after 1 January 2013). The amendments, dealing with loans received from governments at a below market rate of interest, give first-time adopters of IFRSs relief from full retrospective application of IFRSs when accounting for these loans on transition. This will give first-time adopters the same relief as existing preparers.

31 F-70 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

x New or Revised Standards & Interpretations not yet endorsed by the European Union

IFRS 9, Financial Instruments: Classification and Measurement. IFRS 9, issued in November 2009, replaces those parts of IAS 39 relating to the classification and measurement of financial assets. IFRS 9 was further amended in October 2010 to address the classification and measurement of financial liabilities and in December 2011 to (i) change its effective date to annual periods beginning on or after 1 January 2015 and (ii) add transition disclosures. Key features of the standard are as follows:

• Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.

• An instrument is subsequently measured at amortized cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent payments of principal and interest only (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss.

• All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognize unrealized and realized fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by- instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment.

• Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.

Improvements to International Financial Reporting Standards (issued in May 2012 and effective for annual periods beginning 1 January 2013). The improvements consist of changes to five standards. IFRS 1 was amended to (i) clarify that an entity that resumes preparing its IFRS financial statements may either repeatedly apply IFRS 1 or apply all IFRSs retrospectively as if it had never stopped applying them, and (ii) to add an exemption from applying IAS 23, Borrowing costs, retrospectively by first-time adopters. IAS 1 was amended to clarify that explanatory notes are not required to support the third balance sheet presented at the beginning of the preceding period when it is provided because it was materially impacted by a retrospective restatement, changes in accounting policies or reclassifications for presentation purposes, while explanatory notes will be required when an entity voluntarily decides to provide additional comparative statements. IAS 16 was amended to clarify that servicing equipment that is used for more than one period is classified as property, plant and equipment rather than inventory.

32 F-71 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

x New or Revised Standards & Interpretations not yet endorsed by the European Union (continued)

IAS 32 was amended to clarify that certain tax consequences of distributions to owners should be accounted for in the income statement as was always required by IAS 12. IAS 34 was amended to bring its requirements in line with IFRS 8. IAS 34 will require disclosure of a measure of total assets and liabilities for an operating segment only if such information is regularly provided to chief operating decision maker and there has been a material change in those measures since the last annual financial statements.

Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12 (issued on 28 June 2012 and effective for annual periods beginning 1 January 2013). The amendments clarify the transition guidance in IFRS 10 Consolidated Financial Statements. Entities adopting IFRS 10 should assess control at the first day of the annual period in which IFRS 10 is adopted, and if the consolidation conclusion under IFRS 10 differs from IAS 27 and SIC 12, the immediately preceding comparative period (that is, year 2012 for a calendar year-end entity that adopts IFRS 10 in 2013) is restated, unless impracticable. The amendments also provide additional transition relief in IFRS 10, IFRS 11, Joint Arrangements, and IFRS 12, Disclosure of Interests in Other Entities, by limiting the requirement to provide adjusted comparative information only for the immediately preceding comparative period. Further, the amendments will remove the requirement to present comparative information for disclosures related to unconsolidated structured entities for periods before IFRS 12 is first applied.

Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment entities (issued on 31 October 2012 and effective for annual periods beginning 1 January 2014). The amendment introduced a definition of an investment entity as an entity that (i) obtains funds from investors for the purpose of providing them with investment management services, (ii) commits to its investors that its business purpose is to invest funds solely for capital appreciation or investment income and (iii) measures and evaluates its investments on a fair value basis. An investment entity will be required to account for its subsidiaries at fair value through profit or loss, and to consolidate only those subsidiaries that provide services that are related to the entity's investment activities. IFRS 12 was amended to introduce new disclosures, including any significant judgments made in determining whether an entity is an investment entity and information about financial or other support to an unconsolidated subsidiary, whether intended or already provided to the subsidiary.

Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the Group’s consolidated financial statements.

33 F-72 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.2. Consolidation

Subsidiaries A subsidiary is an entity that is directly or indirectly controlled by the Company. Control is the power to govern the financial and operational policies of the subsidiary for obtaining benefits from its activities – generally accompanying a shareholding of more than one half of voting rights.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identi¿able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the group’s share of the identi¿able net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income.

For consolidation purposes, the separate financial statements of the Company and its subsidiaries have been combined on a line-by-line basis by adding together like items of assets, liabilities, income and expenses. Inter-company transactions and resulting profits or losses as of 31 December, 2012 and 2011, including unrealized profits at the year end, have been eliminated in full.

Joint ventures As at 31 December 2010 the Company had an interest in a joint venture which is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The agreement requires unanimous agreement for financial and operating decisions among the venturers.

The Group reports its interests in jointly controlled entities using the equity method. The financial statements of the joint venture are prepared for the same reporting period as the Group. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

2.3. Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors who make strategic decisions.

2.4. Functional and Presentation Currency Functional and Presentation Currency These financial statements are prepared in thousand Bulgarian Levs (BGN), unless otherwise stated, whereas the Bulgarian Lev has been accepted as presentation currency for the presentation of Group’s consolidated financial statements.

Effective from 1 January 2000, the Bulgarian Lev was fixed to the EUR at a rate BGN 1.95583 = EUR 1.00. The Bulgarian National Bank (“BNB”) determines the exchange rate of the BGN to the other currencies using the rate of the EUR to the respective currency, quoted at the international markets.

34 F-73 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.4. Functional and Presentation Currency (continued)

Transactions and balances Foreign currency transactions are accounted for in BGN at the exchange rate at the date of the transaction. Monetary assets and liabilities, denominated in foreign currency at 31 December, are translated at the closing exchange rate of BNB as at that date.

The foreign currency exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognized in the statement of comprehensive income as “finance income/costs” at the moment when they arise, except when deferred in equity as qualifying cash flow hedges. Financial instruments, denominated in foreign currency as at 31 December are reported in these financial statements at the closing exchange rate of BNB.

Non-monetary reporting items in the balance sheet, which have been denominated in a foreign currency on initial recognition, are recorded in the functional currency by applying the historical exchange rate of BNB at the date of the transaction and are not subsequently revalued at closing exchange rate.

2.5. Property, plant and equipment

Initial measurement Upon their initial acquisition property, plant and equipment are valued at acquisition cost, which comprises the purchase price, including customs duties and any directly attributable costs of bringing the asset to a suitable condition for its intended use. Directly attributable costs comprise mainly the costs of site preparation, initial delivery and handling costs, installation costs, professional fees for people related to the project, non-refundable taxes, etc.

As disclosed in Note 15 a provision for decommissioning costs associated with mobile sites is capitalized in the cost of the sites at the amount of the present value of the estimated decommissioning costs.

Subsequent measurement The chosen approach for subsequent measurement of property, plant and equipment, is the cost model under IAS 16, i.e. cost less any accumulated depreciation and any accumulated impairment losses in value. Land is an exception to this rule and is revalued at fair value.

Revaluation of land is performed by independent certified appraisers usually every three years. When there is an indication of material changes in their fair value in shorter intervals, the revaluation may be performed at shorter intervals.

Increases in the carrying amount arising on revaluation of land are credited to revaluation reserves in shareholders’ equity. As disclosed in Note 2.8 decreases that offset previous increases of the same asset are charged against revaluation reserves directly in equity. All other decreases are charged to the profit or loss for the period as other operating expenses.

Subsequent costs Repair and maintenance costs are recognized as current expenses as incurred. Subsequent expenses incurred in relation to property, plant and equipment having the nature of replacement of certain components, significant parts and aggregates or improvements and restructuring, are capitalized in the carrying amount of the respective asset whereas the residual useful life is reviewed at the capitalisation date. At the same time, the non-depreciated part of the replaced components is derecognised from the carrying amount of the assets and is recognised in the current expenses for the period of replacement.

35 F-74 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.5. Property, plant and equipment (continued)

Upon sale or disposal of property, plant and equipment, the cost and related accumulated depreciation is removed from the accounts.

Gains or losses on sale (disposal) are determined as the difference between the amounts received and the carrying amount of the asset and are presented net under “Other gains/(losses), net” in the statement of comprehensive income. When revalued assets are sold, the amount of the revaluation reserve is transferred to “Retained earnings”.

Depreciation Property, plant and equipment are depreciated by using the straight-line method over the estimated useful life of the asset. Depreciation of an asset begins when it is available for use. Land is not depreciated. The useful life of the classes of assets is determined in accordance with their physical wear, the characteristic features of the equipment, the future intentions for use and the expected obsolescence.

The estimated useful lives of the major classes of property, plant and equipment are as follows:

Class Useful life Switches 4–12 years Transmission, distribution and remote switching 15–25 years Optic cables 15–25 years Mobile network 6–15 years General support* 3–25 years *General support represents mainly administrative buildings, furniture and other IT environment

The useful life, set for any tangible fixed asset, is reviewed at each year-end and in case of any material deviation from the future expectations of their period of use, the latter is adjusted prospectively.

2.6. Intangible assets

Software and licenses Software and licenses are the main items comprising intangible assets. Intangible assets are measured initially at cost. Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be reliably measured. After initial recognition, intangible assets are measured at cost less accumulated amortization and any impairment losses. Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives. The useful life of licenses is from 5 years to 20 years. The useful life of software is from 2 years to 10 years.

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the group are recognised as intangible assets when the following criteria are met:

- it is technically feasible to complete the software product so that it will be available for use; - management intends to complete the software product and use or sell it; - there is an ability to use or sell the software product; - it can be demonstrated how the software product will generate probable future economic benefits; - adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and - the expenditure attributable to the software product during its development can be reliably measured.

36 F-75 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.6. Intangible assets (continued)

Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment.

BTC considers its operations as comprising two cash generating units – fixed and mobile business, to which the goodwill is allocated.

Distribution network Distribution network acquired in a business combination is recognized at fair value at the acquisition date. The Distribution Network has a finite useful life and is carried at cost less accumulated amortization and any impairment losses. Amortization is calculated using the straight-line method over the expected useful life.

Subscriber acquisition/retention costs Customer acquisition and retention expenses are capitalized and amortized over the minimum enforceable contractual period, using the straight line method.

2.7 Investments

In the separate financial statements investments in subsidiaries and joint ventures are accounted for at cost of acquisition, less impairment, if any. The cost of an acquisition is measured at the fair value of the consideration given, the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.

Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.

Joint venture is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity.

Under the cost method of accounting the investor recognizes income from the investment only to the extent that the investor receives distributions from accumulated profits of the investee arising after the date of acquisition. Distributions received in excess of such profits are regarded as a recovery of investment and are recognized as a reduction of the cost of the investment.

37 F-76 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.8. Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

Impairment losses are recognised in the profit or loss for the period as other operating expenses, except for land previously revalued where the revaluation was taken to equity. In this case the impairment is also recognised in equity up to the amount of any previous revaluation.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses of assets may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of comprehensive income as reduction of other operating expenses unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.

2.9. Non-current assets (or disposal groups) held for sale

Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use.

2.10. Financial instruments

Financial assets The Group classifies its financial assets in the following categories: ‘at fair value through profit or loss’, ‘loans and receivables’, including cash and cash equivalents, and ‘available-for-sale assets’. The classification depends on the substance and purpose (designation) of the financial assets at the date of their acquisition. The management of each Group company determines the classification of its financial assets at the date of their initial recognition in the balance sheet.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.

38 F-77 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.10. Financial instruments (continued)

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are included in the group of current assets when having maturity within 12 months or within a common operating cycle of the Company while the remaining ones are carried as non-current assets. Loans and receivables are carried at amortised cost, or cost if no maturity, less an allowance for uncollectability with changes in carrying value (amortisation of discount/ premium and transactions costs) recognised in the consolidated statement of comprehensive income under finance income or finance costs. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. Loans and receivables are included in Trade receivables in the balance sheet. Loans and receivables are recognised at the date, at which the asset is delivered to or by us. Thus, a loan is recognised at the moment the cash is transferred to the borrower, redemptions of a loan are recognised at the date the payment is received.

This group of financial assets includes: trade and other receivables, and cash and cash equivalents from the balance sheet. Interest income on loans and receivables is recognised by applying the effective interest method. It is presented in the statement of comprehensive income under ‘Finance income’. (Note 23.) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative assets that are either designated as available- for-sale or are not classified in any other category. These are usually unlisted or not actively traded shares or shares in other companies, acquired for investment purposes, and are included within non-current assets, except where the Company intends to sell them in the following 12 months. Available-for-sale financial assets are carried at fair value with unrealised gains and losses (except for impairment losses) recognised in other comprehensive income.

Purchases and sales of investments are recognised on trade date, the date on which we commit to purchase or sell the asset. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and we have transferred substantially all risks and rewards of ownership. Dividends on shares, classified as available-for-sale financial assets, are recognised in the statement of comprehensive income when the Company’s right to receive the dividends is established.

The group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed through the profit or loss for the period.

39 F-78 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.10. Financial instruments (continued)

Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The group designates certain derivatives as hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).

The group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the profit or loss for the period under ‘finance income/costs.’

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. However, when the forecast transaction that is hedged results in the recognition of a nonfinancial asset (for example, inventory or fixed assets), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognized in cost of goods sold in the case of inventory or in depreciation in the case of fixed assets.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the profit or loss for the period. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the profit or loss for the period under ‘finance income/costs’.

2.11. Inventories

Inventories are principally composed of handsets, network establishment and maintenance materials, valued at the lower of cost or net realizable value. Materials and supplies are expensed when utilized, using the weighted-average method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. BTC sells handsets separately and in connection with service contracts. As part of the strategy to acquire new customers, it sells handsets, in connection with a service contract, at below its acquisition cost. Ɍhe loss on the sale of handsets is recognized at the time of the sale and the cost of the handsets is presented as “Material and consumables expenses” in the profit or loss for the period.

2.12. Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than thirty days), and historical evidence of collectability are considered indicators that trade receivables are impaired. 40 F-79 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.12. Trade and other receivables (continued)

Certain receivables are assessed and impaired individually if it is known that it will not be collected in full. All other receivables are impaired on a group basis according to their aging structure and taking into consideration historical data on collectability.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the statement of comprehensive income within ‘Other operating expenses’. The resulting carrying amount approximates the present value of estimated future cash flows. When a trade receivable is uncollectible and the relevant legal grounds are present, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘Other operating expenses’ in the profit or loss for the period.

2.13. Cash and cash equivalents

Cash and cash equivalents include cash in hand, balances of current bank deposits, term deposits with original maturity up to 3 months and all other amounts that are readily convertible into cash.

2.14. Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds. Where any BTC Group company purchases BTC’s share capital (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the BTC Group equity holders.

2.15. Trade and other payables

Payables to suppliers and other current amounts payable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.16. Interest-bearing loans and other borrowings

All loans and other borrowings are initially recognised at fair value of the consideration received on the transaction, netted of the direct costs related to these loans and borrowings. After the initial recognition, the interest-bearing loans and other borrowings are subsequently measured at amortised cost by applying the effective interest rate method. The amortised cost is calculated by taking into consideration all types of charges, commissions and other costs, including any discount or premium associated with these loans. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur.

2. 17. Current and deferred income taxes

The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised in equity.

41 F-80 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2. 17. Current and deferred income taxes (continued)

The current income tax charge is calculated on the basis of the tax laws enacted at the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. The group establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.

2.18. Employee benefits

Defined contribution plans According to the Bulgarian legislation, the Group is obliged to pay contributions to Social Security Funds. This obligation relates to full-time employees and provides for paying contributions to state pension fund by the employer and by the employee in the amount of certain percentages determined in the Social Security Code. These contributions are charged to the statement of comprehensive income in the period to which they relate.

Short-term employee benefits Short-term employee benefits in the form of remuneration, bonuses and social payments and benefits (payable within 12 months after the end of the period when the employees have rendered the service or have met the required terms and requirements) are recognized as an expense in the statement of comprehensive income in the period when the service thereon has been rendered or the requirements for their receipt have been met and as a current liability (less any amounts already paid and deductions due) at their undiscounted amount. The Group’s obligations for social security and health insurance are recognized as a current expense and liability at their undiscounted amount together with the relevant benefits and within the period of the respective income to which they are related.

At each balance sheet date, the Group measures the expected costs of the accumulating compensated absences, which amount is expected to be paid as a result of the unused entitlement. The measurement includes the estimated expenses on the employee’s remunerations and the statutory social security contributions due by the employer thereon.

Retirement benefit obligations As discussed above, in accordance with the requirements of the Labour Code, the employer is obliged to pay an indemnity to its personnel upon coming of age for retirement, which depending on the length of service with the company, varies between 2 and 6 gross monthly salaries as at the termination date of the employment. In their nature these are defined benefit plans.

42 F-81 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.18. Employee benefits (continued)

The calculation of the amount of these retirement benefit obligations necessitates the participation of qualified actuaries in order to determine their present value at the date of the financial statements, which is included in the balance sheet, and respectively, the change in their value, which is included in the statement of comprehensive income. For this purpose, they apply the Projected Unit Credit Method.

Actuarial gains and losses arise from changes in the actuarial assumptions and experience adjustments. The Group applies the ‘10% corridor approach’, calculated based on the present value of the opening balance of the obligation for recognizing actuarial gains and losses.

Termination benefits The Group recognises employee benefit obligations on employment termination before the normal retirement date when it is demonstrably committed, based on announced plan, to terminating the employment contract with the respective individuals without possibility of withdrawal or in case of formal issuance of documents for voluntary redundancy. Termination benefits due more than 12 months are discounted and presented in the balance sheet at their present value.

2.19. Provisions for other liabilities and charges Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources will be required to settle (repay) the obligation. Restructuring provisions comprise employee termination payments

The measurement of provisions is based on the best estimate, made by the management at the balance sheet date, concerning the expenses that will be incurred for the settlement of the particular obligation. The estimate is discounted if the obligation maturity is long-term.

When part of the resources required to settle the obligation is expected to be recovered from a third party, the Group recognises a receivable if it is virtually certain that reimbursement will be received, its amount can be reliably measured. Income is recognised in the same category of the profit or loss for the period where the creations of the provision is charged.

2.20. Revenue recognition a) Sales of services Revenue comprises in the ordinary course of business the fair value of consideration received or receivable from the sale of services, net of value-added tax, rebates and discounts and after eliminating sales within the Group. All streams of revenue are recognized on a monthly accrual basis and to the extent that it is probable that the economic benefits will flow to the company and as far as the revenue can be reliably measured. Revenue streams The Company’s revenue is derived from the following telecommunication and ICT services and products: x Outgoing traffic; x Recurring charges x Leased lines and Data transmission x Interconnect x Other sales.

43 F-82 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.20. Revenue recognition (continued)

Outgoing traffic fees for both post paid and prepaid customers are charged at an agreed tariff for a fixed duration of time and are recognised as revenue based upon provided services on a monthly basis. Recognition of revenue from prepaid cards is based on actual airtime usage or the expiration of the obligation to provide service. The unused balance of the valid prepaid cards is presented as deferred income in other payables of the balance sheet.

Recurring charges consist of monthly subscription fees and are recognised as revenue over the associated period.

Leased lines and Data transmission fees are charged at an agreed rate in accordance with dedicated capacity of BTC’s data network and are recognized as revenue over the associated subscription period.

Interconnect revenue include charges to other telecommunications providers when they terminate or transit calls on BTC’s network or when their customers use BTC’s mobile network when in roaming. The revenues are recognised gross in the statement of comprehensive income based on real network usage and settled on a net basis, after deducting the cost of interconnection for the Company’s customers calls that are routed via or terminated in other networks.

Other sales, comprise revenue generated from services not included in the streams above, which is recognised in the statement of comprehensive income when services are rendered. Revenues from premium rate services (Voice and non-voice) are recognized on a gross basis when the delivery of the service over the Group’s network is the responsibility of the Group, the Group establishes the prices of these services and bears substantial risks of these services, otherwise these revenues are presented on a net basis.

For multiple-element arrangements, revenue recognition for each of the units of accounting (elements) identified must be determined separately. Revenue is recognized on the basis of the fair value of the individual elements by determining the fair value of undelivered components (residual method).

Arrangements involving the delivery of bundled products or services are separated into individual elements. Total arrangement consideration relating to the bundled contract is allocated among the different elements based on their relative fair values. b) Sale of goods Revenue and expenses associated with the sale of telecommunications equipment and accessories are recognized when the products are delivered, provided there are no unfulfilled company obligations that affect the customer’s final acceptance of the arrangement. c)Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Company reduces the carrying value to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. d)Dividend Income Dividend income is recognised when the right to receive payment is established.

44 F-83 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.21. Expenses recognition

Operating expenses are recognized as they are incurred, following the accrual and matching concepts. Financial costs are recorded in the profit or loss for the period when incurred and comprise of: interest expense, using the effective interest method, including bank charges and other direct expenses on loans and bank guarantees, and exchange differences on loans denominated in foreign currency (net).

2.22. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessee Finance lease Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

Lease payments are apportioned between finance costs and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance costs are charged directly to profit or loss. Contingent rentals are recognized as expenses in the periods in which they are incurred. Assets acquired under the terms of finance lease are depreciated on the basis of the useful life of the asset over the lease term.

Operating lease Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

The Group as lessor

Finance lease When assets are leased out under a finance lease, the present value of the lease payments is recognized as a receivable. The difference between the gross receivable and the present value of the receivable is recognized as unearned finance income. Lease income is recognized over the term of the lease using the net investment method, which reflects a constant periodic rate of return.

Operating lease When assets are leased out under an operating lease, the asset is included in the balance sheet based on the nature of the asset. Lease income is recognized over the term of the lease on a straight-line basis.

2.23. Dividends Distribution

Dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period in which the dividends are approved by the company’s shareholders.

45 F-84 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management

3.1. Financial risk factors

In the ordinary course of business, the Group can be exposed to a variety of financial risks the most important of which are currency risk, interest risk, price risk, credit risk, and liquidity risk. The financial risks are currently identified, measured and monitored by the Treasury Department and the Managing Directors of each company within the Group through various control mechanisms in order to establish adequate prices for the services, provided by the company, to appropriately assess the market circumstances related to its investments and the forms for maintenance of free liquid funds through preventing undue concentration of a particular risk.

The following table presents the financial assets and liabilities of the Group classified by category:

Categories of financial instruments Consolidated financial Separate financial statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Financial assets Loans and receivables 148,259 305,794 137,777 305,494 Financial assets available for sale 335 335 335 335 Financial assets at fair value through profit or loss - 686 - 686

Financial liabilities Financial liabilities at amortised cost 989,900 1,074,239 985,979 1,074,238 Financial liabilities at fair value through profit or loss 58 - 58 -

Below are presented the various types of risks to which the companies of the Group are exposed upon performing their business activities as well as the adopted approach for managing these risks.

a) Credit risk Credit risks or the risk of counter-parties defaulting, is controlled by the application of limits and monitoring procedures. The group has a policy of obtaining collateral from its retail customers who use mobile services and from distributors. Credit risk is managed at a BTC Group level. It arises from cash and cash equivalents, derivative financial instruments and deposits at banks, as well as from credit exposures to business and households, including overdue receivables and commitments.

Deposits at banks According to Treasury policy, applicable to BTC and its subsidiaries, transactions are carried out only with financial institutions and banks with good credit standing. Credit exposure is controlled by individual credit limits of counterparties, which are regularly revised and appropriately approved. Limits for every third party are determined according to their long-term credit rating from S&P, Moody's or Fitch. The Treasury policy also defines the financial instruments, allowed to the Treasury Department, as well as the maximum maturity.

Receivables and commitments Trade receivables consist of a large number of customers, distributed by industries. The fixed net business of BTC follows the approved by CRC “General Rules of Contracts between BTC and Subscribers”. The management of risk of non-payment of retail customers is carried out through a policy of suspension and termination of services, based on credit risk segmentation. The retail subscribers contracts termination follows the General Conditions.

46 F-85 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management (continued)

3.1. Financial risk factors (continued)

a) Credit risk (continued) BTC has adopted a policy for mutual connection with operators and wholesale with partners with good credit ratings by applying of respective guarantees for risk management.

The credit risk related to international accounts is managed through the availability of net arrangement between the contractual parties and by directing traffic through chosen routes in order to decrease existing exposures. There is no significant risk concentration in receivables.

The creditworthiness of the customers is evaluated according to their financial status, payment history and other factors. On the basis of the credit score individual credit limits are set in compliance with the credit policy. The levels of the credit limits and their daily observation are monitored. Most of the payments from customers of mobile services are in cash.

The BTC Group is not exposed to credit risk from an individual partner or group of partners with similar profile. Trade relations with related parties are similar to those with third parties.

b) Liquidity risk Liquidity risk arises from the mismatch of the contractual maturity of monetary assets and liabilities and the possibility that trade debtors may not be able to settle obligations to the company within the normal terms of trade. To manage such risk, the Parent company uses planning techniques, including but not limited to, arrangement of overdraft facilities, daily liquidity reports, and short and medium-term cash forecasts.

Maturity analysis The table below presents the financial liabilities of the Group, grouped by remaining term to maturity, determined against the contractual maturity at the balance sheet date. The table is prepared on the basis of contracted undiscounted cash flows and the earliest date on which the liability becomes due for payment. The amounts include principal and interest.

For 2012 the financial liabilities are as follows:

For the Group: Up to 1 From 1 From 3 From 1 Over 5 Total month to 3 months to to 5 years years months 1 year Accounts payable 58,915 27,747 3,308 1,303 4,431 95,704 Borrowings 1 14,601 60,752 1,028,981 - 1,104,335 Total financial liabilities 58,916 42,348 64,060 1,030,284 4,431 1,200,039

For BTC Up to 1 From 1 From 3 From 1 Over 5 Total month to 3 months to to 5 years years months 1 year Accounts payable 54,994 27,747 3,308 1,303 4,431 91,783 Borrowings 1 14,601 60,752 1,028,981 - 1,104,335 Total financial liabilities 54,995 42,348 64,060 1,030,284 4,431 1,196,118

47 F-86 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management (continued)

3.1. Financial risk factors (continued)

For 2011 the financial liabilities are as follows:

For the Group:

Up to 1 From 1 From 3 From 1 Over 5 Total month to 3 months to to 5 years years months 1 year Accounts payable 38,482 28,272 9,167 161 4,765 80,847 Borrowings 3,180 35,605 992,688 3,623 - 1,035,096 Total financial liabilities 41,662 63,877 1,001,855 3,784 4,765 1,115,943

For BTC Up to 1 From 1 From 3 From 1 Over 5 Total month to 3 months to to 5 years years months 1 year Accounts payable 38,481 28,272 9,167 161 4,765 80,846 Borrowings 3,180 35,605 992,688 3,623 - 1,035,096 Total financial liabilities 41,661 63,877 1,001,855 3,784 4,765 1,115,942

c) Market risk Currency risk The main objective of Company currency risk management is to minimise any adverse effects of market volatility on exchange rates so as to provide the maximum value of foreign currency net income and under pre-determined and approved risk level.

Due to the fact that the companies within BTC Group use mainly BGN and EUR as operating currencies they are not significantly exposed to currency risk. Most of the income is generated in BGN while long term borrowings, interest expenses and part of the capital expenses are in EUR. This mismatch has not been a problem for the past 15 years as the Bulgarian lev is pegged to the euro. At the same time the stability of the currency board needs to be monitored closely since a potential free floating of the local currency and devaluation of the Lev will significantly affect the financial situation of the Group.

Due to forecasted purchases of equipment during 2012 Company identified currency risk, arising as a result of significant exposure to the USD. According to the Treasury policy of the Company and in compliance with its foreign exchange risk management strategy, the foreign exchange risk arising from these highly probable forecasted purchases is hedged. The hedges are cash flow hedges and are classified as financial assets/liabilities at fair value through profit or loss.

When significant foreign currency exposure arises, the Company takes into account the following factors: • Future outlook on volatility of financial market variables. These are modelled by Treasury and in accordance with best practice analytical techniques and economic models • effect of the given foreign exchange exposure on total Company financial results • cost of foreign exchange exposure hedging

BTC’s Treasury department mainly uses forward contracts to hedge foreign exchange risk. All derivatives are entered into with credible counterparties and are in compliance with the Treasury policy of the Company.

48 F-87 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management (continued)

3.1. Financial risk factors (continued)

c) Market risk (continued) Interest rate risk Liabilities of BTC sensitive to interest rates amount to BGN 884,229 thousand and the interest payments are based on EURIBOR. As of 31 December, 2012 the Parent company has used no instruments to hedge possible changes in the EURIBOR levels. However, potential hedging transactions are periodically measured based on the possible interest rate levels, as well as in accordance with the market risk policy and if necessary are performed as such.

If the interest rate on borrowings were 0.1% higher, that would have resulted in an increase of interest expenses for 2012 and 2011 respectively by BGN 943 thousand and BGN 1,009 thousand therefore, the consolidated profit/(loss) after taxation would have been BGN (34,091) thousand for 2012 and BGN 6,272 thousand for 2011. If the interest on long-term borrowings were 0.1% lower, that would result in lower interest expenses for 2012 and 2011 amounting respectively to BGN 943 thousand and BGN 1,009 thousand and therefore, the profit/(loss) after taxation would have been BGN (32,393) thousand for 2012 and BGN 8,088 thousand for 2011.

3.2.Capital risk management

The Group manages its equity in order to perform its activity as a going concern and to balance the return on equity of shareholders by optimizing the debt to equity ratio in the medium term.

The equity structure of BTC consists of long-term borrowings (Note 16), cash and cash equivalents (Note 5) and equity, including share capital and retained earnings.

Parent company’s management reviews its equity structure on an annual basis. The gearing ratios as of 31 December 2012 and 2011 are as follows: Consolidated financial Separate financial statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011

Total borrowings 894,196 998,318 894,196 998,318 Cash and cash equivalents (63,886) (141,664) (59,352) (141,355) Cash deposits with maturity greater than three months (77) (54,507) (47) (54,507) Net debt 830,233 802,147 834,797 802,456

Equity 302,811 339,133 297,106 339,549 Total capital 302,811 339,133 297,106 339,549

Gearing ratio 274% 237% 281% 236%

During the period gearing has remained unchanged as a result of the partial repayment of the loan. The management believes that higher gearing will result in more efficient capital structure and higher returns to the shareholders but aims to keep the ratio below 300%.

49 F-88 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management (continued) 3.3 Fair value estimation

Effective 1 January 2009, the group adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Ŷ Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Ŷ Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Ŷ Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The following table presents the group’s assets and liabilities that are measured at fair value at 31 December 2012

Level 1 Level 2 Level 3 Total Assets measured at fair value Available-for-sale financial assets: -Equity shares -- 335 335 Total assets - - 335 335

Liabilities measured at fair value Financial liabilities at fair value through profit or loss: -Derivatives used for hedging - 58 - 58 Total liabilities 58 58

The following table presents the group’s assets that are measured at fair value at 31 December 2011

Assets measured at fair value Level 1 Level 2 Level 3 Total

Financial assets at fair value through profit or loss: -Derivatives used for hedging - 686 - 686 Available-for-sale financial assets: -Equity shares -- 335 335 Total assets - 686 335 1,021

The Group carries unquoted equity shares as available-for-sale financial instruments classified as Level 3 within the fair value hierarchy.

50 F-89 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

4. Critical accounting estimates and judgments

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates could differ from the related actual results. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and assumptions that might have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are discussed below: a) Impairment of goodwill, tangible and intangible assets The group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.6.The ability of a tangible and intangible asset to generate sufficient future economic benefits to recover its carrying amount is usually subject to greater uncertainty. In performing these assessments of recoverable amount a significant number of estimates and judgments are required including but not limited to: – An estimate of future cash flows expected to derive from these assets, – Expectations about possible variations in the amount or timing of those future cash flows, – The designation of the cash generating unit for which future cash flows are derived. The cash generating units identified are the Fixed and Mobile businesses, – The time value of money represented by weighted average cost of capital (WACC). The respective long term pre-tax WAAC rates used are: 8.7% for Fixed and 10.6% for Mobile for 2012 (9.7% and 9.6% for 2011), – Perpetual growth rate (PGR). The respective PGR values used are: 0% for Fixed and 1% for Mobile for 2012 (0% and 1% for 2011).

As at 31 December 2012 the Group performed impairment testing of its assets and as a result no need for impairment was identified for the Mobile business. If estimated cash flows were 10% lower or WACC/PGR were 1% higher/lower there would still be no need for impairment. These sensitivities are calculated on an individual basis as follows:

Estimate Change (%) Effect on value in use – no impairment

EBITDA margin absolute decrease (1%) (16,000) WACC absolute increase 0.5% (58,000) PGR absolute decrease (0.5%) (41,000)

In 2012 forecast future cash flows for the Fixed business have declined as a result of stricter termination price regulation and competitive market pressures. This caused a BGN 56,607 thousand impairment loss to be recognized in other operating expenses for the year. The recoverable amount of the asset allocated to the Fixed business has been calculated using the value in use methodology. The fair value less cost to sell premise was also analysed and is considered to produce lower recoverable amount. The sensitivity of the recoverable amount expressed as additional impairment losses on an individual basis is as follows:

Estimate Change (%) Effect on value in use – additional impairment

EBITDA margin absolute decrease (1%) (39,000) WACC absolute increase 0.5% (33,000) PGR absolute decrease (0.5%) (24,000)

Goodwill amounting to BGN 1,657 thousand, allocated to the Fixed business has been impaired in full.

51 F-90 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

4. Critical accounting estimates and judgments(continued) b) Useful lives of assets The determination of the useful lives of assets is based on historical experience with similar assets as well as any anticipated technological development and changes in broad economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually, or whenever there is an indication of significant changes in the underlying assumptions. We believe that the accounting estimate related to the determination of the useful lives of assets is a critical accounting estimate since it involves assumptions about technological development in an innovative industry. Further, due to the significant weight of depreciable assets in our total assets, the impact of any changes in these assumptions could be material to our financial position, and results of operations.

Were the actual useful lives of the assets to differ by 10% from management’s estimates, the carrying value of the plant and equipment and respectively depreciation and amortization charges would be an estimated BGN 26,970 thousand higher/lower. c) Provisions and contingent liabilities As set out in Note 28 the Group is a participant in several lawsuits and administrative proceedings. The Group’s treatment of obligations with uncertain timing and amount depends on the management’s estimation of the amount and timing of the obligation and probability of an outflow of resources embodying economic benefits that will be required to settle the obligation (both legal or constructive). A provision is recognized when the Group has a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Contingent liabilities are not recognized because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent liabilities are assessed continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the financial statements of the period in which the change in probability occurs. d) Going concern The financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operational existence for the foreseeable future. In 2012 the Group realized a loss of BGN 33,242 thousand (2011 – a profit of BGN 7,180 thousand). The Group’s working capital as at 31 December 2012 is amounting to BGN 20,341 thousand (negative as at 31 December 2011 – BGN 937,446 thousand). The future viability of the Group depends upon the business environment as well as upon the continuing support of the existing and potential owners and providers of finance. If this risk is not mitigated and if the business of the Group was to be wound down and its assets sold, adjustments would have to be made to reduce the balance sheet value of assets to their liquidation value, to provide for further liabilities that might arise, and to reclassify property, plant and equipment and long term liabilities as current assets and liabilities. The directors, in light of their assessment of expected future cash flows, are satisfied that it is appropriate for the financial statements to be prepared on a going concern basis.

52 F-91 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

4. Critical accounting estimates and judgments(continued) e) Subscriber acquisition costs Costs to acquire telecommunication customers are capitalized and amortized over the minimum enforceable contractual period as these will be recovered from the future revenue generated from the customers. In the event that a customer terminates a service contract prior to the expiration of the minimum enforceable contractual period, any unamortized customer acquisition costs are written off. f) Purchase price accounting The Group assesses the initial accounting for business combinations by identifying and determining the fair value to be assigned to the acquired identifiable assets, liabilities, contingent liabilities, and the cost of the combination. The initial accounting for business combinations is determined provisionally by the end of the period in which the combination is affected. Either the fair valued to be assigned to the acquired liabilities or contingent liabilities or the cost of combination can be determined only provisionally. The Group recognizes any adjustments to those provisional values as a result of concluding the initial accounting within twelve months of the acquisition date. g) Provision for impairment of trade receivables A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than thirty days), and historical evidence of collectability are considered indicators that trade receivables are impaired. Certain receivables are assessed and impaired individually if it’s known that it will not be collected in full. All other receivables are impaired on a group basis according to their aging structure and taking into consideration historical data on collectability. h) Income tax provision The Group is subject to income taxes in the Bulgarian tax jurisdiction. Significant judgment is required in determining the provision for income taxes. The Group recognises liabilities for anticipated tax due based on management estimates. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

53 F-92 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

5. Cash and cash equivalents

As at 31 December 2012 and 31 December 2011 the components of the cash and cash equivalents are:

Consolidated financial Separate financial statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Current accounts and cash in hand Held in BGN 9,351 3,914 5,499 3,911 Held in EUR 3,427 1,559 3,426 1,559 Held in foreign currencies other than EUR 426 364 285 363 Total current accounts and cash in hand 13,204 5,837 9,210 5,833

Term deposits Held in BGN 50,682 135,827 50,142 135,522 Total term deposits 50,682 135,827 50,142 135,522

Total cash and cash equivalents 63,886 141,664 59,352 141,355

As disclosed in Note 16 BTC secured the payments related to Company’s liabilities under the amended loan agreement by establishing a pledge on the receivables on bank accounts and from its insurers of the Group.

BGN 49,979 thousand and BGN 46,145 thousand (respectively for the consolidated and for the separate financial statements) from the cash and cash equivalents for 2012 are deposited in a bank, a member of the Bromak EOOD Group.

The availability of cash in current accounts and short term deposits is allocated in banks with long term credit ratings from S&P as follows:

Consolidated financial Separate financial Rating statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011 AA- - 228 - 228 A+ 1,388 236 1,249 236 A 1,514 - 1,500 - A- - 1,073 - 1,069 BBB+ 1,120 1,308 1,120 1,308 BBB 97 28,057 2 28,057 BBB- 47 34,001 47 34,001 BB+ 2,262 - 2,262 - BB- 49,998 8 46,163 8 B- 82 28,650 82 28,650 CCC 453 14,326 1 14,021 Not rated banks 4,172 32,141 4,172 32,141 Total cash at current accounts and 61,133 140,028 56,598 139,719 term deposits

The exposure to banks with credit rating B- and lower has decreased as of 31 December 2012 compared to 31 December 2011 due to concerns about financial stability of such banks. The exposure to banks with investment grade credit rating has decreased due to negative development of the long term credit ratings granted by S&P to banks operating in Bulgaria. 54 F-93 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

6. Trade and other receivables

As at 31 December 2012 and 31 December 2011 trade receivables include:

Consolidated financial Separate financial statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011

Trade receivables 142,779 164,714 136,215 164,354 incl. international settlement receivables 6,600 30,009 1,651 30,009 Intercompany receivables 9 371 516 656 Other receivables 8,513 63,242 8,479 63,239 Total 151,301 228,327 145,210 228,249 Provision for impairment of receivables (65,888) (64,197) (65,745) (64,110) Total Trade and other receivables 85,413 164,130 79,465 164,139 Incl: Non-current portion: trade and other receivables 6,705 4,953 6,705 4,953 Provision for impairment of receivables (544) (311) (544) (311) Total non-current portion: 6,161 4,642 6,161 4,642

Current portion trade and other receivables 144,596 223,374 138,505 223,296 Provision for impairment of receivables (65,344) (63,886) (65,201) (63,799) Total current portion: 79,252 159,488 73,304 159,497

Other receivables for 2012 and 2011 include respectively BGN 77 thousand (for the consolidated financial statements), 47 thousand (for the separate financial statements) and BGN 54,507 thousand term cash deposits with maturity greater than three months. All non-current trade receivables are due within two years from the end of the reporting period and relate to sales of mobile phone sets on finance lease agreements with customers and sale of discontinued operations. The net investment in finance leases for the Group and BTC may be analyzed as follows:

Gross receivables from Net investment in finance finance leases leases 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Finance leases receivables with maturity: Within one year 12,176 13,805 11,324 13,088 In the second to fifth years inclusive 5,627 3,201 5,440 3,109 Total receivables 17,803 17,006 16,764 16,197 Less: unearned finance income (1,039) (809) - - Provision for impairment of receivables (1,676) (1,620) (1,676) (1,620) Net investment in finance leases 15,088 14,577 15,088 14,577

Movement of the provision for impairment of accounts receivables in 2012 and 2011 is as follows:

Consolidated financial Separate financial statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Balance at the beginning of the period 64,197 78,744 64,110 78,609 Accrued impairment 19,351 21,420 19,268 21,407 Impairment of receivables written off (17,660) (35,967) (17,633) (35,906) Balance at the end of the period 65,888 64,197 65,745 64,110

55 F-94 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

6. Trade receivables (continued)

Presented by class of customer the figures above are as follows:

Business customers Consolidated financial Separate financial statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Balance at the beginning of the period 19,364 30,748 19,277 30,613 Accrued impairment 8,679 (373) 8,596 (386) Impairment of receivables written off (7,966) (11,011) (7,939) (10,950) Balance at the end of the period 20,077 19,364 19,934 19,277

Residential customers Consolidated financial Separate financial statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Balance at the beginning of the period 44,833 47,996 44,833 47,996 Accrued impairment 10,672 21,793 10,672 21,793 Impairment of receivables written off (9,694) (24,956) (9,694) (24,956) Balance at the end of the period 45,811 44,833 45,811 44,833

Expenses for receivables written off are recognised in Other operating expenses of the profit or loss for the period. For 2012 they amount to BGN 382 thousand for the consolidated and individual financial statements (2011: BGN 139 thousand)

Related parties balances are shown in Note 27. As of 31 December, 2012 and 31 December, 2011 receivables of the Group and the Company at the amount of BGN 9,241 thousand and 4,589 thousand were assessed individually and the impairment amounts to 9,185 thousand and 4,297 thousand.

