We hereby enclose the Independent Assurance Report on the Merger of the Companies H1 telekom d.d. and OT Optima Telekom d.d.

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1 Deloitte d.o.o ZagrebTower Radnička cesta Zagreb Croatia OIB: Tel: +385 (0) Fax: +385 (0) Recipients of the Assurance Report: H1 TELEKOM d.d. Dračevac 2/d Split Republic of Croatia and OT OPTIMA TELEKOM d.d. Bani 75a Buzin Republic of Croatia Commercial Court in Zagreb Court Register Amruševa 2/II Zagreb In Zagreb, 14 December 2016 RE: Independent Assurance Report on Company Merger Dear Sir/Madam, We hereby enclose the Independent Assurance Report on the Merger of the Companies H1 telekom d.d. and OT Optima Telekom d.d. Sincerely, /signed/ Branislav Vrtačnik, President of Deloitte d.o.o. Management Board /signed/ Vanja Vlak, Authorized Auditor Seal text: Deloitte d.o.o. Zagrebtower Radnička cesta Zagreb Reg. no Company registered in the court register of the Commercial Court in Zagreb: company reg. no. (MBS) ; registered share capital: 44, HRK; Management Board Members: Branislav Vrtačnik, Eric Daniel Olcott, Marina Tonžetić, Juraj Moravek, Dražen Nimčević and John Jozef H. Ploem; Bank: Zagrebačka banka d.d., Trg bana Josipa Jelačića 10, Zagreb, Bank account no ; SWIFT Code: ZABAHR2X I BAN: HR ; Privredna banka Zagreb d.d., Radnička cesta 50, Zagreb, Bank account no ; SWIFT Code: PBZGHR2X I BAN: HR ; Raiffeisenbank Austria d-d., Petrinjska 59, Zagreb, Bank account no ; SWIFT Code: RZBHHR2X IBAN: HR Deloitte means Deloitte Touche Tohmatsu Limited, a legal entity established according to the law of the United Kingdom of Great Britain and Northern Ireland (originally: "UK private company limited by guarantee"), and the network of its members, each being a separate and independent legal entity. Please visit for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member companies Member of Deloitte Touche Tohmatsu Limited

2 INDEPENDENT AUDITOR S REPORT ON INDEPENDENT ASSURANCE FOR A COMPANY MERGER

3 CONTENTS 1. AUDITOR APPOINTMENT GENERAL COMPANY INFORMATION ASSURANCE SCOPE AND PROCEDURES AND CRITERIA IDENTIFICATION IDENTIFICATION AND DESCRIPTION OF INFORMATION FROM THE SUBJECT OF EXAMINATION AND THE SUBJECT OF EXAMINATION SUMMARY OF THE TASK INDEPENDENT AUDITOR S REPORT ANNEX... 10

4 1. AUDITOR APPOINTMENT 1.1. Pursuant to the Resolution of the Commercial Court in Zagreb, reg. no. 69 R1-325/2016 of 26 October 2016 ( Decision ), the auditing company DELOITTE d.o.o. za usluge revizije from Zagreb, Radnička cesta 80, company reg. no. ( ), OIB number: ( Auditor ), was appointed as the Auditor in the procedure of merger of the company H1 TELEKOM dioničko društvo, having its seat in Split, OIB , (hereinafter: H1 TELEKOM d.d.) into the company OPTIMA TELEKOM dioničko društvo, having its seat in Zagreb, Bani 75a, Buzin, Republic of Croatia, registered at the Commercial Court in Zagreb, OIB number: (hereinafter: OPTIMA TELEKOM) Pursuant to the Resolution, the Auditor of the company merger shall prepare a written report in which it must state: i. The methods used to determine the share conversion ratio ii. The reasons for the application of those methods as suitable iii. The conversion ratio that if applying different methods and the significance given to individual methods for determining the proposed conversion ratio and the value on which it is based, as well as any specific obstacles that may have occurred in the valuation of the companies iv. Whether the share conversion ratio is appropriate 2. GENERAL COMPANY INFORMATION 2.1. OT-Optima Telekom d.d. ( Company or Merging Company ) is registered at the Court Register of the Commercial Court in Zagreb under the company registration number , having its seat in Zagreb at the address Bani 75/A, Buzin, OIB: Stated activity: telecommunication services. Zoran Kežman, President of the Management Board (OIB: ) has represented the Company with another Management Board member since 18 June The share capital of the company OT-Optima Telekom d.d. amounts to 635,568,080 HRK H1 telekom d.d. ( the Company being merged or Merged Company ) is registered at the Court Register of the Commercial Court in Split under the company registration number , having its seat in Split at the address Dračevac 2/d. OIB: Stated activity: telecommunication services. Boris Štritof, President of the Management Board (OIB: ) has represented the Company with another Management Board member since 27 June The share capital of the company H1 telekom d.d. amounts to 78,486,880 HRK.

5 3. ASSURANCE SCOPE AND PROCEDURES AND CRITERIA IDENTIFICATION 3.1. The Management Boards of the companies Optima Telekom and H1 Telekom entered, pursuant to the Companies Act Articles 512 and 513, into a Merger Agreement, the draft of which we received on 14 November The Merger Agreement stipulates the conversion ratio for the shares of the companies participating in the merger. The Management Boards have determined the share conversion ratio on the basis of a standard valuation method, i.e. discounted future cash flow method (DCF method) In accordance with the Companies Act, Article 515, the responsibility of Deloitte d.o.o. as the appointed auditor of the merger is to examine the Merger Agreement and express an independent assurance on the appropriateness of the share conversion ratio on the basis of which the shareholders of the company being merged are to become shareholders of the merging company. In accordance with the said provisions, the companies participating in the merger requested from the Commercial Court in Zagreb to appoint a merger auditor On 26 October 2016, the Commercial Court in Zagreb issued its Resolution referred to under item 1.1 of this Report, and on the basis thereof the Auditor has conducted the procedure of preparing an assurance on the company merger and subsequently prepared this Report The assurance regarding the company merger has been carried out in accordance with the Companies Act and Audit Act (Official Gazette 146/05, 139/08, 144/12) and with the International Standard on Assurance Engagement 3000 (Official Gazette 13/11) In accordance with the above, the Auditor has carried out all required verifications, tests and evidence-gathering to ascertain: i. The methods used to determine the share conversion ratio ii. The reasons for the application of those methods as suitable iii. The conversion ratio if applying different methods, and the significance given to individual methods for determining the proposed conversion ratio and the value on which it is based, as well as any specific obstacles that may have occurred in the valuation of the companies iv. Whether the share conversion ratio is appropriate 3.6. It is hereby noted that the respective assurance engagement and this Report have been prepared solely for the purpose of the merger of the company H1 Telekom into the company OT-Optima Telekom, and the Auditor distances itself from using the Report for purposes not foreseen by Articles 512 and 513 of the Companies Act and by the Court Resolution.

6 4. IDENTIFICATION AND DESCRIPTION OF INFORMATION FROM THE SUBJECT OF EXAMINATION AND THE SUBJECT OF EXAMINATION 4.1. For the purpose of conducting the assurance engagement and determining the facts required for the assurance, the following documents were examined and information was obtained from the Management Boards of the companies participating in the merger: Merger Agreement Merger Report Audited Financial Statements of the companies participating in the merger Valuations of the companies participating by the respective Management Boards Analyses of suitability of other valuation methods 4.2. All documents and information that were the subject of examination or served the assurance purposes have been supplied by the companies participating in the merger. The Management Boards of the companies participating in the merger are responsible for the authenticity of the documents governing the merger. The Auditor s responsibility is to derive an independent conclusion on the information from the subject of examination.