As of 31 December 2012 and 31 December 2011 the age structure of overdue receivables not impaired is as follows: Consolidated financial statements Separate financial statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011 From 60 to 90 days 544 5,808 196 5,808 From 91 to 180 days 177 343 177 343 From 181 to 360 days 330 93 330 93 Above 1 year 165 143 165 143 Total 1,216 6,387 868 6,387

As of the balance sheet date the accounts with major (the five biggest) counterparties in the trade receivables for the Group and the Company are as follows:

Type Consolidated financial statements Carrying amount of the receivable as of 31.12.2012 31.12.2011 In the country 1,570 1,110 In the country 1,471 380 Outside the country 1,232 450 Outside the country 1,141 - In the country 1,070 824

56 F-95 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

6. Trade receivables (continued) Type Separate financial statements Carrying amount of the receivable as of 31.12.2012 31.12.2011 In the country 1,570 1,110 In the country 1,471 380 Outside the country 1,232 450 In the country 1,070 824 In the country 854 -

The carrying amounts of the Group’s receivables are denominated in the following currencies:

31.12.2012 31.12.2011 BGN 80,778 155,872 EUR 4,574 8,209 SDR 61 49 Total 85,413 164,130

7. Inventories

The materials and supplies as of 31 December 2012 and 31 December 2011 are as follows:

Consolidated and separate financial statements 31.12.2012 31.12.2011

Materials and supplies, net 5,199 5,999 Merchandise and other, net 26,788 19,735 Total materials and supplies 31,987 25,734

Impairment charges related to the inventory items for 2012 were BGN 2,857 thousand for the group and the company which were recognized as other operating expenses (2011 – BGN 4,588 thousand)

8. Assets classified as held for sale Consolidated and separate financial statements 31.12.2012 31.12.2011 Real estate, held for sale 2,127 1,892 Total assets held for sale 2,127 1,892

As of 31 December 2012 BTC has signed several preliminary agreements for the sale of real estates reported in the balance sheet by their net book value, excluding a few properties stated at a value lower than their carrying value contracted price. 9. Other current assets Consolidated financial Separate financial statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Prepayments 9,540 12,332 9,540 12,333 VAT recoverable and other 5,147 4,638 5,002 4,636 Total other current assets 14,687 16,970 14,542 16,969

Subscriber acquisition cost, representing mainly fees paid to distributors, are included in other assets above, which for the Group and the Company are BGN 4,199 thousand as of 31 December 2012. For 2011 they amount to BGN 3,950 thousand. The amortization expense related to these subscriber acquisition costs is amounting to BGN 7,896 thousand for 2012 and BGN 9,114 thousand for 2011. 57 F-96 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

10. Property, plant and equipment

The composition of property, plant and equipment for the Group as of 31 December 2012 and 31 December 2011 is as follows:

Switching Transmission General Construction Total support in progress Gross Book Value At 31 December 2010 1,347,918 896,582 282,317 39,821 2,566,638 Revaluation - - (559) - (559) Additions 4,011 - 87 122,531 126,629 Transfers 101,717 9,973 12,720 (124,410) - Impairment - - - (2,411) (2,411) Assets held for sale - - 5,024 - 5,024 Disposals (64,232) (11,014) (15,274) (2,049) (92,569) At 31 December 2011 1,389,414 895,541 284,315 33,482 2,602,752 Revaluation - - (2,767) - (2,767) Additions 964 - 3 138,116 139,083 Transfers 89,594 16,709 13,212 (119,515) - Transfer of impairment - - - 1,619 1,619 Impairment - - (173) 623 450 Assets held for sale - - (303) - (303) Disposals (85,811) (46,091) (24,185) (386) (156,473) At 31 December 2012 1,394,161 866,159 270,102 53,939 2,584,361 Accumulated depreciation and impairment At 31 December 2010 741,389 583,514 152,641 - 1,477,544 Depreciation charged 135,146 24,069 27,927 - 187,142 Impairment 4,878 5 (238) - 4,645 Assets held for sale - - 542 - 542 Disposals (50,701) (9,956) (13,833) - (74,490) At 31 December 2011 830,712 597,632 167,039 - 1,595,383 Depreciation charged 136,800 24,404 24,817 - 186,021 Transfer of impairment 1,501 18 100 - 1,619 Impairment 28,754 27,120 1,175 - 57,049 Assets held for sale - - (42) - (42) Disposals (75,186) (42,153) (22,939) - (140,278) At 31 December 2012 922,581 607,021 170,150 - 1,699,752

Net book value At 31 December 2011 558,702 297,909 117,276 33,482 1,007,369 At 31 December 2012 471,580 259,138 99,952 53,939 884,609

58 F-97 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

10. Property, plant and equipment (continued)

The composition of property, plant and equipment on BTC stand alone basis as of 31 December 2012 and 31 December 2011 is as follows:

Switching Transmission General Construction Total support in progress Gross Book Value At 31 December 2010 1,347,771 896,582 282,800 39,821 2,566,974 Revaluation - - (559) - (559) Additions 4,011 87 122,531 126,629 Transfers 101,717 9,973 12,720 (124,410) - Impairment - - - (2,411) (2,411) Assets held for sale - - 5,024 - 5,024 Disposals (64,085) (11,014) (15,221) (2,049) (92,369) At 31 December 2011 1,389,414 895,541 284,851 33,482 2,603,288 Revaluation - - (2,767) - (2,767) Additions 964 - 3 138,116 139,083 Transfers 89,594 16,709 13,212 (119,515) - Transfer of impairment - - - 1,619 1,619 Impairment - - (173) 623 450 Assets held for sale - - (303) - (303) Disposals (85,811) (46,091) (24,185) (386) (156,473) At 31 December 2012 1,394,161 866,159 270,638 53,939 2,584,897 Accumulated depreciation and impairment At 31 December 2010 741,245 583,514 153,124 - 1,477,883 Depreciation charged 135,144 24,069 27,927 - 187,140 Impairment 4,878 5 (238) - 4,645 Assets held for sale - - 542 - 542 Disposals (50,555) (9,956) (13,780) - (74,291) At 31 December 2011 830,712 597,632 167,575 - 1,595,919 Depreciation charged 136,800 24,404 24,817 - 186,021 Transfer of impairment 1,501 18 100 - 1,619 Impairment 28,754 27,120 1,175 - 57,049 Assets held for sale - - (42) - (42) Disposals (75,186) (42,153) (22,939) - (140,278) At 31 December 2012 922,581 607,021 170,686 - 1,700,288

Net book value At 31 December 2011 558,702 297,909 117,276 33,482 1,007,369 At 31 December 2012 471,580 259,138 99,952 53,939 884,609

59 F-98 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

10. Property, plant and equipment (continued)

The impairment for 2012 includes the impairment loss recognised for the assets of the Fixed business CGU as disclosed in note 4a amounting to BGN 54,488 thousand, as well as impairment loss for individual assets amounting to BGN 2,111 thousand.

As disclosed in note 16 BTC has signed an agreement to secure payments related to the Parent company’s liabilities under the amended loan agreement by establishing a pledge on real estate property, which net book value as of 31 December 2012 amounted to BGN 15,385 thousand, and as of 31 December 2011 their net book value was BGN 18,680 thousand.

On the basis of § 8 Para 1 of Transitional and concluding provisions to the Law for amendment and supplement of the law for privatization and post-privatization control the Agency for Privatization and Post-privatization Control imposed statutory mortgages on 694 properties of BTC with a net book value as of 31 December 2012 amounting to BGN 24,464 thousand (BGN 22,951 thousand for 688 properties as of 31 December 2011).

11. Intangible assets

As of 31 December 2012 and 31 December 2011 intangible assets of the Group are as follows

Licenses Software Other Intangible Total intangible assets under assets construction Gross book value At 31 December 2010 119,044 509,687 14,711 5,387 648,829 Additions(Transfers) 726 53,116 5,604 (2,025) 57,421 Disposals - (19,384) (52) - (19,436) At 31 December 2011 119,770 543,419 20,263 3,362 686,814 Additions(Transfers) 14,266 43,097 9,748 (1,658) 65,453 Disposals (7,658) (25,326) (366) - (33,350) At 31 December 2012 126,378 561,190 29,645 1,704 718,917 Accumulated amortization and impairment At 31 December 2010 33,702 282,526 2,488 - 318,716 Amortization charge 7,252 70,215 2,862 - 80,329 Impairment - 2,151 - - 2,151 Disposals - (19,291) (13) - (19,304) At 31 December 2011 40,954 335,601 5,337 - 381,892 Amortization charge 7,388 70,276 6,016 - 83,680 Impairment - 990 317 - 1,307 Disposals (7,658) (25,156) (198) - (33,012) At 31 December 2012 40,684 381,711 11,472 - 433,867

Net book value At 31 December 2011 78,816 207,818 14,926 3,362 304,922 At 31 December 2012 85,694 179,479 18,173 1,704 285,050

60 F-99 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

11. Intangible assets (continued)

As of 31 December 2012 and 31 December 2011 intangible assets on BTC stand alone bases are as follows: Licenses Software Other Intangible Total intangible assets under assets construction Gross book value At 31 December 2010 118,989 509,459 14,711 5,387 648,546 Additions(Transfers) 726 53,116 5,604 (2,026) 57,420 Disposals - (19,311) (52) - (19,363) At 31 December 2011 119,715 543,264 20,263 3,361 686,603 Additions(Transfers) 14,266 43,097 9,748 (1,657) 65,454 Disposals (7,658) (25,171) (366) - (33,195) At 31 December 2012 126,323 561,190 29,645 1,704 718,862 Accumulated amortization and impairment At 31 December 2010 33,657 282,298 2,488 - 318,443 Amortization charge 7,251 70,215 2,862 - 80,328 Impairment - 2,151 - - 2,151 Disposals - (19,218) (14) - (19,232) At 31 December 2011 40,908 335,446 5,336 - 381,690 Amortization charge 7,387 70,276 6,016 - 83,679 Impairment - 990 317 - 1,307 Disposals (7,658) (25,001) (197) - (32,856) At 31 December 2012 40,637 381,711 11,472 - 433,820

Net book value At 31 December 2011 78,807 207,818 14,927 3,361 304,913 At 31 December 2012 85,686 179,479 18,173 1,704 285,042

The majority of other intangible assets represents the acquired distribution network in the business combination with Kimimpex – TL OOD and the capitalized customer acquisition and retention expenses with contractual periods longer than one year. Their net book value as of 31 December 2012 is respectively BGN 9,227 thousand and BGN 6,260 thousand (2011 - BGN 10,723 thousand and BGN 3,886 thousand). The impairment for 2012 includes the impairment loss recognised for the assets of the Fixed business CGU as disclosed in note 4a amounting to BGN 462 thousand, as well as impairment loss for individual assets amount to BGN 845 thousand.

12. Investments

Investments available for sale at the Group level as of 31 December 2012 and 31 December 2011 are as follows:

Entity 31.12.2012 31.12.2011

Intersputnik 178 178 Satbird 143 143 Sofia Commodity Exchange 14 14 Total investment 335 335 61 F-100 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

12. Investments (continued)

In the separate financial statements the investments in subsidiaries and jointly controlled entities are measured at cost, less any impairment.

31.12.2012 Share 31.12.2011Description Subsidiaries Internet provider and wholesale BTC Net 799 100% 799 international traffic operator Total investments in subsidiaries 799 799

Other investments 335 335 Total investments 1,134 1,134

13. Trade payables

The payables to suppliers as of 31 December 2012 and 31 December 2011 are as follows:

Consolidated financial Separate financial statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011

Payables to suppliers of non current assets 33,715 38,473 33,715 38,473 Payables to international accounts 20,003 8,813 16,995 8,813 Payables to suppliers of network maintenance 4,807 1,688 4,807 1,688 Payables to telecom operators 2,424 3,066 355 3,066 Payables to related parties (Note 27) - - 1,161 - Others 29,021 23,881 29,016 23,881 Total trade payables 89,970 75,921 86,049 75,921

Other payables include outstanding balances of suppliers of fuel, utilities, advertising, inventories, and other.

14. Other payables

Other payables as of 31 December 2012 and 31 December 2011 are as follows:

Consolidated financial Separate financial statements statements 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Deferred income 18,056 17,098 18,056 17,098 Payables to employees 14,234 12,811 14,234 12,811 Cable project MECMA 2,211 1,169 2,211 1,169 Social securities 2,008 1,878 2,008 1,878 Advances from clients 1,116 965 1,091 965 Personal income tax payable 940 835 940 835 Payables for license fee 321 459 316 459 Withholding and other taxes 187 332 187 332 Interest payable 119 150 119 150 VAT - 1,060 - 1,060 Others 3,543 4,635 3,543 4,635 Total other payables 42,735 41,392 42,705 41,392

62 F-101 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

14. Other payables (continued)

The liabilities under Cable projects MECMA amounting to BGN 2,211 thousand and 1,169 thousand originated as a result of BTC’s role as a Central Billing Party in the MECMA 2004 Agreement for maintenance of submarine cables in the Mediterranean Sea, Red Sea and Black Sea area.

15. Provisions for other liabilities and charges

Consolidated and individual financial statements Legal Decommissioning Restructuring Total claims At 1 January 2012 7,329 1,100 11,360 19,789 Charged/(credited) to the - 647 (4,794) (4,147) comprehensive income Included in the balance sheet 964 - - 964 Used during the year (56) (742) (88) (886) Unwinding of discount 425 - - 425 At 31 December 2012 8,662 1,005 6,478 16,145

Analysis of provision in consolidated financial statements

31.12.2012 31.12.2011 Non-current (decommissioning costs) 8,662 7,329 Current 7,483 12,460 Total 16,145 19,789

Decommissioning A provision has been recognised for decommissioning costs associated with mobile sites. The provision has been capitalized to the cost of the sites with the amount of the present value of the decommissioning obligation after ceasing operation. The respective discount rate used for 2012 and 2011 is 4.5% and 5.7%.

Restructuring The Provision for employment termination is related to the decision for restructuring the activities of the Group in 2012/2013 and is recognised as a staff cost in the profit or loss for the period.

Legal claims The amounts represent a provision for labour disputes, legal claim of customers and certain penalties imposed on the Group by the Commission for Protection of Competition (CPC) and Communications Regulation Commission (CRC).

16. Borrowings

The long-term debts in the consolidated and separate financial statements are as follows:

31.12.2012 31.12.2011 Syndicated credit facility 891,537 994,907 Financial lease 2,659 2,677 Trade credits - 734 Short-term portion (31,629) (994,925) Total borrowings 862,567 3,393

63 F-102 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

16. Borrowings (continued)

On 17 August 2007 BTC became a party to a loan agreement together with (but not limited to) NEF Telecom Bulgaria OOD and its parent NEF Telecom Company B.V. The loan is organized by Royal Bank of Scotland, Deutsche Bank AG, London branch, UBS Limited and Bank Austria Creditanstalt AG with a mandate to organize syndicated financing.

On the extraordinary general meeting of the Company held on 8 October 2012 the shareholders approved the proposed amendments to the loan agreement for the fulfilment of certain actions for restructuring of the existing debt. As a result of the proposed restructuring the total bank loans of NEF group (including BTC) were reduced from EUR 1,784 million to EUR 588 million through a combination of debt repayment, equity conversion and an outright debt write off, as well as in a change of the ownership of BTC.

The existing credit facilities of BTC under the loan agreement were consolidated into a single facility, whereas the aggregate principal amount of the Company’s borrowings was reduced to EUR 452,099 thousand following a prepayment in the amount of EUR 26,337 thousand on 5 November 2012. The new facility is repayable by the Company in instalments, the first one of which amounting to EUR 5,880 thousand is due 9 months as of the date of coming into effect of the amendment of the loan agreement dated 31 October 2012 (the “amendment date”) with a final maturity date for full repayment of all borrowings of the Company under the amended loan agreement being 5 years as of the amendment date (the “termination date”). In addition, the amended loan agreement provides the Company and its holding company to borrow a revolving credit facility in the amount of up to EUR 20,000 thousand, under which the Company may borrow funds for its working capital purposes and which shall be available up to the date falling one month prior the termination date. The Company has the right to select interest periods which can be of the duration of 3 months for the new facility and 3 or 6 months for the revolving credit facility.

The interest on the principal amounts owing by the Company under the amended loan agreement is payable at the end of each interest period and shall be the aggregate of EURIBOR for the respective interest period, plus mandatory costs, plus a margin not exceeding 5.50% per year. The liabilities of the Company under the amended loan agreement are secured by the same scope and type of security provided by the Company to secure its obligations to the lenders under the original loan agreement, namely a first ranking non-possessory pledge in accordance with the Special Pledges Act on the going concern of the Company, which includes among other assets the shares of the Company in BTC Net, certain real estates and receivables of the Company under certain insurance policies, and a first ranking pledge in accordance with the Agreements on Financial Collateral Act on receivables of the Company under certain bank accounts and insurance policies, as well as an additional security provided by BTC Net in a form of a first ranking non-possessory pledge in accordance with the Special Pledges Act over its going concern which includes among other assets the receivables of BTC Net under certain bank accounts. The shares of the Company owned by Viva Telecom Bulgaria EAD are pledged to secure the obligations of the majority shareholder and the Company to the lenders under the loan agreement in accordance with the Agreements on Financial Collateral Act. As of 31 December 2012 the outstanding facilities of the syndicated loan, denominated in EUR fall due according to the agreed terms as follows:

BGN thousand Interest Up to 1 From 1 to 5 Over 5 years Total rate year years Tranche 1A 5.697% 23,001 861,228 - 884,229 Revolving facility - - - - - Total loan amount 23,001 861,228 - 884,229

64 F-103 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

16. Borrowings (continued)

Obligations under Finance lease Certain part of BTC’s software is leased under the terms of finance lease. The average lease term is 3 years and the average effective borrowing rate is 4.95%. The fair value of Group’s and Company’s lease obligations approximates their carrying amount.

Present value of Minimum lease payments minimum lease payments 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Finance lease payables with maturity: Within one year 1,449 19 1,320 17 In the second to fifth years inclusive 1,405 2,855 1,339 2,660 Total payables 2,854 2,874 2,659 2,677 Less: future finance charges (195) (197) - - Present value of lease obligations 2,659 2,677 2,659 2,677

The net book value of the assets acquired under finance lease arrangements as of 31 December 2012 is BGN 2,801 thousand (2011: BGN 4,114 thousand).

17. Deferred tax assets and liabilities

As of 31 December, 2012 and 2011 the deferred tax, are as it follows:

For the Group:

Deferred tax assets Tax loss Allowance Property, Expense Total carried for plant and accruals forward impairment equipment of receivables

At 1 January 2011 65 15 - - 80 Charged to the profit/(loss) for the year (1) (6) - - (7) At 31 December 2011 64 9 - - 73 (Charged)/credited to the profit/(loss) for the year (64) 5 - - (59) At 31 December 2012 - 14 - - 14

65 F-104 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

17. Deferred tax assets and liabilities (continued)

Deferred tax liabilities Retirement Allowance Property, Expense Total benefit for plant and accruals obligations impairment equipment of receivables

At 1 January 2011 (158) (7,860) 43,800 (2,784) 32,998 Charged/(credited) to the profit/(loss) for the year (3) 1,455 (5,191) (2,056) (5,795) Charged/(credited) to other comprehensive income for the year - - (56) 63 7 At 31 December 2011 (161) (6,405) 38,553 (4,777) 27,210 Charged/(credited) to the profit/(loss) for the year (6) (163) (4,871) (4,716) (9,756) Charged/(credited) to other comprehensive income for the year - - (276) (67) (343) At 31 December 2012 (167) (6,568) 33,406 (9,560) 17,111

Deferred tax (charge)/credit to the profit/(loss) for the year 2012 2011

Deferred tax liabilities 9,756 5,795 Deferred tax assets (59) (7) Total credited to the profit/(loss) for the year 9,697 5,788

For BTC:

Deferred tax liabilities Retirement Allowance Property, Expense Total benefit for plant and accruals obligations impairment equipment of receivables

At 1 January 2011 (158) (7,860) 43,800 (2,784) 32,998 Charged/(credited) to the profit/(loss) for the year (3) 1,455 (5,191) (2,056) (5,795) Charged/(credited) to other comprehensive income for the year - - (56) 63 7 At 31 December 2011 (161) (6,405) 38,553 (4,777) 27,210 Charged/(credited) to the profit/(loss) for the year (6) (163) (4,871) (4,716) (9,756) Charged/(credited) to other comprehensive income for the year - - (276) (67) (343) At 31 December 2012 (167) (6,568) 33,406 (9,560) 17,111

66 F-105 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

17. Deferred tax assets and liabilities (continued)

Deferred tax credit to the profit/(loss) for the year 2012 2011

Deferred tax liabilities 9,756 5,795 Total credited to the profit/(loss) for the year 9,756 5,795

Deferred tax assets and liabilities for different taxable entities are not offset as they can not be settled on a net basis and it is not expected that the assets will be realised and the liabilities will be settled simultaneously in the future.

Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The deferred tax assets and liabilities as of 31 December 2012 and 2011 are calculated in these financial statements at 10% tax rate which is effective as of 1 January 2007. The last period audited by the tax authorities for BTC is 2006.

18. Retirement benefit obligations In compliance with the Labour Code, the Parent company owes compensation at retirement to all the employees. The compensation of employees with 10 years experience in the Company is 6 gross monthly salaries; for the employees having less than 10 years experience the compensation is 2 gross monthly salaries.

Currently no assets have been allocated for covering the long-term staff benefits in a separate fund and there are no legal requirements for the establishment of such.

The present consolidated and separate financial statements include a provision for employee benefits obligation which is measured applying the projected unit credit method.

The movement of the liability, recognized in the balance sheet, is as follows:

Consolidated and separate financial statements 31.12.2012 31.12.2011

Liability at the beginning of the period 1,610 1,917 Past service cost (95) (96) Current service cost 116 (153) Interest cost 54 74 Total cost recognized in the comprehensive income 75 (175) Payments to retirees (11) (132) Liability at the end of the period 1,674 1,610

67 F-106 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

18. Retirement benefit obligations (continued)

The following principal assumptions have been used in the estimation of the liability:

31.12.2012 31.12.2011

Discount rate at 31 December 4.5% 5.7% Future salary increases per year From 2.5% to 3% From 3% to 6% Average age of retirement – male employees 65 65 Average age of retirement – female employees 63 63

The Management has used in the estimation of the liability for retirement benefit obligations the assumption that voluntary leave of personnel, without any compensation, will be negligible.

Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics. Mortality assumptions are based on the statistical information, provided by the National Statistical Institute for the total mortality of the population in Bulgaria for the period 2009 – 2010.

19. Share capital and dividends

31.12.2012 31.12.2011 Number of shares 288,764,840 288,764,840 Par value per share (in BGN) 1 1

Share capital per BTC’s registration 288,765 288,765 Share capital 288,765 288,765

Structure of the share capital: 31.12.2012 % 31.12.2011 % Number of ordinary shares: Viva Telecom Bulgaria EAD 271,712,216 94% - - NEF Telecom Bulgaria OOD - - 271,423,451 94% Other shareholders 17,052,623 6% 17,341,388 6% Total ordinary shares 288,764,839 100% 288,764,839 100%

Number of preference shares: The Republic of Bulgaria 1 100% 1 100% Total number of shares 288,764,840 100% 288,764,840 100%

As of 31 December 2012, the share capital of BTC comprises 288,764,839 ordinary registered shares and a single preference share, held by the Government through the Ministry of Transport and Communications. The nominal share value is BGN 1.

68 F-107 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated 19. Share capital and dividends (continued) Earnings per share Consolidated financial Separate financial statements statements Year ended Year ended 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Profit for distribution (33,242) 7,180 (39,363) 9,248 Weighted average number of ordinary shares 288,765 288,765 288,765 288,765 (Loss)/earnings per share (BGN) (0.12) 0.02 (0.14) 0.03 Dividends payable

The Annual General Meeting of Shareholders, held on June 28, 2012 voted not to distribute dividends for the year. 31.12.2012 31.12.2011 Dividend approved by the General shareholders’ meeting - 176,146 Non-distributed dividends for prior years 158,092 142,728 Tax on dividend 5 (517) Net dividends paid (158,087) (160,265) Total dividend payable 10 158,092

Dividends payable outstanding as at 31 December 2011 includes the amount of BGN 157,624 thousand – dividends to NEF Telecom Bulgaria OOD, paid in full in 2012.

20. Revenue Revenue of the Group and the Company for the years ended 31 December 2012 and 2011 consist of:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2012 31.12.2011 31.12.2012 31.12.2011

Recurring charges 336,378 334,786 336,385 334,824 Outgoing traffic 169,055 180,673 169,055 180,498 Interconnect 129,676 157,060 112,613 157,160 Leased lines and data transmission 128,480 146,528 128,804 146,572 Other revenue 94,128 76,823 94,827 76,834 Total revenue 857,717 895,870 841,684 895,888

Revenues from sale of mobile handsets are included in Other revenue above, which for 2012 amount to BGN 35,260 thousand for the Group and the Company (2011: BGN 29,552 thousand)

69 F-108 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

21. Other operating expenses

Other operating expenses for the years ended 31 December, 2012 and 2011 consist of:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Maintenance and repairs 86,789 89,043 86,788 89,040 Advertising, customer service, billing and collection 52,258 50,479 52,351 50,487 Facilities 42,138 38,847 42,138 38,847 License fees 13,226 12,871 13,208 12,866 Administrative expenses 8,047 12,067 8,044 12,077 Professional fees 6,181 5,482 6,181 5,482 Leased lines and data transmission 3,856 3,817 3,856 3,817 Vehicles and transport 3,685 3,717 3,685 3,717 Other 93,787 70,566 93,704 69,198 Total other operating expenses 309,967 286,889 309,955 285,531

Services for the independent audit of the financial statements for 2012 are included in Professional fees, which amount to BGN 327 thousand for the Group, and the Company (2011: BGN 327 thousand).

Other expenses comprise the charged provisions for impairment of assets and the net book value of the scrapped inventories and fixed assets.

22. Staff costs

Staff costs for the years ended 31 December 2012 and 2011 consist of:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2012 31.12.2011 31.12.2012 31.12.2011

Salaries and wages 56,730 52,738 56,726 52,735 Pension, health and unemployment fund contributions 8,561 8,187 8,561 8,187 Other benefits 2,549 2,408 2,549 2,408 Other staff costs 1,587 1,718 1,587 1,718 Total staff costs 69,427 65,051 69,423 65,048

As stated in Note 18 the amounts of post employment termination benefits included/(reversed) in salaries and wages above for the consolidated and separate financial statements are respectively for 2012 BGN 21 thousand (2011: BGN (249) thousand).

70 F-109 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

23. Finance income and costs

Financial income and costs for the years ended 31 December 2012 and 2011 consist of:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2012 31.12.2011 31.12.2012 31.12.2011

Finance costs Interest expense: (33,345) (38,937) (33,345) (38,937) -Bank borrowings (32,726) (38,789) (32,726) (38,789) -Provisions (479) (109) (479) (109) -Finance lease (120) (7) (120) (7) -Other (20) (32) (20) (32) Loss on financial instruments - (2,135) - (2,135) Foreign exchange loss (177) - (177) - Other finance costs (255) (233) (250) (231) Total finance cost (33,777) (41,305) (33,772) (41,303) Finance income Interest income: 7,887 8,727 7,874 8,712 -Bank deposits 6,555 6,879 6,542 6,864 -Finance lease 1,068 1,562 1,068 1,562 -Other 264 286 264 286 Foreign exchange gains 144- 44 Gains on financial instruments 27 - 27 - Equity investment income 286 324 286 3,258 Total finance income 8,201 9,095 8,187 12,014 Net finance costs (25,576) (32,210) (25,585) (29,289)

The result of the sale of the shares of NURTS Bulgaria AD in 2011 amounting to BGN 2,934 thousand is included in equity investment income in the separate financial statements.

24. Other gains, net Consolidated and separate financial statements Year ended 31.12.2012 Year ended 31.12.2011

Gains from sales of non-current assets 10,177 8,380 Gain/(Loss) from sales of materials 13 (109) Total other gains, net 10,190 8,271

Income from sales of PPE and assets held for sale for 2012 was BGN 11,613 thousand and their net book value was BGN 1,436 thousand. For 2011 these figures are respectively BGN 11,770 thousand and BGN 3,390 thousand. The income from sales of materials in 2012 was BGN 27 thousand and cost of sales was BGN 14 thousand. For 2011 these figures were BGN 59 thousand and BGN 168 thousand respectively.

71 F-110 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

25. Tax expense

Income tax expenses for the years ended 31 December 2012 and 2011 are as follows:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2012 31.12.2011 31.12.2012 31.12.2011

Current income tax charge 6,361 6,644 5,751 6,645 Deferred tax credit to comprehensive income (9,697) (5,788) (9,756) (5,795) Total tax expense/(benefit) (3,336) 856 (4,005) 850

Total tax expense can be reconciled to the accounting profit as follows: Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2012 31.12.2011 31.12.2012 31.12.2011

(Loss)/profit before tax (36,578) 8,036 (43,368) 10,098 Total (loss)/profit before tax (36,578) 8,036 (43,368) 10,098

Tax rate 10% 10% 10% 10%

Tax at the applicable tax rate (3,658) 804 (4,337) 1,010 Effect of permanent tax differences 290 271 291 69 Effect of current tax from previous periods, accounted during the year - (290) - (290) Effect of unrecognised tax losses and tax offsets not recognised as deferred tax assets 32 71 41 61 Income tax (benefit)/expense (3,336) 856 (4,005) 850 Effective tax rate 9.12% 10.65% 9.24% 8.42%

Income tax (benefit)/expense in the statement of comprehensive income (3,336) 856 (4,005) 850

26. Segment information

Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The business, considered on a product perspective is currently organized into two lines of business – Fixed line of business and Mobile line of business. Principal activities are as follows: x Fixed line of business – voice and data services over the fixed network; x Mobile line of business – mobile services (GSM, and UMTS Standards)

The Board of Directors assesses the performance of the business segments based on a measure of gross margin. Revenue and gross margin information as reviewed by the Board of directors for the periods ended 31 December 2012 and 2011 is presented below.

72 F-111 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

26. Segment information (continued)

Year ended 31.12.2012 Fixed line of business Mobile line of business Total

Revenue 460,429 397,288 857,717 Cost of sales (93,504) (131,313) (224,817) Gross margin 366,925 265,975 632,900

Operating expenses (654,092) Financial expenses, net (25,576) Other gains, net 10,190 Loss before tax (36,578) Income tax benefit 3,336 Net loss for the year (33,242)

Year ended 31.12.2011 Fixed line of business Mobile line of business Total

Revenue 519,789 376,081 895,870 Cost of sales (109,855) (132,997) (242,852) Gross margin 409,934 243,084 653,018

Operating expenses (623,315) Financial expenses, net (32,210) Other gains, net 8,271 Share of profit of JV 2,272 Profit before tax 8,036 Income tax expense (856) Net profit for the year 7,180

27. Related parties

The Group’s related parties are considered to be the following: x shareholders of which the Company is a subsidiary or an associate, directly or indirectly, and subsidiaries, joint ventures and associates of these shareholders; x members of the Company’s statutory and supervisory bodies and parties close to such members, including the subsidiaries and associates of the members and their close parties; x joint ventures in which the Company is a venturer For the stand alone statements all consolidated subsidiaries are considered related parties as well.

As disclosed in Note 1on 9 November 2012 Viva Telecom Bulgaria EAD acquired 93.99% of BTC shares. For the periods before 9 November 2012 NEF Telecom Bulgaria OOD group companies and from 10 November to 31 December 2012 Bromak EOOD Group and VTB Bank OJSC Group companies are considered to be related parties.

73 F-112 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

27. Related parties (continued)

Balances The following table summarizes the balances of receivables and payables with related parties as of 31 December 2012 and 31 December 2011:

For the Group: Note Receivables Payables 31.12.2012 31.12.2011 31.12.2012 31.12.2011

Members of Bromak EOOD Group Other RP 9- - - NEF Telecom Company BV Parent - 370 - - NEF Telecom Bulgaria OOD Parent -1 - 157,624 Total for BTC group 9 371 - 157,624

For BTC: Note Receivables Payables 31.12.201231.12.2011 31.12.2012 31.12.2011

BTC Net EOOD Subsidiary 507 285 1,161 - Members of Bromak EOOD Group Other RP 9- - - NEF Telecom Company BV Parent - 370 - - NEF Telecom Bulgaria OOD Parent -1 - 157,624 Total for BTC group 516 656 1,161 157,624

The balance on NEF Telecom Bulgaria OOD payable for 2011 represents outstanding dividend payable, which was paid in 2012.

Transactions The following table summarizes services received by BTC from related parties:

Note Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2012 31.12.2011 31.12.2012 31.12.2011

BTC Net EOOD Subs. - - 6,653 25 NURTS Bulgaria AD JV - 5,157 - 5,157 Total for BTC - 5,157 6,653 5,182

The realised revenue for BTC from related parties is as follows:

Note Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2012 31.12.2011 31.12.2012 31.12.2011

BTC Net EOOD Subs. - - 5,471 209 Members of Bromak EOOD Group Other RP 46 - 46 - NEF Telecom Bulgaria OOD Parent 19 29 19 29 NEF Telecom Company BV Parent 11 - 11 - NURTS Bulgaria AD JV - 4,625 - 4,625 Total for BTC 76 4,654 5,547 4,863

74 F-113 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

27. Related parties (continued)

Borrowings Members of Bromak EOOD Group and VTB Bank OJSC Group participate in the amended syndicated loan facility as disclosed in note 16. The amounts related to them are shown below:

Loan Interest Interest principal expense payable Members of VTB Bank OJSC Group Other RP 2011 - - - 2012 - 1,746 - As of 31.12.2012 198,324 - 1,746

Members of Bromak EOOD Group Other RP 2011 - - - 2012 - 487 - As of 31.12.2012 59,174 487

Interest income Part of the cash availability of the Group and the Company is deposited in a bank, member of Bromak EOOD Group as disclosed in Note 5. Interest income from such bank deposits for the year ended 2012 is BGN 44 thousand in the consolidated and separate financial statements.

Management remuneration

There is no compensation paid by the company to the members of the Board of Directors as of 31 December 2012 and 31 December 2011. Remuneration amounting to BGN 6,785 thousand relating to key management personnel has been accrued as of 31 December 2012 (2011: BGN 5,558 thousand) from which BGN 4,474 thousand is payable as of 31 December 2012 (2011: BGN 3,190 thousand)

28. Commitments and contingencies

Contractual commitments for the acquisition of property, plant and equipment The parent company has entered into agreements with various suppliers relating to the capital expenditure as approved in the investment program. Certain agreements have not been completed as of the balance sheet date. A summary of the main commitments to acquire equipment under such contracts, effective as of 31 December, 2012, for the Group and the Company is presented in the table below:

Aggregate Delivered up Commitments Equipment description contracted amount to 31.12.2012 outstanding Hardware and software 7,878 3,694 4,184 Construction and assembly works of the BTC 33,288 10,456 22,832 Network equipment 101,334 68,104 33,230 TOTAL 142,500 82,254 60,246

The Company is a participant in several lawsuits and administrative proceedings. Based on the information available, management is satisfied that there is no unprovided liability arising from these lawsuits and administrative proceedings.

The Group has bank guarantees issued to third parties which amount to BGN 1,393 thousand as of 31 December 2012 (2011: BGN 875 thousand).

75 F-114 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 All amounts are in thousand BGN, unless otherwise stated

29. Operating lease

Minimum lease payments under operating leases recognized as an expense for the period are as follows:

Consolidated and separate financial statements Year ended 31.12.2012 Year ended 31.12.2011

Minimum lease payments 9,514 9,313

BTC has outstanding commitments under non-cancellable operating leases, which fall due as follows:

Consolidated and separate financial statements Year ended 31.12.2012 Year ended 31.12.2011

Within one year 9,168 9,530 In the second to fifth years inclusive 29,653 29,526 Later than five years 86,546 90,751 Total commitments 125,367 129,807

Operating lease payments represent rentals payable for certain part of the vehicles of the Group and the Company. Leases and rentals are negotiated for an average term of three years.

In the amount of the non-cancellable operating lease payables are included payments related to contract for lease of administrative building that commenced in 2010 and the leasing term is above 5 years.

30. Post balance sheet events

On 16 January 2013 Viva Telecom Bulgaria EAD submitted to the Financial Supervision Commission a corrected tender offer for the acquisition of all voting shares issued by BTC pursuant to Art. 149, Para 1, item 1, Para 6 and 7 of Public Offering of Securities Act. As a result of the tender offer Viva Telecom Bulgaria EAD increased its stake in BTC to 99.72%.

76 F-115 F-116 F-117 BULGARIAN TELECOMMUNICATIONS COMPANY AD

CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS CONSOLIDATED AND SEPARATE ANNUAL ACTIVITIES REPORT INDEPENDENT AUDITOR’S REPORT

31 December 2011

F-118 TABLE OF CONTENTS

Page Annual activities report 1 Consolidated and separate balance sheet 18 Consolidated and separate statement of comprehensive income 19 Consolidated and Separate statement of changes in equity 20 Consolidated and Separate cash flow statement 21 Notes to the consolidated and separate financial statements 22 Independent auditor’s report

F-119 Bulgarian Telecommunications Company AD

------CONSOLIDATED AND SEPARATE ANNUAL ACTIVITIES REPORT ------

2011

F-120 CONTENTS

I. INFORMATION ABOUT THE COMPANY’S FINANCIAL RESULTS, ACTIVITY AND DEVELOPMENT

II. INFORMATION ABOUT THE COMPANY’S BOARD OF DIRECTORS AND SUPERVISORY BOARD

III. INFORMATION ABOUT THE COMPANY’S SHARES

IV. INFORMATION ABOUT GOOD CORPORATE GOVERNANCE PROGRAM IMPLEMENTATION

V. ADDITIONAL INFORMATION

F-121 For the year ended 31 December 2011

This document reflects the activity in the reporting period of Bulgarian Telecommunications Company AD (“VIVACOM” or the “Company”) on an individual and consolidated basis.

I. INFORMATION ABOUT THE FINANCIAL RESULTS, ACTIVITY AND DEVELOPMENT OF THE COMPANY AND THE GROUP

1. OVERVIEW OF THE ACTIVITY OF THE COMPANY AND THE GROUP

Bulgarian Telecommunications Company AD (“VIVACOM” or the “Company”) is a public joint stock company, domiciled in Bulgaria, with its registration address: 115I “Tsarigradsko Shose” blvd., 1784 Sofia. VIVACOM’s activities include development, operation and maintenance of national fixed and mobile network and data system for the Republic of Bulgaria.

As at 31 December 2011 the group includes VIVACOM and its subsidiary entity BTC Net EOOD (the “Group” or “VIVACOM Group”).

As at 31 December 2010 the group includes VIVACOM, the subsidiary entity BTC Net EOOD and the jointly controlled entity NURTS Bulgaria AD.

On September 20, 2011 VIVACOM closed the deal with Bluesat Partners Ltd. for the sale of the 50 % of NURTS Bulgaria AD for BGN 58.7 million. Completion of this deal transfers the whole process for development of the digital radio and TV infrastructure to NURTS Bulgaria AD, a joint-venture between Mancelord Limited, the company which from August 2010 owns 50% of the company, and the new investor. In August, the deal was approved by the Commission for Protection of Competition (CPC).

VIVACOM offers high-quality converged services which deliver all kinds of telecommunication solutions – fixed telephony, mobile services, Internet and satellite TV.

The Company remains the biggest landline operator despite strong competition from fixed-line offers from the alternative fixed-line providers and the two mobile operators.

Full digitalization of the entire national telecommunications network has been completed, thanks to VIVACOM investments during the year.

VIVACOM keeps its leading position on the strongly fragmented broadband Internet market, despite the fact that the market is currently saturated. Following the demand for high-speed bandwidth capacity, VIVACOM has speeded up the investments in its optical infrastructure. The fiber is deployed into each entrance of the building and already covered more than 100 000 households.

The Company has positioned itself as the Internet service provider with 100% coverage of the territory of Bulgaria and ability to provide access to the global network in areas with no telecommunications infrastructure after in September 2011 announced the launch of its new satellite Internet service (VIVACOM Tooway).

Also VIVACOM offers free of charge to its clients an option for legal download of music and free access to a game server through its portal 4fun.bg.

Being the third arrival on the market, the company is constantly increasing its market share offering the lowest prices and boosting the competitiveness in the mobile services sector in the country.

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F-122 For the year ended 31 December 2011

VIVACOM has ended its 3G network development program for 2011 with 97.48% coverage of the population and 86.50% of the Bulgarian territory. These numbers confirm the CPC statement from May, 2011 that VIVACOM's 3G network is the best third-generation network in Bulgaria. VIVACOM is also the 18th operator in the world that starts commercial offering of a 3G network on 900 MHz, which allows better coverage as a whole, stronger signal in closed areas and distant places, as well as considerably better network quality. The use of mobile data services is growing faster than the number of subscribers, which is due to the higher data transfer speed offered by VIVACOM in its entire network and the country-wide 3G coverage.

VIVACOM wins customers by remaining the only operator without roll over clause for all its customers - new and existing ones. This approach led to a serious growth of 28% in VIVACOM's mobile customer base for only a year.

VIVACOM still remains the only operator reporting a positive balance of numbers ported into its network. Since the start of the mobile number portability process, over 140,000 new subscribers have chosen VIVACOM’s network, more than half of which ported in the last 12 months.

The company sees strong demand for its digital television service with more than 280% increase in VIVACOM TV subscribers for only one year and has positioned itself as the second largest satellite provider in Bulgaria.

VIVACOM FUND distributed around BGN 2 million to support sports, culture, education and health and social projects over the course of 2011. For a third consecutive year VIVACOM was distinguished as the biggest corporate donor through volunteering by the Bulgarian Donors Forum. VIVACOM created effective and successful program for retention and development of the key people which does not have an analogue in Bulgaria. The project, which is unique for our market, won the price "Succession Management" in the yearly competition of Bulgarian Association for Management and Development of the Human Resources (BAMDH) for 2011. In order to achieve continuous improvement in environmental indicators and environmental performance in its activities, products and services, VIVACOM decided to focus its efforts on the path of the requirements of ISO 14001:2004.

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F-123 For the year ended 31 December 2011

2. FINANCIAL CONDITION AND RESULTS FOR 2011

The Group ended the financial year 2011 with a net profit of BGN 7,180 thousand, (the Company - with a net profit of BGN 9,248 thousand). Net profit for 2011 has decreases comparing to last year numbers mainly due to a reduction of revenues from fixed services, reduced retail prices and discontinued operations.

At the end of 2011 the Company's financial position remained strong with ample liquidity and stable total revenues. The Company maintains strong revenue growth in mobile services, while reducing the cost and applying lower prices to end-customers. This approach led to an increase in VIVACOM's customer base and offset the decline in revenues from fixed telephony.

At 31 December 2011, cash and cash equivalents amounted to BGN 141,664 thousand (VIVACOM Group) and BGN 141,355 thousand (VIVACOM), comprising current accounts and cash in hand and deposits with maturity of less than three months.

The companies within VIVACOM Group hold cash in BGN , EUR and USD in view of the fact that their short-term liabilities originate in these currencies. Thus the risk of a change in exchange rates is managed and relevant potential losses are minimized.

Cash flows from operating activities for 2011 amounted to BGN 309,014 thousand for VIVACOM Group (15% increase compared to 2010) and BGN 309,065 thousand for VIVACOM (15% increase on 2010 year-end).

The net cash flow used in investment activities for the Group and the Company was BGN 105,326 thousand, including BGN 118,484 thousand for purchase of plant, property and equipment and BGN 54,805 thousand for purchase of other fixed assets. The above was partially offset by BGN 8,995 thousand proceeds from property, plant and equipment as well as BGN 58, 675 thousand proceeds from sales of investments.

The net cash used in financing activities for VIVACOM and the Group was BGN 216,969 thousand, including 160,265 thousand payments of dividends and BGN 54,507 thousand bank deposits with maturity greater than three months.

At the General Meeting of Shareholders held on 29 July 2011 a decision was taken on dividend payout from the Company’s profit and reserves allocated for distribution to the total amount of BGN 176,147 thousand.

On 21 August 2007 VIVACOM refinanced its liabilities on the existing syndicated loan to the total amount of EUR 350 million. On 17 August 2007 VIVACOM became a party to a new loan arranged by Royal Bank of Scotland, Deutsche Bank AG, London Branch, UBS Limited and Bank Austria Creditanstalt AG with a mandate for arranging syndicated finance. Available to VIVACOM are two term loans and one revolving loan. The first term loan matures in eight years and may be used for repayment of existing financial obligations. The second term debt matures in seven years and may be used to finance the capital expenditures of VIVACOM and its subsidiaries. The third loan is granted on a fully revolving basis and its utilization is aimed at meeting working capital needs as well as other needs of companies within the Group. The loan agreement includes provisions for certain covenants for financial ratios, calculated based on the financial statements of the parent companies of NEF Telecom Bulgaria OOD. As per information of the parent company of the majority shareholder (acting as agent of the borrowers under the senior loan agreement) some financial covenants have been breached in 2010 as detailed below.

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F-124 For the year ended 31 December 2011

On 6 January 2010 a garnishment (freezing order) was imposed over 10,230,187 common registered book entry shares from the share capital of VIVACOM held by NEF Telecom Bulgaria OOD representing 3,54% of total VIVACOM shares. The latter together with the mortgages over real estates of the company disclosed under note 11 of the financial statements, as well as the deviation of certain covenants mentioned above, represent a breach of the senior loan agreement in case the lenders have not provided explicit waiver under the respective clauses of the senior loan agreement. Since such waiver has been provided by the lenders, the management considers that the above circumstances do not represent immediate risk for the activities of the company and most probably will not lead to adverse implications for VIVACOM.

VIVACOM management expects that in the course of 2012 its shareholders will agree with the lenders changes to the loan agreements that will enable the loans to remain with their original maturities.

Considering the above, in light of the assessment of expected future cash flows, the assurance received by the major shareholder for a successful and consensual outcome from ongoing discussions with the lenders, as well as the continuing support of Senior Lenders as evidenced in the waivers granted, the management is satisfied that it is appropriate for the financial statements to be prepared on a going concern basis.

On 17 February 2012 the Company made repayment of BGN 29,584 thousand from the second term loan.

In 2011 VIVACOM maintained a structure of assets and liabilities that allowed its smooth operation. In order to control the threat of liquidity risk, the Company applied planning techniques, including submission of daily liquidity reports, short-term and medium-term cash flow forecasts.

CAPITAL RESOURCES

The Group manages its equity in order to perform its activity as a going concern and to maximize return on equity of shareholders by optimizing the debt to equity ratio in medium term.

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F-125 For the year ended 31 December 2011

REVENUES

The total amount of consolidated revenues from continuing operations for 2011 amounted to approximately BGN 895.9 million, 0,1 % less than in 2010.

The Company’s revenues are generated from five main sources.

VIVACOM Revenue Structure 9% 18% 20%

16%

37%

Outgoing traffic Recurring charges Leased lines and data transmission Interconnect Other

Recurring charges

Monthly rental revenues decreased slightly in 2011 for VIVACOM and the Group as a result of fixed line losses which are largely offset by the growth of mobile subscribers, leading to a reduction in revenues from recurring charges to only 1%.

Outgoing traffic revenue

Outgoing traffic revenue of VIVACOM decreased by approximately 8% in 2011 compared to 2010, on an individual and consolidated basis, as a result of the line losses and shrinking fixed traffic.

Interconnect revenue

Interconnect revenue increased by 19% compared to 2010 as a result of the higher volume of traffic terminated to VIVACOM mobile network, due to mobile subscribers’ growth and international transit traffic.

The price re-balancing based on rules approved by the regulatory authority – Communications Regulation Commission (CRC) – will further influence the regulated services revenue next year.

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F-126 For the year ended 31 December 2011

Leased lines and data transmission revenue

Leased lines and data transmission revenue of VIVACOM and VIVACOM Group marked approximately 2% drop compared to 2010. This is mainly attributable to the migration of customers from leased lines to other complex data services, where price competition is fierce.

Other revenue

In 2011 other revenue from sales marked a decrease by 6% compared to 2010 (for the Group and VIVACOM) mainly due to lower sales of mobile phones.

EXPENSES

Staff costs

In 2011 staff costs of VIVACOM Group and VIVACOM decreased by 10% on 2010 mainly due to salary optimisation in line with the restructuring of the Company’s activities.

Interconnect costs

Interconnect costs has increased compared to 2010 by 12% both for the Group and VIVACOM, led by the growth in international transit traffic.

Other operating expenses

In 2011 other operating expenses in the Group and VIVACOM marked an increase compared to 2010, as a result of the higher maintenance and repairs costs, advertising, customer service, billing and collection costs, facilities and other costs.

Materials and consumables expenses

Lower materials and consumables expenses in 2011 compared to prior year as a result of lower cost of mobile handsets sold out. The above was partially offset by the theft of copper cables losses.

Corporate tax

The corporate tax expense decreased considerably in 2011 compared to prior year. The difference is mainly due to the lower operating profit in 2011.

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F-127 For the year ended 31 December 2011

3. MAIN CATEGORIES OF SERVICES

The services provided by the Company and the Group include:

Converged services – VIVACOM’s bundles offer a wide range of variety of combinations that include mobile, fixed, Internet and TV services. The bundles provide best value, convenience and ease-of-use for the end-customers.

Mobile services

Mobile telephony – a service enabling the clients to make mobile calls via the mobile network of VIVACOM.

VivaMail – professional e-mail hosting service via the mobile network of VIVACOM.

BlackBerry - a complete communication solution allowing, distance and continuous connection with electronic mail, working with corporate databases and different types of files sent electronically and all basic functions and services for a mobile device. The service is provided via the VIVACOM mobile network in cooperation with the service vendor Research In Motion.

VIP Business – an integrated voice service, based on IP connectivity.

3G Videocall - a service allowing two users to see each other on the display of their handsets in real time via the mobile network of VIVACOM.

Business SMS – a service enabling VIVACOM business customers to generate various SMSs via web based application.

VIVA Bipper – child security service, which gives opportunity to the parents to use their children’s mobile phones to control the communication, localize them and have immediate contact in emergency situations. The service is offered in partnership with Bipper Norway.

VIVA Team – specially designed service for the business customers in order to localize and optimize the spent for telecom services of the company employee.

Mobile internet – a service enabling the clients to upload and download data within the mobile network of VIVACOM.

Additional services included in VIVACOM mobile portfolio are SMS, MMS, VAS, Voice mail, International roaming, Shared data, bolt ons, VIVA TV Box etc.

Fixed voice services

Fixed telephony – a service enabling the clients to make local, long-distance, national calls to other fixed and mobile operators and international calls via the fixed network of VIVACOM. Clients with numbers from digital telephone exchanges are offered a number of additional services.

Value Added Service 0900 – a service used for providing information or public entertainment services to suppliers of Value Added Services.

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F-128 For the year ended 31 December 2011

Green telephone 0800 – the service enables clients to provide voice information services free of charge for their customers.

Universal number 0700 – the service enables clients to provide voice information services and the price of the telephone call is shared between them and their customers.

Integrated services digital network (ISDN) provides digital user-to-user connectivity with an option for access to voice services and services for transmission of data, text, movable and fixed images as well as various additional services.

VPN fix – the service provides the clients with the benefits of a closed user group across the country’s territory, where members of the group call everybody else in the group with short code dialing and telephone calls among them are billed at preferential prices.

Additional services included in VIVACOM fixed voice portfolio are Office plans, Audio Conference, Televoting, VIP Business, Centrex, Dataphone etc.

Digital TV

VIVACOM TV is a satellite digital television based on the DTH (Direct-To-Home) technology, which delivers TV content via satellite directly to the client's home. Satellite TV can be used in any part of the country.

Internet services

VIVACOM Net – the service offers to clients a high-speed and reliable access to Internet simultaneously and independently from standard telephone services via the same subscribed line.

VIVACOM FiberNet – the service offers to clients a high speed Internet access (up to 100MBps) on separate optical infrastructure.

VIVACOM Tooway – satellite Internet for customers in rural areas.

Data and Professional Internet services

Digital Leased Lines – provision of infrastructure by VIVACOM to a client, including transmission facilities and transmission environment via which a transparent channel with a specific capacity between end points in the network defined by the client is provided.

MAN is a high-speed optic network for data transmission over Ethernet protocol. The service “Building of a client virtual local network for data transmission – Metropolitan Network” is provided via MAN, connecting separate segments of the local network or separate networks of client/clients included in a virtual network – VLAN.

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F-129 For the year ended 31 December 2011

MAN Intercity is a service based on the optical network of VIVACOM and provides link between the branches of customers located in different cities and already users of MAN.

VIVACOM IP-VPN (virtual private network) – the service provides high-quality, high-speed connectivity between remote offices of the client/clients located in a single settlement. VPN Net – the service provides high-quality, high-speed and cheap IP environment for transfer of voice, video and business data between geographically remote offices of users within the country. The service is provided in two versions - IP VPN Net and L2 VPN Net.

Additional services included in VIVACOM data and internet portfolio are professional internet services, Remote access to IP-VPN, SLA (Service Level Agreement), etc.

Other services

Use of duct network – a service allowing installation along underground routes of telecommunication cables from other licensed telecommunications operators for the purposes of their business.

Collocation of customer equipment – the service enables users to install and operate their communication equipment in dedicated VIVACOM centres.

Interconnect – Provides possibilities to other licensed telecommunications operators to connect their networks with the network of VIVACOM for the purpose of mutual exchange of traffic.

Bitstream – Provides possibilities to other licensed telecommunications operators to deliver ADSL access to Internet for their customers using VIVACOM’s access network and MAN infrastructure.

Local loop unbundling - Provides possibilities to other licensed telecommunications operators to use the last mile of VIVACOM’s access network to deliver telecom services to their customers.

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F-130 For the year ended 31 December 2011

4. MAIN RISKS

Investment in securities involves different types of risks. Every investor should carefully read and analyse the information presented below and should make his own independent research and assessments before taking a decision on acquiring shares issued by VIVACOM.

This document contains certain projections and estimates which refer to future uncertain events. The projections are made on the basis of the current information available to the authors of this document and on the estimates they consider justifiable. Actual results may differ, even materially, from the estimates stated in this document, as they depend on a number of risk factors described in the paragraphs below. Not all risk factors can be predicted or described and some of these risk factors are outside the abilities of the issuer to counteract.

The main risk factors that could affect the Company’s activity and results are described below.

General risk

General risk is considered in the broadest economic and political context in which the Company operates (e.g. risk related to the development of the global economy, the development of the local economy, inflation risk, general political risks, domestic policy, foreign policy and general trends). Therefore, some of these risks are not subject to management or mitigation by the Company’s management. They affect VIVACOM’s activity with different weight and emerge in different, usually unpredictable patterns.

Macroeconomic risks

The macroeconomic environment in Bulgaria and the European Union economy will continue to affect indirectly VIVACOM’s results. Tightening credit condition and increasing unemployment lowered consumer confidence and affected Company’s performance and cash flows, albeit the Company performed better than competitors.

Inflation risk

Inflation is a factor determining the actual return on the investment. This means that at a level of inflation exceeding the nominal rate of annual return during the year, the actual rate of return on the investment denominated in the national currency would be negative during the year.

Market risk

Market risk is associated with changes in the earnings of a specific security as a result of changes in the market earnings as a whole. The specific change in the price of a share as a result of a specific change in the market earnings as a whole depends on the sensitivity or elasticity of the earnings of such security against changes in the market earnings. The value of that ratio for the shares of a specific company is determined on the basis of a regression analysis of the change in the earnings per specific share and of the market as a whole. As the existing information is not representative given the short history of the capital market in Bulgaria and its low liquidity, whereby it is very difficult to form a fair market value, this risk cannot be calculated correctly for the shares of VIVACOM.

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F-131 For the year ended 31 December 2011

Political risks

The political process is a significant factor affecting the return on investments. The degree of political risk is associated with the probability of changes in the economic policy pursued by the government, which could lead to negative changes in the investment climate, as well as the probability of emergence of regional or global armed conflicts or terrorism, social unrest or political tension. Apart from this is the probability of adverse changes in the legal regulation of economic activity. At present the political situation in the country seems stable with government commitment to fiscal discipline and improving institutional strength as well as the financial system's relative resilience in a volatile regional environment. In July 2011 Moody's upgraded Bulgaria's government debt ratings to Baa2 stable from Baa3.

Specific Company risks

Specific Company risks are the risks associated directly with its activity, which is strictly regulated. They include:

Regulatory risk

Regulatory risk exists both in respect of the telecommunications regulation and the general regulation in the area of competition law. The regulatory practice of the CPC and that of the Communications Regulation Commission (CRC) is not always concerted and can provoke conflicting decisions in the area of electronic communications. This could result in market uncertainty, lack of clear criteria and in many cases could lead to excessive regulation for VIVACOM.

Following market analyses procedures that were carried out by the Communications Regulation Commission, VIVACOM was recognized as a company having significant market power (SMP) on the following markets: origination and termination on fixed network, access and local, long distance and international calls for fixed voice service, call termination for the mobile voice service. VIVACOM is still obliged to have and officially publish standard offers for interconnection, unbundling access to the subscription line. In addition VIVACOM was obliged to provide another wholesale service – Wholesale Line Rental.

The lack of strict regulation allows the mobile operators with dominant position to provide many complex and bundled offers at lower prices than the one VIVACOM is allowed to provide due to its regulated activity.

Fixed Number Portability (FNP) was officially launched In July 2009. In August, 2010 the CRC made amendments to the fixed portability process from two stop shops to one. The risk associated with this process is a possible decrease of the number of VIVACOM’s subscribers of fixed voice service.

Market analyses of CRC with regard to the fixed broadband access and the access to the passive infrastructure have been released in 2011. The main risks associated with the use of the duct network are the imposition of new pricing mechanism based on installed cables section. The above could drive a process of full inventory of the duct network and obligation for preliminary agreement of the conditions for providing DSL services.

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F-132 For the year ended 31 December 2011

Regulatory risk (continued)

Potential risks during the course of the year could be the appeal of VIVACOM’s new commercial offers and converged services in the CPC. It should be noted that in case of infringement, CPC has power to stop services and advertisements which may affect the whole sector.

Unfair competition

Unfair competition from a number of alternative operators poses a risk to the Company. Their typical behaviour is anti-competitive associations for concerted market behaviour, forbidden and hidden advertising, negative advertising and unfair acquisition of clients as a result of the low price promotions.

Many of the alternative operators that provide internet access build their cable networks in contradiction with imperative stipulation of Bulgarian legislation. Examples of such practices are networks built over the air, especially in cities with more than 10 000 inhabitants, in violation of the Electronic Communications Act.

Legal framework

Amendments were made in the Electronic Communications Act as a whole they create a certain and specific obligations to undertakings providing electronic communications services. Some changes are oriented toward consumer protection, such as delayed entry into force of contracts, which could potentially bring legal risk.

More market analyses of CRC are due to become effective which shall most probably confirm some of VIVACOM’s existing specific obligations.

The measures which the CPC may impose will have material weight and in practice could affect seriously not only one company but the whole sector. The maximum amount of pecuniary penalties could reach 10% of a company’s turnover.

Credit risks

Credit risks or the risk of counterparty defaulting is reduced partly by the application of monthly subscription, credit limits and monitoring procedures. The Company has a policy of obtaining collateral from its retail customers who use mobile services and from distributors. Credit risk is managed on VIVACOM Group level. The credit exposure of VIVACOM consists of the total value of trade and other receivables and short-term deposits. There is no significant concentration of credit risk related to accounts receivable.

Liquidity risks

Liquidity risk arises from the mismatch of contractual maturity of monetary assets and liabilities and the possibility that debtors may not be able to settle obligations to the Company within the normal terms of trade. To manage such risk, the Company uses planning techniques, including but not limited to, arrangement of overdraft facilities, daily liquidity reports, and short and medium-term cash forecasts.

12

F-133 For the year ended 31 December 2011

Other specific risks

Other specific risk identified by the management is the risk of unethical behavior of employees of the Company. To address this risk the management has developed and adopted a Code of Ethics that entered into force on July 1, 2010. It guides the employees to act responsibly, ethically and lawfully and in compliance with the Code of Ethics, as well as all other policies, laws and regulations that apply to the Company.

5. IMPORTANT EVENTS AFTER THE REPORTING PERIOD

There are no important events after the end of the reporting period that need to be disclosed.

6. EXPECTED DEVELOPMENT

In 2012 the activity of the Group will continue to be carried out in accordance with the main objectives of the Company:

x VIVACOM will continue to work on consolidating its position as mobile data market leader by further investments in its network; x VIVACOM will continue to deploy its fibre network and to develop its portfolio of Internet services in order to support today's growing demands for high speed bandwidth capacity; x VIVACOM plans to continue and increase the investments in high quality digital television services, after the successful launch of its television service;

13

F-134 For the year ended 31 December 2011

II. INFORMATION ABOUT THE COMPANY’S BOARD OF DIRECTORS AND SUPERVISORY BOARD.

1. Changes in the Company’s Managing Board and Supervisory Board.

From the beginning of the financial year to the end of the reporting period the following changes in the managing and supervisory bodies of the Company were entered in the Commercial Register:

i. On 30 May 2011 Mr. Madhusudan Mokilmarathur Balakrishna was released from office as a member of the Managing Board. ii. On 20 September 2011 Mr. Donald Weir Muir was registered in the Commercial Register as a member of the Managing Board. iii. On 15 December 2011 Mr. David Kun-Wah Yeung was released from office as a member of the Managing Board

The Financial Supervision Commission and the public are notified of the above changes.

2. Members of the Company’s Managing Board and Supervisory Board at 31 December 2011 a) At 31 December 2011 the members of the Managing Board of VIVACOM are:

Mr. Pierre François Georges Mellinger - Chairman of the Managing Board Mr. Bernard Jean Luc Moscheni - Member of the Managing Board and Chief Executive Officer Mr. Rossen Borisov Hadjiev - Member of the Managing Board Mr. Tomasz Jakub Wojtaszek - Member of the Managing Board Mr. Donald Weir Muir - Member of the Managing Board b) At 31 December 2011 the members of the Supervisory Board of VIVACOM are:

Mr. Vladimir Penkov Penkov - Chairman of the Supervisory Board Mr. Ivan Lyubomirov Markov - Member of the Supervisory Board Ms. Krasimira Stoyanova - Member of the Supervisory Board

3. The members of the Managing Board and the Supervisory Board have not received remuneration, awards and/or other benefits paid by the Company or its subsidiaries for 2011. The remunerations of the management team are disclosed in the financial statements.

4. The members of the Managing Board, the Supervisory Board and the senior management of the Company did not acquire, hold and transfer shares and bonds of VIVACOM in 2011. The members of the Managing Board and the Supervisory Board are not entitled to acquire shares or bonds of VIVACOM.

5. Participation of the members of the Managing Board and the Supervisory Board in companies as general partners, holdings of more than 25% of the capital in another company, as well as participations in the management of other companies or co-operations as procurators, managing directors or board members is duly disclosed in accordance with the provisions of the Commerce Act and the Public Offering of Securities Act.

6. The members of the Managing Boards and the Supervisory Board did not enter into contracts referred to in Article 240b of the Commerce Act in 2011.

14

F-135 For the year ended 31 December 2011

III. INFORMATION ABOUT THE COMPANY’S SHARES

Changes in the prices of shares

The chart below shows the changes in the price of the Company’s shares in 2011.

BTC (5BT) 2011 - Price / Volume

Volume Volume BGN

35 000 7.00

30 000 6.00

25 000 5.00

20 000 4.00

15 000 3.00

10 000 2.00

5 000 1.00

0 0.00

Number and nominal value of the shares

The share capital of VIVACOM is comprised of 288,764,839 ordinary registered shares and one preferential share owned by the State through the Ministry of Transport, Information Technology and Communications. The nominal value of one share is BGN 1. The preferential share entitles its holder to the rights referred to in Article 9 (4), (5) and (6) of the Company’s Articles of Association.

The Company is not aware of any agreements (including after the close of the financial year) that could result in significant changes in the holding of shares or debt of existing shareholders or debt holders.

15

F-136 For the year ended 31 December 2011

IV. INFORMATION ABOUT GOOD CORPORATE GOVERNANCE PROGRAM IMPLEMENTATION

Since 2005 VIVACOM has had and has adhered to a program for application of internationally recognized standards for good corporate governance.

VIVACOM complied, in all material respects, throughout the period under review, with the legal requirements for public companies and with the best practices and principles applicable to Bulgarian companies.

Internal control

The Managing Board of VIVACOM exercises independent supervision over the activities and the internal control established by the Company. The Internal Audit Department was established in 2005 and began operating the same year. The objective of the internal control system is to manage rather than eliminate the risk of failure to achieve corporate objectives. Accordingly, it can only provide reasonable, but not absolute, assurance against possible misstatements and losses. The Managing Board of VIVACOM ensured ongoing identification, evaluation and management of the material risks faced by the business. At the General Meeting of Shareholders held on 29 June 2009 a decision was taken for establishing an Audit Committee with liabilities and responsibilities according to the Independent Financial Audit Act.

V. ADDITIONAL INFORMATION

1. The Company has no branches in the country or abroad.

2. General information on the capital structure of the Company, the rights and the obligations of the shareholders, the managing and the supervisory bodies of the Company can be found in the document prepared in accordance with item 4 of Article 32 (1) and Appendix No. 11 of Ordinance No. 2 of 17 September 2003 regarding the prospectuses upon public offering and admission to trade on a regulated market of securities and information disclosure from publicly listed companies and other issuers of securities.

3. The Company has no information about pending judicial, administrative or arbitration proceedings regarding liabilities or receivables of the Company amounting to at least 10% of its equity.

4. Data about the Investor Relations Director:

Bogdan Bogdanov

115I “Tsarigradsko Shose” blvd. “Hermes Park – Sofia”, Building A, 1784 Sofia, Bulgaria Tel. +359 2 949 4331 ȿ-mail: [email protected]

16

F-137 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2011

Management Responsibilities

The management is required by Bulgarian law to prepare financial statements and consolidated financial statements each financial year that give a true and fair view of the financial position of the Company as at the year end and its financial results. The management has prepared the enclosed financial statements and consolidated financial statements in accordance with IFRS, issued by the International Accounting Standards Board and approved by the European Commission.

The Management confirms that appropriate accounting policies have been used and applied consistently and reasonable and prudent judgements and estimates have been made in the preparation of the financial statements to assets, liabilities, revenue and expenses for the year ended 31 December 2011.

The Management also confirms that the financial statements and consolidated financial statements were prepared in accordance with applicable accounting standards and on a going concern basis.

The Management is responsible for keeping proper accounting records, for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Managing Board of Bulgarian Telecommunications Company AD

Sofia April 2012

17

F-138 F-139 F-140 F-141 F-142 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

1. General information

The Parent Company – Bulgarian Telecommunications Company AD

Bulgarian Telecommunications Company AD (“BTC”, the “Parent Company” the “Company” or “Vivacom”) is a public joint stock company, domiciled in Bulgaria, with its registration address: 115 I, Tzarigradsko shausse Blvd, Hermes park, building A, 1784 Sofia. BTC’s activities include development, operation and maintenance of the national fixed and mobile network and data system for the Republic of Bulgaria.

The Ultimate Parent Company is PineBridge Investments Limited (“PIL”). PineBridge Investments Partners LLC (“PineBridge”) is a wholly-owned subsidiary of PIL. PineBridge holds its interest with third party investors in the Company through PineBridge Black Sea Holdings, L.P., (formerly AIG Black Sea Holdings, L.P.) and related funds (the "Entities"). The Entities’ general partners are controlled by PineBridge. PineBridge has less than 1% of the economic interest in the Entities..

As of 31 December, 2011 and 2010 the Parent company had 3,253 and 3,141 employees, respectively.

As a result of the privatization transaction concluded on 20 February 2004 between the Privatization Agency of Republic of Bulgaria and Viva Ventures Holding GmbH, Austria (‘Viva’) which was finalized on June 11, 2004, 65% of the Company’s registered shares were acquired by Viva. Viva was 100% owned by Advent International Corporation, a global private equity investment fund.

On May 3, 2007 an agreement between Novator, Viva and AIG Global Investment Group (AIGGIG) (through its company AIG Capital Partners, Inc.) was signed for the acquisition on behalf of AIGGIG of the 65% share of Viva in BTC. On August 21, 2007 a deal on the acquisition by AIGGIG through NEF Telecom Bulgaria OOD (‘NEF’) of the 90% share of BTC from VIVA and from minority shareholders has been registered after obtaining the respective approvals on behalf of EU and other regulatory bodies.

The Group

As at 31 December 2011 the Group includes the subsidiary entity BTC Net EOOD.

As at 31 December 2010 the Group includes the subsidiary entity BTC Net EOOD and the joint venture NURTS Bulgaria AD.

BTC Security EOOD/ Renamed to BTC Net EOOD

The subsidiary was registered in the Register of commercial companies of Sofia City Court on 27 October 2004 with share capital of BGN 5 thousand. Its main activity is provision of security services to BTC AD and the companies controlled by it. BTC is the sole owner of this company.

The registered subject of business activity of BTC Net is building and operation of data transfer networks for the provision of domestic and international value added services and sale of telecommunication network facilities, development and exploitation of other telecommunication networks, and provision of other telecommunications services, as well as any other commercial activities. . On September 30, 2009 BTC Net EOOD was merged into BTC Security. The legal merger of the entities was registered in the Commercial Register on October 15, 2009. As a result, BTC Net has ceased to exist as a separate legal entity, by virtue of law BTC Security has become universal legal successor of BTC Net and all assets, rights and obligations of BTC Net have passed to BTC automatically as of that date.

On October 16, 2009 the successor BTC Security was renamed to BTC Net.

22 F-143 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

1. General information (continued)

Regulations

Regulatory framework. x Fixed line telecommunications

In May 2007 a new Electronic Communications Act (ECA) was adopted, which implemented the new EU 2002 regulatory framework in the field of electronic communications.

In 2008 the following secondary legislation acts which play significant role in the activities of BTC were adopted: - Methodology for determination of prices and price packages of Universal service (US); - Ordinance No 6 for the requirements and the quality parameters of US, special measures for disabled people and terms and conditions for selection of undertakings providing universal service; - Functional specifications for portability of geographic numbers when changing the supplier of fixed telephony service and/or changing the address within one geographic national code; - Rules for provision of carrier selection service; - Methodology for the terms and conditions for defining, analyzing and evaluation of the relevant markets and criteria for defining undertakings with significant market power.

In 2009 the preparation and adoption of secondary legislation acts continued and Ordinance No 1 for the terms and conditions for carrying out access and interconnection was also adopted.

According to the procedures set out in ECA and the Methodology for market definition and analysis the Communications Regulation Commission (CRC) sent notifications to the European Commission for the following market analyses: - Access to fixed voice telephony services and markets of local, long distance and international calls; - Markets for origination and termination in fixed networks; - Market for termination in mobile networks

In 2010 secondary legislation was developed through modification of already existing ordinances and through issuing of new ones: - Ordinance ʋ 1 of 22 July 2010 for distribution rules and procedures for primary and secondary provision for use, reservation and withdrawal of numbers, addresses and names; - Amendment of Ordinance ʋ 1 on the procedures for accessing and / or interconnection; - Amendment of Functional specifications for the implementation of portability of nationally significant numbers for changing of service provider of public mobile telephone service; - Amendment of functional specifications for the implementation of portability of non-geographic numbers when changing service provider providing the service - Amendment of functional specifications for portability of geographic numbers for switching to a fixed telephone service and / or change of address within a geographic country code for direction.

In December 2011 a new Law Amendment of ECA was adopted, which implemented the new EU 2009 regulatory framework in the field of electronic communications.

Licenses x Fixed line communications

On 28 January 2005 the CRC re-issued BTC’s license for usage and development of telecommunications network on the territory of Bulgaria and rendering of telecommunication services through the network. The term of the license is until February 2019.

23 F-144 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

1. General information (continued)

Regulations (continued)

An annual license fee, calculated on the base of the annual revenue from telecommunication services billed to subscribers is payable quarterly in arrears. During 2011 and 2010 the annual fee is 0.2% of nominal annual revenue from provision of electronic communications networks and/or services without VAT included and after deduction of transferring payments to other companies for interconnection of networks and access, transit, roaming, valuated services, as well as expenses for settling copyrights and related rights for radio and television programs.

An annual fee is to be paid to the CRC for access to limited frequency resources such as the radio- frequency spectrum. This fee is calculated on the basis of technical data and is payable quarterly in arrears as well. During 2011 and 2010 the fee was BGN 2,499 thousand and BGN 2,509 thousand, respectively. The fees are regulated by the CRC and relevant Council of Ministers Ordinances.

The issued individual licenses and certificates for operations under general licenses were transformed officially into authorizations, respectively into registration in the CRC’s register for activities. In January 2009 BTC Mobile merged into BTC. With that transformation the transfer of individual licenses for GSM and UMTS, as well as the process of consolidation of the two companies were finalized.

In July 2009 started the fixed number portability

x Mobile telecommunications

In June 2004 the Communications Regulation Commission (CRC) grants BTC AD the license for building, exploitation and maintenance of cellular mobile telecommunications network under GSM standard with national coverage. The issued license is valid for the period of 20 years and grants the right of using radio frequency 900 and 1 800 MHz. According to the license BTC AD undertakes the commitment to ensure coverage of not less than 20% of the population within 12 month, not less than 40% within 24 months and not less than 65% within 3 years. BTC paid BGN 54,160 thousand for the GSM license. In June 2005 BTC AD transferred the license to BTC Mobile after the CRC’s approval.

In April 2005 CRC granted BTC AD the license for building cellular mobile telecommunication network under UMTS standard with national coverage. The issued license is valid for 20 years and gives the right to use the following radio frequencies: x 1930 – 1935 MHZ (total of 5 MHz) for the territory of Bulgaria for transmitting from end mobile devices to base stations; x 2120 – 2125 MHz (total of 5 MHz) for the territory of Bulgaria for transmitting from base stations to end mobile devices; and x 2015 – 2020 MHz (total of 5 MHz) for the territory of Bulgaria

According to the license BTC AD undertakes the commitment to ensure coverage of not less than 15% of the population within 2 years and 144 kbps granted speed of information transfer and not less than 50% within 5 years and 144 kbps granted speed of information transfer and for Sofia, Plovdiv, Varna, Bourgas and Ruse the granted speed of information transfer has to be minimum 384 kbps. BTC paid BGN 42,000 thousand for the UMTS license. In August 2006 BTC AD transferred the license to BTC Mobile after the CRC’s approval.

24 F-145 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

1. General information (continued)

Regulations (continued)

Based on the filed application, with decision No 1391 from 04 August 2008 CRC approved the transfer of both the licenses to BTC and the respective permission for using individually limited resource was issued consequently.

Annual fee, calculated based on the annual revenue from telecommunication services provided to the subscribers is paid quarterly. In 2010 and 2009 the annual fee is 0.2% from the annual gross revenue from providing electronic communication networks and/of services, VAT excluded after subtracting the transfer payments to other companies for interconnection of networks and access, transit, roaming, value- added services, as well as costs for authority and related rights for radio and television programmes.

For 2011 and 2010 the fees paid for frequency bands for the GSM license were respectively BGN 4,031 and BGN 4,648 thousand and for the UMTS license - BGN 1,425 thousand.

25 F-146 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated and separate financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated

2.1. Basis of preparation

The consolidated and separate financial statements of BTC have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union.

The financial statements have been prepared under the historical cost convention, as modified for the revaluation of land and available-for-sale financial assets at fair value through other comprehensive income, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. Consolidated financial information, including subsidiaries, has been prepared using uniform accounting policies for similar transactions and other events in similar circumstances.

The presentation of the financial statements requires management to make the critical accounting estimates, accruals and assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates (Note 4).

ƒ New and amended standards adopted by the group

There are no new standards and amendments to standards accepted by the Group for application for the financial year, beginning 1 January 2011.

ƒ Amendments effective in 2011 but not relevant:

The following improvements and interpretations to published standards is mandatory for accounting periods beginning on or after 1 January 2011 but is not relevant to the Group’s operations:

Improvements to International Financial Reporting Standards (issued in May 2010 and effective from 1 January 2011)

IFRS 1 was amended (i) to allow previous GAAP carrying value to be used as deemed cost of an item of property, plant and equipment or an intangible asset if that item was used in operations subject to rate regulation, (ii) to allow an event driven revaluation to be used as deemed cost of property, plant and equipment even if the revaluation occurs during a period covered by the first IFRS financial statements and (iii) to require a first-time adopter to explain changes in accounting policies or in the IFRS 1 exemptions between its first IFRS interim report and its first IFRS financial statements;

IFRS 3 was amended (i) to require measurement at fair value (unless another measurement basis is required by other IFRS standards) of non-controlling interests that are not present ownership interest or do not entitle the holder to a proportionate share of net assets in the event of liquidation, (ii) to provide guidance on the acquiree’s share-based payment arrangements that were not replaced, or were voluntarily replaced as a result of a business combination and (iii) to clarify that the contingent considerations from business combinations that occurred before the effective date of revised IFRS 3 (issued in January 2008) will be accounted for in accordance with the guidance in the previous version of IFRS 3;

26 F-147 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

IFRS 7 was amended to clarify certain disclosure requirements, in particular (i) by adding an explicit emphasis on the interaction between qualitative and quantitative disclosures about the nature and extent of financial risks, (ii) by removing the requirement to disclose carrying amount of renegotiated financial assets that would otherwise be past due or impaired, (iii) by replacing the requirement to disclose fair value of collateral by a more general requirement to disclose its financial effect, and (iv) by clarifying that an entity should disclose the amount of foreclosed collateral held at the reporting date, and not the amount obtained during the reporting period;

IAS 27 was amended by clarifying the transition rules for amendments to IAS 21, 28 and 31 made by the revised IAS 27 (as amended in January 2008);

IAS 34 was amended to add additional examples of significant events and transactions requiring disclosure in a condensed interim financial report, including transfers between the levels of fair value hierarchy, changes in classification of financial assets or changes in business or economic environment that affect the fair values of the entity’s financial instruments;

IFRIC 13 was amended to clarify measurement of fair value of award credits.

Other revised standards and interpretations effective for the current period

IFRIC 19 “Extinguishing financial liabilities with equity instruments”, amendments to IAS 32 on classification of rights issues, clarifications in IFRIC 14 “IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction” relating to prepayments of minimum funding requirements and amendments to IFRS 1 “First-time adoption of IFRS”, did not have any impact on these financial statements.

ƒ Standards, amendments and interpretations to existing standards that are not effective and have not been early adopted:

Disclosures—Transfers of Financial Assets – Amendments to IFRS 7 (issued in October 2010 and effective for annual periods beginning on or after 1 July 2011). The amendment requires additional disclosures in respect of risk exposures arising from transferred financial assets. The amendment includes a requirement to disclose by class of asset the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party, yet remain on the entity's balance sheet. Disclosures are also required to enable a user to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. Where financial assets have been derecognised, but the entity is still exposed to certain risks and rewards associated with the transferred asset, additional disclosure is required to enable the effects of those risks to be understood.

New or Revised Standards & Interpretations not yet endorsed by the European Union

IFRS 9, Financial Instruments: Classification and Measurement. IFRS 9, issued in November 2009, replaces those parts of IAS 39 relating to the classification and measurement of financial assets. IFRS 9 was further amended in October 2010 to address the classification and measurement of financial liabilities and in December 2011 to (i) change its effective date to annual periods beginning on or after 1 January 2013 and (ii) add transition disclosures. Key features of the standard are as follows:

27 F-148 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

New or Revised Standards & Interpretations not yet endorsed by the European Union (continued)

x Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. x An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent payments of principal and interest only (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss. x All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment. x Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.

IFRS 10, Consolidated Financial Statements (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), replaces all of the guidance on control and consolidation in IAS 27 “Consolidated and separate financial statements” and SIC-12 “Consolidation - special purpose entities”. IFRS 10 changes the definition of control so that the same criteria are applied to all entities to determine control. This definition is supported by extensive application guidance.

IFRS 11, Joint Arrangements, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), replaces IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly Controlled Entities— Non-Monetary Contributions by Ventures”. Changes in the definitions have reduced the number of types of joint arrangements to two: joint operations and joint ventures. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures.

IFRS 12, Disclosure of Interest in Other Entities, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. It replaces the disclosure requirements currently found in IAS 28 “Investments in associates”. IFRS 12 requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. To meet these objectives, the new standard requires disclosures in a number of areas, including significant judgments and assumptions made in determining whether an entity controls, jointly controls, or significantly influences its interests in other entities, extended disclosures on share of non-controlling interests in group activities and cash flows, summarized financial information of subsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities.

28 F-149 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued) IFRS 13, Fair value measurement, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), aims to improve consistency and reduce complexity by providing a revised definition of fair value, and a single source of fair value measurement and disclosure requirements for use across IFRSs. IAS 27, Separate Financial Statements, (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013), was changed and its objective is now to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The guidance on control and consolidated financial statements was replaced by IFRS 10, Consolidated Financial Statements. IAS 28, Investments in Associates and Joint Ventures, (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013). The amendment of IAS 28 resulted from the Board’s project on joint ventures. When discussing that project, the Board decided to incorporate the accounting for joint ventures using the equity method into IAS 28 because this method is applicable to both joint ventures and associates. With this exception, other guidance remained unchanged. Disclosures — Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2013). The amendment requires disclosures that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off. The amendment will have an impact on disclosures but will have no effect on measurement and recognition of financial instruments. Amendments to IAS 1, Presentation of Financial Statements (issued June 2011, effective for annual periods beginning on or after 1 July 2012), changes the disclosure of items presented in other comprehensive income. The amendments require entities to separate items presented in other comprehensive income into two groups, based on whether or not they may be reclassified to profit or loss in the future. The suggested title used by IAS 1 has changed to ‘statement of profit or loss and other comprehensive income’ Amended IAS 19, Employee Benefits (issued in June 2011, effective for periods beginning on or after 1 January 2013), makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits. The standard requires recognition of all changes in the net defined benefit liability (asset) when they occur, as follows: (i) service cost and net interest in profit or loss; and (ii) remeasurements in other comprehensive income. Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2014). The amendment added application guidance to IAS 32 to address inconsistencies identified in applying some of the offsetting criteria. This includes clarifying the meaning of ‘currently has a legally enforceable right of set-off’ and that some gross settlement systems may be considered equivalent to net settlement. Other revised standards and interpretations: The amendments to IFRS 1 “First-time adoption of IFRS”, relating to severe hyperinflation and eliminating references to fixed dates for certain exceptions and exemptions, the amendment to IAS 12 “Income taxes”, which introduces a rebuttable presumption that an investment property carried at fair value is recovered entirely through sale, and IFRIC 20, “Stripping Costs in the Production Phase of a Surface Mine”, which considers when and how to account for the benefits arising from the stripping activity in mining industry, will not have any impact on these financial statements. Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the Group’s consolidated financial statements.

29 F-150 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.2. Consolidation

Subsidiaries A subsidiary is an entity that is directly or indirectly controlled by the Company. Control is the power to govern the financial and operational policies of the subsidiary for obtaining benefits from its activities – generally accompanying a shareholding of more than one half of voting rights.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income.

For consolidation purposes, the separate financial statements of the Company and its subsidiaries have been combined on a line-by-line basis by adding together like items of assets, liabilities, income and expenses. Inter-company transactions and resulting profits or losses as of 31 December, 2011 and 2010, including unrealized profits at the year end, have been eliminated in full.

Joint ventures As at 31 December 2010 the Company had an interest in a joint venture which is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The agreement requires unanimous agreement for financial and operating decisions among the venturers.

The Group reports its interests in jointly controlled entities using the equity method. The financial statements of the joint venture are prepared for the same reporting period as the Group. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

2.3. Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors who make strategic decisions.

2.4. Functional and Presentation Currency Functional and Presentation Currency These financial statements are prepared in thousand Bulgarian Levs (BGN), unless otherwise stated, whereas the Bulgarian Lev has been accepted as presentation currency for the presentation of Group’s consolidated financial statements.

Effective from 1 January 1999, the Bulgarian Lev was fixed to the EUR at a rate BGN 1.95583 = EUR 1.00. The Bulgarian National Bank (“BNB”) determines the exchange rate of the BGN to the other currencies using the rate of the EUR to the respective currency, quoted at the international markets.

30 F-151 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.4. Functional and Presentation Currency (continued)

Transactions and balances Foreign currency transactions are accounted for in BGN at the exchange rate at the date of the transaction. Monetary assets and liabilities, denominated in as foreign currency at 31 December, are translated at the closing exchange rate of BNB as at that date.

The foreign currency exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognized in the statement of comprehensive income as “finance income/costs” at the moment when they arise, except when deferred in equity as qualifying cash flow hedges. Financial instruments, denominated in foreign currency as at 31 December are reported in these financial statements at the closing exchange rate of BNB.

Non-monetary reporting items in the balance sheet, which have been denominated in a foreign currency on initial recognition, are recorded in the functional currency by applying the historical exchange rate of BNB at the date of the transaction and are not subsequently revalued at closing exchange rate.

2.5. Property, plant and equipment

Initial measurement Upon their initial acquisition property, plant and equipment are valued at acquisition cost, which comprises the purchase price, including customs duties and any directly attributable costs of bringing the asset to a suitable condition for its intended use. Directly attributable costs comprise mainly the costs of site preparation, initial delivery and handling costs, installation costs, professional fees for people related to the project, non-refundable taxes, etc.

As disclosed in Note 16 a provision for decommissioning costs associated with mobile sites is capitalized in the cost of the sites at the amount of the present value of the estimated decommissioning costs.

Subsequent measurement The chosen approach for subsequent measurement of property, plant and equipment, is the cost model under IAS 16, i.e. cost less any accumulated depreciation and any accumulated impairment losses in value. Land is an exception to this rule and is revalued at fair value.

Revaluation of land is performed by independent certified appraisers usually in a period of three years. When there is an indication of material changes in their fair value in shorter intervals, the revaluation may be performed in shorter periods.

Increases in the carrying amount arising on revaluation of land are credited to revaluation reserves in shareholders’ equity. As disclosed in Note 2.8 decreases that offset previous increases of the same asset are charged against revaluation reserves directly in equity. All other decreases are charged to the profit or loss for the period as other operating expenses.

Subsequent costs Repair and maintenance costs are recognized as current expenses as incurred. Subsequent expenses incurred in relation to property, plant and equipment having the nature of replacement of certain components, significant parts and aggregates or improvements and restructuring, are capitalized in the carrying amount of the respective asset whereas the residual useful life is reviewed at the capitalisation date. At the same time, the non-depreciated part of the replaced components is derecognised from the carrying amount of the assets and is recognised in the current expenses for the period of replacement.

31 F-152 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.5. Property, plant and equipment (continued)

Upon sale or disposal of property, plant and equipment, the cost and related accumulated depreciation is removed from the accounts.

Gains or losses on sale (disposal) are determined as the difference between the amounts received and the carrying amount of the asset and are presented net under “Other gains/(losses), net” in the statement of comprehensive income. When revalued assets are sold, the amount of the revaluation reserve is transferred to “Retained earnings”.

Depreciation Property, plant and equipment are depreciated by using the straight-line method over the estimated useful life of the asset. Depreciation of an asset begins when it is available for use. Land is not depreciated. The useful life of the classes of assets is determined in accordance with their physical wear, the characteristic features of the equipment, the future intentions for use and the expected obsolescence.

The estimated useful lives of the major classes of property, plant and equipment are as follows:

Class Useful life Switches 8–12 years Transmission, distribution and remote switching 15–25 years Optic cables 20–25 years Mobile network 5–15 years General support* 5–25 years *General support represents mainly administrative buildings, cars and other IT environment

The useful life, set for any tangible fixed asset, is reviewed at each year-end and in case of any material deviation from the future expectations of their period of use, the latter is adjusted prospectively.

2.6. Intangible assets

Software and licenses Software and licenses are the main items comprising intangible assets. Intangible assets are measured initially at cost. Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be reliably measured. After initial recognition, intangible assets are measured at cost less accumulated amortization and any impairment losses. Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives. Useful life of licenses is from 5 years to 20 years. Useful life of software is from 4 years to 10 years.

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the group are recognised as intangible assets when the following criteria are met:

- it is technically feasible to complete the software product so that it will be available for use; - management intends to complete the software product and use or sell it; - there is an ability to use or sell the software product; - it can be demonstrated how the software product will generate probable future economic benefits; - adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and - the expenditure attributable to the software product during its development can be reliably measured.

32 F-153 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.6. Intangible assets (continued)

Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment.

BTC considers its operations as comprising two cash generating units – fixed and mobile business, to which the goodwill is allocated.

Distribution network Distribution network acquired in a business combination is recognized at fair value at the acquisition date. The Distribution Network have a finite useful life and is carried at cost less accumulated amortization and any impairment losses. Amortization is calculated using the straight-line method over the expected useful life.

Subscriber acquisition/retention costs Customer acquisition and retention expenses are capitalized and amortized over the minimum enforceable contractual period, using the straight line method.

2.7 Investments

In the separate financial statements investments in subsidiaries and joint ventures are accounted for at cost of acquisition, less impairment, if any. The cost of an acquisition is measured at the fair value of the consideration given, the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.

Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.

Joint venture is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity.

Under the cost method of accounting the investor recognizes income from the investment only to the extent that the investor receives distributions from accumulated profits of the investee arising after the date of acquisition. Distributions received in excess of such profits are regarded as a recovery of investment and are recognized as a reduction of the cost of the investment.