7 5. SUMMARY OF THE TASK Having in mind the legal scope of assurance on company merger, in the followings the Auditor states its findings regarding the facts described below: 5.1. Determining the methods for share conversion ratio In accordance with the Merger Agreement hereto enclosed as Annex 1, the company Optima Telekom takes over the company H1 Telekom. The choice of the method for the share conversion ratio used by the companies Management Boards is verified both for the companies entering the Agreement and in the context of the activity which those companies pursue, as well as the market conditions as currently manifested and recognized. Pursuant to Article 3 of the Merger Agreement, the companies Management Boards have agreed that the share conversion ratio shall be determined in accordance with the values obtained by a valuation using the discounted cash flow method. In their own analyses and judgments, the companies Management Boards used the basic assessment method in determining the value of the merging company s capital and the merged company s capital. The valuation method used was the discounted cash flow method ( DCF method ), through which future net cash inflows and outflows were estimated and discounted to the current value. The Management Boards of the companies participating in the merger also sought alternative valuation methods in order to find the most suitable share conversion ratio. Thus, they analyzed the current market values method, the book value method, the comparative method and the valuation method based on historical cost analysis. However, at the start of the valuation they both found sufficient reasons to abandon the said methods. It was established that: The current market value is not suitable for the calculation of any kind of share conversion ratio because of the fact that the H1 share is not listed in the securities market, which is why there is no relevant market price on basis of which to make a comparison. Optima s shares are not traded in the relevant capital markets in a significant amount, in terms of both volumes and values, and thus it is not suitable here to use market values to determine the value of Optima s shares. The book value method estimates the companies values on the basis of the individualized book value of the entire capital, as shown in the Audited Financial Statements as at 31 December In cases where there is acceptable market information for establishing an earning or loss trend, evaluators experiences do not rely on the book values that statically indicate the current company value and are based on their historical performance. The book value is significantly different from the market value, since it does not take into account the undertaking s future results and since the book values of each company are by necessity different due to application of different accounting policies (e.g. accounting valuation and capitalization of assets, asset revaluation). The book values have been significantly affected by the pre-bankruptcy settlement process, which both companies have undergone. For the comparative method, there are no reliable comparable domestic data other than those of financial statements, i.e. accounting data. Namely, within the telecommunications sector in Croatia there are two significantly larger competitors, who, in addition to internet access, fixed telephony and IPTV, also offer mobile telephony services, which occupy a major share in their overall portfolios. For the comparative method to make sense, the said services should be separated and comparable indicators used, but the availability of suitable data is very limited. In addition, the main competitors from the same industry apply difference valuation methods and different accounting report methods, since these are companies with foreign owners, and one of the companies is also a limited liability company. On the other hand, there are several minor competitors in the market, but they have no significant market shares, which makes them unreliable for comparison. Using comparative data with

8 companies abroad is also not considered acceptable due to the specificity of the prebankruptcy settlement processes. Valuation methods based on historical cost analysis are not used (return on capital, return on assets) due to the fact that there have been significant fluctuations in cost levels in both companies over the past several years. One of the reasons behind this is the poor economic situation in the country, due to which both companies have had to undergo a pre-bankruptcy settlement and thus restructure their current debts. Given that the cumulated historical result of one of the companies is negative, it was concluded that no relevant valuation data would have been obtained using the historical cost method The valuation method used in determining the share conversion ratio The DCF methodology estimates the company value based on actually observable value sources, i.e. generated future cash flows. The advantage of this method is that it can include all observable future changes for the company and the prospects of the entire economy, industry or activity itself, as well as company-specific issues. When it comes to merging equity to equity as a capital and investing transaction, not only the change in the structure of the capital becomes important, but also the change of the owner package capacity. This most notably manifests itself to shareholders or investors in the capacity to increase the capital and in decision-making possibilities. The DCF method accepts the capital capacity by unifying all future value expenditures with future receipts and sources of future cash flow by making a selection and assigning the results to the capital. Consistent application of this method of assessment will encompass all future cash flows, and on the basis of their gross values the current value is expressed by discounting those values to the date foreseen in the Merger Agreement. The companies future operative activities, such as redesigning their existing services and introducing new ones, improving their marketing and sales activities or impact of working capital management, significantly influence that value being sought and defined when it comes to being exchanged for other shares. It is impossible or very difficult to encompass all future factors and meet the requirement of appropriate share conversion using any other method. The DCF methodology has its limitations. Since it is based on plans and forecasts of future results, there is an uncertainty whether the result will correspond to the forecast data. However, this uncertainty is no greater than the uncertainties related to other methods. The uncertainty here exists because of change in the prospects of congeneric companies, and thus also because of their valuation, however, with harmful or same effects for both companies. Due to the fact that the companies are congeneric, the relative ratio in the valuation of the companies will only remain at a higher or lower numerical level. The Management Boards of the companies participating in the merger are responsible for preparing the plans and forecasts of future results and the Auditor estimates whether they have used appropriate and comparable assessments and forecasts in this procedure Share conversion ratios The discounted cash flow method was chosen as more appropriate to determine the share conversion ratio. The Management Boards of the companies, using the discounted cash flow method, have established that Optima Telekom, as the merging company, will exchange the shares of the company H1 Telekom d.d., their nominal value being 10 HRK, in a 0.75:1 ratio, for the shares of the merging company, their nominal value being 10 HRK.