33 F-154 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.8. Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

Impairment losses are recognised in the profit or loss for the period as other operating expenses, except for land previously revalued where the revaluation was taken to equity. In this case the impairment is also recognised in equity up to the amount of any previous revaluation.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses of assets may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of comprehensive income as reduction of other operating expenses unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.

2.9. Non-current assets (or disposal groups) held for sale

Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use.

2.10. Financial instruments

Financial assets The Group classifies its financial assets in the following categories: at fair value through profit or loss , ‘loans and receivables’, including cash and cash equivalents, and ‘available-for-sale assets’. The classification depends on the substance and purpose (designation) of the financial assets at the date of their acquisition. The management of each Group company determines the classification of its financial assets at the date of their initial recognition in the balance sheet.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.

34 F-155 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.10. Financial instruments (continued)

Loans and receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are included in the group of current assets when having maturity within 12 months or within a common operating cycle of the Company while the remaining ones are carried as non- current assets. Loans and receivables are carried at amortised cost, or cost if no maturity, less an allowance for uncollectibility with changes in carrying value (amortisation of discount/ premium and transactions costs) recognised in the consolidated statement of comprehensive income under finance income or finance costs. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. Loans and receivables are included in Trade receivables in the balance sheet. Loans and receivables are recognised at the date, at which the asset is delivered to or by us. Thus, a loan is recognised at the moment the cash is transferred to the borrower, redemptions of a loan are recognised at the date the payment is received.

This group of financial assets includes: trade and other receivables, and cash and cash equivalents from the balance sheet. Interest income on loans and receivables is recognised by applying the effective interest method. It is presented in the statement of comprehensive income under ‘Finance income’. (Note 24.) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative assets that are either designated as available- for-sale or are not classified in any other category. These are usually unlisted or not actively traded shares or shares in other companies, acquired for investment purposes, and are included within non-current assets, except where the Company intends to sell them in the following 12 months. Available-for-sale financial assets are carried at fair value with unrealised gains and losses (except for impairment losses) recognised in other comprehensive income.

Purchases and sales of investments are recognised on trade date, the date on which we commit to purchase or sell the asset. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and we have transferred substantially all risks and rewards of ownership. Dividends on shares, classified as available-for-sale financial assets, are recognised in the statement of comprehensive income when the Company’s right to receive the dividends is established.

The group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed through the profit or loss for the period.

35 F-156 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.10. Financial instruments (continued)

Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The group designates certain derivatives as hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).

The group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the profit or loss for the period under ‘finance income/costs.’

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. However, when the forecast transaction that is hedged results in the recognition of a nonfinancial asset (for example, inventory or fixed assets), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognized in cost of goods sold in the case of inventory or in depreciation in the case of fixed assets.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the profit or loss for the period. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the profit or loss for the period under ‘finance income/costs.’.

2.11. Inventories

Inventories are principally composed of handsets, network establishment and maintenance materials, valued at the lower of cost or net realizable value. Materials and supplies are expensed when utilized, using the weighted-average method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. BTC sells handsets separately and in connection with service contracts. As part of the strategy to acquire new customers, it in rare cases sells handsets, in connection with a service contract, at below its acquisition cost. Ɍhe loss on the sale of handsets is recognized at the time of the sale and the cost of the handsets is presented as “Material and consumables expenses” in the profit or loss for the period.

2.12. Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than thirty days), and historical evidence of collectability are considered indicators that trade receivables are impaired 36 F-157 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.12. Trade and other receivables (continued)

Certain receivables are assessed and impaired individually if it’s known that it will not be collected in full. All other receivables are impaired on a group basis according to their aging structure and taking into consideration historical data on collectability.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the statement of comprehensive income within ‘Other operating expenses’. The resulting carrying amount approximates the present value of estimated future cash flows. When a trade receivable is uncollectible and the relevant legal grounds are present, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘Other operating expenses’ in the profit or loss for the period.

2.13. Cash and cash equivalents

Cash and cash equivalents include cash in hand, balances of current bank deposits, term deposits with original maturity up to 3 months and all other amounts that are readily convertible into cash.

2.14. Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds. Where any BTC Group company purchases BTC’s share capital (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the BTC Group equity holders.

2.15. Trade and other payables

Payables to suppliers and other current amounts payable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.16. Interest-bearing loans and other borrowings

All loans and other borrowings are initially recognised at fair value of the consideration received on the transaction, netted of the direct costs related to these loans and borrowings. After the initial recognition, the interest-bearing loans and other borrowings are subsequently measured at amortised cost by applying the effective interest rate method. The amortised cost is calculated by taking into consideration all types of charges, commissions and other costs, including any discount or premium associated with these loans. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur.

2. 17. Current and deferred income taxes

The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised in equity.

37 F-158 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2. 17. Current and deferred income taxes (continued)

The current income tax charge is calculated on the basis of the tax laws enacted at the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. The group establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.

2.18. Employee benefits

Defined contribution plans According to the Bulgarian legislation, the Group is obliged to pay contributions to Social Security Funds. This obligation relates to full-time employees and provides for paying contributions to state pension fund by the employer and by the employee in the amount of certain percentages determined in the Social Security Code. These contributions are charged to the statement of comprehensive income in the period to which they relate.

Short-term employee benefits Short-term employee benefits in the form of remunerations, bonuses and social payments and benefits (payable within 12 months after the end of the period when the employees have rendered the service or has met the required terms and requirements) are recognized as an expense in the statement of comprehensive income in the period when the service thereon has been rendered or the requirements for their receipt have been met and as a current liability (less any amounts already paid and deductions due) at their undiscounted amount. The Group’s obligations for social security and health insurance are recognized as a current expense and liability at their undiscounted amount together with the relevant benefits and within the period of the respective income to which they are related.

At each balance sheet date, the Group measures the expected costs on the accumulating compensated absences, which amount is expected to be paid as a result of the unused entitlement. The measurement includes the estimated expenses on the employee’s remunerations and the statutory social security contributions due by the employer thereon.

Retirement benefit obligations As discussed above, in accordance with the requirements of the Labour Code, the employer is obliged to pay an indemnity to its personnel upon coming of age for retirement, which depending on the length of service with the company, varies between 2 and 6 gross monthly salaries as at the termination date of the employment. In their nature these are defined benefit plans.

38 F-159 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.18. Employee benefits (continued)

The calculation of the amount of these retirement benefit obligations necessitates the participation of qualified actuaries in order to determine their present value at the date of the financial statements, which is included in the balance sheet, and respectively, the change in their value, which is included in the statement of comprehensive income. For this purpose, they apply the Projected Unit Credit Method.

Actuarial gains and losses arise from changes in the actuarial assumptions and experience adjustments. The Group applies the ‘10% corridor approach’, calculated based on the present value of the opening balance of the obligation for recognizing actuarial gains and losses.

Termination benefits The Group recognises employee benefit obligations on employment termination before the normal retirement date when it is demonstrably committed, based on announced plan, to terminating the employment contract with the respective individuals without possibility of withdrawal or in case of formal issuance of documents for voluntary redundancy. Termination benefits due more than 12 months are discounted and presented in the balance sheet at their present value.

2.19. Provisions for other liabilities and charges Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources will be required to settle (repay) the obligation. Restructuring provisions comprise employee termination payments The measurement of provisions is based on the best estimate, made by the management at the balance sheet date, concerning the expenses that will be incurred for the settlement of the particular obligation. The estimate is discounted if the obligation maturity is long-term. When part of the resources required to settle the obligation is expected to be recovered from a third party, the Group recognises a receivable if it is virtually certain that reimbursement will be received, its amount can be reliably measured. Income is recognised in the same category of the profit or loss for the period where the creations of the provision is charged. 2.20. Revenue recognition a) Sales of services Revenue comprises in the ordinary course of business the fair value of consideration received or receivable from the sale of services, net of value-added tax, rebates and discounts and after eliminating sales within the Group. All streams of revenue are recognized on a monthly accrual basis and to the extent that it is probable that the economic benefits will flow to the company and as far as the revenue can be reliably measured. Revenue streams The Company’s revenue is derived from the following telecommunication and ICT services and products: x Outgoing traffic; x Recurring charges x Leased lines and Data transmission x Interconnect x Radio and TV broadcasting (applies for the first eight months of 2010, included in discontinued operations) x Other sales.

39 F-160 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.20. Revenue recognition (continued)

Outgoing traffic fees for both post paid and prepaid customers are charged at an agreed tariff for a fixed duration of time and are recognised as revenue based upon provided services on a monthly basis. Recognition of revenue from prepaid cards is based on actual airtime usage or the expiration of the obligation to provide service. The unused balance of the valid prepaid cards is presented as deferred income in other payables of the balance sheet. Recurring charges consist of monthly subscription fees and are recognised as revenue over the associated period. Leased lines and Data transmission fees are charged at an agreed rate in accordance with dedicated capacity of BTC’s data network and are recognized as revenue over the associated subscription period. Interconnect revenue include charges to other telecommunications providers when they terminate or transit calls on BTC’s network or when their customers use BTC’s mobile network when in roaming. The revenues are recognised gross in the statement of comprehensive income based on real network usage and settled on a net basis, after deducting the cost of interconnection for the Company’s customers calls that are routed via or terminated in other networks.

Radio and TV broadcasting revenue comprise charges for broadcasting and transmission of content of radio and TV operators and is recognized based upon airtime usage. Revenue stream is part of discontinued operations in 2010.

Other sales, comprise revenue generated from services not included in the streams above, which is recognised in the statement of comprehensive income when services are rendered. Revenues from premium rate services (Voice and non-voice) are recognized on a gross basis when the delivery of the service over the Group’s network is the responsibility of the Group, the Group establishes the prices of these services and bears substantial risks of these services, otherwise these revenues are presented on a net basis.

For multiple-element arrangements, revenue recognition for each of the units of accounting (elements) identified must be determined separately. Revenue is recognized on the basis of the fair value of the individual elements. Arrangements involving the delivery of bundled products or services are separated into individual elements. Total arrangement consideration relating to the bundled contract is allocated among the different elements based on their relative fair values. b) Sale of goods Revenue and expenses associated with the sale of telecommunications equipment and accessories are recognized when the products are delivered, provided there are no unfulfilled company obligations that affect the customer’s final acceptance of the arrangement. c)Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Company reduces the carrying value to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. d)Dividend Income Dividend income is recognised when the right to receive payment is established.

40 F-161 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.21. Expenses recognition

Operating expenses are recognized as they are incurred, following the accrual and matching concepts. Financial costs are recorded in the profit or loss for the period when incurred and comprise of: interest expense, using the effective interest method, including bank charges and other direct expenses on loans and bank guarantees, and exchange differences on loans denominated in foreign currency (net).

2.22. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessee Finance lease Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance costs and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance costs are charged directly to profit or loss. Contingent rentals are recognized as expenses in the periods in which they are incurred. Assets acquired under the terms of finance lease are depreciated on the basis of the useful life of the asset over the lease term.

Operating lease Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

The Group as lessor

Finance lease When assets are leased out under a finance lease, the present value of the lease payments is recognized as a receivable. The difference between the gross receivable and the present value of the receivable is recognized as unearned finance income. Lease income is recognized over the term of the lease using the net investment method, which reflects a constant periodic rate of return.

Operating lease When assets are leased out under an operating lease, the asset is included in the balance sheet based on the nature of the asset. Lease income is recognized over the term of the lease on a straight-line basis.

2.23. Dividends Distribution

Dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period in which the dividends are approved by the company’s shareholders.

41 F-162 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management

3.1. Financial risk factors

In the ordinary course of business, the Group can be exposed to a variety of financial risks the most important of which are currency risk, interest risk, price risk, credit risk, and liquidity risk. The financial risks are currently identified, measured and monitored by the Treasury Department and the Managing Directors of each company within the Group through various control mechanisms in order to establish adequate prices for the services, provided by the company, to appropriately assess the market circumstances related to its investments and the forms for maintenance of free liquid funds through preventing undue concentration of a particular risk.

The following table presents the financial assets and liabilities of the Group classified by category:

Categories of financial instruments Consolidated financial Separate financial statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Financial assets Loans and receivables 305,794 268,515 305,494 268,183 Financial assets available for sale 335 335 335 335 Financial assets at fair value trough profit or loss 686 2,137 686 2,137

Financial liabilities Financial liabilities at amortised cost 1,074,239 1,075,864 1,074,238 1,075,863

Below are presented the various types of risks to which the companies of the Group are exposed upon performing their business activities as well as the adopted approach for managing these risks.

a) Credit risk Credit risks or the risk of counter-parties defaulting, is controlled by the application of limits and monitoring procedures. The group has a policy of obtaining collateral from its retail customers who use mobile services and from distributors. Credit risk is managed on BTC Group level. It arises from cash and cash equivalents, derivative financial instruments and deposits at banks, as well as from credit exposures to business and households, including overdue receivables and commitments.

Deposit at banks According to Treasury policy, applicable to BTC and its subsidiaries, transactions are carried out only with financial institutions and banks with good credit standing. Credit exposure is controlled by individual credit limits of counterparties, which are regularly revised and appropriately approved. Limits for every third party are determined according to their long-term credit rating from S&P, Moody's or Fitch. The Treasury policy also defines the financial instruments, allowed to the Treasury Department, as well as the maximum maturity.

Receivables and commitments Trade receivables consist of a large number of customers, distributed by industries. The fixed net business of BTC follows the approved by CRC “General Rules of Contracts between BTC and Subscribers”. The management of risk of non-payment of retail customers is carried out through a policy of suspension and termination of services , based on credit risk segmentation. The retail subscribers contracts termination follows the General Conditions.

BTC has adopted a policy for mutual connection with operators and wholesale with partners with good credit rating by applying of respective guarantees for risk management.

42 F-163 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management (continued)

3.1. Financial risk factors (continued)

b) Credit risk (continued) The credit risk related to international accounts is managed through the possibilities for net arrangement with the contractual parties and by directing traffic through chosen routes in order to decrease of existing exposures. There is no significant risk concentration in receivables.

The credibility of the customers is evaluated according to their financial status, payment history and other factors. On the basis of the credit score individual credit limits are set in compliance with the credit policy. The levels of the credit limits and their daily observation are monitored. Most of the payments from customers of mobile services are in cash.

The BTC Group is not exposed to credit risk from an individual partner or group of partners with similar profile. Trade relations with related parties are similar to those with third parties.

c) Liquidity risk Liquidity risk arises from the mismatch of contractual maturity of monetary assets and liabilities and the possibility that trade debtors may not be able to settle obligations to the company within the normal terms of trade. To manage such risk, the Parent company uses planning techniques, including but not limited to, arrangement of overdraft facilities, daily liquidity reports, and short and medium-term cash forecasts.

Maturity analysis The table below presents the financial liabilities of the Group, grouped by remaining term to maturity, determined against the contractual maturity at the balance sheet date. The table is prepared on the basis of contracted undiscounted cash flows and the earliest date on which the liability becomes due for payment (borrowings are presented as current liabilities as disclosed in Note 17, even though BTC management does not believe a request for their repayment is forthcoming). The amounts include principal and interest.

For 2011 the financial liabilities are as follows:

For the Group: Up to 1 From 1 From 3 From 1 Over 5 Total month to 3 months to to 5 years years months 1 year Accounts payable 38,482 28,272 9,167 161 4,765 80,847 Borrowings 3,180 35,605 992,688 3,623 - 1,035,096 Total financial liabilities 41,662 63,877 1,001,855 3,784 4,765 1,115,943

For BTC Up to 1 From 1 From 3 From 1 Over 5 Total month to 3 months to to 5 years years months 1 year Accounts payable 38,481 28,272 9,167 161 4,765 80,846 Borrowings 3,180 35,605 992,688 3,623 - 1,035,096 Total financial liabilities 41,661 63,877 1,001,855 3,784 4,765 1,115,942

43 F-164 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management (continued)

3.1. Financial risk factors (continued)

For 2010 the financial liabilities are as follows:

For the Group:

Up to 1 From 1 From 3 From 1 Over 5 Total month to 3 months to to 5 years years months 1 year Accounts payable 48,766 20,238 8,961 920 4,639 83,524 Borrowings 2,846 6,076 1,006,423 1,214 - 1,016,559 Total financial liabilities 51,612 26,314 1,015,384 2,134 4,639 1,100,083

Up to 1 From 1 From 3 From 1 Over 5 Total month to 3 months to to 5 years years months 1 year Accounts payable 48,765 20,238 8,961 920 4,639 83,523 Borrowings 2,846 6,076 1,006,423 1,214 - 1,016,559 Total financial liabilities 51,611 26,314 1,015,384 2,134 4,639 1,100,082

d) Market risk Currency risk The main objective of Company currency risk management is to minimise adverse effects of market volatility on exchange rates so as to provide the maximum value of foreign currency net income and under approved risk level.

Due to the fact that the companies within BTC Group use mainly BGN and EUR as operating currencies they are not significantly exposed to currency risk. Most of the income is generated in BGN while long term borrowings, interest expenses and part of the capital expenses are in EUR. This mismatch has not been a problem for the past 10 years as the Bulgarian lev is pegged to the euro. At the same time the stability of the currency board needs to be monitored closely since a potential free floating of the local currency and devaluation of the Lev will significantly affect the financial situation of the Group.

Due to forecasted purchases of equipment during 2011 Company identifies currency risk, arising in result of significant exposure in USD. According to the Treasury policy of the Company and in compliance with its foreign exchange risk management strategy, the foreign exchange risk arising from these highly probable forecasted purchases is hedged. The hedges are cash flow hedges and classified as financial assets at fair value through profit or loss.

When significant foreign currency exposure arises, the Company takes into account the following factors: • Future outlook on volatility of financial market variables. These are modelled by Treasury and in accordance with best practice analytical techniques and economic models • effect of the given foreign exchange exposure on total Company financial results • cost of foreign exchange exposure hedging

BTC’s Treasury department uses mainly forward contracts to hedge foreign exchange risk. All derivatives are entered into with credible counterparties and are in compliance with the Treasury policy of the Company.

44 F-165 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management (continued)

3.1. Financial risk factors (continued)

d) Market risk (continued) Interest rate risk Liabilities of BTC sensitive to interest rates amount to BGN 994,907 thousand and the interest payments are based on EURIBOR. As of 31 December, 2011 the Parent company has used no instruments to compensate possible changes in the EURIBOR levels. However, potential hedging transactions are periodically measured based on the possible interest rate levels, as well as in accordance with the market risk policy and if necessary are performed as such.

If the interest rate on borrowings were 1% higher, that would have resulted in an increase of interest expenses for 2011 and 2010 respectively by BGN 10,087 thousand and BGN 10,156 thousand therefore, the consolidated profit/(loss) after taxation from continuing operations would have been BGN (1,898) thousand for 2011 and BGN 65,882 thousand for 2010. If the interest on long-term borrowings were 1% lower, that would result in lower interest expenses for 2011 and 2010 amounting respectively to BGN 10,087 thousand and BGN 10,156 thousand and therefore, profit from continuing operations after taxation would have been BGN 16,258 thousand for 2011 and BGN 84,163 thousand for 2010.

3.2.Capital risk management

The Group manages its equity in order to perform its activity as a going concern and to balance the return on equity of shareholders by optimizing the debt to equity ratio in medium term. Further comments on Group’s consideration regarding the capital risk management are provided in Note 4d) (Going Concern)

The equity structure of BTC consists of long-term borrowings (Note 17), cash and cash equivalents (Note 5) and equity, including share capital and retained earnings.

Parent company’s management reviews its equity structure on an annual basis. The gearing ratios as of 31 December 2011 and 2010 are as follows:

Consolidated financial Separate financial statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010

Total borrowings 998,318 997,899 998,318 997,899 Cash and cash equivalents (141,664) (154,523) (141,355) (154,163) Cash deposits with maturity greater than three months. (54,507) - (54,507) - Net debt 802,147 843,376 802,456 843,736

Equity 339,133 508,038 339,549 506,385 Total capital 339,133 508,038 339,549 506,385

Gearing ratio 237% 166% 236% 167%

During the period gearing has increased as a result of the decision of the Annual General Meeting to distribute dividends for the year. The management believes that higher gearing will result in more efficient capital structure and higher returns to the shareholders but aims to keep the ratio below 250%.

45 F-166 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management (continued) 3.3 Fair value estimation

Effective 1 January 2009, the group adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Ŷ Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Ŷ Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Ŷ Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The following table presents the group’s assets that are measured at fair value at 31 December 2011

Assets measured at fair value Level 1 Level 2 Level 3 Total

Financial assets at fair value through profit or loss: -Derivatives used for hedging - 686 - 686 Available-for-sale financial assets: -Equity shares -- 335 335 Total assets - 686 335 1,021

The following table presents the group’s assets that are measured at fair value at 31 December 2010

Assets measured at fair value Level 1 Level 2 Level 3 Total

Financial assets at fair value through profit or loss: -Derivatives used for hedging - 7 - 7 -Put option for sale of NURTS shares - - 2,130 2,130 Available-for-sale financial assets: -Equity shares -- 335 335 Total assets - 7 2,465 2,472

The Group carries unquoted equity shares as available-for-sale financial instruments classified as Level 3 within the fair value hierarchy. A reconciliation of the beginning and closing balances including movements is summarised below:

Equity shares Put option

1 January 2010 335 - Gains recognised in profit or loss - 2,130 31 December 2010 335 2,130 Losses recognised in profit or loss - (2,130) 31 December 2011 335 -

46 F-167 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

4. Critical accounting estimates and judgments

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates could differ from the related actual results. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and assumptions that might have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are discussed below: a) Impairment of tangible and intangible assets The group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.6.The ability of a tangible and intangible asset to generate sufficient future economic benefits to recover its carrying amount is usually subject to greater uncertainty. In performing these assessments of recoverable amount a significant number of estimates and judgments is required including but not limited to: – An estimate of future cash flows expected to derive from these assets, – Expectations about possible variations in the amount or timing of those future cash flows, – The designation of the cash generating unit for which future cash flows are derived. The cash generating units identified are Fixed and Mobile business, – The time value of money represented by weighted average cost of capital (WACC). The respective long term WAAC rates used are: 9.7% for Fixed and 9.6% for Mobile for 2011 (10.3% and 10.6% for 2010), – Perpetual growth rate (PGR). The respective PGR values used are: 0% for Fixed and 1% for Mobile for 2011 (0% and 1% for 2010).

As at 31 December 2011 the Group performed impairment testing of its assets and as a result no need for impairment was identified. If estimated cash flows were 10% lower or WACC/PGR were 1% higher/lower there would still be no need for impairment.

These sensitivities are calculated on an individual basis as follows:

Estimate Change (%) Effect on value in use – no impairment

EBITDA margin absolute decrease (1%) (62,000) WACC absolute increase 0.5% (98,000) PGR absolute decrease (0.5%) (65,000)

47 F-168 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

4. Critical accounting estimates and judgments(continued) b) Useful lives of assets The determination of the useful lives of assets is based on historical experience with similar assets as well as any anticipated technological development and changes in broad economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually, or whenever there is an indication of significant changes in the underlying assumptions. We believe that the accounting estimate related to the determination of the useful lives of assets is a critical accounting estimate since it involves assumptions about technological development in an innovative industry. Further, due to the significant weight of depreciable assets in our total assets, the impact of any changes in these assumptions could be material to our financial position, and results of operations.

Were the actual useful lives of the assets to differ by 10% from management’s estimates, the carrying value of the plant and equipment and respectively depreciation and amortization charge would be an estimated BGN 26,747 thousand higher/lower. c) Provisions and contingent liabilities As set out in Note 29 the Group is a participant in several lawsuits and administrative proceedings. The Group’s treatment of obligations with uncertain timing and amount depends on the management’s estimation of the amount and timing of the obligation and probability of an outflow of resources embodying economic benefits that will be required to settle the obligation (both legal or constructive). A provision is recognized when the Group has a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Contingent liabilities are not recognized because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent liabilities are assessed continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the financial statements of the period in which the change in probability occurs. d) Going concern The financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operational existence for the foreseeable future. In 2011 the Group realized a profit of BGN 7,180 thousand (2010 – BGN 75,022 thousand). The Group’s working capital as at 31 December 2011 is negative amounting to BGN (937,446) thousand (negative as at 31 December 2010 – BGN (943,199) thousand). The future viability of the Group depends upon the business environment as well as upon the continuing support of the existing and potential owners and financiers.

Current liabilities as at 31 December 2011 include: - dividend payable to NEF Telecom Bulgaria OOD in the amount of BGN 157,624 thousand.

As disclosed in Note 28 Related parties BTC paid part of it in 2012 and the remaining dividend payable is BGN 89,561 thousand. It will be paid in accordance with the cash needs of NEF Telecom Bulgaria OOD as they arise. These payments will be serviced by cash generated from operations. Should NEF Telecom Bulgaria OOD request immediate payment of the total outstanding dividend, it is possible BTC to pay it, taking into account the level of cash availability and cash flow from operating activities;

-borrowings, amounting to BGN 994,907 thousand.

BTC became a party to a Senior Loan Agreement together with, amongst others, NEF Telecom Bulgaria OOD and its parent company NEF Telecom Company B.V. Along with other securities, there is a pledge over the shares of BTC owned by NEF Telecom Bulgaria OOD.

48 F-169 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

4. Critical accounting estimates and judgments(continued) There are certain events and circumstances on the NEF Telecom Company B.V. level that constitute Events of Default, according to the loan agreement. Because of this and as further disclosed in Note 17 Borrowings BTC classified the outstanding facilities of the syndicated loan as current liabilities at the balance sheet date. Should the lenders require immediate payment of the outstanding borrowings such request cannot be met with cash from operating activities. BTC management does not believe such a request is forthcoming as waivers have been provided by the lenders as disclosed in Note 17.

The above waivers enable the continuing discussions between the group of the majority shareholder and the lenders about the aforementioned events and their impact on future financing.

BTC management expects that in the course of 2012 its shareholders will agree with the lenders changes to the loan agreements that will enable the loans to remain with their original maturities.

Although there is uncertainty as to the final outcome, BTC management is of the opinion that most probably there will be no adverse implications for BTC as an enterprise, arising from lenders exercising their rights over the pledged shares of the company. Hence management considers that there is no immediate risk for disruption of the regular operations of the company. Considering the above, in light of the assessment of expected future cash flows, the assurance received by the major shareholder for a successful and consensual outcome from ongoing discussions with the lenders, as well as the continuing support of Senior Lenders as evidenced in the waivers granted, the management is satisfied that it is appropriate for the financial statements to be prepared on a going concern basis. e) Subscriber acquisition costs Costs to acquire telecommunication customers are capitalized and amortized over the minimum enforceable contractual period as these will be recovered from the future revenue generated from the customers. In the event that a customer terminates a service contract prior to the expiration of the minimum enforceable contractual period, any unamortized customer acquisition costs are written off. f) Purchase price accounting The Group assesses the initial accounting for business combinations by identifying and determining the fair value to be assigned to the acquired identifiable assets, liabilities, contingent liabilities, and the cost of the combination. The initial accounting for business combinations is determined provisionally by the end of the period in which the combination is affected. Either the fair valued to be assigned to the acquired liabilities or contingent liabilities or the cost of combination can be determined only provisionally. The Group recognizes any adjustments to those provisional values as a result of concluding the initial accounting within twelve months of the acquisition date. g) Provision for impairment of trade receivables A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than thirty days), and historical evidence of collectability are considered indicators that trade receivables are impaired. Certain receivables are assessed and impaired individually if it’s known that it will not be collected in full. All other receivables are impaired on a group basis according to their aging structure and taking into consideration historical data on collectability.

49 F-170 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

5. Cash and cash equivalents

As at 31 December 2011 and 31 December 2010 the components of the cash and cash equivalents are:

Consolidated financial Separate financial statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Current accounts and cash in hand Held in BGN 3,914 2,324 3,911 2,265 Held in EUR 1,559 848 1,559 848 Held in foreign currencies other than EUR 364 133 363 132 Total current accounts and cash in hand 5,837 3,305 5,833 3,245

Term deposits Held in BGN 135,827 148,903 135,522 148,603 Held in EUR - 2,315 - 2,315 Total term deposits 135,827 151,218 135,522 150,918

Total cash and cash equivalents 141,664 154,523 141,355 154,163

As disclosed in Note 17 on 14 November 2007 BTC signed agreements to secure payments related to Company’s liabilities under the new agreement loan by establishing a pledge on the receivables on bank accounts and from its insurers of the Group.

The availability of cash in current accounts and short term deposits is allocated in banks with long term credit ratings from S&P as follows:

Consolidated financial Separate financial Rating statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010 AA - 2,212 - 2,212 AA- 228 - 228 - A+ 236 1,604 236 1,592 A- 1,115 - 1,112 - BBB+ 1,308 1,182 1,308 1,182 BBB 28,057 269 28,057 268 BB - 135,710 - 135,364 BBB- 34,001 11,990 34,001 11,990 BB- 8 15 8 15 B- 28,650 - 28,650 - CCC 14,326 - 14,021 - Not rated banks 32,541 4 32,541 4 Total cash at current accounts and 140,470 152,986 140,162 152,627 term deposits

The exposure to banks with lower credit rating as of 31 December 2011 has increased, compared to 31 December 2010. This is mainly due to the negative development of the long term credit ratings granted by S&P to banks operating in Bulgaria.

50 F-171 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

6. Trade receivables

As at 31 December 2011 and 31 December 2010 trade receivables include:

Consolidated financial Separate financial statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010

Trade receivables 164,714 178,757 164,354 177,993 incl. international settlement receivables 30,009 19,357 30,009 19,357 Intercompany receivables 371 11,382 656 12,041 Other receivables 63,242 2,597 63,239 2,595 Total 228,327 192,736 228,249 192,629 Provision for impairment of receivables (64,197) (78,744) (64,110) (78,609) Total Trade receivables 164,130 113,992 164,139 114,020 Incl: Non-current portion: trade receivables 4,953 18,386 4,953 18,386 Provision for impairment of receivables (311) (373) (311) (373) Total non-current portion: trade receivables 4,642 18,013 4,642 18,013

Current portion trade receivables 223,374 174,350 223,296 174,243 Provision for impairment of receivables (63,886) (78,371) (63,799) (78,236) Total current portion: trade receivables 159,488 95,979 159,497 96,007

Other receivables for 2011 include BGN 54,507 thousand term cash deposits with maturity greater than three months. All non-current receivables are due within two years from the end of the reporting period and relate to sales of mobile phone sets on finance lease agreements with customers and sale of discontinued operations. The net investment in finance leases for the Group and BTC may be analyzed as follows:

Gross receivables from Net investment in finance finance leases leases 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Finance leases receivables with maturity: Within one year 13,805 15,727 13,088 14,572 In the second to fifth years inclusive 3,201 7,713 3,109 7,469 Total receivables 17,006 23,440 16,197 22,041 Less: unearned finance income (809) (1,399) - - Provision for impairment of receivables (1,620) (1,102) (1,620) (1,102) Net investment in finance leases 14,577 20,939 14,577 20,939

Movement of the provision for impairment of accounts receivables in 2011 and 2010 is as follows:

Consolidated financial Separate financial statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Balance at the beginning of the period 78,744 62,236 78,609 62,111 Discontinued operations balance - 540 - 540 Accrued impairment 21,420 21,480 21,407 21,428 Impairment of receivables written off (35,967) (5,512) (35,906) (5,470) Balance at the end of the period 64,197 78,744 64,110 78,609

51 F-172 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

6. Trade receivables (continued)

Presented by class of customer the figures above are as follows:

Business customers Consolidated financial Separate financial statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Balance at the beginning of the period 30,748 22,168 30,613 22,043 Discontinued operations balance - 540 - 540 Accrued impairment (373) 9,972 (386) 9,920 Impairment of receivables written off (11,011) (1,932) (10,950) (1,890) Balance at the end of the period 19,364 30,748 19,277 30,613

Residential customers Consolidated financial Separate financial statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Balance at the beginning of the period 47,996 40,068 47,996 40,068 Accrued impairment 21,793 11,508 21,793 11,508 Impairment of receivables written off (24,956) (3,580) (24,956) (3,580) Balance at the end of the period 44,833 47,996 44,833 47,996

Expenses for receivables written off are recognised in Other operating expenses of the profit or loss for the period. For 2011 they amount to BGN 139 thousand for the consolidated and individual financial statements.(2010: BGN 145 thousand)

Related parties balances are shown in Note 28. As of 31 December, 2011 and 31 December, 2010 receivables of the Group and the Company at the amount of BGN 4,589 and 11,934 thousand were assessed individually and the impairment amounts to 4,297 and 10,757 thousand.

As of 31 December 2011 and 31 December 2010 the age structure of overdue receivables not impaired is as follows: Consolidated and separate financial statements 31.12.2011 31.12.2010 From 60 to 90 days 5,808 4,483 From 91 to 180 days 343 1,591 From 181 to 360 days 93 1,039 Above 1 year 143 636 Total 6,387 7,749

As of the balance sheet date the accounts with major (the five biggest) counterparties in the trade receivables for the Group and the Company are as follows:

Type Carrying amount of the receivable as of 31.12.2011 31.12.2010 Outside the country 10,622 287 Outside the country 6,886 6,839 Outside the country 1,745 294 In the country 1,340 1,375 Outside the country 1,180 216

52 F-173 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

6. Trade receivables (continued)

The carrying amounts of the Group’s trade receivables are denominated in the following currencies:

31.12.2011 31.12.2010 BGN 155,872 99,026 EUR 8,209 11,563 SDR 49 3,403 Total 164,130 113,992

7. Inventories

The materials and supplies as of 31 December 2011 and 31 December 2010 are as follows:

Consolidated and separate financial statements 31.12.2011 31.12.2010

Materials and supplies, net 5,999 9,038 Merchandise and other, net 19,735 25,592 Total materials and supplies 25,734 34,630

Impairment charges related to the inventory items for the reporting period were BGN 4,588 for the group and the company which were recognized as other operating expenses( 2010 – BGN 3,966.thousand)

8. Discontinued operations

On 20 August 2010 the final agreement for the sale of 50% of the National Unit “Radio and Television Stations” (NURTS), an internal division of VIVACOM for the broadcasting of radio and television signal over the territory of the Republic of Bulgaria, to the international financial investor Mancelord Limited through its subsidiary NURTS Bulgaria EAD was registered in the Commercial Register. Mancelord Limited was selected following an international tender procedure with the participation of several strategic and financial investors. The deal was concluded after obtaining the necessary regulatory approvals from the respective governmental bodies (including Communications Regulation Commission and Commission for Protection of Competition). Until the date of the sale NURTS was classified as a disposal group held for sale and as a discontinued operation.

The results of NURTS are presented below:

Consolidated and separate financial statements Period ended 20.08.2010 Revenue 29,536 Other operating expenses (7,032) Materials and consumables expenses (7,267) Staff costs (4,044) Other gains, net 30,879 Profit before tax from a discontinued operation 42,072 Income tax expenses (1,344) Profit for the year from discontinued operation 40,728

The amount in ‘Other gains, net’ above represents the result of the sale of the discontinued operation.

53 F-174 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

8. Discontinued operations (continued)

NURTS Bulgaria AD is a commercial company established in April 2010 with registered subject of business activity: development, operation and maintenance of public electronic communication networks and data systems, as well as providing telecommunication services through them, including terrestrial broadcasting of radio and TV, collocation services and other commercial activities. The registered share capital amounts to BGN 111,482,310 comprising of shares with nominal value of BGN 1 each. According to an agreement dated 19 March 2010 and finalized on 20 August 2010, BTC acquired 50% of NURTS Bulgaria’s shares. The agreement stipulated joint management of the entity whereas the joint venture partners had equal representatives in the Board of Directors, the entity was jointly represented by two Executive Directors each nominated by the respective joint venture partner and any matter concerning the entity required joint decision of the partners. Based on that BTC treated its investment in NURTS Bulgaria as a jointly controlled entity as disclosed in note 13 Investments.

On 20 September 2011 BTC finalized an agreement with Bluesat Partners Ltd. for the sale of 50% of the shares of NURTS Bulgaria AD as disclosed in note 13 Investments. In August 2011 the transaction was approved by the Commission on Protection of Competition (CPC).

The result from the sale of the joint venture is disclosed in note 24 Finance income and costs.

9. Assets classified as held for sale

Consolidated and separate financial statements 31.12.2011 31.12.2010

Real estates, held for sale 1,892 6,648 Total assets held for sale 1,892 6,648

As of 31 December 2011 BTC has signed several preliminary agreements for the sale of real estates reported in the balance sheet by their net asset value, excluding a few properties stated on the lower than their carrying value contracted price.

10. Other current assets

Consolidated financial Separate financial statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Prepayments 12,332 21,111 12,333 21,110 VAT recoverable and other 4,638 7,699 4,636 7,694 Total other current assets 16,970 28,810 16,969 28,804

Subscriber acquisition cost, representing mainly fees paid to distributors, are included in other assets above, which for the Group and the Company are BGN 3,950 thousand as of 31 December 2011. For 2010 they amount to BGN 5,437.

54 F-175 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

11. Property, plant and equipment

The composition of property, plant and equipment for the Group as of 31 December 2011 and 31 December 2010 is as follows:

Switching Transmission General Construction Total support in progress Gross Book Value At 31 December 2009 1,298,300 896,911 270,335 46,872 2,512,418 Revaluation - - (1,084) - (1,084) Additions 6,878 - 2,447 120,702 130,027 Transfers 95,091 12,200 20,281 (127,572) - Reclassification (442) 2 88 - (352) Impairment - - - (356) (356) Assets held for sale 427 1 14,283 403 15,114 Disposals (52,336) (12,532) (24,033) (228) (89,129) At 31 December 2010 1,347,918 896,582 282,317 39,821 2,566,638 Revaluation - - (559) - (559) Additions 4,011 - 87 122,531 126,629 Transfers 101,717 9,973 12,720 (124,410) - Impairment - - - (2,411) (2,411) Assets held for sale - - 5,024 - 5,024 Disposals (64,232) (11,014) (15,274) (2,049) (92,569) At 31 December 2011 1,389,414 895,541 284,315 33,482 2,602,752 Accumulated depreciation At 31 December 2009 654,725 571,790 138,587 - 1,365,102 Depreciation charged 124,440 23,699 28,509 - 176,648 Reclassification (91) - 18 - (73) Impairment 872 - 640 - 1,512 Assets held for sale 290 - 4,371 - 4,661 Disposals (38,847) (11,975) (19,484) - (70,306) At 31 December 2010 741,389 583,514 152,641 - 1,477,544 Depreciation charged 135,146 24,069 27,927 - 187,142 Impairment 4,878 5 (238) - 4,645 Assets held for sale - - 542 - 542 Disposals (50,701) (9,956) (13,833) - (74,490) At 31 December 2011 830,712 597,632 167,039 - 1,595,383

Net book value At 31 December 2010 606,529 313,068 129,676 39,821 1,089,094 At 31 December 2011 558,702 297,909 117,276 33,482 1,007,369

55 F-176 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

11. Property, plant and equipment (continued)

The composition of property, plant and equipment on BTC stand alone basis as of 31 December 2011 and 31 December 2010 is as follows:

Switching Transmission General Construction Total support in progress Gross Book Value At 31 December 2009 1,298,153 896,911 270,752 46,872 2,512,688 Revaluation - - (1,084) - (1,084) Additions 6,878 - 2,447 120,702 130,027 Transfers 95,091 12,200 20,281 (127,572) - Reclassification (442) 2 88 - (352) Impairment - - - (356) (356) Assets held for sale 427 1 14,283 403 15,114 Disposals (52,336) (12,532) (23,967) (228) (89,063) At 31 December 2010 1,347,771 896,582 282,800 39,821 2,566,974 Revaluation - - (559) - (559) Additions 4,011 87 122,531 126,629 Transfers 101,717 9,973 12,720 (124,410) - Impairment - - - (2,411) (2,411) Assets held for sale - - 5,024 - 5,024 Disposals (64,085) (11,014) (15,221) (2,049) (92,369) At 31 December 2011 1,389,414 895,541 284,851 33,482 2,603,288 Accumulated depreciation At 31 December 2009 654,587 571,790 139,009 - 1,365,386 Depreciation charge 124,433 23,699 28,504 - 176,636 Reclassification (91) - 18 - (73) Impairment 872 - 640 - 1,512 Assets held for sale 290 - 4,371 - 4,661 Disposals (38,846) (11,975) (19,418) - (70,239) At 31 December 2010 741,245 583,514 153,124 - 1,477,883 Depreciation charged 135,144 24,069 27,927 - 187,140 Impairment 4,878 5 (238) - 4,645 Assets held for sale - - 542 - 542 Disposals (50,555) (9,956) (13,780) - (74,291) At 31 December 2011 830,712 597,632 167,575 - 1,595,919

Net book value At 31 December 2010 606,526 313,068 129,676 39,821 1,089,091 At 31 December 2011 558,702 297,909 117,276 33,482 1,007,369

As disclosed in Note 17 on November 14, 2007 BTC signed agreements to secure payments related to Parent company’s liabilities under the new loan agreement by establishing a pledge on real estate property, which net book value as of 31 December, 2011 amounted to BGN 18,680 thousand, and as of 31 December 2010 their net book value was BGN 20,420 thousand.

56 F-177 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

11. Property, plant and equipment (continued)

On the base of § 8 Para 1 of Transitional and concluding provisions to the Law for amendment and supplement of the law for privatization and post-privatization control the Agency for Privatization and Post-privatization Control imposed statutory mortgage on 688 properties of BTC with a net book value as of 31 December 2011 amounted to BGN 22,951 thousand (BGN 24,851 thousand for 2010).

12. Intangible assets

As of 31 December, 2011 and 31 December, 2010 intangible assets of the Group are as follows

Licenses Software Other Intangible Total intangible assets under assets construction Gross book value At 31 December 2009 122,986 474,589 14,711 14,979 627,265 Additions(Transfers) 203 55,200 - (9,579) 45,824 Reclassification - 351 - - 351 Assets held for sale 448 9 - - 457 Disposals (4,593) (20,462) - (13) (25,068) At 31 December 2010 119,044 509,687 14,711 5,387 648,829 Additions(Transfers) 726 53,116 5,604 (2,025) 57,421 Disposals - (19,384) (52) - (19,436) At 31 December 2011 119,770 543,419 20,263 3,362 686,814 Accumulated amortization At 31 December 2009 30,475 231,144 991 - 262,610 Amortization charge 7,224 67,408 1,497 - 76,129 Reclassification - 73 - - 73 Assets held for sale 135 6 - - 141 Disposals (4,132) (16,105) - - (20,237) At 31 December 2010 33,702 282,526 2,488 - 318,716 Amortization charge 7,252 70,215 2,862 - 80,329 Impairment - 2,151 - - 2,151 Disposals - (19,291) (13) - (19,304) At 31 December 2011 40,954 335,601 5,337 - 381,892

Net book value At 31 December 2010 85,342 227,161 12,223 5,387 330,113 At 31 December 2011 78,815 207,818 14,927 3,362 304,922

57 F-178 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

12. Intangible assets (continued)

As of 31 December 2011 and 31 December 2010 intangible assets on BTC stand alone bases are as follows:

Licenses Software Other Intangible assets Total intangible under construction assets Gross book value At 31 December 2009 122,926 474,334 14,711 14,979 626,950 Additions(Transfers) 203 55,200 - (9,579) 45,824 Reclassification - 351 - - 351 Assets held for sale 448 9 - - 457 Disposals (4,588) (20,435) - (13) (25,036) At 31 December 2010 118,989 509,459 14,711 5,387 648,546 Additions(Transfers) 726 53,116 5,604 (2,026) 57,420 Disposals - (19,311) (52) - (19,363) At 31 December 2011 119,715 543,264 20,263 3,361 686,603

Accumulated amortization At 31 December 2009 30,426 230,895 991 - 262,312 Amortization charge 7,223 67,402 1,497 - 76,122 Reclassification - 73 - - 73 Assets held for sale 135 6 - - 141 Disposals (4,127) (16,078) - - (20,205) At 31 December 2010 33,657 282,298 2,488 - 318,443 Amortization charge 7,251 70,215 2,862 - 80,328 Impairment - 2,151 - - 2,151 Disposals - (19,218) (14) - (19,232) At 31 December 2011 40,908 335,446 5,336 - 381,690 Net book value 31 December 2010 85,332 227,161 12,223 5,387 330,103 31 December 2011 78,807 207,818 14,927 3,361 304,913

The majority of other intangible assets represents the acquired distribution network in the business combination with Kimimpex – TL OOD and the capitalized customer acquisition and retention expenses with contractual period longer than one year. Their net book value as of 31 December 2011 is respectively BGN 10,723 thousand and BGN 3,886 thousand.

58 F-179 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

13. Investments

Investments available for sale on the Group level as of 31 December 2011 and 31 December 2010 are as follows:

Entity 31.12.2011 31.12.2010

NURTS Bulgaria AD. - 57,758 Intersputnik 178 178 Satbird 143 143 Sofia Commodity Exchange 14 14 Total investment 335 58,093

On 20 August 2010 BTC acquired 50 % of the shares of NURTS Bulgaria AD as a result of a transaction described in note 8. The Group’s share of the assets and liabilities as at 31 December 2010 and income and expenses of the jointly controlled entity for the year ended 31 December 2010 and until the date of classifying it as held for sale in 2011, which is presented in the consolidated financial statements using the equity method, are as follows:

31.12.2011 31.12.2010 Share of the joint venture’s statement of financial position Current assets. - 7,983 Non-current assets - 57,828 Current liabilities - 3,547 Non-current liabilities - 9,013

Share of the joint venture’s revenue and profit: Income 12,359 9,226 Expenses 10,087 7,209 Profit 2,272 2,017

On 20 September 2011 BTC finalized an agreement with Bluesat Partners Ltd. for the sale of 50% of the shares of NURTS Bulgaria AD. In August 2011 the transaction was approved by the Commission on Protection of Competition (CPC).

In the separate financial statements the investments in subsidiaries and jointly controlled entities are measured at cost, less any impairment.

31.12.2011 Share 31.12.2010 Description Subsidiaries BTC Net 799 100% 799 Internet provider Total investments in subsidiaries 799 799 Joint ventures NURTS Bulgaria AD - 50% 55,741 Radio and TV broadcasting Total investments in JV - 55,741

Other investments 335 335 Total investments 1,134 56,875

59 F-180 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

14. Trade payables

The payables to suppliers as of 31 December 2011 and 31 December 2010 are as follows:

Consolidated financial Separate financial statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010

Payables to suppliers of non current assets 38,473 36,279 38,473 36,279 Payables to international accounts 8,813 8,232 8,813 8,232 Payables to telecom operators 3,066 5,181 3,066 5,181 Payables to suppliers of network maintenance 1,688 3,245 1,688 3,245 Payables to related parties (Note 28) - 458 - 458 Others 23,881 24,570 23,881 24,569 Total trade payables 75,921 77,965 75,921 77,964

Other payables include outstanding balances of suppliers of fuel, utilities, advertising, inventories, and other.

15. Other payables

Other payables as of 31 December 2011 and 31 December 2010 are as follows:

Consolidated financial Separate financial statements statements 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Deferred income 17,098 17,282 17,098 17,282 Payables to employees 12,811 11,603 12,811 11,603 Social securities 1,878 1,782 1,878 1,782 Cable project MECMA 1,169 163 1,169 163 VAT 1,060 - 1,060 - Advances from clients 965 1,320 965 1,320 Personal income tax payable 835 787 835 787 Payables for license fee 459 324 459 324 Withholding and other taxes 332 257 332 257 Interest payable 150 266 150 266 Others 4,635 3,791 4,635 3,791 Total other payables 41,392 37,575 41,392 37,575

The liabilities under Cable projects MECMA amounting to BGN 1,169 and 163 thousand originated as a result of BTC’s role as a Central Billing Party in the MECMA 2004 Agreement for maintenance of submarine cables in the Mediterranean Sea, Red Sea and Black Sea area.

60 F-181 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

16. Provisions for other liabilities and charges

Consolidated and individual financial statements Legal Decommissioning Restructuring Total claims At 1 January 2011 6,242 1,577 1,995 9,814 Charged to the comprehensive - 470 10,128 10,598 income Included in the balance sheet 1,107 - - 1,107 Used during the year (51) (947) (763) (1,761) Discount rate adjustment 31 - - 31 At 31 December 2010 7,329 1,100 11,360 19,789

Analysis of provision in consolidated financial statements

31.12.2011 31.12.2010 Non-current (decommissioning costs) 7,329 6,242 Current 12,460 3,572 Total 19,789 9,814

Decommissioning A provision has been recognised for decommissioning costs associated with mobile sites.. The provision has been capitalized to the cost of the sites with the amount of the present value of the decommissioning obligation after ceasing operation. The respective discount rate used for 2011 and 2010 is 5.7% and 4.85%.

Restructuring The Provision for employment termination is related to the decision for restructuring the activities of the Group in 2011 and is recognised as staff cost in the profit or loss for the period.

Legal claims The amounts represent a provision for labour disputes, legal claim of customers and certain penalties imposed on the Group by the Commission for Protection of Competition (CPC) and Communications Regulation Commission (CRC).

17. Borrowings

The long-term debts in the consolidated and separate financial statements are as follows:

31.12.2011 31.12.2010 New Syndicated credit facility 994,907 994,907 Financial lease 2,677 1,567 Trade credits 734 1,425 Short-term portion (994,925) (996,754) Total borrowings 3,393 1,145

61 F-182 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

17. Borrowings (continued)

On August 21, 2007 BTC refinanced its debt under the existing syndicated credit facility amounting to EUR 350 million. On August 17, 2007 BTC became a party to a new loan agreement together with NEF Telecom Bulgaria OOD and it’s parent NEF Telecom Company B.V. The loan is organized by Royal Bank of Scotland, Deutsche Bank AG, London branch, UBS Limited and Bank Austria Creditanstalt AG with a mandate to organize syndicated financing (Note 4d). Under the new loan agreement BTC has two term facilities and revolving facility. The first term loan which matures after 8 years can be used to pay existing financial liabilities. The second term loan which matures in 7 years can be used to finance capital expenses of BTC and its subsidiaries. The third facility is on a revolving basis and it can be utilized for working capital, as well as for other needs of the companies in the Group.

Interest rate accrued for each interest period is calculated based on the respective value of EURIBOR plus margin. The margin is calculated depending on the ratio of the consolidated total net debt to the consolidated pro forma profit before interest, taxes and amortization. As of October 31, 2007 the loan margins of BTC were changed and varied between 2,25% and 2,75% for the first facility and between 1,5% and 2,25% for the second and the revolving facility. On November 14, 2007 BTC signed agreement to secure the payments of Company’s liabilities under the new loan agreement. The agreement established a special pledge of BTC, including the shares held in the subsidiaries, real estate property with net book value as of 31 December, 2011 at the amount of BGN 18,680 thousand, and a pledge on the receivables from the Company’s bank accounts, and from its insurers.

Along with other securities, there is a pledge over the shares of BTC owned by NEF Telecom Bulgaria OOD.

The loan agreement includes provisions for certain financial covenants calculated based on the consolidated financial statements of NEF Telecom Company B.V. According to the information received from the parent company there has been a breach of the leverage ratio covenant since the second quarter of 2010. Any breaching of the requirements of the financial covenants if not remedied or waived, constitutes an Event of Default. Such a waiver has been provided by the lenders and is in place as of the balance sheet date, and subsequently reissued in February 2012. The current waiver expires on 23 April 2012. According to information provided by the major shareholder there are expectations that the waiver will be reissued.

In addition to the above covenants breech the loan agreement provides that certain events represent a technical Event of Default. Such an event is the garnishment (freezing order) imposed on 6 January 2010 over 10,230,187 common registered book entry shares from the share capital of BTC. The shares are held by NEF Telecom Bulgaria OOD and represent 3.54% of total BTC shares. The garnishment is in relation to an arbitration claim launched by the Bulgarian Privatization and Post-Privatization Control Agency (PPCA) against the former owners of BTC (as primary respondents) and NEF Telecom Bulgaria OOD (as secondary respondent). NEF Telecom Bulgaria OOD continues to dispute the merits of the arbitration claim to which the freezing order relates. During the period of June – August 2010, the PPCA imposed statutory mortgages on some of the properties of BTC as disclosed in Note 11 of the present financial statements. This Event of Default has been waived by the lenders in the waiver letter disclosed above.

Taking into account the validity of the waiver BTC classified the outstanding facilities of the syndicated loan as current liabilities at the balance sheet date in accordance with IAS 1.

On 17 February 2012 BTC has repaid EUR 15,126 thousand from the second term loan.

As of 31 December 2011 the outstanding facilities of the syndicated loan, denominated in EUR fall due according to the initially agreed terms as follows:

62 F-183 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

17. Borrowings (continued)

BGN thousand Interest Up to 1 From 1 to 5 Over 5 years Total rate year years Tranche B 3.833% - 752,019 - 752,019 Tranche E 3.333% 59,168 138,059 - 197,227 Revolving facility 3.333% - 45,661 - 45,661 Total loan amount 59,168 935,739 - 994,907

Obligations under Finance lease Certain part of BTC’s software is leased under the terms of finance lease. The average lease term is 3 years and the average effective borrowing rate is 4.95%. The fair value of Group’s and Company’s lease obligations approximates their carrying amount.

Present value of Minimum lease payments minimum lease payments 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Finance lease payables with maturity: Within one year 19 1,566 17 1,506 In the second to fifth years inclusive 2,855 63 2,660 61 Total payables 2,874 1,629 2,677 1,567 Less: future finance charges (197) (62) - - Present value of lease obligations 2,677 1,567 2,677 1,567

The net book value of the assets acquired under finance lease arrangements as of 31 December 2011 is BGN 4,114 thousand

18. Deferred tax assets and liabilities As of 31 December, 2011 and 2010 the deferred tax, are as it follows:

For the Group:

Deferred tax assets Tax loss Allowance Property, Expense Total carried for plant and accruals forward impairment equipment of receivables

At 1 January 2010 32 12 (1) 1 44 (Charged)/credited to the profit/(loss) for the year 33 2 1 (1) 35 At 31 December 2010 65 14 - - 79 Charged to the profit/(loss) for the year (1) (5) (6) At 31 December 2011 64 9 - - 73

63 F-184 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

18. Deferred tax assets and liabilities (continued)

Deferred tax liabilities Retirement Allowance Property, Expense Total benefit for plant and accruals obligations impairment equipment of receivables

At 1 January 2010 (157) (6,211) 44,340 (2,988) 34,984 Charged/(credited) to the profit/(loss) for the year (1) (790) (432) 254 (969) Credited to other comprehensive income for the year - - (108) (2) (110) Discontinued operations - (859) - (48) (907) At 31 December 2010 (158) (7,860) 43,800 (2,784) 32,998 Charged/(credited) to the profit/(loss) for the year (3) 1,455 (5,191) (2,056) (5,795) Charged/(credited) to other comprehensive income for the year - - (56) 63 7 At 31 December 2011 (161) (6,405) 38,553 (4,777) 27,210

Deferred tax charge(credit) to the profit/(loss) for the year 2011 2010

Deferred tax liabilities (5,795) (969) Deferred tax assets 7 (35) Total charged to the profit/(loss) for the year (5,788) (1,004)

Deferred tax credit for discontinued operations - (2,863) Deferred tax credit for continuing operations (5,788) (1,004) Total charged to the profit/(loss) for the year (5,788) (3,867)

For BTC:

Deferred tax liabilities Retirement Allowance Property, Expense Total benefit for plant and accruals obligations impairment equipment of receivables

At 1 January 2010 (157) (6,211) 44,340 (2,988) 34,984 Charged/(credited) to the profit/(loss) for the year (1) (790) (432) 254 (969) Credited to other comprehensive income for the year - - (108) (2) (110) Discontinued operations - (859) - (48) (907) At 31 December 2010 (158) (7,860) 43,800 (2,784) 32,998 Charged/(credited) to the profit/(loss) for the year (3) 1,455 (5,191) (2,056) (5,795) Charged to other comprehensive income for the year (56) 63 7 At 31 December 2011 (161) (6,405) 38,553 (4,777) 27,210

64 F-185 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

18. Deferred tax assets and liabilities (continued)

Deferred tax charge(credit) to the profit/(loss) for the year 2011 2010

Deferred tax liabilities (5,794) (969) Total charged to the profit/(loss) for the year (5,794) (969)

Deferred tax credit for discontinued operations - (2,863) Deferred tax credit for continuing operations (5,794) (969) Total charged to the profit/(loss) for the year (5,794) (3,832)

Deferred tax assets and liabilities for different taxable entities are not offset as they can not be settled on a net basis and it is not expected that the assets will be realised and the liabilities will be settled simultaneously in the future.

Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The deferred tax assets and liabilities as of 31 December 2011 and 2010 are calculated in these financial statements at 10% tax rate which is effective as of 1 January 2007. The Group tax losses are available for 5 years to be offset against future taxable profits. The last period audited by the tax authorities for BTC is 2006.

19. Retirement benefit obligations In compliance with the Labour Code, the Parent company owes compensation at retirement to all the employees. The compensations of the employees with a 10 years experience in the Company is 6 gross monthly salaries; for the employees having under 10 years experience the compensation is 2 gross monthly salaries.

Currently no assets have been allocated for covering the long-term staff revenue in a separate fund and there are no legal requirements for the establishment of such.

The present consolidated and separate financial statements include a provision for employee benefits obligation which is measured applying the projected unit credit method.

The movement of the liability, recognized in the balance sheet, is as follows:

Consolidated and separate financial statements 31.12.2011 31.12.2010

Liability at the beginning of the period 1,917 1,570 Past service cost (96) (75) Current service cost (153) 532 Interest cost 74 79 Total cost recognized in the comprehensive income (175) 536 Payments to retirees (132) (189) Liability at the end of the period 1,610 1,917

65 F-186 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

19. Retirement benefit obligations (continued)

The following principal assumptions have been used in the estimation of the liability:

31.12.2011 31.12.2010

Discount rate at 31 December 5.7% 6.5% Future salary increases per year From 3% to 6% From 4% to 6% Average age of retirement – male employees 65 63 Average age of retirement – female employees 63 60

The Management has used in the estimation of the liability for retirement benefit obligations the assumption that voluntary leave of personnel, without any compensation, will be negligible.

Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics. Mortality assumptions are based on the statistical information, provided by the National Statistical Institute for the total mortality of the population in Bulgaria for the period 2008 – 2010.

20. Share capital and dividends

31.12.2011 31.12.2010 Number of shares 288,764,840 288,764,840 Par value per share (in BGN) 1 1

Share capital per BTC’s registration 288,765 288,765 Share capital 288,765 288,765

Structure of the share capital: 31.12.2011 % Number of ordinary shares: NEF Telecom Bulgaria OOD 271,423,451 94% Other shareholders 17,341,388 6% Total ordinary shares 288,764,839 100%

Number of preference shares: The Republic of Bulgaria 1 100% Total number of shares 288,764,840 100%

On 10 November 2004 BTC was registered as a public company. As part of the governmental project to privatize the remaining state-owned 35% of share capital of BTC, the Bulgarian government subsequently floated its nearly 35% stake on 27 January 2005 through a public offering on the Bulgarian Stock Exchange and since then the shares are freely traded on it.

As of 31 December 2011, the share capital of BTC comprises 288,764,839 ordinary registered shares and a single preference share, held by the Government through the Ministry of Transport and Communications. The nominal share value is BGN 1.

66 F-187 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated 20. Share capital and dividends (continued) Earnings per share Consolidated financial Separate financial statements statements Year ended Year ended 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Profit for distribution from continuing operations 7,180 75,022 9,248 72,948 Profit for distribution from discontinuing operations - 40,728 - 40,728 Total profit for distribution 7,180 115,750 9,248 113,676

Weighted average number of ordinary shares 288,765 288,765 288,765 288,765 Earnings per share (BGN) 0.02 0.40 0.03 0.39

Earnings per share have been calculated using the weighted average number of ordinary shares increased after the share split made in 2005 (when the nominal value of the shares was changed from BGN 35 to BGN 1).

Dividends payable

The Annual General Meeting of Shareholders, held on July 29, 2011 voted to distribute dividends amounting to BGN 176,146 thousand. 31.12.2011 31.12.2010 Dividend approved by the General shareholders’ meeting 176,147 - Non-distributed dividends for prior years 142,728 283,548 Tax on dividend (518) - Net dividends paid (160,265) (140,820) Total dividend payable 158,092 142,728

As shown in Note 28, dividends payable outstanding as at 31 December 2011 includes the amount of BGN 157,624 thousand – dividends to NEF Telecom Bulgaria OOD.

21. Revenue Revenue of the Group and the Company for the years ended 31 December 2011 and 2010 consist of: Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2011 31.12.2010 31.12.2011 31.12.2010

Recurring charges 334,786 338,693 334,824 338,800 Outgoing traffic 180,673 195,429 180,498 194,937 Interconnect 157,060 131,552 157,160 131,879 Leased lines and data transmission 146,528 148,911 146,572 148,954 Other revenue 76,823 81,802 76,834 81,813 Total revenue 895,870 896,387 895,888 896,383

Revenues form sale of mobile handsets are included in Other revenue above, which for 2011 amount to BGN 29,552 thousand for the Group and the Company (2010: BGN 39,862 thousand)

67 F-188 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated 22. Other operating expenses Other operating expenses for the years ended 31 December, 2011 and 2010 consist of:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2011 31.12.2010 31.12.2011 31.12.2010 Maintenance and repairs 89,043 77,855 89,040 77,852 Advertising, customer service, billing and collection 50,479 41,308 50,487 41,320 Facilities 38,847 31,156 38,847 31,155 License fees 12,871 13,153 12,866 13,148 Administrative expenses 12,067 8,840 12,077 8,854 Cost of value added services (VAS) 7,569 7,149 7,569 7,149 Professional fees 5,482 26,673 5,482 26,673 Leased lines and data transmission 3,817 5,371 3,817 5,371 Vehicles and transport 3,717 5,795 3,717 5,795 Other 62,997 36,626 61,629 36,572 Total other operating expenses 286,889 253,926 285,531 253,889

Since June 2004, Professional fees include services in accordance with signed management and technical service agreements with related parties (Sycamore EOOD and Advent BTC UK Limited, replaced respectively in its rights and obligations under the management services contract and the contract for technical and professional services by “NEF Telecom Bulgaria” OOD, by virtue of the agreements, signed on 14 August 2007). Services provided include among others: commercial, technical and operative advice, analysis, selection and project management services, progressing modernization of the network and improving its quality, procuring material, equipment, software and supplies, related training, etc. The agreements are terminated as of 31 July 2010.

Services for the independent audit of the financial statements for 2011 are included in Professional fees, which amount to BGN 327 thousand for the Group, and the Company (2010: BGN 327 thousand).

Other expenses comprise the charged provisions for impairment of assets and the net book value of the scrapped inventories and fixed assets.

23. Staff costs

Staff costs for the years ended 31 December 2011 and 2010 consist of:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2011 31.12.2010 31.12.2011 31.12.2010

Salaries and wages 52,738 58,290 52,735 58,286 Pension, health and unemployment fund contributions 8,187 10,022 8,187 10,022 Other benefits 2,408 2,723 2,408 2,723 Other staff costs 1,718 1,452 1,718 1,452 Total staff costs 65,051 72,487 65,048 72,483

68 F-189 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

23. Staff costs (continued)

As stated in Note 19 the amounts of post employment termination benefits included/(reversed) in salaries and wages above for the consolidated and separate financial statements are respectively for 2011 BGN (249) thousand (2010: BGN 536 thousand).

24. Finance income and costs

Financial income and costs for the years ended 31 December 2011 and 2010 consist of:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2011 31.12.2010 31.12.2011 31.12.2010

Finance costs Interest expense: (38,937) (33,173) (38,937) (33,173) -Bank borrowings (38,789) (32,823) (38,789) (32,823) -Finance lease (7) (66) (7) (66) -Provisions (109) (286) (109) (286) -Other (32) (43) (32) (43) -Capitalised on qualifying assets -45- 45 Loss on financial instruments (2,135) - (2,135) - Other finance costs (233) (229) (231) (227) Total finance cost (41,305) (33,402) (41,303) (33,400) Finance income Interest income: 8,727 7,218 8,712 7,110 -Bank deposits 6,879 6,362 6,864 5,784 -Finance lease 1,562 761 1,562 761 -Other 286 95 286 565 Foreign exchange gains 44 110 44 109 Gains on financial instruments - 2,088 - 2,088 Equity investments income 324 208 3,258 208 Total finance income 9,095 9,624 12,014 9,515 Net finance costs (32,210) (23,778) 29,289 (23,885)

The result of the sale of the shares of NURTS Bulgaria AD in 2011 amounting to BGN 2,934 thousand is included in equity investment income in the separate financial statements.

25. Other gains, net Consolidated and separate financial statements Year ended 31.12.2011 Year ended 31.12.2010

Gains from sales of non-current assets 8,380 37,429 Loss from sales of materials (109) (58) Total other gains, net 8,271 37,371

Income from sales of PPE and assets held for sale for 2011 was BGN 11,770 thousand and their net book value was BGN 3,390 thousand. For 2010 these figures are respectively BGN 50,983 thousand and BGN 13,554 thousand. The income from sales of materials in 2011 was BGN 59 thousand and cost of sales was BGN 168 thousand. For 2010 these figures were BGN 96 thousand and BGN 154 thousand respectively.

69 F-190 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

26. Tax expense

Income tax expenses for the years ended 31 December 2011 and 2010 are as follows:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2011 31.12.2010 31.12.2011 31.12.2010

Current income tax charge 6,644 12,470 6,644 12,470 Deferred tax credit to comprehensive income (5,788) (1,004) (5,794) (969) Total tax expense 856 11,466 850 11,501

Total tax expense can be reconciled to the accounting profit as follows: Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2011 31.12.2010 31.12.2011 31.12.2010

Profit before tax from continuing operations 8,036 86,676 10,098 84,449 Profit before tax from discontinued operations - 42,072 - 42,072 Total profit before tax 8,036 128,748 10,098 126,521 Tax rate 10% 10% 10% 10%

Tax at the applicable tax rate 804 12,875 1,010 12,652 Effect of permanent tax differences 271 (61) 69 160 Effect of current tax from previous periods, accounted during the year (290) 6 (290) 6 Effect of unrecognised tax losses and tax offsets not recognised as deferred tax assets 71 (10) 61 27 Income tax expense 856 12,810 850 12,845 Effective tax rate 10.65% 9.95% 8.42% 10.15%

Income tax expense in the comprehensive income 856 11,466 850 11,501 Income tax to a discontinued operation - 1,344 - 1,344 Total income tax expense 856 12,810 850 12,845

27. Segment information

Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The business, considered on a product perspective is currently organized into two lines of business – Fixed line of business and Mobile line of business. Principal activities are as follows: x Fixed line of business – voice and data services over the fixed network; x Mobile line of business – mobile services (GSM, and UMTS Standards)

The Board of Directors assesses the performance of the business segments based on a measure of gross margin. Revenue and gross margin information as reviewed by the Board of directors for the periods ended 31 December 2011 and 2010 is presented below. 70 F-191 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

27. Segment information (continued)

Year ended 31.12.2011 Continuing operations Fixed line of Mobile line of Total business business

Revenue 519,789 376,081 895,870 Cost of sales (109,855) (132,997) (242,852) Gross margin 409,934 243,084 653,018

Operating expenses (623,315) Financial expenses, net (32,210) Other gains, net 8,271 Share of profit of JV 2,272 Profit before tax 8,036 Income tax expense (856) Net profit for the year 7,180

Discontinued Total Year ended 31.12.2010 Continuing operations operations operations Fixed line of Mobile line of Total NU RTS business business

Revenue 563,625 332,762 896,387 29,536 925,923 Cost of sales (93,583) (140,180) (233,763) - (233,763) Gross margin 470,042 192,582 662,624 29,536 692,160

Operating expenses (591,746) (18,343) (610,089) Financial expenses, net (23,778) - (23,778) Other gains, net 37,371 30,879 68,250 Share of profit of JV 2,017 - 2,017 Profit before tax 86,488 42,072 128,560 Income tax expense (11,466) (1,344) (12,810) Net profit for the year 75,022 40,728 115,750

28. Related parties

The Group’s related parties are considered to be the following: x shareholders of which the Company is a subsidiary or an associate, directly or indirectly, and subsidiaries and associates of these shareholders; x members of the Company’s statutory and supervisory bodies and parties close to such members, including the subsidiaries and associates of the members and their close parties; x joint ventures in which the Company is a venturer For the stand alone statements as a related parties are considered all consolidated subsidiaries as well.

71 F-192 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

28. Related parties (continued)

Balances The following table summarizes the balances of receivables and payables with related parties as of 31 December 2011 and 31 December 2010:

For the Group: Note Receivables Payables 31.12.2011 31.12.2010 31.12.2011 31.12.2010

NURTS Bulgaria AD JV - 10,425 - 458 NEF Telecom Company BV Parent 370 954 -- NEF Telecom Bulgaria OOD Parent 13157,624 142,327 Total for BTC group 371 11,382 157,624 142,785

For BTC: Note Receivables Payables 31.12.2011 31.12.2010 31.12.2011 31.12.2010

NURTS Bulgaria AD JV - 10,425 - 458 NEF Telecom Company BV Parent 370 954 -- BTC Net EOOD Subsidiary 285 659 -- NEF Telecom Bulgaria OOD Parent 1 3 157,624 142,327 Total for BTC 656 12,041 157,624 142,785

The balance on NEF Telecom Bulgaria OOD payable represents outstanding dividend payable as of the balance sheet date. On 20 January, 6 February and and 21 March 2012 respectively BGN 26,991, BGN 6,845 and BGN 34,227 thousand of the above mentioned amount were paid.

Transactions The following table summarizes services received by BTC from related parties:

Note Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2011 31.12.2010 31.12.2011 31.12.2010

NEF Telecom Bulgaria OOD Parent - 21,279 - 21,279 NURTS Bulgaria AD JV 5,157 2,173 5,157 2,173 BTC Net EOOD Subsidiary -- 25 39 Total for BTC 5,157 23,452 5,182 23,491

The realised revenue for BTC from related parties is as follows: Note Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2011 31.12.2010 31.12.2011 31.12.2010

NURTS Bulgaria AD JV 4,625 2,339 4,625 2,339 NEF Telecom Bulgaria OOD Parent 29 9 29 9 BTC Net EOOD Subsidiary 209 - - 974 Total for BTC 4,863 2,348 4,654 3,322

72 F-193 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

28. Related parties (continued)

Management remunerations

There is no compensation paid by the company to the members of the Board of Directors as of 31 December 2011 and 31 December 2010. In accordance with a management contract NEF Telecom Bulgaria OOD, Sofia provided consulting and managing services to BTC during 2010 and respectively the remunerations and social securities of the management are accrued as external services.

Certain management remunerations are paid by the parent company and recharged to the entity as part of a management charge as disclosed above. This management charge, which for 2010 amounted to BGN 21,279 thousand also includes additional recharges of payroll cost, technical services and other administration costs borne by the parent on behalf of the Group and it is not possible to identify separately the amounts paid as remuneration of the members of the Board of Directors. As disclosed in Note 22,after the termination of the agreements remuneration amounting to BGN 5,558 thousand and BGN 3,640 thousand relating to key management personnel has been accrued for 2011 and 2010.

29. Commitments and contingencies

Contractual commitments for the acquisition of property, plant and equipment The parent company has entered into agreements with various suppliers relating to the capital expenditure as approved in the investment program. Certain agreements have not been completed as of the balance sheet date. A summary of the main commitments to acquire equipment under such contracts, effective as of 31 December, 2011, for the Group and the Company is presented in the table below:

Aggregate Delivered till Commitments Equipment description contracted amount 31.12.2011 outstanding Hardware and software 27,006 10,384 16,622 Construction and assembly works of the BTC 60,989 21,156 39,833 Network equipment 80,541 57,455 23,086 TOTAL 168,536 88,995 79,541

The Company is a participant in several lawsuits and administrative proceedings. Based on the information available, management is satisfied that there is no unprovided liability arising from these lawsuits and administrative proceedings. Together with the outsourcing of its network operations BTC undertook commitment to reimburse Alcatel Lucent Bulgaria EOOD for certain expenses of the transferred employees, which amount and due payment are limited according to agreed terms.

The Company has bank guaranties issued to third parties which amount to BGN 875 thousand as of 31 December 2011.

30. Operating lease

Minimum lease payments under operating leases recognized as an expense for the period are as follows:

Consolidated and separate financial statements Year ended 31.12.2011 Year ended 31.12.2010

Minimum lease payments 2,677 4,125

73 F-194 For the year ended 31 December 2011 All amounts are in thousand BGN, unless otherwise stated

30. Operating lease (continued)

BTC has outstanding commitments under non-cancellable operating leases, which fall due as follows:

Consolidated and separate financial statements Year ended 31.12.2011 Year ended 31.12.2010

Within one year 9,530 9,429 In the second to fifth years inclusive 29,526 29,122 Later than five years 90,751 97,557 Total commitments 129,807 136,108

Operating lease payments represent rentals payable for certain part of the vehicles of the Group and the Company. Leases and rentals are negotiated for an average term of three years.

In the amount of the non-cancellable operating lease payables are included payments related to contract for lease of administrative building that commenced in 2010 and the leasing term is above 5 years.

74 F-195 F-196 F-197 BULGARIAN TELECOMMUNICATIONS COMPANY AD

CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS CONSOLIDATED AND SEPARATE ANNUAL ACTIVITIES REPORT INDEPENDENT AUDITOR’S REPORT

31 December 2010

F-198 TABLE OF CONTENTS

Page Annual activities report 1 Consolidated and separate balance sheet 20 Consolidated and separate statement of comprehensive income 21 Consolidated and Separate statement of changes in equity 22 Consolidated and Separate cash flow statement 23 Notes to the consolidated and separate financial statements 24 Independent auditor’s report

F-199 Bulgarian Telecommunications Company AD

------CONSOLIDATED AND SEPARATE ANNUAL ACTIVITIES REPORT ------

2010

F-200 CONTENTS

I. INFORMATION ABOUT THE COMPANY’S FINANCIAL RESULTS, ACTIVITY AND DEVELOPMENT

II. INFORMATION ABOUT THE COMPANY’S BOARD OF DIRECTORS AND SUPERVISORY BOARD

III. INFORMATION ABOUT THE COMPANY’S SHARES

IV. INFORMATION ABOUT GOOD CORPORATE GOVERNANCE PROGRAM IMPLEMENTATION

V. ADDITIONAL INFORMATION

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F-201 For the year ended 31 December 2010

This document reflects the activity in the reporting period of Bulgarian Telecommunications Company AD (“VIVACOM” or the “Company”) on an individual and consolidated basis.

I. INFORMATION ABOUT THE FINANCIAL RESULTS, ACTIVITY AND DEVELOPMENT OF THE COMPANY AND THE GROUP

1. OVERVIEW OF THE ACTIVITY OF THE COMPANY AND THE GROUP

Bulgarian Telecommunications Company AD (“VIVACOM” or the “Company”) is a public joint stock company, domiciled in Bulgaria, with its registration address: 115I “Tsarigradsko Shose” blvd., 1784 Sofia. VIVACOM’s activities include development, operation and maintenance of national fixed and mobile network and data system for the Republic of Bulgaria.

As at 31 December 2010 the group includes VIVACOM, the subsidiary entity BTC Net EOOD and the jointly controlled entity NURTS Bulgaria AD (the “Group” or “VIVACOM Group”).

As at 31 December 2009 the group includes VIVACOM and the subsidiary entity BTC Net EOOD (the “Group” or “VIVACOM Group”).

VIVACOM outsourced its network operations through partnership with Alcatel-Lucent as from March 1, 2010. As a result VIVACOM will be able to concentrate on its core business, reduce its operating expenses and ensure increased network quality. This relationship also ensures the development and fast deployment of new user-oriented services and solutions.

In April 2010 VIVACOM consolidated its staff in a single building.

In August 2010 VIVACOM successfully integrated its customer care and billing systems that facilitate customer service.

On August 20, 2010 VIVACOM sold 50% from its broadcasting division - National Unit Radio and TV Systems (NURTS) to NURTS Bulgaria AD. The formation of the jointly controlled entity includes the sale of the assets of NURTS and acquisition by VIVACOM of 50% of the shares of NURTS Bulgaria AD. The newly formed joint venture's main focus will be development of digital network infrastructure in order to position itself as a competitive player on the digital broadcasting market in Bulgaria. NURTS will benefit from the additional financial support to develop innovative solutions for its digital TV infrastructure.

The telecommunications services market in Bulgaria continued to be very competitive in 2010. Intense competition and customers seeking to optimise their spending in times of economic crisis put strong pressures on all telecom operators.

VIVACOM offers high-quality converged services which deliver all kinds of telecommunication solutions – fixed telephony, mobile services, Internet and satellite TV. VIVACOM offers comprehensive solutions of new generation thanks to which customers save money even though they use more services and talk with no time limits.

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F-202 For the year ended 31 December 2010

The Company remains the biggest landline operator despite strong competition from fixed-line offers from the alternative fixed-line providers and the two mobile operators.

Thanks to VIVACOM investments, a considerable growth in digitalizing the entire national telecommunications network was achieved for a period of one year, with the level of digitization reaching 97.8%.

VIVACOM increases its market share and keeps its leading position on the strongly fragmented broadband Internet market. Currently, VIVACOM is the largest internet service provider (ISP) on national level with over 25% market share. The positive market response to the high-speed broadband access (VIVACOM Net) helped increase the number of clients by over 11% in 2010 compared to 2009.

The VIVACOM Net network was extended and already covers 440 settlements, and the MAN-network covers 193 settlements.

VIVACOM developed its portfolio of Internet services in order to meet the increasing demand for high- speed bandwidth capacity. The Company offered to its clients Internet access with speed of up to 100MBps (VIVACOM NetWay) on separate optical infrastructure, as from February 2010.

Also VIVACOM offered free of charge to its clients an option for legal download of music and free access to a game server through its portal 4fun.bg.

Being the third arrival on the market, the company is constantly increasing its market share offering the lowest prices and boosting the competitiveness in the mobile services sector in the country.

VIVACOM has speeded up the investments in its mobile network and became the best 3G operator in the country with nearly 93% population coverage. This reflected on the mobile broadband subscribers’ growth, which increased with 68% on annual basis.

The number of VIVACOM mobile subscribers increased by over 17% in 2010 compared to 2009.

VIVACOM is the only operator reporting a positive balance of numbers ported into its network. Since the start of the mobile number portability process, over 67,000 new subscribers have chosen VIVACOM’s network, of which 34,000 during the course of the year.

VIVACOM enriched its portfolio by the commercial launch of satellite digital television based on the Direct-To-Home (DTH) technology, as from September 2010. For four months only, the company became the second largest provider of satellite television in Bulgaria with nearly 30,000 subscribers.

VIVACOM has launched VIVACOM FUND to support its sports, culture, education, healthcare and business-to-business (B2B) projects. VIVACOM FUND distributed around BGN 2 million over the course of 2010.

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F-203 For the year ended 31 December 2010

2. FINANCIAL CONDITION AND RESULTS FOR 2010

The Group ended the financial year 2010 with a net profit of BGN 115,750 thousand, (the Company - with a net profit of BGN 113,676 thousand) and ample liquidity. The higher financial result in 2010 is mainly attributable to the higher profit margin. In addition, the net profit was favourably affected by the decrease of staff cost and other operating expenses without disruption in company’s operation.

Overall, the financial statements show an adequate optimization of operating expenses as a result of the new simplified organisation. Financial and depreciation expenses marked a decrease compared to prior year.

At 31 December 2010, cash and cash equivalents amounted to BGN 154,523 thousand (VIVACOM Group) and BGN 154,163 thousand (VIVACOM), comprising current accounts and cash in hand and deposits.

The companies within VIVACOM Group hold cash in BGN and EUR in view of the fact that their short- term liabilities originate in these currencies. Thus the risk of a change in exchange rates is managed and relevant potential losses are minimized.

Cash flows from operating activities for 2010 amounted to BGN 267,060 thousand for VIVACOM Group (8% decrease compared to 2009) and BGN 267,599 thousand for VIVACOM (4% decrease on 2009 year- end).

The net cash flow used in investment activities for the Group and the Company was BGN 83,068 thousand, including BGN 124,288 thousand for purchase of plant, property and equipment and BGN 42,258 thousand for purchase of other fixed assets. The above together with the investment in subsidiaries of BGN 55,255 thousand was partially offset by BGN 46,507 thousand proceeds from property, plant and equipment as well as BGN 92,018 thousand proceeds from sales of activities.

The net cash from financing activities for VIVACOM and the Group was BGN 167,744 thousand, including 140,820 thousand payments of dividends and 25,346 thousand payments of long term debt.

At the General Meeting of Shareholders held on 12 July 2010 a decision was taken the distributable profit and reserves for the year 2009 to be used for the coverage of uncovered losses of the Company as of 31 December 2009.

On 21 August 2007 VIVACOM refinanced its liabilities on the existing syndicated loan to the total amount of EUR 350 million. On 17 August 2007 VIVACOM became a party to a new loan arranged by Royal Bank of Scotland, Deutsche Bank AG, London Branch, UBS Limited and Bank Austria Creditanstalt AG with a mandate for arranging syndicated finance. Available to VIVACOM are two term loans and one revolving loan. The first term loan matures in eight years and may be used for repayment of existing financial obligations. The second term debt matures in seven years and may be used to finance the capital expenditures of VIVACOM and its subsidiaries. The third loan is granted on a fully revolving basis and its utilization is aimed at meeting working capital needs as well as other needs of companies within the Group. The loan agreement includes provisions for certain covenants for financial ratios, calculated based on the financial statements of the parent companies of NEF Telecom Bulgaria OOD. As per information of the parent company of the majority shareholder (acting as agent of the borrowers under the senior loan agreement) some financial covenants have been breached in 2010 as detailed below.

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F-204 For the year ended 31 December 2010

On 6 January 2010 a garnishment (freezing order) was imposed over 10,230,187 common registered book entry shares from the share capital of VIVACOM held by NEF Telecom Bulgaria OOD representing 3,54% of total VIVACOM shares. The latter together with the mortgages over real estates of the company disclosed under note 11 of the financial statements, as well as the deviation of certain covenants mentioned above, represent a breach of the senior loan agreement in case the lenders have not provided explicit waiver under the respective clauses of the senior loan agreement. Since such waiver has been provided by the lenders, the management considers that the above circumstances do not represent immediate risk for the activities of the company and most probably will not lead to adverse implications for VIVACOM.

Considering the above, in light of the assessment of expected future cash flows, the assurance received by the major shareholder for a successful and consensual outcome from ongoing discussions with the lenders, as well as the continuing support of Senior Lenders as evidenced in the waivers granted, the management is satisfied that it is appropriate for the financial statements to be prepared on a going concern basis.

On 7 January and 15 April 2010 the Company made repayment of respectively BGN 7,391 thousand, and BGN 5,491 thousand from the second term loan.

On 28 May 2010 the Company made repayment of BGN 12,465 thousand from the first term loan.

In 2010 VIVACOM maintained a structure of assets and liabilities that allowed its smooth operation. In order to control the threat of liquidity risk, the Company applied planning techniques, including submission of daily liquidity reports, short-term and medium-term cash flow forecasts.

CAPITAL RESOURCES

The Group manages its equity in order to perform its activity as a going concern and to maximize return on equity of shareholders by optimizing the debt to equity ratio in medium term.

6

F-205 For the year ended 31 December 2010

REVENUES

The total amount of consolidated revenues from continuing operations for 2010 amounted to approximately BGN 896.4 million, BGN 34.9 million less than in 2009.

The Company’s revenues are generated from six main sources.

Recurring charges

VIVACOM monthly rental revenue increased slightly by 1% in 2010, led by the growth in mobile customers. Monthly rental revenue of VIVACOM Group marked an increase in 2010.

Outgoing traffic revenue

Outgoing traffic revenue of VIVACOM decreased by approximately 16% in 2010 compared to 2009, on an individual and consolidated basis, as a result of the line losses and shrinking fixed traffic.

Interconnect revenue

Interconnect revenue decreased compared to 2009 as a result of the lower termination rates, partially compensated by the higher volume of traffic terminated to VIVACOM mobile network, due to mobile subscribers’ growth.

The price re-balancing based on rules approved by the regulatory authority – Communications Regulation Commission (CRC) – will further influence the regulated services revenue next year.

7

F-206 For the year ended 31 December 2010

Leased lines and data transmission revenue

Leased lines and data transmission revenue of VIVACOM and VIVACOM Group marked approximately 10% drop compared to 2009. This is mainly attributable to the migration of customers from leased lines to other complex data services, where price competition is fierce.

Radio and TV revenue

Radio and TV revenue marked a decrease in 2010 because in August 2010 VIVACOM sold its broadcasting division to NURTS Bulgaria AD.

Other revenue

In 2010 other revenue from sales marked an increase compared to 2009 (67% for the Group and 71% for VIVACOM) mainly due to the mobile phones sales growth.

EXPENSES

Staff costs

In 2010 staff costs of VIVACOM Group decreased by 32% on 2009 in line with the restructuring of the Company’s activities, whereby the headcount was further decreased, mainly due to the outsourced network operations.

In VIVACOM the decrease of staff costs is 30%.

Interconnect costs

Interconnect costs has decreased compared to 2009 by 21% both for the Group and VIVACOM, mainly as a result of the steps taken by the CRC to regulate mobile termination rates (MTR).

Other operating expenses

In 2010 other operating expenses in the Group and VIVACOM marked a decrease compared to 2009, as a result of the savings in professional fees,vehicles and transportation costs and other costs.

Materials and consumables expenses

The adverse variance in materials and consumables expenses in 2010 compared to prior year was driven by the higher cost of mobile handsets sold outǤThere is also a negative impact from the theft of copper cables.  Corporate tax

The corporate tax expense increased considerably in 2010 compared to prior year. The difference is mainly due to the higher operating profit in 2010.

8

F-207 For the year ended 31 December 2010

3. MAIN CATEGORIES OF SERVICES

The services provided by the Company and the Group include:

Converged services – VIVACOM’s bundles offer a wide range of variety of combinations that include mobile, fixed, Internet and TV services. The bundles provide best value, convenience and ease-of-use for the end-customers.

Mobile services

Mobile telephony – a service enabling the clients to make mobile calls via the mobile network of VIVACOM.

VivaMail – professional e-mail hosting service via the mobile network of VIVACOM.

BlackBerry - a complete communication solution allowing, distance and continuous connection with electronic mail, working with corporate databases and different types of files sent electronically and all basic functions and services for a mobile device. The service is provided via the VIVACOM mobile network in cooperation with the service vendor Research In Motion.

VIP Business – an integrated voice service, based on IP connectivity.

3G Videocall - a service allowing two users to see each other on the display of their handsets in real time via the mobile network of VIVACOM.

Business SMS – a service enabling VIVACOM business customers to generate various SMSs via web based application.

VIVA Bipper – child security service, which gives opportunity to the parents to use their children’s mobile phones to control the communication, localize them and have immediate contact in emergency situations. The service is offered in partnership with Bipper Norway.

Mobile internet – a service enabling the clients to upload and download data within the mobile network of VIVACOM.

Additional services included in VIVACOM mobile portfolio are SMS, MMS, Voice mail, International roaming, Shared data, etc.

Fixed voice services

Fixed telephony – a service enabling the clients to make local, long-distance, national calls to other fixed and mobile operators and international calls via the fixed network of VIVACOM. Clients with numbers from digital telephone exchanges are offered a number of additional services.

Value Added Service 0900 – a service used for providing information or public entertainment services to suppliers of Value Added Services.

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F-208 For the year ended 31 December 2010

Green telephone 0800 – the service enables clients to provide voice information services free of charge for their customers.

Universal number 0700 – the service enables clients to provide voice information services and the price of the telephone call is shared between them and their customers.

Integrated services digital network (ISDN) provides digital user-to-user connectivity with an option for access to voice services and services for transmission of data, text, movable and fixed images as well as various additional services.

VPN fix – the service provides the clients with the benefits of a closed user group across the country’s territory, where members of the group call everybody else in the group with short code dialing and telephone calls among them are billed at preferential prices.

Additional services included in VIVACOM fixed voice portfolio are Office plans, Audio Conference, Televoting, VIP Business, Centrex, Dataphone etc.

Digital TV

VIVACOM TV is a satellite digital television based on the DTH (Direct-To-Home) technology, which delivers TV content via satellite directly to the client's home. Satellite TV can be used in any part of the country.

Internet services

VIVACOM Net – the service offers to clients a high-speed and reliable access to Internet simultaneously and independently from standard telephone services via the same subscribed line.

Additional services for VIVACOM Net – VIVACOM Net Wi-Fi, VIVACOM Net Eye, Antivirus software , etc.

VIVACOM NetWay – the service offers to clients a high speed Internet access (up to 100MBps) on separate optical infrastructure. The additional services offered for VIVACOM Net are offered to VIVACOM NetWay’ clients also.

Data and Professional Internet services

Digital Leased Lines – provision of infrastructure by VIVACOM to a client, including transmission facilities and transmission environment via which a transparent channel with a specific capacity between end points in the network defined by the client is provided.

MAN is a high-speed optic network for data transmission over Ethernet protocol. The service “Building of a client virtual local network for data transmission – Metropolitan Network” is provided via MAN, connecting separate segments of the local network or separate networks of client/clients included in a virtual network – VLAN.

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F-209 For the year ended 31 December 2010

MAN Intercity is a service based on the optical network of VIVACOM and provides link between the branches of customers located in different cities and already users of MAN.

VIVACOM IP-VPN (virtual private network) – the service provides high-quality, high-speed connectivity between remote offices of the client/clients located in a single settlement. VPN Net – the service provides high-quality, high-speed and cheap IP environment for transfer of voice, video and business data between geographically remote offices of users within the country. The service is provided in two versions - IP VPN Net and L2 VPN Net.

Additional services included in VIVACOM data and internet portfolio are professional internet services, Remote access to IP-VPN, SLA (Service Level Agreement), etc.

Other services

Use of duct network – a service allowing installation along underground routes of telecommunication cables from other licensed telecommunications operators for the purposes of their business.

Collocation of customer equipment – the service enables users to install and operate their communication equipment in dedicated VIVACOM centres.

Interconnect – Provides possibilities to other licensed telecommunications operators to connect their networks with the network of VIVACOM for the purpose of mutual exchange of traffic.

Bitstream – Provides possibilities to other licensed telecommunications operators to deliver ADSL access to Internet for their customers using VIVACOM’s access network and MAN infrastructure.

Local loop unbundling - Provides possibilities to other licensed telecommunications operators to use the last mile of VIVACOM’s access network to deliver telecom services to their customers.

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F-210 For the year ended 31 December 2010

4. MAIN RISKS

Investment in securities involves different types of risks. Every investor should carefully read and analyse the information presented below and should make his own independent research and assessments before taking a decision on acquiring shares issued by VIVACOM.

This document contains certain projections and estimates which refer to future uncertain events. The projections are made on the basis of the current information available to the authors of this document and on the estimates they consider justifiable. Actual results may differ, even materially, from the estimates stated in this document, as they depend on a number of risk factors described in the paragraphs below. Not all risk factors can be predicted or described and some of these risk factors are outside the abilities of the issuer to counteract.

The main risk factors that could affect the Company’s activity and results are described below.

General risk

General risk is considered in the broadest economic and political context in which the Company operates (e.g. risk related to the development of the global economy, the development of the local economy, inflation risk, general political risks, domestic policy, foreign policy and general trends). Therefore, some of these risks are not subject to management or mitigation by the Company’s management. They affect VIVACOM’s activity with different weight and emerge in different, usually unpredictable patterns.

Macroeconomic risks

The macroeconomic environment in Bulgaria and contraction in the European Union economy will continue to affect indirectly VIVACOM’s results. Tightening credit condition and increasing unemployment lowered consumer confidence and affected Company’s performance and cash flows, albeit the Company performed better than competitors.

Inflation risk

Inflation is a factor determining the actual return on the investment. This means that at a level of inflation exceeding the nominal rate of annual return during the year, the actual rate of return on the investment denominated in the national currency would be negative during the year.

Market risk

Market risk is associated with changes in the earnings of a specific security as a result of changes in the market earnings as a whole. The specific change in the price of a share as a result of a specific change in the market earnings as a whole depends on the sensitivity or elasticity of the earnings of such security against changes in the market earnings. The value of that ratio for the shares of a specific company is determined on the basis of a regression analysis of the change in the earnings per specific share and of the market as a whole. As the existing information is not representative given the short history of the capital market in Bulgaria and its low liquidity, whereby it is very difficult to form a fair market value, this risk cannot be calculated correctly for the shares of VIVACOM.

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F-211 For the year ended 31 December 2010

Political risks

The political process is a significant factor affecting the return on investments. The degree of political risk is associated with the probability of changes in the economic policy pursued by the government, which could lead to negative changes in the investment climate, as well as the probability of emergence of regional or global armed conflicts or terrorism, social unrest or political tension. Apart from this is the probability of adverse changes in the legal regulation of economic activity. At present the political situation in the country seems stable with government commitment to fiscal discipline

In January 2010 Moody's changed the outlook on the Bulgarian government's ratings from stable to positive. This rating action on part of Moody’s restores the positive outlook of Bulgaria which was in place before the start of the financial crisis in September 2008, and is the first positive rating action on an EU member state since July 2008.

Specific Company risks

Specific Company risks are the risks associated directly with its activity, which is strictly regulated. They include:

Regulatory risk

Regulatory risk exists both in respect of the telecommunications regulation and the general regulation in the area of competition law. The regulatory practice of the Commission for Protection of Competition (CPC) and that of the Communications Regulation Commission (CRC) is not always concerted and can provoke conflicting decisions in the area of electronic communications. This could result in market uncertainty, lack of clear criteria and in many cases could lead to excessive regulation for VIVACOM.

Following market analyses procedures that were carried out by the Communications Regulation Commission, VIVACOM was recognized as a company having significant market power (SMP) on the following markets: origination and termination on fixed network, access and local, long distance and international calls for fixed voice service, call termination for the mobile voice service. VIVACOM is still obliged to have and officially publish standard offers for interconnection, unbundling access to the subscription line. In addition VIVACOM was obliged to provide another wholesale service – Wholesale Line Rental.

The lack of strict regulation allows the mobile operators with dominant position to provide many complex and bundled offers at lower prices than the one VIVACOM is allowed to provide due to its regulated activity.

Fixed Number Portability (FNP) was officially launched In July 2009. In August, 2010 the CRC made amendments to the fixed portability process from two stop shops to one. The risk associated with this process is a possible decrease of the number of VIVACOM’s subscribers of fixed voice service.

Market analyses of CRC with regard to the fixed broadband access and the access to the passive infrastructure have been released on 15 March 2011. The main risks associated with the use of the duct network are the imposition of new pricing mechanism based on installed cables section. The above could drive a process of full inventory of the duct network and obligation for preliminary agreement of the conditions for providing DSL services.

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F-212 For the year ended 31 December 2010

Regulatory risk (continued)

Potential risks during the course of the year could be the appeal of VIVACOM’s new commercial offers and converged services in the CPC. It should be noted that in case of infringement, CPC has power to stop services and advertisements which may affect the whole sector.

Unfair competition

Unfair competition from a number of alternative operators poses a risk to the Company. Their typical behaviour is anti-competitive associations for concerted market behaviour, forbidden and hidden advertising, negative advertising and unfair acquisition of clients as a result of the low price promotions.

Many of the alternative operators that provide internet access build their cable networks in contradiction with imperative stipulation of Bulgarian legislation. Examples of such practices are networks built over the air, especially in cities with more than 10 000 inhabitants, in violation of the Electronic Communications Act.

Legal framework

The forthcoming change of The Electronic Communications Act based on the 2009 Legal Framework of the European Union will became effective in the first half of 2011. It will allow further liberalization of the telecommunications market, increasing competition and reducing prices. A number of specific obligations for VIVACOM will be introduced such as forms of access and opening of the network and price limitations. More market analyses of CRC are due to become effective which shall most probably confirm some of VIVACOM’s existing specific obligations.

The measures which the CPC may impose will have material weight and in practice could affect seriously not only one company but the whole sector. The maximum amount of pecuniary penalties could reach 10% of a company’s turnover.

Credit risks

Credit risks or the risk of counterparty defaulting is reduced partly by the application of monthly subscription, credit limits and monitoring procedures. The Company has a policy of obtaining collateral from its retail customers who use mobile services and from distributors. Credit risk is managed on VIVACOM Group level. The credit exposure of VIVACOM consists of the total value of trade and other receivables and short-term deposits. There is no significant concentration of credit risk related to accounts receivable.

Liquidity risks

Liquidity risk arises from the mismatch of contractual maturity of monetary assets and liabilities and the possibility that debtors may not be able to settle obligations to the Company within the normal terms of trade. To manage such risk, the Company uses planning techniques, including but not limited to, arrangement of overdraft facilities, daily liquidity reports, and short and medium-term cash forecasts.

14

F-213 For the year ended 31 December 2010

Other specific risks

Other specific risk identified by the management is the risk of unethical behavior of employees of the Company. To address this risk the management has developed and adopted a Code of Ethics that entered into force on July 1, 2010. It guides the employees to act responsibly, ethically and lawfully and in compliance with the Code of Ethics, as well as all other policies, laws and regulations that apply to the Company.

Another risk that emerged in 2010 is the risk connected to NURTS joint-venture. The management is mitigating this risk by having clear objectives of the venture, sound and well-articulated business strategy and open and effective communication with the partner and everyone involved, including employees and shareholders.

5. IMPORTANT EVENTS AFTER THE REPORTING PERIOD

There are no important events after the end of the reporting period that need to be disclosed.

6. EXPECTED DEVELOPMENT

In 2011 the activity of the Group will continue to be carried out in accordance with the main objectives of the Company:

x VIVACOM will intensify its sales activity, improve customer service by providing a full range of modern telecommunication solutions and attractive offers; x VIVACOM will continue to deploy its fibre network (FTTx) and to develop its portfolio of Internet services in order to support today's growing demands for high speed bandwidth capacity; x VIVACOM plans to continue and increase the investments in high quality digital television services, after the successful launch of its television service; x VIVACOM will continue to extend its 3G coverage with the aim to cover 100 % of the population in order to add new subscribers and strengthen its market presence.

15

F-214 For the year ended 31 December 2010

II. INFORMATION ABOUT THE COMPANY’S BOARD OF DIRECTORS AND SUPERVISORY BOARD.

1. Changes in the Company’s Managing Board and Supervisory Board.

From the beginning of the financial year to the end of the reporting period the following changes in the managing and supervisory bodies of the Company were entered in the Commercial Register: a) on 16 June 2010 Mr. Venislav Alexandrov Yotov was released from office as a member of the Supervisory Board.

The Financial Supervision Commission and the public are notified of the above changes.

2. Members of the Company’s Managing Board and Supervisory Board at 31 December 2010 a) At 31 December 2010 the members of the Managing Board of VIVACOM are:

Mr. Pierre François Georges Mellinger - Chairman of the Managing Board Mr. Bernard Jean Luc Moscheni - Member of the Managing Board and Chief Executive Officer Mr. Rossen Borisov Hadjiev - Member of the Managing Board Mr. David Kun-Wah Yeung - Member of the Managing Board Mr. Madhusudan Mokilmarathur Balakrishna - Member of the Managing Board Mr. Tomasz Jakub Wojtaszek - Member of the Managing Board b) At 31 December 2010 the members of the Supervisory Board of VIVACOM are:

Mr. Vladimir Penkov Penkov - Chairman of the Supervisory Board Mr. Ivan Lyubomirov Markov - Member of the Supervisory Board Ms. Krasimira Stoyanova - Member of the Supervisory Board

3. The members of the Managing Board and the Supervisory Board have not received remuneration, awards and/or other benefits paid by the Company or its subsidiaries for 2010. The remunerations of the management team are disclosed in the financial statements.

4. The members of the Managing Board, the Supervisory Board and the senior management of the Company did not acquire, hold and transfer shares and bonds of VIVACOM in 2010. The members of the Managing Board and the Supervisory Board are not entitled to acquire shares or bonds of VIVACOM.

5. Participation of the members of the Managing Board and the Supervisory Board in companies as general partners, holdings of more than 25% of the capital in another company, as well as participations in the management of other companies or co-operations as procurators, managing directors or board members is duly disclosed in accordance with the provisions of the Commerce Act and the Public Offering of Securities Act.

6. The members of the Managing Boards and the Supervisory Board did not enter into contracts referred to in Article 240b of the Commerce Act in 2010.

16

F-215 For the year ended 31 December 2010

III. INFORMATION ABOUT THE COMPANY’S SHARES

Changes in the prices of shares

The chart below shows the changes in the price of the Company’s shares in 2010.

BTC (5BT) 2010 - Price / Volume

Volume Price Volume BGN

25 000 5,00

4,50

20 000 4,00

3,50

15 000 3,00

2,50

10 000 2,00

1,50

5 000 1,00

0,50

0 0,00

Number and nominal value of the shares

The share capital of VIVACOM is comprised of 288,764,839 ordinary registered shares and one preferential share owned by the State through the Ministry of Transport, Information Technology and Communications. The nominal value of one share is BGN 1. The preferential share entitles its holder to the rights referred to in Article 9 (4), (5) and (6) of the Company’s Articles of Association.

The Company is not aware of any agreements (including after the close of the financial year) that could result in significant changes in the holding of shares or debt of existing shareholders or debt holders.

17

F-216 For the year ended 31 December 2010

IV. INFORMATION ABOUT GOOD CORPORATE GOVERNANCE PROGRAM IMPLEMENTATION

Since 2005 VIVACOM has had and has adhered to a program for application of internationally recognized standards for good corporate governance.

VIVACOM complied, in all material respects, throughout the period under review, with the legal requirements for public companies and with the best practices and principles applicable to Bulgarian companies.

Internal control

The Managing Board of VIVACOM exercises independent supervision over the activities and the internal control established by the Company. The Internal Audit Department was established in 2005 and began operating the same year. The objective of the internal control system is to manage rather than eliminate the risk of failure to achieve corporate objectives. Accordingly, it can only provide reasonable, but not absolute, assurance against possible misstatements and losses. The Managing Board of VIVACOM ensured ongoing identification, evaluation and management of the material risks faced by the business. At the General Meeting of Shareholders held on 29 June 2009 a decision was taken for establishing an Audit Committee with liabilities and responsibilities according to the Independent Financial Audit Act.

V. ADDITIONAL INFORMATION

1. The Company has no branches in the country or abroad.

2. General information on the capital structure of the Company, the rights and the obligations of the shareholders, the managing and the supervisory bodies of the Company can be found in the document prepared in accordance with item 4 of Article 32 (1) and Appendix No. 11 of Ordinance No. 2 of 17 September 2003 regarding the prospectuses upon public offering and admission to trade on a regulated market of securities and information disclosure from publicly listed companies and other issuers of securities.

3. The Company has no information about pending judicial, administrative or arbitration proceedings regarding liabilities or receivables of the Company amounting to at least 10% of its equity.

4. Data about the Investor Relations Director:

Bogdan Bogdanov

115I “Tsarigradsko Shose” blvd. “Hermes Park – Sofia”, Building A, 1784 Sofia, Bulgaria Tel. +359 2 949 4331 ȿ-mail: [email protected]

18

F-217 BULGARIAN TELECOMMUNICATIONS COMPANY AD ANNUAL ACTIVITIES REPORT (CONTINUED) For the year ended 31 December 2010

Management Responsibilities

The management is required by Bulgarian law to prepare financial statements and consolidated financial statements each financial year that give a true and fair view of the financial position of the Company as at the year end and its financial results. The management has prepared the enclosed financial statements and consolidated financial statements in accordance with IFRS, issued by the International Accounting Standards Board and approved by the European Commission.

The Management confirms that appropriate accounting policies have been used and applied consistently and reasonable and prudent judgements and estimates have been made in the preparation of the financial statements to assets, liabilities, revenue and expenses for the year ended 31 December 2010.

The Management also confirms that the financial statements and consolidated financial statements were prepared in accordance with applicable accounting standards and on a going concern basis.

The Management is responsible for keeping proper accounting records, for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Managing Board of Bulgarian Telecommunications Company AD

Sofia May 2011

19

F-218 F-219 F-220 F-221 F-222 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

1. General information

The Parent Company – Bulgarian Telecommunications Company AD

Bulgarian Telecommunications Company AD (“BTC”, the “Parent Company” the “Company” or “Vivacom”) is a public joint stock company, domiciled in Bulgaria, with its registration address: 115 I, Tzarigradsko shausse Blvd, Hermes park, building A, 1784 Sofia. BTC’s activities include development, operation and maintenance of the national fixed and mobile network and data system for the Republic of Bulgaria.

The ultimate parent company is PineBridge Black Sea Holdings (formerly AIG Black Sea Holdings) in which general partner is PineBridge Capital Partners (formerly AIG Capital Partners). The Competition Protection Commission approved the acquisition of part of the business of American International Group (including AIG Capital Partners) by Bridge Partners pursuant to an agreement concluded in 2009 which according to publicly available information has entered into force in the first quarter of 2010. As per information of the major shareholder NEF Telecom Bulgaria OOD there are no changes in this shareholder or its owners.

Having in mind the publicly available information, BTC has reviewed the issue and decided to obtain additional legal opinion by recognized law firm from Great Britain according to which such acquisition would not be treated as change of control in Great Britain and no public offer obligation would be triggered. BTC has not received a notification for acquisition of indirect control under Art. 1 or Art. 8 of Ordinance No. 39 dated 21 November 2007 for disclosure of shareholding in a public company and thus may not submit information as per Art. 18 of the Ordinance.

During the period 2005 – 2010 the Company implemented significant restructuring activities which lead to the closure of several subdivisions and the streamlining of the remaining structure. As of 31 December, 2010 and 2009 the Parent company had 3,141 and 6,552 employees, respectively.

As a result of the privatization transaction concluded on 20 February 2004 between the Privatization Agency of Republic of Bulgaria and Viva Ventures Holding GmbH, Austria (‘Viva’) which was finalized on June 11, 2004, 65% of the Company’s registered shares were acquired by Viva. Viva was 100% owned by Advent International Corporation, a global private equity investment fund.

On May 3, 2007 an agreement between Novator, Viva and AIG Global Investment Group (AIGGIG) (through its company AIG Capital Partners, Inc.) was signed for the acquisition on behalf of AIGGIG of the 65% share of Viva in BTC. On August 21, 2007 a deal on the acquisition by AIGGIG through NEF Telecom Bulgaria OOD (‘NEF’) of the 90% share of BTC from VIVA and from minority shareholders has been registered after obtaining the respective approvals on behalf of EU and other regulatory bodies.

On 16 February 2010 BTC announced the outsourcing of its end-to-end network operations through partnering with Alcatel-Lucent for a five year term as of March 1, 2010. As a result BTC will be able to concentrate on its core business, reduce its operating expenses and ensure increased network quality. This relationship also ensures the development and fast deployment of new user-oriented services and solutions. As part of this agreement about 3,000 BTC employees joined Alcatel-Lucent under their existing terms and conditions of service, whereas all assets related to the deal remained property of BTC.

The Group

As at 31 December 2010 the Group includes the subsidiary entity BTC Net EOOD and the joint venture NURTS Bulgaria AD.

As at 31 December 2009 the Group includes the subsidiary entity BTC Net EOOD.

24 F-223 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

1. General information(continued)

BTC Security EOOD/ Renamed to BTC Net EOOD

The subsidiary was registered in the Register of commercial companies of Sofia City Court on 27 October 2004 with share capital of BGN 5 thousand. Its main activity is provision of security services to BTC AD and the companies controlled by it. BTC is the sole owner of this company.

The registered subject of business activity of BTC Net is building and operation of data transfer networks for the provision of domestic and international value added services and sale of telecommunication network facilities, development and exploitation of other telecommunication networks, and provision of other telecommunications services, as well as any other commercial activities. . On September 30, 2009 BTC Net EOOD was merged into BTC Security. The legal merger of the entities was registered in the Commercial Register on October 15, 2009. As a result, BTC Net has ceased to exist as a separate legal entity, by virtue of law BTC Security has become universal legal successor of BTC Net and all assets, rights and obligations of BTC Net have passed to BTC automatically as of that date.

On October 16, 2009 the successor BTC Security was renamed to BTC Net.

NURTS Bulgaria AD

NURTS Bulgaria AD is a commercial company established in April 2010 with registered subject of business activity: development, operation and maintenance of public electronic communication networks and data systems, as well as providing telecommunication services through them, including terrestrial broadcasting of radio and TV, collocation services and other commercial activities. The registered share capital amounts to BGN 111,482,310 comprising of shares with nominal value of BGN 1 each. NURTS Bulgaria acquired the National Unit “Radio and Television Stations” (NURTS), an internal division of BTC as per agreement dated 12 August 2010 and registered in the Commercial Register on 20 August 2010. According to an agreement dated 19 March 2010 and finalized on 12 August 2010, BTC acquired 50% of NURTS Bulgaria’s shares. The agreement stipulates joint management of the entity whereas the joint venture partners have equal representatives in the Board of Directors, the entity is jointly represented by two Executive Directors each nominated by the respective joint venture partner and any matter concerning the entity requires joint decision of the partners. Based on that BTC treats its investment in NURTS Bulgaria as a jointly controlled entity.

The effect of the above mentioned sale of the internal division of BTC on these financial statements is disclosed in note 8 – discontinued operations.

25 F-224 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

1. General information (continued)

Regulations

Regulatory framework. x Fixed line telecommunications In May 2007 a new Electronic Communications Act (ECA) was adopted, which implemented the new EU 2002 regulatory framework in the field of electronic communications.

In 2008 the following secondary legislation acts which play significant role in the activities of BTC were adopted: - Methodology for determination of prices and price packages of Universal service (US); - Ordinance No 6 for the requirements and the quality parameters of US, special measures for disabled people and terms and conditions for selection of undertakings providing universal service; - Functional specifications for portability of geographic numbers when changing the supplier of fixed telephony service and/or changing the address within one geographic national code; - Rules for provision of carrier selection service; - Methodology for the terms and conditions for defining, analyzing and evaluation of the relevant markets and criteria for defining undertakings with significant market power.

In 2009 the preparation and adoption of secondary legislation acts continued and Ordinance No 1 for the terms and conditions for carrying out access and interconnection was also adopted.

According to the procedures set out in ECA and the Methodology for market definition and analysis the Communications Regulation Commission (CRC) sent notifications to the European Commission for the following market analyses: - Access to fixed voice telephony services and markets of local, long distance and international calls; - Markets for origination and termination in fixed networks; - Market for termination in mobile networks

In 2010 secondary legislation was developed through modification of already existing ordinances and through issuing of new ones:

- Ordinance ʋ 1 of 22 July 2010 for distribution rules and procedures for primary and secondary provision for use, reservation and withdrawal of numbers, addresses and names; - -Amendment of Ordinance ʋ 1 on the procedures for accessing and / or interconnection; - -Amendment of Functional specifications for the implementation of portability of nationally significant numbers for changing of service provider of public mobile telephone service; - -Amendment of functional specifications for the implementation of portability of non-geographic numbers when changing service provider providing the service - -Amendment of functional specifications for portability of geographic numbers for switching to a fixed telephone service and / or change of address within a geographic country code for direction.

Licenses x Fixed line communications On 28 January 2005 the CRC re-issued BTC’s license for usage and development of telecommunications network on the territory of Bulgaria and rendering of telecommunication services through the network. The term of the license is until February 2019.

26 F-225 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

1. General information (continued)

Regulations (continued)

An annual license fee, calculated on the base of the annual revenue from telecommunication services billed to subscribers is payable quarterly in arrears. During 2010 and 2009 the annual fee is 0.2% of nominal annual revenue from provision of electronic communications networks and/or services without VAT included and after deduction of transferring payments to other companies for interconnection of networks and access, transit, roaming, valuated services, as well as expenses for settling copyrights and related rights for radio and television programs.

A fixed annual fee is to be paid to the CRC for access to limited frequency resources such as the radio- frequency spectrum. This fee is calculated on the basis of technical data and is payable quarterly in arrears as well. During 2010 and 2009 the fee was BGN 2,509 thousand and BGN 2,688 thousand, respectively. The fees are regulated by the CRC and relevant Council of Ministers Ordinances.

On 30 January 2007, the CRC issued BTC an individual license for carrying out communications through public telecommunications network from the mobile radio service from the type point to many points in the frequency band of 26 GHz with national coverage. By reason of change in the plans for development of the network, in 2009 BTC decided to release the occupied resource in range of 26 Ghz, taking into account that on request of BTC the granted authorization has been erased by a Decision of CRC.

The issued individual licenses and certificates for operations under general licenses were transformed officially into authorizations, respectively into registration in the CRC’s register for activities. In January 2009 BTC Mobile merged into BTC. With that transformation the transfer of individual licenses for GSM and UMTS, as well as the process of consolidation of the two companies were finalized.

In July 2009 started the fixed number portability x Mobile telecommunications In June 2004 the Communications Regulation Commission (CRC) grants BTC AD the license for building, exploitation and maintenance of cellular mobile telecommunications network under GSM standard with national coverage. The issued license is valid for the period of 20 years and grants the right of using radio frequency 900 and 1 800 MHz. According to the license BTC AD undertakes the commitment to ensure coverage of not less than 20% of the population within 12 month, not less than 40% within 24 months and not less than 65% within 3 years. BTC paid BGN 54,160 thousand for the GSM license. In June 2005 BTC AD transferred the license to BTC Mobile after the CRC’s approval.

In April 2005 CRC granted BTC AD the license for building cellular mobile telecommunication network under UMTS standard with national coverage. The issued license is valid for 20 years and gives the right to use the following radio frequencies: x 1930 – 1935 MHZ (total of 5 MHz) for the territory of Bulgaria for transmitting from end mobile devices to base stations; x 2120 – 2125 MHz (total of 5 MHz) for the territory of Bulgaria for transmitting from base stations to end mobile devices; and x 2015 – 2020 MHz (total of 5 MHz) for the territory of Bulgaria

According to the license BTC AD undertakes the commitment to ensure coverage of not less than 15% of the population within 2 years and 144 kbps granted speed of information transfer and not less than 50% within 5 years and 144 kbps granted speed of information transfer and for Sofia, Plovdiv, Varna, Bourgas and Ruse the granted speed of information transfer has to be minimum 384 kbps. BTC paid BGN 42,000 thousand for the UMTS license. In August 2006 BTC AD transferred the license to BTC Mobile after the CRC’s approval.

27 F-226 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

1. General information (continued)

Regulations (continued)

Based on the filed application, with decision No 1391 from 04 August 2008 CRC approved the transfer of both the licenses to BTC and the respective permission for using individually limited resource was issued consequently.

Annual fee, calculated based on the annual revenue from telecommunication services provided to the subscribers is paid quarterly. In 2010 and 2009 the annual fee is 0.2% from the annual gross revenue from providing electronic communication networks and/of services, VAT excluded after subtracting the transfer payments to other companies for interconnection of networks and access, transit, roaming, value- added services, as well as costs for authority and related rights for radio and television programmes.

For 2010 and 2009 the fees paid for frequency bands for the GSM license were respectively BGN 4,648 and BGN 4,624 thousand and for the UMTS license - BGN 1,425 and BGN 1,477 thousand.

Based in the filed application, with decision No 1064 from 26 June 2008 CRC approved the individual license No 114-01053/04.11.2004 for providing telecommunications through mobile cellular network under NMT and/or CDMA standards with national coverage granted to Radio Telecommunications Company EOOD to be transferred to BTC. The respective permission for using individually limited resource was issued consequently.

In 2009 BTC has requested CRC to release the occupied resource – radio-frequency spectrum and numbers, which serve the NMT/CDMA network

With the decisions ʋ 654, 655, 656 and 657 of 10 June2010 CRC approved the transfer from BTC to NURTS Bulgaria AD of the following rights and obligations under authorizations, as well as authorizations in whole:

-Part of the rights under Authorization ʋ 01580/25 September 2009 for use of individually assigned resource - spectrum for the provision of electronic communications via an electronic communications network of the fixed radio service of the type "point to point";

- Ⱥuthorization ʋ 00762/21 July 2008 for use of individually assigned resource - spectrum for the provision of electronic communications via an electronic communications network for terrestrial digital broadcasting in Sofia (DVB-T standard);

- Authorization ʋ 01579/25 September 2009 for use of individually assigned resource - spectrum for provision of electronic communications via an electronic communications network of fixed-satellite radio service;

- Authorization ʋ 00169/17 April 2008 for use of individually assigned resource - spectrum for provision of electronic communications for own needs through an electronic communications network of mobile service - PMR.

28 F-227 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated and separate financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated

2.1. Basis of preparation

The consolidated and separate financial statements of BTC have been prepared in accordance with the International Financial Reporting Standards( IFRS) as adopted by the European Union.

The financial statements have been prepared under the historical cost convention, as modified for the revaluation of land at fair value through equity, available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. Consolidated financial information, including subsidiaries, has been prepared using uniform accounting policies for similar transactions and other events in similar circumstances.

The presentation of the financial statements requires management to make the critical accounting estimates, accruals and assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates.

a) New and amended standards adopted by the group

The Group has adopted the following new and amended IFRSs as of 1 January 2010:

Embedded Derivatives - Amendments to IFRIC 9 and IAS 39 (effective for annual periods ending on or after 30 June 2009; amendments to IFRIC 19 and IAS 39 as adopted by the EU are effective for annual periods beginning after 31 December 2009, with early adoption permitted). This amendment to IFRIC 9 requires an entity to assess whether an embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial asset out of the `fair value through profit or loss' category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remains classified as at fair value through profit or loss in its entirety.

IAS 1 (amendment), `Presentation of financial statements', effective for annual periods beginning on or after 1 January 2010). The amendment clarifies that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non-current. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time.

IAS 36 (amendment), ‘Impairment of assets’, effective 1 January 2010. The amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8, ‘Operating segments' (that is, before the aggregation of segments with similar economic characteristics).

29 F-228 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations' (effective for annual periods beginning on or after 1 January 2010) The amendment clarifies that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1.

Eligible Hedged Items—Amendment to IAS 39, Financial Instruments: Recognition and Measurement (effective with retrospective application for annual periods beginning on or after 1 July 2009). The amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The amendment did not have a material impact on these financial statements.

Improvements to International Financial Reporting Standards (issued in April 2009; amendments to IFRS 2, IAS 38, IFRIC 9 and IFRIC 16 are effective for annual periods beginning on or after 1 July 2009; amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 are effective for annual periods beginning on or after 1 January 2010; the amendments as adopted by the EU are effective for annual periods starting after 31 December 2009). The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: clarification that contributions of businesses in common control transactions and formation of joint ventures are not within the scope of IFRS 2; clarification of disclosure requirements set by IFRS 5 and other standards for non-current assets (or disposal groups) classified as held for sale or discontinued operations; requiring to report a measure of total assets and liabilities for each reportable segment under IFRS 8 only if such amounts are regularly provided to the chief operating decision maker; amending IAS 1 to allow classification of certain liabilities settled by entity’s own equity instruments as non-current; changing IAS 7 such that only expenditures that result in a recognised asset are eligible for classification as investing activities; allowing classification of certain long-term land leases as finance leases under IAS 17 even without transfer of ownership of the land at the end of the lease; providing additional guidance in IAS 18 for determining whether an entity acts as a principal or an agent; clarification in IAS 36 that a cash generating unit shall not be larger than an operating segment before aggregation; supplementing IAS 38 regarding measurement of fair value of intangible assets acquired in a business combination; amending IAS 39 (i) to include in its scope option contracts that could result in business combinations, (ii) to clarify the period of reclassifying gains or losses on cash flow hedging instruments from equity to profit or loss and (iii) to state that a prepayment option is closely related to the host contract if upon exercise the borrower reimburses economic loss of the lender; amending IFRIC 9 to state that embedded derivatives in contracts acquired in common control transactions and formation of joint ventures are not within its scope; and removing the restriction in IFRIC 16 that hedging instruments may not be held by the foreign operation that itself is being hedged. The Group does not expect the amendments to have any material effect on its financial statements.

IFRS 3 (revised), ‘Business combinations’ (effective from 1 July 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the profit or loss for the period. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition- related costs should be expensed. BTC adopted IFRS 3(revised) in 2009 in advance of its effective date which affected the accounting for the acquisition of Kimimpex - Trade and Leasing OOD.

30 F-229 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

b) Amendments effective in 2010 but not relevant:

The following interpretation to published standards is mandatory for accounting periods beginning on or after 1 January 2010 but is not relevant to the Group’s operations:

IFRIC 12, Service Concession Arrangements (IFRIC 12 as adopted by the EU is effective for annual periods beginning on or after 30 March 2009, with early adoption permitted). The interpretation contains guidance on applying the existing standards by service providers in public-to-private service concession arrangements. Application of IFRIC 12 will not have any impact on the Group’s financial statements because it is not subject to any service concession arrangements.

IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective for annual periods beginning on or after 1 October 2008; IFRIC 16 as adopted by the EU is effective for annual periods beginning after 30 June 2009, with early adoption permitted). This amendment states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of IAS 39 that relate to a net investment hedge are satisfied. In particular, the group should clearly document its hedging strategy because of the possibility of different designations at different levels of the group. IFRIC 16 does not have any impact on these financial statements.

IFRIC 18, Transfers of Assets from Customers (effective for annual periods beginning on or after 1 October 2009). This interpretation clarifies the requirements of IFRSs for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). In some cases, the entity receives cash from a customer that must be used only to acquire or construct the item of property, plant, and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both). IFRIC 18 is not expected to have any impact on the Group’s financial statements.

IAS 27, Consolidated and Separate Financial Statements (revised January 2008; effective for annual periods beginning on or after 1 July 2009). The revised IAS 27 requires an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously “minority interest”) even if this results in the non-controlling interests having a deficit balance (the previous standard required the excess losses to be allocated to the owners of the parent in most cases). The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment retained in the former subsidiary has to be measured at its fair value. The revised IAS 27 did not have any impact on these financial statements.

31 F-230 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

IFRIC 17, Distribution of Non-Cash Assets to Owners (effective for annual periods beginning on or after 1 July 2009; IFRIC 17 as adopted by the EU is effective for annual periods beginning after 31 October 2009, with early adoption permitted). The interpretation clarifies when and how distribution of non-cash assets as dividends to the owners should be recognised. An entity should measure a liability to distribute non-cash assets as a dividend to its owners at the fair value of the assets to be distributed. A gain or loss on disposal of the distributed non-cash assets should be recognised in profit or loss when the entity settles the dividend payable. IFRIC 17 is not relevant to the Group’s operations because it does not distribute non-cash assets to owners.

IFRIC 15, Agreements for the Construction of Real Estate (effective for annual periods beginning on or after 1 January 2009; IFRIC 15 as adopted by the EU is effective for annual periods beginning after 31 December 2009, with early adoption permitted). The interpretation applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors, and provides guidance for determining whether agreements for the construction of real estate are within the scope of IAS 11 or IAS 18. It also provides criteria for determining when entities should recognise revenue on such transactions. IFRIC 15 is not relevant to the Group’s operations because it does not have any agreements for the construction of real estate.

Group Cash-settled Share-based Payment Transactions - Amendments to IFRS 2, Share-based Payment (effective for annual periods beginning on or after 1 January 2010). The amendments provide a clear basis to determine the classification of share-based payment awards in both consolidated and separate financial statements. The amendments incorporate into the standard the guidance in IFRIC 8 and IFRIC 11, which are withdrawn. The amendments expand on the guidance given in IFRIC 11 to address plans that were previously not considered in the interpretation. The amendments also clarify the defined terms in the Appendix to the standard. The amendments did not have any impact on these financial statements.

IAS 38 (amendment), `Intangible assets'( effective 1 January 2010). The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives.

IFRS 1, First-time Adoption of International Financial Reporting Standards (following an amendment in December 2008, effective for the first IFRS financial statements for a period beginning on or after 1 July 2009). The revised IFRS 1 retains the substance of its previous version but within a changed structure in order to make it easier for the reader to understand and to better accommodate future changes.

32 F-231 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

Additional Exemptions for First-time Adopters - Amendments to IFRS 1, First-time Adoption of IFRS (effective for annual periods beginning on or after 1 January 2010). The amendments exempt entities using the full cost method from retrospective application of IFRSs for oil and gas assets and also exempt entities with existing leasing contracts from reassessing the classification of those contracts in accordance with IFRIC 4, 'Determining Whether an Arrangement Contains a Lease' when the application of their national accounting requirements produced the same result. c) Standards, amendments and interpretations to existing standards that are not effective and have not been early adopted:

IFRS 9, Financial Instruments Part 1: Classification and Measurement. IFRS 9 issued in November 2009 replaces those parts of IAS 39 relating to the classification and measurement of financial assets. IFRS 9 was further amended in October 2010 to address the classification and measurement of financial liabilities. Key features of the standard are as follows: x Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. x An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent only payments of principal and interest (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss. x All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument- by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment. x Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated as at fair value through profit or loss in other comprehensive income.

While adoption of IFRS 9 is mandatory from 1 January 2013, earlier adoption is permitted. The Group is considering the implications of the standard, the impact on the Group and the timing of its adoption by the Group.

Classification of Rights Issues - Amendment to IAS 32 (issued on 8 October 2009; effective for annual periods beginning on or after 1 February 2010). The amendment exempts certain rights issues of shares with proceeds denominated in foreign currencies from classification as financial derivatives. The Group does not expect the amendments to have any material effect on its financial statements.

Amendment to IAS 24, Related Party Disclosures (issued in November 2009 and effective for annual periods beginning on or after 1 January 2011). IAS 24 was revised in 2009 by: (a) simplifying the definition of a related party, clarifying its intended meaning and eliminating inconsistencies; and by (b) providing a partial exemption from the disclosure requirements for government-related entities. The Group does not expect the amendments to have any material effect on its financial statements.

33 F-232 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010). This IFRIC clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished through the debtor issuing its own equity instruments to the creditor. A gain or loss is recognised in profit or loss based on the fair value of the equity instruments compared to the carrying amount of the debt. The Group does not expect IFRIC 19 to have any material effect on its financial statements.

Prepayments of a Minimum Funding Requirement – Amendment to IFRIC 14 (effective for annual periods beginning on or after 1 January 2011). This amendment will have a limited impact as it applies only to companies that are required to make minimum funding contributions to a defined benefit pension plan. It removes an unintended consequence of IFRIC 14 related to voluntary pension prepayments when there is a minimum funding requirement. The Group does not expect the amendments to have any material effect on its financial statements.

Improvements to International Financial Reporting Standards (issued in May 2010; effective dates vary standard by standard, most improvements are effective for annual periods beginning on or after 1 January 2011; the improvements have been adopted by the EU). The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: IFRS 1 was amended (i) to allow previous GAAP carrying value to be used as deemed cost of an item of property, plant and equipment or an intangible asset if that item was used in operations subject to rate regulation, (ii) to allow an event driven revaluation to be used as deemed cost of property, plant and equipment even if the revaluation occurs during a period covered by the first IFRS financial statements and (iii) to require a first-time adopter to explain changes in accounting policies or in the IFRS 1 exemptions between its first IFRS interim report and its first IFRS financial statements; IFRS 3 was amended (i) to require measurement at fair value (unless another measurement basis is required by other IFRS standards) of non- controlling interests that are not present ownership interest or do not entitle the holder to a proportionate share of net assets in the event of liquidation, (ii) to provide guidance on acquiree’s share-based payment arrangements that were not replaced or were voluntarily replaced as a result of a business combination and (iii) to clarify that the contingent considerations from business combinations that occurred before the effective date of revised IFRS 3 (issued in January 2008) will be accounted for in accordance with the guidance in the previous version of IFRS 3; IFRS 7 was amended to clarify certain disclosure requirements, in particular (i) by adding an explicit emphasis on the interaction between qualitative and quantitative disclosures about the nature and extent of financial risks, (ii) by removing the requirement to disclose carrying amount of renegotiated financial assets that would otherwise be past due or impaired, (iii) by replacing the requirement to disclose fair value of collateral by a more general requirement to disclose its financial effect, and (iv) by clarifying that an entity should disclose the amount of foreclosed collateral held at the reporting date and not the amount obtained during the reporting period; IAS 1 was amended to clarify that the components of the statement of changes in equity include profit or loss, other comprehensive income, total comprehensive income and transactions with owners and that an analysis of other comprehensive income by item may be presented in the notes; IAS 27 was amended by clarifying the transition rules for amendments to IAS 21, 28 and 31 made by the revised IAS 27 (as amended in January 2008); IAS 34 was amended to add additional examples of significant events and transactions requiring disclosure in a condensed interim financial report, including transfers between the levels of fair value hierarchy, changes in classification of financial assets or changes in business or economic environment that affect the fair values of the entity’s financial instruments; and IFRIC 13 was amended to clarify measurement of fair value of award credits. The Group does not expect the amendments to have any material effect on its financial statements.

34 F-233 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.1. Basis of preparation (continued)

Limited exemption from comparative IFRS 7 disclosures for first-time adopters - Amendment to IFRS 1 (effective for annual periods beginning on or after 1 July 2010). Existing IFRS preparers were granted relief from presenting comparative information for the new disclosures required by the March 2009 amendments to IFRS 7, Financial Instruments: Disclosures. This amendment to IFRS 1 provides first-time adopters with the same transition provisions as included in the amendment to IFRS 7. The Group does not expect the amendments to have any effect on its financial statements.

Disclosures – Transfers of Financial Assets – Amendments to IFRS 7 (issued in October 2010 and effective for annual periods beginning on or after 1 July 2011, not yet adopted by EU). The amendment requires additional disclosures in respect of risk exposures arising from transferred financial assets. The amendment includes a requirement to disclose by class of asset the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party yet remain on the entity's balance sheet. Disclosures are also required to enable a user to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. Where financial assets have been derecognized but the entity is still exposed to certain risks and rewards associated with the transferred asset, additional disclosure is required to enable the effects of those risks to be understood. The amendment is not expected to have any impact on the Group's financial statements.

Recovery of Underlying Assets – Amendments to IAS 12 (issued in December 2010 and effective for annual periods beginning on or after 1 January 2012, not yet adopted by EU). The amendments relate to measuring deferred tax liabilities and deferred tax assets relating to investment property measured using the fair value model in IAS 40, Investment Property and introduce a rebuttable presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. SIC-21, Income Taxes – Recovery of Revalued Non-Depreciable Assets which addresses similar issues involving non-depreciable assets measured using the revaluation model in IAS 16, Property, Plant and Equipment was incorporate into IAS 12 after excluding guidance regarding investment property measured at fair value. The Group does not expect the amendments to have any material effect on its financial statements.

Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters – Amendments to IFRS 1 (issued in December 2010 and effective for annual periods beginning on or after 1 July 2011, not yet adopted by EU). The amendment regarding severe hyperinflation creates an additional exemption when an entity that has been subject to severe hyperinflation resumes presenting or presents for the first time, financial statements in accordance with IFRSs. The exemption allows an entity to elect to measure certain assets and liabilities at fair value; and to use that fair value as the deemed cost in the opening IFRS statement of financial position. The IASB has also amended IFRS 1 to eliminate references to fixed dates for one exception and one exemption, both dealing with financial assets and liabilities. The first change requires first-time adopters to apply the derecognition requirements of IFRS prospectively from the date of transition, rather than from 1 January 2004. The second amendment relates to financial assets or liabilities at fair value on initial recognition where the fair value is established through valuation techniques in the absence of an active market and allows the guidance to be applied prospectively from the date of transition to IFRS rather than from 25 October 2002 or 1 January 2004. This means that a first-time adopter does not need to determine the fair value of financial assets and liabilities for periods prior to the date of transition. IFRS 9 has also been amended to reflect these changes. The Group does not expect the amendments to have any effect on its financial statements.

Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the Group’s consolidated financial statements. 35 F-234 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.2. Consolidation

Subsidiaries A subsidiary is an entity that is directly or indirectly controlled by the Company. Control is the power to govern the financial and operational policies of the subsidiary for obtaining benefits from its activities – generally accompanying a shareholding of more than one half of voting rights.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income.

For consolidation purposes, the separate financial statements of the Company and its subsidiaries have been combined on a line-by-line basis by adding together like items of assets, liabilities, income and expenses. Inter-company transactions and resulting profits or losses as of 31 December, 2010 and 2009, including unrealized profits at the year end, have been eliminated in full.

Joint ventures The Company has an interest in a joint venture which is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The agreement requires unanimous agreement for financial and operating decisions among the venturers.

The Group reports its interests in jointly controlled entities using the equity method. The financial statements of the joint venture are prepared for the same reporting period as the Group. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

2.3. Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors who make strategic decisions.

36 F-235 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.4. Functional and Presentation Currency Functional and Presentation Currency These financial statements are prepared in thousand Bulgarian Levs (BGN), unless otherwise stated, whereas the Bulgarian Lev has been accepted as presentation currency for the presentation of Group’s consolidated financial statements.

Effective from 1 January 1999, the Bulgarian Lev was fixed to the EUR at a rate BGN 1.95583 = EUR 1.00. The Bulgarian National Bank (“BNB”) determines the exchange rate of the BGN to the other currencies using the rate of the EUR to the respective currency, quoted at the international markets.

Transactions and balances Foreign currency transactions are accounted for in BGN at the exchange rate at the date of the transaction. Monetary assets and liabilities, denominated in as foreign currency at 31 December, are translated at the closing exchange rate of BNB as at that date.

The foreign currency exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognized in the statement of comprehensive income as “financial income or expense” at the moment when they arise, except when deferred in equity as qualifying cash flow hedges. Financial instruments, denominated in foreign currency as at 31 December are reported in these financial statements at the closing exchange rate of BNB.

Non-monetary reporting items in the balance sheet, which have been denominated in a foreign currency on initial recognition, are recorded in the functional currency by applying the historical exchange rate of BNB at the date of the transaction and are not subsequently revalued at closing exchange rate.

2.5. Property, plant and equipment

Initial measurement Upon their initial acquisition property, plant and equipment are valued at acquisition cost, which comprises the purchase price, including customs duties and any directly attributable costs of bringing the asset to a suitable condition for its intended use (at fair value – upon business combinations). Directly attributable costs comprise mainly the costs of site preparation, initial delivery and handling costs, installation costs, professional fees for people related to the project, non-refundable taxes, etc.

As disclosed in note 16 a provision for decommissioning costs associated with mobile sites is capitalized in the cost of the sites at the amount of the present value of the estimated decommissioning costs after cease of operation.

Subsequent measurement The chosen approach for subsequent measurement of property, plant and equipment, is the cost model under IAS 16, i.e. cost less any accumulated depreciation and any accumulated impairment losses in value. Land is an exception to this rule and is revalued at fair value.

Revaluation of land is performed by independent certified appraisers usually in a period of three years. When there is an indication of material changes in their fair value in shorter intervals, the revaluation may be performed in shorter periods.

Increases in the carrying amount arising on revaluation of land are credited to revaluation reserves in shareholders’ equity. As disclosed in note 2.8 decreases that offset previous increases of the same asset are charged against revaluation reserves directly in equity. All other decreases are charged to the profit or loss for the period as other operating expenses. 37 F-236 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.5. Property, plant and equipment (continued)

Subsequent costs Repair and maintenance costs are recognized as current expenses as incurred. Subsequent expenses incurred in relation to property, plant and equipment having the nature of replacement of certain components, significant parts and aggregates or improvements and restructuring, are capitalized in the carrying amount of the respective asset whereas the residual useful life is reviewed at the capitalisation date. At the same time, the non-depreciated part of the replaced components is derecognised from the carrying amount of the assets and is recognised in the current expenses for the period of replacement.

Upon sale or disposal of property, plant and equipment, the cost and related accumulated depreciation is removed from the accounts.

Gains or losses on sale (disposal) are determined as the difference between the amounts received and the carrying amount of the asset and are presented net under “Other gains/(losses), net” in the statement of comprehensive income. When revalued assets are sold, the amount of the revaluation reserve is transferred to “Retained earnings”.

Depreciation Property, plant and equipment are depreciated by using the straight-line method over the estimated useful life of the asset. Depreciation of an asset begins when it is available for use. Land is not depreciated. The useful life of the classes of assets is determined in accordance with their physical wear, the characteristic features of the equipment, the future intentions for use and the expected obsolescence.

The estimated useful lives of the major classes of property, plant and equipment are as follows:

Class Useful life Analog switches 10 years Digital switches 8–12 years Transmission, distribution and remote switching 15–25 years Optic cables 20–25 years Mobile network 5–15 years General support* 5–25 years *General support represents mainly administrative buildings, cars and other IT environment

The useful life, set for any tangible fixed asset, is reviewed at each year-end and in case of any material deviation from the future expectations of their period of use, the latter is adjusted prospectively.

2.6. Intangible assets

Software and licenses Software and licenses are the main items comprising intangible assets. Intangible assets are measured initially at cost. Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be reliably measured. After initial recognition, intangible assets are measured at cost less accumulated amortization and any impairment losses (upon business combinations - at fair value). Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives. Useful life of licenses is from 5 years to 20 years. Useful life of software is from 4 years to 10 years.

38 F-237 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.6. Intangible assets (continued)

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the group are recognised as intangible assets when the following criteria are met:

- it is technically feasible to complete the software product so that it will be available for use; - management intends to complete the software product and use or sell it; - there is an ability to use or sell the software product; - it can be demonstrated how the software product will generate probable future economic benefits; - adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and - the expenditure attributable to the software product during its development can be reliably measured.

Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment.

BTC considers its operations as comprising two cash generating units – fixed and mobile business, to which the goodwill is allocated.

Distribution network Distribution network acquired in a business combination is recognized at fair value at the acquisition date. The Distribution Network have a finite useful life and is carried at cost less accumulated amortization and any impairment losses. Amortization is calculated using the straight-line method over the expected useful life.

Subscriber acquisition/retention costs Customer acquisition and retention expenses are capitalized and amortized over the minimum enforceable contractual period, using the straight line method.

2.7 Investments

In the separate financial statements investments in subsidiaries and joint ventures are accounted for at cost of acquisition, less impairment, if any. The cost of an acquisition is measured at the fair value of the consideration given, the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.

Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.

39 F-238 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.7 Investments (continued)

Joint venture is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity.

Under the cost method of accounting the investor recognizes income from the investment only to the extent that the investor receives distributions from accumulated profits of the investee arising after the date of acquisition. Distributions received in excess of such profits are regarded as a recovery of investment and are recognized as a reduction of the cost of the investment.

2.8. Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

Impairment losses are recognised in the profit or loss for the period as other operating expenses, except for land previously revalued where the revaluation was taken to equity. In this case the impairment is also recognised in equity up to the amount of any previous revaluation.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses of assets may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of comprehensive income as reduction of other operating expenses unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.

2.9. Non-current assets (or disposal groups) held for sale

Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use.

40 F-239 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.10. Financial instruments

Financial assets The Group classifies its financial assets in the following categories: at fair value through profit or loss , ‘loans and receivables’, including cash and cash equivalents, and ‘available-for-sale assets’. The classification depends on the substance and purpose (designation) of the financial assets at the date of their acquisition. The management of each Group company determines the classification of its financial assets at the date of their initial recognition in the balance sheet.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.

Loans and receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are included in the group of current assets when having maturity within 12 months or within a common operating cycle of the Company while the remaining ones are carried as non- current assets. Loans and receivables are carried at amortised cost, or cost if no maturity, less an allowance for uncollectibility with changes in carrying value (amortisation of discount/ premium and transactions costs) recognised in the consolidated statement of comprehensive income under finance income or finance costs. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. Loans and receivables are included in Trade receivables in the balance sheet. Loans and receivables are recognised at the date, at which the asset is delivered to or by us. Thus, a loan is recognised at the moment the cash is transferred to the borrower, redemptions of a loan are recognised at the date the payment is received.

This group of financial assets includes: trade and other receivables, and cash and cash equivalents from the balance sheet. Interest income on loans and receivables is recognised by applying the effective interest method. It is presented in the statement of comprehensive income under ‘Financial Expenses, Net’. (Note 24.) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative assets that are either designated as available- for-sale or are not classified in any other category. These are usually unlisted or not actively traded shares or shares in other companies, acquired for investment purposes, and are included within non-current assets, except where the Company intends to sell them in the following 12 months and is actively searching for a buyer. Available-for-sale financial assets are carried at fair value with unrealised gains and losses (except for impairment losses) recognised in equity, through the consolidated statement of changes in Company’s equity, until the financial asset is derecognised, at which time the cumulative gain or loss previously recognised in equity is taken to the consolidated statement of comprehensive income for the period.

41 F-240 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued) 2.10. Financial instruments (continued) Purchases and sales of investments are recognised on trade date, the date on which we commit to purchase or sell the asset. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and we have transferred substantially all risks and rewards of ownership. Dividends on shares, classified as available-for-sale financial assets, are recognised in the statement of comprehensive income when the Company’s right to receive the dividends is established.

The group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed through the profit or loss for the period.

Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The group designates certain derivatives as hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).

The group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the profit or loss for the period under ‘financial expenses(income), net.’

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. However, when the forecast transaction that is hedged results in the recognition of a nonfinancial asset (for example, inventory or fixed assets), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognized in cost of goods sold in the case of inventory or in depreciation in the case of fixed assets.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the profit or loss for the period. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the profit or loss for the period under ‘financial expenses(income), net.’.

42 F-241 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.11. Inventories

Inventories are principally composed of handsets, network establishment and maintenance materials, valued at the lower of cost or net realizable value. Materials and supplies are expensed when utilized, using the weighted-average method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. BTC sells handsets separately and in connection with service contracts. As part of the strategy to acquire new customers, it sometimes sells handsets, in connection with a service contract, at below its acquisition cost. Ɍhe loss on the sale of handsets is recognized at the time of the sale and the cost of the handsets is presented as “Material and consumables expenses” in the profit or loss for the period.

2.12. Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than thirty days), and historical evidence of collectability are considered indicators that trade receivables are impaired.

Certain receivables are assessed and impaired individually if it’s known that it will not be collected in full. All other receivables are impaired on a group basis according to their aging structure and taking into consideration historical data on collectability.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the statement of comprehensive income within ‘Other operating expenses’. The resulting carrying amount approximates the present value of estimated future cash flows. When a trade receivable is uncollectible and the relevant legal grounds are present, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘Other operating expenses’ in the profit or loss for the period.

43 F-242 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.13. Cash and cash equivalents

Cash and cash equivalents include cash in hand, balances of current bank deposits, term deposits with original maturity up to 3 months and all other amounts that are readily convertible into cash.

2.14. Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds. Where any BTC Group company purchases BTC’s share capital (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the BTC Group equity holders.

2.15. Trade and other payables

Payables to suppliers and other current amounts payable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.16. Interest-bearing loans and other borrowings

All loans and other borrowings are initially recognised at fair value of the consideration received on the transaction, netted of the direct costs related to these loans and borrowings. After the initial recognition, the interest-bearing loans and other borrowings are subsequently measured at amortised cost by applying the effective interest rate method. The amortised cost is calculated by taking into consideration all types of charges, commissions and other costs, including any discount or premium associated with these loans. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur.

2. 17. Current and deferred income taxes

The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised in equity. The current income tax charge is calculated on the basis of the tax laws enacted at the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. The group establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 44 F-243 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2. 17. Current and deferred income taxes(continued)

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.

2.18. Employee benefits

Defined contribution plans According to the Bulgarian legislation, the Group is obliged to pay contributions to Social Security Funds. This obligation relates to full-time employees and provides for paying contributions to state pension fund by the employer and by the employee in the amount of certain percentages determined in the Social Security Code. These contributions are charged to the statement of comprehensive income in the period to which they relate.

Short-term employee benefits Short-term employee benefits in the form of remunerations, bonuses and social payments and benefits (payable within 12 months after the end of the period when the employees have rendered the service or has met the required terms and requirements) are recognized as an expense in the statement of comprehensive income in the period when the service thereon has been rendered or the requirements for their receipt have been met and as a current liability (less any amounts already paid and deductions due) at their undiscounted amount. The Group’s obligations for social security and health insurance are recognized as a current expense and liability at their undiscounted amount together with the relevant benefits and within the period of the respective income to which they are related.

At each balance sheet date, the Group measures the expected costs on the accumulating compensated absences, which amount is expected to be paid as a result of the unused entitlement. The measurement includes the estimated expenses on the employee’s remunerations and the statutory social security contributions due by the employer thereon.

Retirement benefit obligations As discussed above, in accordance with the requirements of the Labour Code, the employer is obliged to pay an indemnity to its personnel upon coming of age for retirement, which depending on the length of service with the company, varies between 2 and 6 gross monthly salaries as at the termination date of the employment. In their nature these are defined benefit plans. The calculation of the amount of these retirement benefit obligations necessitates the participation of qualified actuaries in order to determine their present value at the date of the financial statements, which is included in the balance sheet, and respectively, the change in their value, which is included in the statement of comprehensive income. For this purpose, they apply the Projected Unit Credit Method.

Actuarial gains and losses arise from changes in the actuarial assumptions and experience adjustments. The Group applies the ‘10% corridor approach’, calculated based on the present value of the opening balance of the obligation for recognizing actuarial gains and losses.

Termination benefits The Group recognises employee benefit obligations on employment termination before the normal retirement date when it is demonstrably committed, based on announced plan, to terminating the employment contract with the respective individuals without possibility of withdrawal or in case of formal issuance of documents for voluntary redundancy. Termination benefits due more than 12 months are discounted and presented in the balance sheet at their present value.

45 F-244 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2 Summary of significant accounting policies (continued) 2.19. Provisions for other liabilities and charges Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources will be required to settle (repay) the obligation. Restructuring provisions comprise employee termination payments The measurement of provisions is based on the best estimate, made by the management at the balance sheet date, concerning the expenses that will be incurred for the settlement of the particular obligation. The estimate is discounted if the obligation maturity is long-term. When part of the resources required to settle the obligation is expected to be recovered from a third party, the Group recognises a receivable if it is virtually certain that reimbursement will be received, its amount can be reliably measured. Income is recognised in the same category of the profit or loss for the period where the creations of the provision is charged. 2.20. Revenue recognition a) Sales of services Revenue comprises in the ordinary course of business the fair value of consideration received or receivable from the sale of services, net of value-added tax, rebates and discounts and after eliminating sales within the Group. All streams of revenue are recognized on a monthly accrual basis and to the extent that it is probable that the economic benefits will flow to the company from the Group and as far as the revenue can be reliably measured. Revenue is measured on the basis of the fair value of the services sold, net of indirect taxes (VAT) and any discounts and rebates granted. Revenue streams The Company’s revenue is derived from the following telecommunication and ICT services and products: x Outgoing traffic; x Recurring charges x Leased lines and Data transmission x Interconnect x Radio and TV broadcasting (applies for 2009 and first eight months of 2010, included in discontinued operations) x Other sales. Outgoing traffic fees for both postpaid and prepaid customers are charged at an agreed tariff for a fixed duration of time and are recognised as revenue based upon provided services on a monthly basis. Recognition of revenue from prepaid cards is based on actual airtime usage or the expiration of the obligation to provide service. The unused balance of the valid prepaid cards is presented as deferred income in other payables of the balance sheet. Recurring charges consist of monthly subscription fees and are recognised as revenue over the associated period. Leased lines and Data transmission fees are charged at an agreed rate in accordance with dedicated capacity of BTC’s data network and are recognized as revenue over the associated subscription period. Interconnect revenue include charges to other telecommunications providers when they terminate or transit calls on BTC’s network or when their customers use BTC’s mobile network when in roaming. The revenues are recognised gross in the statement of comprehensive income based on real network usage and settled on a net basis, after deducting the cost of interconnection for the Company’s customers calls that are routed via or terminated in other networks.

46 F-245 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.20. Revenue recognition(continued)

Radio and TV broadcasting revenue comprise charges for broadcasting and transmission of content of radio and TV operators and is recognized based upon airtime usage. Revenue stream is part of discontinued operations in 2009 and 2010.

Other sales, comprise revenue generated from services not included in the streams above, which is recognised in the statement of comprehensive income when services are rendered.

For multiple-element arrangements, revenue recognition for each of the units of accounting (elements) identified must be determined separately. Revenue is recognized on the basis of the fair value of the individual elements. Arrangements involving the delivery of bundled products or services are separated into individual elements. Total arrangement consideration relating to the bundled contract is allocated among the different elements based on their relative fair values. b) Sale of goods Revenue and expenses associated with the sale of telecommunications equipment and accessories are recognized when the products are delivered, provided there are no unfulfilled company obligations that affect the customer’s final acceptance of the arrangement. c)Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Company reduces the carrying value to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. d)Dividend Income Dividend income is recognised when the right to receive payment is established.

2.21. Expenses recognition

Operating expenses are recognized as they are incurred, following the accrual and matching concepts. Financial costs are recorded in the profit or loss for the period when incurred and comprise of: interest expense, using the effective interest method, including bank charges and other direct expenses on loans and bank guarantees, and exchange differences on loans denominated in foreign currency (net).

2.22. Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessee

Finance lease Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

Lease payments are apportioned between finance costs and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance costs are charged directly to profit or loss. Contingent rentals are recognized as expenses in the periods in which they are incurred. Assets acquired under the terms of finance lease are depreciated on the basis of the useful life of the asset over the lease term.

47 F-246 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

2. Summary of significant accounting policies (continued)

2.22. Leases(continued)

Operating lease Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

The Group as lessor

Finance lease When assets are leased out under a finance lease, the present value of the lease payments is recognized as a receivable. The difference between the gross receivable and the present value of the receivable is recognized as unearned finance income. Lease income is recognized over the term of the lease using the net investment method, which reflects a constant periodic rate of return.

Operating lease When assets are leased out under an operating lease, the asset is included in the balance sheet based on the nature of the asset. Lease income is recognized over the term of the lease on a straight-line basis.

2.23. Dividends Distribution

Dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period in which the dividends are approved by the company’s shareholders.

3. Financial risk management

3.1. Financial risk factors In the ordinary course of business, the Group can be exposed to a variety of financial risks the most important of which are currency risk, interest risk, price risk, credit risk, and liquidity risk. The financial risks are currently identified, measured and monitored by the Treasury Department and the Managing Directors of each company within the Group through various control mechanisms in order to establish adequate prices for the services, provided by the company, to appropriately assess the market circumstances related to its investments and the forms for maintenance of free liquid funds through preventing undue concentration of a particular risk.

The following table presents the financial assets and liabilities of the Group classified by category:

Categories of financial instruments Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Financial assets Loans and receivables 113,992 75,670 114,020 76,345 Cash and cash equivalents 154,523 138,272 154,163 137,374 Financial assets available for sale 58,093 335 56,076 335 Financial assets at fair value trough profit or loss 2,137 - 2,137 -

Financial liabilities Financial liabilities at amortised cost 1,075,864 1,121,056 1,075,863 1,121,076

48 F-247 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management(continued)

3.1. Financial risk factors(continued)

Below are presented the various types of risks to which the companies of the Group are exposed upon performing their business activities as well as the adopted approach for managing these risks.

a) Credit risk Credit risks or the risk of counter-parties defaulting, is controlled by the application of limits and monitoring procedures. The group has a policy of obtaining collateral from its retail customers who use mobile services and from distributors Credit risk is managed on BTC Group level. It arises from cash and cash equivalents, derivative financial instruments and deposits at banks, as well as from credit exposures to business and households, including overdue receivables and commitments.

Deposit at banks According to Treasury policy, applicable to BTC and its subsidiaries, transactions are carried out only with financial institutions and banks with good credit standing. Credit exposure is controlled by individual credit limits of counterparties, which are regularly revised and appropriately approved. Limits for every third party are determined according to their long-term credit rating from S&P, Moody's or Fitch. The Treasury policy also defines the financial instruments, allowed to the Treasury Department, as well as the maximum maturity.

Receivables and commitments Trade receivables consist of a large number of customers, distributed by industries. The fixed net business of BTC follows the approved by CRC “General Rules of Contracts between BTC and Subscribers”. The management of risk of non-payment of retail customers is carried out through a policy of suspension and termination of services , based on credit risk segmentation. The retail subscribers contracts termination follows the General Conditions.

BTC has adopted a policy for mutual connection with operators and wholesale with partners with good credit rating by applying of respective guarantees for risk management.

The credit risk related to international accounts is managed through the possibilities for net arrangement with the contractual parties and by directing traffic through chosen routes in order to decrease of existing exposures. There is no significant risk concentration in receivables.

The credibility of the customers is evaluated according to their financial status, payment history and other factors. On the basis of the credit score individual credit limits are set in compliance with the credit policy. The levels of the credit limits and their daily observation are monitored. Most of the payments from customers of mobile services are in cash.

The BTC Group is not exposed to credit risk from an individual partner or group of partners with similar profile. Trade relations with related parties are similar to those with third parties.

49 F-248 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management (continued)

3.1. Financial risk factors(continued)

b) Liquidity risk Liquidity risk arises from the mismatch of contractual maturity of monetary assets and liabilities and the possibility that trade debtors may not be able to settle obligations to the company within the normal terms of trade. To manage such risk, the Parent company uses planning techniques, including but not limited to, arrangement of overdraft facilities, daily liquidity reports, and short and medium-term cash forecasts.

Maturity analysis The table below presents the financial liabilities of the Group, grouped by remaining term to maturity, determined against the contractual maturity at the balance sheet date. The table is prepared on the basis of contracted undiscounted cash flows and the earliest date on which the liability becomes due for payment (borrowings are presented as current liabilities as disclosed in note 17). The amounts include principal and interest.

For the Group: Up to 1 From 1 From 3 From 1 Over 5 Total month to 3 months to to 5 years years months 1 year Accounts payable 48,766 20,238 8,961 920 4,639 83,524 Borrowings 2,846 6,076 1,006,423 1,214 - 1,016,559 Total financial liabilities 51,612 26,314 1,015,384 2,134 4,639 1,100,083

For BTC Up to 1 From 1 From 3 From 1 Over 5 Total month to 3 months to to 5 years years months 1 year Accounts payable 48,765 20,238 8,961 920 4,639 83,523 Borrowings 2,846 6,076 1,006,423 1,214 - 1,016,559 Total financial liabilities 51,611 26,314 1,015,384 2,134 4,639 1,100,082

c) Market risk Currency risk The main objective of Company currency risk management is to minimise adverse effects of market volatility on exchange rates so as to provide the maximum value of foreign currency net income and under approved risk level. Due to the fact that the companies within BTC Group use mainly BGN and EUR as operating currencies they are not significantly exposed to currency risk. Most of the income is generated in BGN while long term borrowings, interest expenses and part of the capital expenses are in EUR. This mismatch has not been a problem for the past 10 years as the Bulgarian lev is pegged to the euro. At the same time the stability of the currency board needs to be monitored closely since a potential free floating of the local currency and devaluation of the Lev will significantly affect the financial situation of the Group.

The major part of the cash flows that are in other foreign currencies (mainly US Dollars and Special Drawing Rights) are generated from international settlements and offset each other. Therefore, BTC’s management believes that the effect from possible changes in foreign currency rates would have insignificantly affected profit or loss. When s significant foreign currency exposure arises, the Company takes into account the following factors: • Future outlook on volatility of financial market variables. These are modelled by Treasury and in accordance with best practice analytical techniques and economic models • effect of the given foreign exchange exposure on total Company financial results • cost of foreign exchange exposure hedging 50 F-249 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management (continued)

3.1. Financial risk factors(continued)

BTC’s Treasury department uses mainly forward contracts to hedge foreign exchange risk. All derivatives must be entered into with credible counterparties and must be subject to the counterparty credit check in accordance with the Treasury policy.

Interest rate risk Liabilities of BTC sensitive to interest rates amount to BGN 994,907 thousand and the interest payments are based on EURIBOR. As of 31 December, 2010 the Parent company has used no instruments to compensate possible changes in the EURIBOR levels. However, potential hedging transactions are periodically measured based on the possible interest rate levels, as well as in accordance with the market risk policy and if necessary are performed as such.

If the interest rate on borrowings were 2% higher, that would have resulted in an increase of interest expenses for 2010 and 2009 respectively by BGN 20,290 thousand and BGN 22,077 thousand therefore, the consolidated profit after taxation from continuing operations would have been BGN 56,761 thousand for 2010 and BGN 42,740 thousand for 2009. If the interest on long-term borrowings were 2% lower, that would result in lower interest expenses for 2010 and 2009 amounting respectively to BGN 20,290 thousand and BGN 22,077 thousand and therefore, profit from continuing operations after taxation would have been BGN 93,283 thousand for 2010 and BGN 82,478 thousand for 2009.

3.2.Capital risk management

The Group manages its equity in order to perform its activity as a going concern and to balance the return on equity of shareholders by optimizing the debt to equity ratio in medium term. Further comments on Group’s consideration regarding the capital risk management are provided in note 4d) (Going Concern)

The equity structure of BTC consists of long-term borrowings (note 17), cash and cash equivalents (note 5) and equity, including share capital and retained earnings.

Parent company’s management reviews its equity structure on an annual basis. The gearing ratios as of 31 December 2010 and 2009 are as follows:

Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Total borrowings 997,899 1,024,733 997,899 1,024,733 Cash and cash equivalents (154,523) (138,272) (154,163) (137,374) Net debt 843,376 886,461 843,736 887,359

Equity 508,038 393,284 506,385 393,705 Total capital 508,038 393,284 506,385 393,705

Gearing ratio 166% 225% 167% 225%

During the period gearing has decreased as a result of the decision of the Annual General Meeting not to distribute dividends for the year. The management believes that higher gearing will result in more efficient capital structure and higher returns to the shareholders but aims to keep the ratio below 250%.

51 F-250 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

3. Financial risk management(continued)

3.3 Fair value estimation

Effective 1 January 2009, the group adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Ŷ Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Ŷ Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Ŷ Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The measured at fair value financial assets of the Group as of 31 December 2010 are included in level 3 and represent equity investments available for sale at BGN 335 thousand and put option for sale of the shares of BTC in the joint venture at BGN 2,130 thousand.

4. Critical accounting estimates and judgments

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates could differ from the related actual results. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and assumptions that might have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are discussed below: a) Impairment of tangible and intangible assets The group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.6.The ability of a tangible and intangible asset to generate sufficient future economic benefits to recover its carrying amount is usually subject to greater uncertainty. In performing these assessments of recoverable amount a significant number of estimates and judgments is required including but not limited to: – An estimate of future cash flows expected to derive from these assets, – Expectations about possible variations in the amount or timing of those future cash flows, – The designation of the cash generating unit for which future cash flows are derived. The cash generating units identified are Fixed and Mobile business, – The time value of money represented by weighted average cost of capital (WACC). The respective long term WAAC rates used are: 10.3% for Fixed and 10.6% for Mobile for 2010 (11.16% for 2009) , – Perpetual growth rate (PGR). The respective PGR values used are: 0% for Fixed and 1% for Mobile for 2010 (1% for 2009).

As at 31 December 2010 the Group performed impairment testing of its assets and as a result no need for impairment was identified. If estimated cash flows were 10% lower or WACC/PGR were 1% higher/lower there would still be no need for impairment.

These sensitivities are calculated on an individual basis as follows:

Estimate Change (%) Effect on value in use

EBITDA margin absolute decrease (1%) (56,000) WACC absolute increase 0.5% (115,000) PGR absolute decrease (0.5%) (74,000)

52 F-251 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

4. Critical accounting estimates and judgments(continued) b) Useful lives of assets The determination of the useful lives of assets is based on historical experience with similar assets as well as any anticipated technological development and changes in broad economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually, or whenever there is an indication of significant changes in the underlying assumptions. We believe that the accounting estimate related to the determination of the useful lives of assets is a critical accounting estimate since it involves assumptions about technological development in an innovative industry. Further, due to the significant weight of depreciable assets in our total assets, the impact of any changes in these assumptions could be material to our financial position, and results of operations.

Were the actual useful lives of the assets to differ by 10% from management’s estimates, the carrying value of the plant and equipment and respectively depreciation and amortization charge would be an estimated BGN 25,278 thousand higher/lower. c) Provisions and contingent liabilities As set out in Note 29 the Group is a participant in several lawsuits and administrative proceedings. The Group’s treatment of obligations with uncertain timing and amount depends on the management’s estimation of the amount and timing of the obligation and probability of an outflow of resources embodying economic benefits that will be required to settle the obligation (both legal or constructive). A provision is recognized when the Group has a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Contingent liabilities are not recognized because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent liabilities are assessed continually to determine whether an outflow of resource embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the financial statements of the period in which the change in probability occurs. d) Going concern The financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operational existence for the foreseeable future. In 2010 the Group realized a profit of BGN 75,022 thousand (2009 – BGN 62,609 thousand). The Group’s working capital as at 31 December 2010 is negative amounting to BGN (943,199) thousand (negative as at 31 December 2009 – BGN (104,020) thousand). The future viability of the Group depends upon the business environment as well as upon the continuing support of the existing and potential owners and financiers.

Current liabilities as at 31 December 2010 include: - dividend payable to NEF Telecom Bulgaria OOD in the amount of BGN 142,327 thousand.

As disclosed in Note 28 Related parties BTC paid part of it in 2011 and the remaining dividend payable is BGN 54,695 thousand. It will be paid in accordance with the cash needs of NEF Telecom Bulgaria OOD as they arise. These payments will be serviced by cash generated from operations. Should NEF Telecom Bulgaria OOD request immediate payment of the total outstanding dividend, it is possible BTC to pay it, taking into account the level of cash availability and cash flow from operating activities;

-borrowings, amounting to BGN 994 907 thousand.

BTC became a party to a Senior Loan Agreement together with, amongst others, NEF Telecom Bulgaria OOD and its parent company NEF Telecom Company B.V. Along with other securities, there is a pledge over the shares of BTC owned by NEF Telecom Bulgaria OOD.

53 F-252 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

4. Critical accounting estimates and judgments(continued) As disclosed in Note 17 Borrowings BTC classified the outstanding facilities of the syndicated loan as current liabilities at the balance sheet date. Should the lenders require immediate payment of the outstanding borrowings such request cannot be met with cash from operating activities. BTC management does not believe such a request is forthcoming as waivers have been provided by the lenders as disclosed in note 17.

The above waivers enable the continuing discussions between the group of the majority shareholder and the lenders about the aforementioned events and their impact on future financing.

BTC management expects that in the course of 2011 its shareholders will agree with the lenders changes to the loan agreements that will enable the loans to remain with their original maturities.

Although there is uncertainty as to the final outcome, BTC management is of the opinion that most probably there will be no adverse implications for BTC as an enterprise, arising from lenders exercising their rights over the pledged shares of the company. Hence management considers that there is no immediate risk for disruption of the regular operations of the company. Considering the above, in light of the assessment of expected future cash flows, the assurance received by the major shareholder for a successful and consensual outcome from ongoing discussions with the lenders, as well as the continuing support of Senior Lenders as evidenced in the waivers granted, the management is satisfied that it is appropriate for the financial statements to be prepared on a going concern basis. e) Subscriber acquisition costs Costs to acquire telecommunication customers are capitalized and amortized over the minimum enforceable contractual period as these will be recovered from the future revenue generated from the customers. In the event that a customer terminates a service contract prior to the expiration of the minimum enforceable contractual period, any unamortized customer acquisition costs are written off. f) Purchase price accounting The Group assesses the initial accounting for business combinations by identifying and determining the fair value to be assigned to the acquired identifiable assets, liabilities, contingent liabilities, and the cost of the combination. The initial accounting for business combinations is determined provisionally by the end of the period in which the combination is affected. Either the fair valued to be assigned to the acquired liabilities or contingent liabilities or the cost of combination can be determined only provisionally. The Group recognizes any adjustments to those provisional values as a result of concluding the initial accounting within twelve months of the acquisition date. g) provision for impairment of trade receivables A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than thirty days), and historical evidence of collectability are considered indicators that trade receivables are impaired. Certain receivables are assessed and impaired individually if it’s known that it will not be collected in full. All other receivables are impaired on a group basis according to their aging structure and taking into consideration historical data on collectability.

54 F-253 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

5. Cash and cash equivalents

As at 31 December 2010 and 31 December 2009 the components of the cash and cash equivalents are:

Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Current accounts and cash in hand Held in BGN 2,324 3,331 2,265 2,941 Held in EUR 848 1,957 848 1,957 Held in foreign currencies other than EUR 133 170 132 162 Total current accounts and cash in hand 3,305 5,458 3,245 5,060

Term deposits Held in BGN 148,903 121,078 148,603 120,578 Held in EUR 2,191 - 2,191 - Total term deposits 151,094 121,078 150,794 120,578

Restricted cash 124 11,736 124 11,736

Total cash and cash equivalents 154,523 138,272 154,163 137,374

As disclosed in note 17 on 14 November 2007 BTC signed agreements to secure payments related to Company’s liabilities under the new agreement loan by establishing a pledge on the receivables on bank accounts and from its insurers of the Group.

The availability of cash in current accounts and short term deposits is allocated in banks with long term credit ratings from S&P as follows:

Consolidated financial Separate financial Rating statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009 AA 2,212 308 2,212 308 AA- - 11,736 - 11,736 A+ 1,604 1,672 1,592 1,401 BBB+ 1,182 51,229 1,182 51,229 BBB 269 48,676 268 48,050 BB 135,710 - 135,364 - BBB- 11,990 23,173 11,990 23,173 BB- 15 7 15 7 Not rated banks 4 2 4 2 Total cash at current accounts and 152,986 136,803 152,627 135,906 term deposits

The exposure to banks with lower credit rating as of 31 December 2010 has increased, compared to 31 December 2009. This is mainly due to the negative development of the long term credit ratings granted by S&P to banks operating in Bulgaria.

55 F-254 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

6. Trade receivables

As at 31 December 2010 and 31 December 2009 trade receivables include:

Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Trade receivables 178,757 136,002 177,993 135,204 incl. international settlement receivables 19,357 20,699 19,357 20,696 Intercompany receivables 11,382 - 12,041 1,350 Other receivables 2,597 1,903 2,595 1,903 Total 192,736 137,905 192,629 138,457 Provision for impairment of receivables (78,744) (62,236) (78,609) (62,112) Total Trade receivables 113,992 75,669 114,020 76,345 Incl: Non-current portion: trade receivables 18,386 772 18,386 772 Provision for impairment of receivables (373) (6) (373) (6) Total non-current portion: trade receivables 18,013 766 18,013 766

Current portion trade receivables 174,350 137,133 174,243 137,685 Provision for impairment of receivables (78,371) (62,230) (78,236) (62,106) Total current portion: trade receivables 95,979 74,903 96,007 75,579

All non-current receivables are due within two years from the end of the reporting period. Part of the amount relates to the sale of the discontinued operation and the rest – to sales of mobile phone sets on finance lease agreements with customers. The net investment in finance leases for the Group and BTC may be analyzed as follows:

Gross receivables from Net investment in finance finance leases leases 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Finance leases receivables with maturity: Within one year 15,727 1,318 14,572 1,205 In the second to fifth years inclusive 7,713 807 7,469 772 Total receivables 23,440 2,125 22,041 1,977 Less: unearned finance income (1,399) (148) - - Provision for impairment of receivables (1,102) (16) (1,102) (16) Net investment in finance leases 20,939 1,961 20,939 1,961

Movement of the provision for impairment of accounts receivables in 2010 and 2009 is as follows:

Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Balance at the beginning of the period 62,236 51,659 62,111 40,472 Discontinued operations balance 540 - 540 - Subsidiary acquired/merged - 8 - 11,059 Accrued impairment 21,480 16,612 21,428 16,569 Impairment of receivables written off (5,512) (6,043) (5,470) (5,989) Balance at the end of the period 78,744 62,236 78,609 62,111

56 F-255 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

6. Trade receivables (continued)

Presented by class of customer the figures above are as follows:

Business customers Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Balance at the beginning of the period 22,168 17,233 22,043 14,209 Discontinued operations balance 540 - 540 - Subsidiary acquired/merged - 8 - 2,897 Accrued impairment 9,972 7,597 9,920 7,554 Impairment of receivables written off (1,932) (2,670) (1,890) (2,617) Balance at the end of the period 30,748 22,168 30,613 22,043

Residential customers Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Balance at the beginning of the period 40,068 34,426 40,068 26,263 Subsidiary acquired/merged - - - 8,162 Accrued impairment 11,508 9,015 11,508 9,015 Impairment of receivables written off (3,580) (3,373) (3,580) (3,372) Balance at the end of the period 47,996 40,068 47,996 40,068

Expenses for receivables written off are recognised in Other operating expenses of the profit or loss for the period. For 2010 they amount to BGN 145 thousand for the consolidated and individual financial statements.(2009: BGN 260 thousand)

Related parties balances are shown in note 28. As of 31 December, 2010 and 31 December, 2009 receivables of the Group and the Company at the amount of BGN 11,934 and 9,935 thousand were assessed individually and the impairment amounts to 10,757 and 6,703 thousand.

As of 31 December, 2010 and 31 December, 2009 the age structure of overdue receivables not impaired is as follows: Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009 From 60 to 90 days 4,483 2,912 4,483 3,046 From 91 to 180 days 1,591 891 1,591 1,053 From 181 to 360 days 1,039 981 1,039 961 Above 1 year 636 139 636 582 Total 7,749 4,923 7,749 5,642

57 F-256 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

6. Trade receivables (continued)

As of the balance sheet date the accounts with major (the five biggest) counterparties in the trade receivables for the Group and the Company are as follows:

Type Carrying amount of the receivable as of 31.12.2010 31.12.2009 Outside the country 6,839 2,561 In the country 3,692 6,154 In the country 1,489 2,684 In the country 1,393 1,562 In the country 1,387 985

The carrying amounts of the Group’s trade receivables are denominated in the following currencies:

31.12.2010 31.12.2009 BGN 99,026 70,558 EUR 11,563 5,059 SDR 3,403 52 Total 113,992 75,669

7. Inventories

The materials and supplies as of 31 December, 2010 and 31 December, 2009 are as follows:

Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Materials and supplies, net 9,038 12,293 9,038 12,293 Merchandise and other, net 25,592 11,378 25,592 11,378 Total materials and supplies 34,630 23,671 34,630 23,671

Impairment charges related to the inventory items for the reporting period were BGN 3,966 for the group and the company which were recognized as other operating expenses.

58 F-257 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

8. Discontinued operations

On 20 August 2010 the final agreement for the sale of 50% of the National Unit “Radio and Television Stations” (NURTS), an internal division of VIVACOM for the broadcasting of radio and television signal over the territory of the Republic of Bulgaria, to the international financial investor Mancelord Limited through its subsidiary NURTS Bulgaria EAD was registered in the Commercial Register. Mancelord Limited was selected following an international tender procedure with the participation of several strategic and financial investors. The deal was concluded after obtaining the necessary regulatory approvals from the respective governmental bodies (including Communications Regulation Commission and Commission for Protection of Competition). As at 31 December 2009 NURTS was classified as a disposal group held for sale and as a discontinued operation.

The results of NURTS are presented below:

Consolidated and separate financial statements Period ended 20.08.2010 Year ended 31.12.2009 Revenue 29,536 48,465 Other operating expenses (7,032) (7,708) Materials and consumables expenses (7,267) (12,842) Staff costs (4,044) (8,493) Other gains, net 30,879 - Profit before tax from a discontinued operation 42,072 19,422 Income tax expenses (1,344) (1,948) Profit for the year from discontinued operation 40,728 17,474

The amount in ‘Other gains,net’ above represents the result of the sale of the discontinued operation.

The net cash flows incurred by NURTS are as follows:

Consolidated and separate financial statements Period ended 20.08.2010 Year ended 31.12.2009 Operating activities 10,261 5,115 Investing activities 95,866 - Net cash flow 106,127 5,115

9. Assets classified as held for sale

Note Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Real estates, held for sale 9.1 6,648 29,204 6,648 29,204 Assets related to NU RTS operations 9.2 - 94,801 - 94,801 Total assets held for sale 6,648 124,005 6,648 124,005 Liabilities associated with assets held for sale - 4,250 - 4,250

59 F-258 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

9. Assets classified as held for sale(continued)

9.1 Real estates, held for sale

As of 31 December 2010 BTC has signed several preliminary agreements for the sale of real estates reported in the balance sheet by their net asset value, excluding a few properties stated on the lower than their carrying value contracted price.

9.2 NURTS operations

The major classes of assets and liabilities comprising the operations classified as held for sale at the date of the transaction and as of 31 December 2009 are as follows: Consolidated and separate financial statements 20.08.2010 31.12.2009 Assets Property, plant, equipment 76,581 76,026 Intangible assets 246 667 Trade and other receivables 15,512 14,594 Inventories 3,700 3,514 Other current assets 34 - Assets classified as held for sale 96,073 94,801 Liabilities Trade payables 1,146 797 Other Payables 1,020 1,497 Deferred tax liabilities, net 1,180 1,956 Liabilities associated with assets held for sale 3,346 4,250 Net assets associated with assets held for sale 92,727 90,551

Revaluation reserves 21,129 21,129 Deferred tax on revaluation reserves (2,113) (2,113) Reserve of disposal group classified as held for sale 19,016 19,016

10. Other current assets Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Prepayments 21,111 20,888 21,110 20,886 VAT recoverable and other 7,699 3,622 7,694 3,568 Total other current assets 28,810 24,510 28,804 24,454

Subscriber acquisition cost, representing mainly fees paid to distributors, are included in other assets above, which for the Group and the Company are BGN 5,437 thousand as of 31 December 2010. For 2009 they amount to BGN 3,568.

60 F-259 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

11. Property, plant and equipment

The composition of property, plant and equipment for the Group as of 31 December 2010 and 31 December 2009 is as follows:

Switching Transmission General Construction Total support in progress Gross Book Value At 31 December 2008 1,215,299 907,187 315,094 87,224 2,524,804 Revaluation - - (7,055) - (7,055) Additions 358 - 372 92,805 93,535 Transfers 95,653 8,619 25,346 (129,618) - Subsidiary acquisition - - 4,018 - 4,018 Impairment - - - (956) (956) Assets held for sale 47,786 - (47,569) (403) (186) Disposals (60,796) (18,895) (19,871) (2,180) (101,742) At 31 December 2009 1,298,300 896,911 270,335 46,872 2,512,418 Revaluation - - (1,084) - (1,084) Additions 6,878 - 2,447 120,702 130,027 Transfers 95,091 12,200 20,281 (127,572) - Reclassification (442) 2 88 - (352) Impairment - - - (356) (356) Assets held for sale 427 1 14,283 403 15,114 Disposals (52,336) (12,532) (24,033) (228) (89,129) At 31 December 2010 1,347,918 896,582 282,317 39,821 2,566,638

Accumulated depreciation At 31 December 2008 552,323 567,342 136,064 - 1,255,729 Depreciation charged 120,246 22,226 29,968 - 172,440 Impairment - - (23) - (23) Assets held for sale 32,719 - (9,983) - 22,736 Disposals (50,563) (17,778) (17,439) - (85,780) At 31 December 2009 654,725 571,790 138,587 - 1,365,102 Depreciation charged 124,440 23,699 28,509 - 176,648 Reclassification (91) - 18 - (73) Impairment 872 - 640 - 1,512 Assets held for sale 290 - 4,371 - 4,661 Disposals (38,847) (11,975) (19,484) - (70,306) At 31 December 2010 741,389 583,514 152,641 - 1,477,544

Net book value At 31 December 2009 643,575 325,121 131,748 46,872 1,147,316 At 31 December 2010 606,529 313,068 129,676 39,821 1,089,094

61 F-260 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

11. Property, plant and equipment (continued)

The composition of property, plant and equipment on BTC stand alone basis as of 31 December 2010 and 31 December 2009 is as follows:

Switching Transmission General Construction Total support in progress Gross Book Value At 31 December 2008 907,412 907,187 282,424 33,716 2,130,739 Revaluation - - (7,055) - (7,055) Additions 358 - 372 92,788 93,518 Transfers 95,653 8,619 25,329 (129,601) - Company merger 307,740 - 36,743 53,508 397,991 Impairment - - - (956) (956) Assets held for sale 47,786 - (47,569) (403) (186) Disposals (60,796) (18,895) (19,492) (2,180) (101,363) At 31 December 2009 1,298,153 896,911 270,752 46,872 2,512,688 Revaluation - - (1,084) - (1,084) Additions 6,878 - 2,447 120,702 130,027 Transfers 95,091 12,200 20,281 (127,572) - Reclassification (442) 2 88 - (352) Impairment - - - (356) (356) Assets held for sale 427 1 14,283 403 15,114 Disposals (52,336) (12,532) (23,967) (228) (89,063) At 31 December 2010 1,347,771 896,582 282,800 39,821 2,566,974

Accumulated depreciation At 31 December 2008 473,428 567,342 127,265 - 1,168,035 Depreciation charge 118,616 22,226 29,468 - 170,310 Company merger 80,387 - 9,715 - 90,102 Assets held for sale 32,719 - (9,983) - 22,736 Impairment - - (23) - (23) Disposals (50,563) (17,778) (17,433) - (85,774) At 31 December 2009 654,587 571,790 139,009 - 1,365,386 Depreciation charge 124,433 23,699 28,504 - 176,636 Reclassification (91) - 18 - (73) Impairment 872 - 640 - 1,512 Assets held for sale 290 - 4,371 - 4,661 Disposals (38,846) (11,975) (19,418) - (70,239) At 31 December 2010 741,245 583,514 153,124 - 1,477,883

Net book value At 31 December 2009 643,566 325,121 131,743 46,872 1,147,302 At 31 December 2010 606,526 313,068 129,676 39,821 1,089,091

62 F-261 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

11. Property, plant and equipment (continued)

The major part of the disposals above comprises swap of mobile equipment and decommissioning of digital exchanges as result of network modernisation.

As disclosed in note 17 on November 14, 2007 BTC signed agreements to secure payments related to Parent company’s liabilities under the new loan agreement by establishing a pledge on real estate property, which net book value as of 31 December, 2010 amounted to BGN 20,420 thousand, and as of 31 December 2009 their net book value was BGN 6,969 thousand.

On the base of § 8 Para 1 of Transitional and concluding provisions to the Law for amendment and supplement of the law for privatization and post-privatization control the Agency for Privatization and Post-privatization Control imposed statutory mortgage on 688 properties of BTC with a net book value as of 31 December 2010 amounted to BGN 24,851 thousand.

12. Intangible assets

As of 31 December, 2010 and 31 December, 2009 intangible assets of the Group are as follows

Licenses Software Other Intangible Total intangible assets under assets construction Gross book value At 31 December 2008 123,066 448,456 - 6,007 577,529 Additions(Transfers) 118 55,246 - 8,972 64,336 Subsidiary acquisition 49 1,301 14,711 - 16,061 Assets held for sale - 79 - - 79 Disposals (247) (30,493) - - (30,740) At 31 December 2009 122,986 474,589 14,711 14,979 627,265 Additions(Transfers) 203 55,200 - (9,579) 45,824 Reclassification - 351 - - 351 Assets held for sale 448 9 - - 457 Disposals (4,593) (20,462) - (13) (25,068) At 31 December 2010 119,044 509,687 14,711 5,387 648,829 Accumulated amortization At 31 December 2008 19,749 188,597 - - 208,346 Amortization charge 10,818 72,971 991 - 84,780 Assets held for sale - 64 - - 64 Disposals (92) (30,488) - - (30,580) At 31 December 2009 30,475 231,144 991 - 262,610 Amortization charge 7,224 67,408 1,497 - 76,129 Reclassification - 73 - - 73 Assets held for sale 135 6 - - 141 Disposals (4,132) (16,105) - - (20,237) At 31 December 2010 33,702 282,526 2,488 - 318,716

Net book value At 31 December 2009 92,511 243,445 13,720 14,979 364,655 At 31 December 2010 85,342 227,161 12,223 5,387 330,113

63 F-262 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

12. Intangible assets (continued)

As of 31 December, 2010 and 31 December, 2009 intangible assets on BTC stand alone bases are as follows:

Licenses Software Other Intangible assets Total intangible under construction assets Gross book value At 31 December 2008 18,736 280,857 - 3,222 302,815 Additions(Transfers) 118 55,240 - 8,967 64,325 Company merger 104,319 168,651 14,711 2,790 290,471 Assets held for sale - 79 - - 79 Disposals (247) (30,493) - - (30,740) At 31 December 2009 122,926 474,334 14,711 14,979 626,950 Additions(Transfers) 203 55,200 - (9,579) 45,824 Reclassification - 351 - - 351 Assets held for sale 448 9 - - 457 Disposals (4,588) (20,435) - (13) (25,036) At 31 December 2010 118,989 509,459 14,711 5,387 648,546

Accumulated amortization At 31 December 2008 923 137,679 - - 138,602 Amortization charge 10,585 71,878 378 - 82,841 Company merger 19,010 51,762 613 - 71,385 Assets held for sale - 64 - - 64 Disposals (92) (30,488) - - (30,580) At 31 December 2009 30,426 230,895 991 - 262,312 Amortization charge 7,223 67,402 1,497 - 76,122 Reclassification - 73 - - 73 Assets held for sale 135 6 - - 141 Disposals (4,127) (16,078) - - (20,205) At 31 December 2010 33,657 282,298 2,488 - 318,443

Net book value 31 December 2009 92,500 243,439 13,720 14,979 364,638

31 December 2010 85,332 227,161 12,223 5,387 330,103

The majority of other intangible assets represents the acquired distribution network in the business combination with Kimimpex – TL OOD. Its net book value as of 31 December 2010 is BGN 12,220 thousand.

64 F-263 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

13. Investments

Investments available for sale on the Group level as of 31 December 2010 and 31 December 2009 are as follows:

Entity 31.12.2010 31.12.2009

NURTS Bulgaria Plc. 57,758 - Intersputnik 178 178 Satbird 143 143 Sofia Commodity Exchange 14 14 Total investment 58,093 335

As disclosed in note 1 on 20 August 2010 BTC acquired 50 % of the shares of NURTS Bulgaria Plc . The Group’s share of the assets and liabilities as at 31 December 2010 and income and expenses of the jointly controlled entity for the year ended 31 December 2010, which is presented in the consolidated financial statements using the equity method, are as follows:

31.12.2010 31.12.2009 Share of the joint venture’s statement of financial position Current assets. 7,983 - Non-current assets 57,828 - Current liabilities 3,547 - Non-current liabilities 9,013

Share of the joint venture’s revenue and profit: Income 9,225 - Expenses 7,209 - Profit 2,017 -

In the separate financial statements the investments in subsidiaries and jointly controlled entities are measured at cost, less any impairment.

31.12.2010 Share 31.12.2009 Description Subsidiaries BTC Net 799 100% 799 Internet provider Total investments in subsidiaries 799 799 Joint ventures NURTS Bulgaria Plc. 55,741 50% - Radio and TV broadcasting Total investments in JV 55,741 -

Other investments 335 335 Total investments 56,875 1,134

65 F-264 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

14. Trade payables

The payables to suppliers as of 31 December 2010 and 31 December 2009 are as follows:

Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Payables to suppliers of non current assets 36,279 40,298 36,279 40,298 Payables to international accounts 8,232 2,395 8,232 2,395 Payables to telecom operators 5,181 11,793 5,181 11,793 Payables to suppliers of network maintenance 3,245 2,171 3,245 2,171 Payables to related parties (Note 28) 458 10,290 458 10,312 Others 24,570 29,376 24,569 29,374 Total trade payables 77,965 96,323 77,964 96,343

Other payables include outstanding balances of suppliers of fuel, utilities, advertising, inventories, and other.

15. Other payables

Other payables as of 31 December 2010 and 31 December 2009 are as follows:

Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Deferred income 17,282 9,749 17,282 9,749 Payables to employees 11,603 13,926 11,603 13,925 Social securities 1,782 3,067 1,782 3,067 Advances from clients 1,320 6,122 1,320 6,122 Personal income tax payable 787 1,254 787 1,254 Payables for license fee 324 363 324 363 Interest payable 266 189 266 189 Withholding and other taxes 257 248 257 248 Cable project MECMA 163 1,383 163 1,383 VAT - 3,991 - 3,991 Others 3,791 8,131 3,791 8,131 Total other payables 37,575 48,423 37,575 48,422

The liabilities under Cable projects MECMA amounting to BGN 163 and 1,383 thousand originated as a result of BTC’s role as a Central Billing Party in the MECMA 2004 Agreement for maintenance of submarine cables in the Mediterranean Sea, Red Sea and Black Sea area.

66 F-265 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

16. Provisions for other liabilities and charges

Consolidated and individual financial statements Legal Decommissioning Restructuring Total claims At 1 January 2010 5,774 3,117 2,980 11,871 Charged to the comprehensive (111) 2,216 2,105 income Included in the balance sheet 182 182 Used during the year - (1,429) (3,201) (4,630) Discount rate adjustment 286 - - 286 At 31 December 2010 6,242 1,577 1,995 9,814

Analysis of provision in consolidated financial statements 31.12.2010 31.12.2009 Non-current (decommissioning costs) 6,242 5,774 Current 3,572 6,097 Total 9,814 11,871

Decommissioning A provision has been recognised for decommissioning costs associated with mobile sites.. The provision has been capitalized to the cost of the sites with the amount of the present value of the decommissioning obligation after ceasing operation. The respective discount rate used for 2010 and 2009 is 4.85%.

Restructuring The Provision for employment termination is related to the decision for restructuring the activities of the Group in 2011 and is recognised as staff cost in the profit or loss for the period.

Legal claims The amounts represent a provision for labour disputes, legal claim of customers and certain penalties imposed on the Group by the Commission for Protection of Competition (CPC) and Communications Regulation Commission (CRC).

17. Borrowings

The long-term debts in the consolidated and separate financial statements are as follows:

31.12.2010 31.12.2009 New Syndicated credit facility 994,907 1,020,254 Financial lease 1,567 3,054 Trade credits 1,425 1,425 Short-term portion (996,754) (47,225) Total borrowings 1,145 977,508

On August 21, 2007 BTC refinanced its debt under the existing syndicated credit facility amounting to EUR 350 million. On August 17, 2007 BTC became a party to a new loan agreement organized by Royal Bank of Scotland, Deutsche Bank AG, London branch, UBS Limited and Bank Austria Creditanstalt AG with a mandate to organize syndicated financing. Under the new loan agreement BTC has two term facilities and revolving facility. The first term loan which matures after 8 years can be used to pay existing financial liabilities. The second term loan which matures in 7 years can be used to finance capital expenses of BTC and its subsidiaries. The third facility is on a revolving basis and it can be utilized for working capital, as well as for other needs of the companies in the Group.

67 F-266 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

17. Borrowings (continued)

Interest rate accrued for each interest period is calculated based on the respective value of EURIBOR plus margin. The margin is calculated depending on the ratio of the consolidated total net debt to the consolidated pro forma profit before interest, taxes and amortization. As of October 31, 2007 the loan margins of BTC were changed and varied between 2,25% and 2,75% for the first facility and between 1,5% and 2,25% for the second and the revolving facility. On November 14, 2007 BTC signed agreement to secure the payments of Company’s liabilities under the new loan agreement. The agreement established a special pledge of BTC, including the shares held in the subsidiaries, real estate property with net book value as of 31 December, 2010 at the amount of BGN 20,420 thousand, and a pledge on the receivables from the Company’s bank accounts, and from its insurers.

Along with other securities, there is a pledge over the shares of BTC owned by NEF Telecom Bulgaria OOD.

The loan agreement includes provisions for certain financial covenants calculated based on the consolidated financial statements of NEF Telecom Company B.V. According to the information received from the parent company there has been a breach of the leverage ratio covenant since the second quarter of 2010. Any breaching of the requirements of the financial covenants if not remedied or waived, constitutes an Event of Default. Such a waiver has been provided by the lenders and is in place as of the balance sheet date, and subsequently reissued in April 2011. The current waiver expires on 15 July 2011.

On 6 January 2010 a garnishment (freezing order) was imposed over 10,230,187 common registered book entry shares from the share capital of BTC held by NEF Telecom Bulgaria OOD representing 3.54% of total BTC shares in relation to an arbitration claim launched by the Bulgarian Privatization and Post- Privatization Control Agency (PPCA) against the former owners of BTC (as primary respondents) and NEF Telecom Bulgaria OOD (as secondary respondent). NEF Telecom Bulgaria OOD continues to dispute the merits of the arbitration claim to which the freezing order relates. During the period of June – August 2010, the PPCA imposed statutory mortgages on some of the properties of BTC as disclosed in Note 11 of the present financial statements.

The above dispute represents a technical Event of Default and the lenders have provided a waiver in 2010 and reissued it on 20 April 2011. The current waiver expires on 15 July 2011.

Taking into account the validity of the waivers above BTC classified the outstanding facilities of the syndicated loan as current liabilities at the balance sheet date in accordance with IAS 1.

On 7 January 2010 and 15 April 2010 BTC has repaid respectively EUR 3,779 and EUR 2,808 thousand from the second term loan. On 28 May 2010 BTC has repaid EUR 6,373 thousand from the first term loan.

As of 31 December 2010 the outstanding facilities of the syndicated loan, denominated in EUR fall due according to the initially agreed terms as follows:

EUR thousand Interest Up to 1 From 1 to 5 Over 5 years Total rate year years Tranche B 3.553% - 752,019 - 752,019 Tranche E 3.053% - 197,227 - 197,227 Revolving facility 3.053% - 45,661 - 45,661 Total loan amount - 994,907 - 994,907

Obligations under Finance lease Certain part of BTC’s software is leased under the terms of finance lease. The average lease term is 3 years and the average effective borrowing rate is 3.88%. The fair value of Group’s and Company’s lease obligations approximates their carrying amount. 68 F-267 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

17. Borrowings (continued)

Present value of Minimum lease payments minimum lease payments 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Finance lease payables with maturity: Within one year 1,566 1,642 1,506 1,565 In the second to fifth years inclusive 63 1,547 61 1,489 Total payables 1,629 3,189 1,567 3,054 Less: future finance charges (62) (135) - - Present value of lease obligations 1,567 3,054 1,567 3,054

18. Deferred tax assets and liabilities As of 31 December, 2010 and 2009 the deferred tax, are as it follows:

For the Group:

Deferred tax assets Tax loss Allowance Property, Expense Total carried for plant and accruals forward impairment equipment of receivables

At 1 January 2009 5 13 (4) 1 15 Charged/(credited) to the profit/(loss) for the year 27 - 3 (1) 29 At 31 December 2009 32 13 (1) - 44 Charged/(credited) to the profit/(loss) for the year 33 2 1 (1) 35 At 31 December 2010 65 15 - (1) 79

Deferred tax liabilities Retirement Allowance Property, Expense Total benefit for plant and accruals obligations impairment equipment of receivables

At 1 January 2009 (373) (5,164) 41,320 (3,750) 32,033 Charged/(credited) to the profit/(loss) for the year 218 (1,044) (1,381) 961 (1,246) Charged to other comprehensive income for the year - - (703) - (703) Subsidiary acquisition (2) (3) 1,603 (199) 1,399 Discontinued operations - - 3,501 - 3,501 At 31 December 2009 (157) (6,211) 44,340 (2,988) 34,984 Charged/(credited) to the profit/(loss) for the year (1) (790) (432) 254 (969) Charged to other comprehensive income for the year - - (108) (2) (110) Discontinued operations - (859) - (48) (907) At 31 December 2010 (158) (7,860) 43,800 (2,784) 32,998

69 F-268 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

18. Deferred tax assets and liabilities (continued)

Deferred tax charge(credit) to the profit/(loss) for the year 2010 2009

Deferred tax liabilities (969) (1,246) Deferred tax assets (35) (29) Total charged to the profit/(loss) for the year (1,004) (1,275)

Deferred tax charge(credit) for discontinued operations (2,863) 5 Deferred tax charge for continuing operations (1,004) (1,276) Total charged to the profit/(loss) for the year (3,867) (1,271)

For BTC:

Deferred tax liabilities Retirement Allowance Property, Expense Total benefit for plant and accruals obligations impairment equipment of receivables

At 1 January 2009 (360) (4,051) 53,547 (3,217) 45,919 Charged/(credited) to the profit/(loss) for the year 218 (1,039) (1,062) 780 (1,103) Charged to other comprehensive income for the year - - (703) - (703) Company merger (15) (1,121) (10,943) (551) (12,630) Discontinued operations 3,501 3,501 At 31 December 2009 (157) (6,211) 44,340 (2,988) 34,984 Charged/(credited) to the profit/(loss) for the year (1) (791) (431) 254 (969) Charged to other comprehensive income for the year - - (108) (2) (110) Discontinued operations - (859) - (48) (907) At 31 December 2010 (158) (7,861) 43,801 (2,784) 32,998

Deferred tax charge(credit) to the profit/(loss) for the year 2010 2009

Deferred tax liabilities (969) (1,103) Total charged to the profit/(loss) for the year (969) (1,103)

Deferred tax charge(credit) for discontinued operations (2,863) 5 Deferred tax charge for continuing operations (969) (1,104) Total charged to the profit/(loss) for the year (3,832) (1,099)

Deferred tax assets and liabilities for different taxable entities are not offset as they can not be settled on a net basis and it is not expected that the assets will be realised and the liabilities will be settled simultaneously in the future.

Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The deferred tax assets and liabilities as of 31 December 2010 and 2009 are calculated in these financial statements at 10% tax rate which is effective as of 1 January 2007. The Group tax losses are available for 5 years to be offset against future taxable profits. The last period audited by the tax authorities for BTC is 2006. 70 F-269 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

19. Retirement benefit obligations In compliance with the Labour Code, the Parent company owes compensation at retirement to all the employees. The compensations of the employees with a 10 years experience in the Company is 6 gross monthly salaries; for the employees having under 10 years experience the compensation is 2 gross monthly salaries.

Currently no assets have been allocated for covering the long-term staff revenue in a separate fund and there are no legal requirements for the establishment of such.

The present consolidated and separate financial statements include a provision for employee benefits obligation which is measured applying the projected unit credit method.

The movement of the liability, recognized in the balance sheet, is as follows:

Consolidated financial Separate financial statements statements 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Liability at the beginning of the period 1,570 3,722 1,570 3,596 Past service cost (75) (2,802) (75) (2,802) Current service cost 532 489 532 489 Interest cost 79 223 79 223 Total cost recognized in the comprehensive 536 (2,090) 536 (2,090) income Payments to retirees (189) (86) (189) (86) Companies merger/acquisition - 24 - 150 Liability at the end of the period 1,917 1,570 1,917 1,570

The following principal assumptions have been used in the estimation of the liability:

31.12.2010 31.12.2009

Discount rate at 31 December 6.5% 7.0% Future salary increases per year From 4% to 6% From 4% to 6% Average age of retirement – male employees 63 63 Average age of retirement – female employees 60 60

The Management has used in the estimation of the liability for retirement benefit obligations the assumption that voluntary leave of personnel, without any compensation, will be negligible.

Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics. Mortality assumptions are based on the statistical information, provided by the National Statistical Institute for the total mortality of the population in Bulgaria for the period 2005 – 2007.

20. Share capital and dividends 31.12.2010 31.12.2009 Number of shares 288,764,840 288,764,840 Par value per share (in BGN) 1 1

Share capital per BTC’s registration 288,765 288,765 Share capital 288,765 288,765

71 F-270 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

20. Share capital and dividends (continued)

Structure of the share capital: 31.12.2010 % Number of ordinary shares: NEF Telecom Bulgaria OOD 271,423,451 94% Other shareholders 17,341,388 6% Total ordinary shares 288,764,839 100%

Number of preference shares: The Republic of Bulgaria 1 100% Total number of shares 288,764,840 100%

On 10 November 2004 BTC was registered as a public company. As part of the governmental project to privatize the remaining state-owned 35% of share capital of BTC, the Bulgarian government subsequently floated its nearly 35% stake on 27 January 2005 through a public offering on the Bulgarian Stock Exchange and since then the shares are freely traded on it.

As of 31 December 2010, the share capital of BTC comprises 288,764,839 ordinary registered shares and a single preference share, held by the Government through the Ministry of Transport and Communications. The nominal share value is BGN 1. This preference share gives to the owner specific rights being mainly right to appoint one member of the supervisory board and the managing board and veto right in disposal of strategic telecommunication equipment. Earnings per share Consolidated financial Separate financial statements statements Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Profit for distribution from continuing operations 75,022 62,609 72,948 68,994 Profit for distribution from discontinuing operations 40,728 17,474 40,728 17,474 Total profit for distribution 115,750 80,083 113,676 86,468

Weighted average number of ordinary shares 288,765 288,765 288,765 288,765 Earnings per share (BGN) 0.40 0.28 0.39 0.30

Earnings per share have been calculated using the weighted average number of ordinary shares increased after the share split made in 2005 (when the nominal value of the shares was changed from BGN 35 to BGN 1). Dividends payable

The Annual General Meeting of Shareholders, held on July 12, 2010 voted not to distribute out dividends for the year. 31.12.2010 31.12.2009 Dividend approved by the General shareholders’ meeting - 360,956 Non-distributed dividends for prior years 283,548 49,048 Tax on dividend - (1,073) Net dividends paid (140,820) (125,383) Total dividend payable 142,728 283,548

As shown in Note 28, dividends payable outstanding as at 31 December 2010 includes the amount of BGN 142,627 thousand – dividends to NEF Telecom Bulgaria OOD.

72 F-271 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

21. Revenue Revenue of the Group and the Company for the years ended 31 December, 2010 and 2009 consist of: Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Recurring charges 338,693 338,072 338,800 336,519 Outgoing traffic 195,429 234,726 194,937 231,461 Leased lines and data transmission 148,911 164,876 148,954 165,703 Interconnect 131,552 144,592 131,879 143,980 Other revenue 81,802 49,012 81,813 47,859 Total revenue 896,387 931,278 896,383 925,522

Revenues form sale of mobile handsets are included in Other revenue above, which for 2010 amount to BGN 39,862 thousand for the Group and the Company (2009: BGN 15,767 thousand) 22. Other operating expenses Other operating expenses for the years ended 31 December, 2010 and 2009 consist of:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009 Maintenance and repairs 77,855 43,495 77,852 42,635 Advertising, customer service, billing and collection 41,308 47,385 41,320 49,674 Facilities 31,156 24,823 31,155 23,264 Professional fees 26,673 43,981 26,673 43,939 License fees 13,153 12,430 13,148 12,173 Administrative expenses 8,840 10,200 8,854 9,912 Cost of value added services (VAS) 7,149 6,720 7,149 6,603 Vehicles and transport 5,795 12,477 5,795 12,365 Leased lines and data transmission 5,371 6,081 5,371 6,078 Other 36,626 48,597 36,572 48,128 Total other operating expenses 253,926 256,189 253,889 254,771

Since June 2004, Professional fees include services in accordance with signed management and technical service agreements with related parties (Sycamore EOOD and Advent BTC UK Limited, replaced respectively in its rights and obligations under the management services contract and the contract for technical and professional services by “NEF Telecom Bulgaria” OOD, by virtue of the agreements, signed on 14 August 2007). Services provided include among others: commercial, technical and operative advice, analysis, selection and project management services, progressing modernization of the network and improving its quality, procuring material, equipment, software and supplies, related training, etc. The agreements are terminated as of 31 July 2010.

Services for the independent audit of the financial statements for 2010 are included in Professional fees, which amount to BGN 327 thousand for the Group, and the Company(2009: BGN 366 thousand).

Other expenses comprise the charged provisions for impairment of assets and the net book value of the scrapped inventories and fixed assets.

73 F-272 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

23. Staff costs

Staff costs for the years ended 31 December 2010 and 2009 consist of:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Salaries and wages 58,290 83,145 58,286 80,508 Pension, health and unemployment fund contributions 10,022 16,269 10,022 15,936 Other benefits 2,723 5,388 2,723 5,382 Other staff costs 1,452 1,728 1,452 1,687 Total staff costs 72,487 106,530 72,483 103,513

As stated in note 19 the amounts of post employment termination benefits included/(reversed) in salaries and wages above for the consolidated and separate financial statements are respectively for 2010 BGN 536 thousand( 2009: BGN (2,090) thousand).

24. Financial expense, net

Financial expenses net for the years ended 31 December 2010 and 2009 consist of:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Interest expenses 33,173 37,847 33,173 37,767 Interest income (7,218) (3,262) (7,110) (3,288) Foreign exchange gains, net (110) (110) (109) (110) Other income, net (2,067) (1) (2,069) (15) Total financial expenses, net 23,778 34,474 23,885 34,354

BGN 2,130 thousand, representing fair value of a Put option for the sale of the shares of BTC in NURTS Bulgaria is included in Other income, net above for 2010.

25. Other gains, net

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Gains from sales of non-current assets 37,429 41,407 37,429 41,431 Loss from sales of materials (58) (335) (58) (329) Total other gains, net 37,371 41,072 37,371 41,102

74 F-273 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

25. Other gains, net (continued)

In the Consolidated financial statements the income from sales of PPE and assets held for sale for 2010 was BGN 50,983 thousand and their net book value was BGN 13,554 thousand. For 2009 these figures are respectively BGN 56,486 thousand and BGN 15,079 thousand. The income from sales of materials in 2010 was BGN 96 thousand and cost of sales was BGN 154 thousand. For 2009 these figures were BGN 1,552 thousand and BGN 1,887 thousand respectively.

In the Separate financial statements the income from sales of PPE and assets held for sale for 2010 was BGN 50,983 thousand and their net book value was BGN 13,554 thousand. For 2009 these figures are BGN 56,470 thousand and BGN 15,039 thousand respectively. The income from sales of materials in 2010 was BGN 96 thousand and cost of sales was BGN 154 thousand. For 2009 these figures were BGN 1,551 thousand and BGN 1,880 thousand respectively.

26. Tax expense

Income tax expenses for the years ended 31 December 2010 and 2009 are as follows: Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Current income tax charge 12,470 9,083 12,470 9,075 Deferred tax credit to comprehensive income (1,004) (1,276) (969) (1,104) Total tax expense 11,466 7,807 11,501 7,971

Total tax expense can be reconciled to the accounting profit as follows: Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Profit before tax from continuing operations 86,676 70,416 84,449 76,965 Profit before tax from discontinued operations 42,072 19,422 42,072 19,422 Total profit before tax 128,748 89,838 126,521 96,387 Tax rate 10% 10% 10% 10%

Tax at the applicable tax rate 12,875 8,984 12,652 9,639 Effect of permanent tax differences (61) 307 160 261 Effect of current tax from previous periods, accounted during the year 6 - 6 - Effect of unrecognised tax losses and tax offsets not recognised as deferred tax assets (10) 464 27 20 Income tax expense 12,810 9,755 12,845 9,920 Effective tax rate 9.95% 10,86% 10.15% 10,29%

Income tax expense in the comprehensive income 11,466 7,807 11,501 7,972 Income tax to a discontinued operation 1,344 1,948 1,344 1,948 Total income tax expense 12,810 9,755 12,845 9,920

75 F-274 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

27. Segment information

Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The business, considered on a product perspective is currently organized into two lines of business – Fixed line of business and Mobile line of business. Principal activities are as follows: x Fixed line of business – voice and data services over the fixed network; x Mobile line of business – mobile services (GSM, and UMTS Standards)

The Board of Directors assesses the performance of the business segments based on a measure of gross margin. Revenue and gross margin information as reviewed by the Board of directors for the periods ended 31 December 2010 and 2009 is presented below.

Discontinued Year ended 31.12.2010 Continuing operations Total operations operations Fixed line of Mobile line of Total NU RTS business business

Revenue 563,625 332,762 896,387 29,536 925,923 Cost of sales (93,583) (140,180) (233,763) - (233,763) Gross margin 470,042 192,582 662,624 29,536 692,160

Operating expenses (591,746) (18,343) (610,089) Financial expenses, net (23,778) - (23,778) Other gains, net 37,371 30,879 68,250 Share of profit of JV 2,017 - 2,017 Profit before tax 86,488 42,072 128,560 Income tax expense (11,466) (1,344) (12,810) Net profit for the year 75,022 40,728 115,750

Discontinued Year ended 31.12.2009 Continuing operations Total operations operations Fixed line of Mobile line of Total NU RTS business business

Revenue 676,014 255,264 931,278 48,465 979,743 Cost of sales (118,612) (114,180) (232,792) - (232,792) Gross margin 557,402 141,084 698,486 48,465 746,951

Operating expenses (634,668) (29,043) (663,711) Financial expenses, net (34,474) - (34,474) Other gains, net 41,072 - 41,072 Profit before tax 70,416 19,422 89,838 Income tax expense (7,807) (1,948) (9,755) Net profit for the year 62,609 17,474 80,083

76 F-275 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

28. Related parties

The Group’s related parties are considered to be the following: x shareholders of which the Company is a subsidiary or an associate, directly or indirectly, and subsidiaries and associates of these shareholders; x members of the Company’s statutory and supervisory bodies and parties close to such members, including the subsidiaries and associates of the members and their close parties; x joint ventures in which the Company is a venturer For the stand alone statements as a related parties are considered all consolidated subsidiaries as well.

Balances The following table summarizes the balances of receivables and payables with related parties as of 31 December 2010 and 31 December 2009:

For the Group: Note Receivables Payables 31.12.2010 31.12.2009 31.12.2010 31.12.2009

NURTS Bulgaria AD JV 10,425 - 458 - NEF Telecom Company BV Parent 954 -- - NEF Telecom Bulgaria OOD Parent 3 - 142,327 293,437 Total for BTC group 11,382 - 142,785 293,437

For BTC: Note Receivables Payables 31.12.2010 31.12.2009 31.12.2009 31.12.2010

NURTS Bulgaria AD JV 10,425 - 458 - NEF Telecom Company BV Parent 954 - -- BTC Net EOOD Subsidiary 659 1,350 - 21 NEF Telecom Bulgaria OOD Parent 3 - 142,327 293,437 Total for BTC 12,041 1,350 142,785 293,458

The balance on NEF Telecom Bulgaria OOD payable represents outstanding dividend payable for the year 2008 as of the balance sheet date. On 20 January, 6 April and 20 April 2011 respectively BGN 56,719, BGN 13,311 and BGN 17,602 thousand of the above mentioned amount were paid.

Transactions The following table summarizes services received by BTC from related parties: Note Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009

NEF Telecom Bulgaria OOD Parent 21,279 38,556 21,279 38,556 NURTS Bulgaria AD JV 2,173 - 2,173 - BTC Net EOOD Subsidiary -- 39 17 BTC Mobile EOOD Subsidiary -- - 910 BTC Security EOOD Subsidiary -- -19 Kimimpex TL OOD Subsidiary -- - 3,917 Total for BTC 23,452 38,556 23,491 43,419

77 F-276 For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

28. Related parties (continued)

The realised revenue for BTC from related parties is as follows: Note Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009

NURTS Bulgaria AD JV 2,339 - 2,339 - NEF Telecom Bulgaria OOD Parent 95 95 BTC Net EOOD Subsidiary --974 739 BTC Mobile EOOD Subsidiary -- - 1,866 BTC Security EOOD Subsidiary -- -5 Kimimpex TL OOD Subsidiary -- -97 Total for BTC 2,348 5 3,322 2,712

Management remunerations

There is no compensation paid by the company to the members of the Board of Directors as of 31 December 2010 and 31 December 2009. In accordance with a management contract NEF Telecom Bulgaria OOD, Sofia provides consulting and managing services to BTC and respectively the remunerations and social securities of the management are accrued as external services.

Certain management remunerations are paid by the parent company and recharged to the entity as part of a management charge as disclosed above. This management charge, which for 2010 amounted to BGN 21,279 thousand (BGN 38,556 thousand for 2009) also includes additional recharges of payroll cost, technical services and other administration costs borne by the parent on behalf of the Group and it is not possible to identify separately the amounts paid as remuneration of the members of the Board of Directors. As disclosed in note 22 ,after the termination of the agreements remuneration amounting to BGN 3,640 thousand relating to key management personnel has been accrued.

29. Commitments and contingencies

Contractual commitments for the acquisition of property, plant and equipment The parent company has entered into agreements with various suppliers relating to the capital expenditure as approved in the investment program. Certain agreements have not been completed as of the balance sheet date. A summary of the main commitments to acquire equipment under such contracts, effective as of 31 December, 2010, for the Group and the Company is presented in the table below:

Aggregate Delivered till Commitments Equipment description contracted amount 31.12.2010 outstanding Hardware and software 38,488 26,887 11,601 Construction and assembly works of the BTC 91,836 59,332 32,504 Network equipment 79,931 31,746 48,185 TOTAL 210,255 117,965 92,290

78 F-277 BULGARIAN TELECOMMUNICATIONS COMPANY AD NOTES TO THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (continued) For the year ended 31 December 2010 All amounts are in thousand BGN, unless otherwise stated

29. Commitments and contingencies (continued)

The Company is a participant in several lawsuits and administrative proceedings. Based on the information available, management is satisfied that there is no material unprovided liability arising from these lawsuits and administrative proceedings. Together with the outsourcing of its network operations BTC undertook commitment to reimburse Alcatel Lucent Bulgaria EOOD for certain expenses of the transferred employees, which amount and due payment are limited according to agreed terms.

30. Operating lease

Minimum lease payments under operating leases recognized as an expense for the period are as follows:

Consolidated financial statements Separate financial statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Minimum lease payments 4,125 8,736 4,125 8,695

BTC has outstanding commitments under non-cancellable operating leases, which fall due as follows:

Consolidated financial Separate financial statements statements Year ended Year ended Year ended Year ended 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Within one year 9,429 8,867 9,429 8,867 In the second to fifth years inclusive 29,122 34,092 29,122 34,092 Later than five years 97,557 106,632 97,557 106,632 Total commitments 136,108 149,591 136,108 149,591

Operating lease payments represent rentals payable for certain part of the vehicles of the Group and the Company. Leases and rentals are negotiated for an average term of three years. In the amount of the non-cancellable operating lease payables are included payments related to contract for lease of administrative building that commenced in 2010 and the leasing term is above 5 years.

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F-281 STATEMENT OF UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The unaudited pro forma financial information below has been prepared to illustrate the effect on the condensed consolidated statement of financial position of Bulgarian Telecommunications Company AD (now called Bulgarian Telecommunications EAD, the ‘‘Company’’ and together with its subsidiary BTC Net EOOD, the ‘‘Group’’) as at September 30, 2013 as if the Transactions (as defined in the ‘‘Certain Definitions’’ section of the offering circular dated on or around November 21, 2013 (the ‘‘Offering Circular’’) had occurred on September 30, 2013. The information, which has been produced for illustrative purposes only, by its nature addresses a hypothetical situation and, therefore, does not represent the Company’s actual financial position or results, nor does it purport to project the Group’s financial position or results at any future date. The actual results may differ significantly from those reflected in the unaudited pro forma consolidated financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma consolidated financial information. The unaudited pro forma financial information is compiled on a basis consistent with the accounting policies of the Group set out in the Consolidated Financial Statements included in the Offering Circular and the basis set out in the notes below. The unaudited pro forma consolidated financial information has not been prepared in accordance with the requirements of Regulation S-X of the U.S. Securities Act or any generally accepted accounting standards, and accordingly, should not be relied on as if they had been carried out in accordance with those standards. The unaudited pro forma consolidated financial information presented below represents the historical consolidated financial information of Bulgarian Telecommunications Company EAD as at September 30, 2013, adjusted to give effect to (i) the issuance of A400 million in aggregate principal amount of notes by the Company (the ‘‘Notes’’) and (ii) the application of the proceeds of the Offering and cash on hand to repay amounts outstanding under the Existing Senior Facility as set forth in the Offering Circular under the heading ‘‘Use of Proceeds’’ and the table set forth in the Offering Circular under the heading ‘‘Capitalization’’ and the notes thereto. Capitalized terms used but not defined herein will have such meanings given to them in the Offering Circular.

Certain Pro Forma Information Pro Forma condensed consolidated statement of financial position As at Pro forma as at Notes September 30, 2013 Pro forma adjustments September 30, 2013 (unaudited) (BGN in thousands) 1 Cash and cash equivalents ...... 2 133,700 (125,516) 8,184 Other current assets ...... 3 129,662 — 129,662 Total current assets ...... 263,362 (125,516) 137,846 Total non-current assets ...... 1,096,842 — 1,096,842 Total assets ...... 1,360,204 (125,516) 1,234,688 Current liabilities: Borrowings ...... 5 43,939 (42,569) 1,370 Other current liabilities ...... 4 122,304 — 122,304 Total current liabilities ...... 166,243 (42,569) 123,674 Non-current liabilities: Borrowings ...... 5 839,688 (82,518) 757,170 Other non-current liabilities ...... 6 33,559 — 33,559 Total non-current liabilities ...... 873,247 (82,518) 790,729 Total equity ...... 7 320,714 (429) 320,285 Total liabilities and equity ...... 1,360,204 (125,516) 1,234,688

Notes to the unaudited pro forma consolidated financial information 1. Historical financial information The financial information as at September 30, 2013 has been extracted, without adjustment, from the condensed consolidated interim financial statements of the Group as at and for the nine month period ended September 30, 2013 as set out in the Consolidated Financial Statements included in the Offering Circular.

F-282 2. Cash and cash equivalents Pro forma cash and cash equivalents is calculated by giving pro forma effect to the Transactions, as if they had occurred on September 30, 2013. See the information set forth in the Offering Circular under the heading ‘‘Use of Proceeds.’’ The adjustment on cash and cash equivalents reflects the pro forma impact of the Offering and the application of the proceeds from the Offering in the amount of BGN 782.3 million and cash on hand to repay and discharge the indebtedness under the Existing Senior Facility in the amount of BGN 882.3 million including accrued interest (see note 5) as well as to pay the estimated transaction fees and expenses relating to the Transactions (see note 5) and the break costs (see note 7) in the total amount of BGN 25.6 million, as if the Transactions had occurred on September 30, 2013.

3. Other current assets Other current assets include trade and other receivables, inventories, other assets and assets of disposal group held for sale.

4. Other current liabilities Other current liabilities include dividends payable, trade payables, other payables, current income tax liabilities and provisions for other liabilities and charges.

5. Borrowings Pro forma borrowings is calculated by giving pro forma effect to the Transactions, as if they had occurred on September 30, 2013. See the information set forth in the Offering Circular under the heading ‘‘Use of Proceeds.’’ Pro forma as at As at September 30, 2013 Pro forma adjustments September 30, 2013 (unaudited) (BGN in thousands) Existing Senior Facility ...... 882,257 (882,257) — Financial lease ...... 1,370 — 1,370 Notes offered hereby ...... — 782,332 782,332 Fees and expenses relating to the Transactions ...... — (25,162) (25,162) Drawings under the Revolving Credit Facility ...... — — — Total Borrowings ...... 883,627 (125,087) 758,540 Current borrowings ...... 43,939 (42,569) 1,370 Non-current borrowings ...... 839,688 (82,518) 757,170 The adjustment related to the Existing Senior Facility reflects the pro forma impact of the Offering and the application of the proceeds from the Offering and cash on hand to repay and discharge the indebtedness under the Existing Senior Facility in the amount of BGN 882.3 million including accrued interest, as if the Transactions had occurred on September 30, 2013. This adjustment related to the Notes offered hereby reflects the issuance of the Notes of A400 million. This adjustment related to the fees and expenses relating to the Notes represents the estimated transaction fees and expenses, include the Initial Purchasers’ commissions, other fees and commissions, financing fees, advisory fees and other transaction costs and professional fees relating to the Transactions. In connection with the Offering, the Group will enter into the Revolving Credit Facility Agreement on or about the Issue Date, which will provide for drawings of up to A35 million, all of which will be available but undrawn. Fees and expenses relating to the Transactions are deducted from total borrowings and will be amortized to interest expense over the life of the bond/relevant borrowings, classified as other financial liabilities, in accordance with IAS 39.

6. Other non-current liabilities Other non-current liabilities include deferred tax liabilities, retirement benefit obligations, provisions for other liabilities and charges and trade and other payables.

7. Total equity The adjustment reflects the break costs under the Existing Senior Facility.

F-283 F-284 F-285 F-286 (This page has been left blank intentionally.)

F-287 BTC NET EOOD UNAUDITED SEPARATE CONDENSED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2012

For the year ended December 31, 2012 Revenue ...... 28,158 Interconnect expenses ...... 20,214 Other operating expense ...... 1,151 Materials and consumables expenses ...... 7 Staff costs ...... 4 Depreciation and amortization ...... 1 Finance costs ...... 5 Finance income ...... 14 Profit before tax ...... 6,790 Income tax expenses ...... 669 Profit for the period ...... 6,121 Total comprehensive income for the year ...... 6,121

F-288 BTC NET EOOD UNAUDITED SEPARATE CONDENSED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2012

As at December 31, 2012 Cash and cash equivalents ...... 4,534 Trade receivables ...... 7,616 Current income tax receivables ...... — Inventories ...... — Other assets ...... 145 Total current assets ...... 12,295 Goodwill ...... — Property, plant and equipment ...... — Intangible assets ...... 8 Deferred tax assets, net ...... 14 Total non-current assets, net ...... 22 Total assets ...... 12,317 Total current liabilities ...... 5,813 Total non-current liabilities ...... — Total equity ...... 6,504 Total liabilities and equity ...... 12,317

F-289 REGISTERED OFFICE OF THE COMPANY

Bulgarian Telecommunications Company EAD 115i Tsarigradsko Shose Boulevard 1784 Sofia Bulgaria

LEGAL ADVISORS TO THE COMPANY

as to U.S. and English Law as to Bulgarian Law Clifford Chance LLP DTT Limited 10 Upper Bank Street 17, San Stefano Street, 3rd floor London E14 5JJ 1504 Sofia United Kingdom Bulgaria

LEGAL ADVISORS TO THE INITIAL PURCHASERS

as to U.S. and English Law as to Bulgarian Law Latham & Watkins Tsvetkova Bebov & Partners 99 Bishopsgate 9-11 Maria Louisa Boulevard, 7th floor London EC2M 3XF 1000 Sofia United Kingdom Bulgaria

INDEPENDENT AUDITORS TO THE COMPANY

for 2010-2012 for 2013 PricewaterhouseCoopers Audit OOD KPMG Bulgaria OOD 9-11 Maria Louisa Boulevard 45/A Bulgaria Boulevard 1000 Sofia 1404 Sofia Bulgaria Bulgaria

TRUSTEE AND SECURITY AGENT PAYING AGENT AND TRANSFER AGENT U.S. Bank Trustees Limited Elavon Financial Services Limited, UK Branch 5th Floor, 125 Old Broad Street 5th Floor, 125 Old Broad Street London, EC2N 1AR London, EC2N 1AR United Kingdom United Kingdom

REGISTRAR LISTING AGENT

Elavon Financial Services Limited Arthur Cox Listing Services Limited Block E, 1st Floor Earlsfort Center Cherrywood Business Park Earlsfort Terrace Loughlinstown, Dublin 18 Dublin 2 Ireland Ireland

LEGAL ADVISOR TO THE TRUSTEE

White & Case LLP 5 Old Broad Street London EC2N 1DW United Kingdom Merrill Corporation Ltd, London 13ZDA43501