9 6. INDEPENDENT AUDITOR S REPORT 6.1. Pursuant to the procedures completed as described under item 5 of this Report, we have observed nothing that would cause us to believe that the ratio established by the discounted cash flow method resulting in 1 H1 Telekom share at its nominal value of 10 HRK being exchanged for 0.75 shares of Optima Telekom at their nominal value according to the Merger Agreement may be inappropriate, in accordance with the Companies Act. *** In Zagreb, 14 December 2016 /signed/ Branislav Vrtačnik, President of Deloitte d.o.o. Management Board /signed/ Vanja Vlak, Authorized Auditor Seal text: Deloitte d.o.o. Zagrebtower Radnička cesta Zagreb Reg. no Deloitte d.o.o.

10 OT-OPTIMA TELEKOM d.d. za telekomunikacije (a joint-stock company for telecommunications), Bani 75/a, Zagreb, OIB number (hereinafter: Optima or merging company ) as the merging company and H1 TELEKOM dioničko društvo za telekomunikacijske usluge (a joint-stock company for telecommunication services), Dračevac 2D, Split, OIB (hereinafter: H1 or merged company ) as the merged company (Optima and H1 hereinafter together as the the Parties or individually the Party entered into, in Zagreb, pursuant to Article 513 and Article 518 of the Companies Act (Official Gazette 111/93, 34/99, 121/99, 52/00, 118/03, 107/07, 146/08, 137/09, 111/12, 125/11, 68/13; hereinafter: Companies Act ), on 29 July 2016 (the twenty-ninth of July two-thousand-sixteen) the following 1. Basic presumptions MERGER AGREEMENT (hereinafter: Agreement ) The Parties enter into this Agreement starting from the following presumptions: 1.1. Optima is a validly incorporated joint-stock company for telecommunications, registered in the court register of the Commercial Court in Zagreb under the company registration number ) and with a share capital amounting to 635,568, (six-hundred-and-thirty-fivemillion-five-hundred-and-sixty-eight-thousand-and-eighty) HRK, which is divided into 63,556,808 (in words: sixty-three-million-five-hundred-and-fifty-six-thousand-and-eight-hundred-and-eight) ordinary registered shares at their individual nominal values amounting to (ten) HRK 1.2. H1 is a validly incorporated joint-stock company for telecommunication services, registered in the court registered of the Commercial Court in Zagreb under the company registration number and with a share capital amounting to 78,486, (seventy-eight-million-fourhundred-eighty-six-thousand-eight-hundred-and-eighty) HRK, which is divided into 7,848,688 (seven-million-eight-hundred-forty-eight-thousand-six-hundred-and-eighty-eight) ordinary registered shares at their nominal values amounting to (ten) HRK The purpose of merging the company H1 into the company Optima is to realize positive synergies between the companies Optima and H1, repay the debts of H1 and increase the companies values, and the operational, organizational, legal and financial association is in their mutual interest since the implementation of the merger and the realization of the foreseen synergies will result in increased business efficacy, through boosting revenues while reducing unit costs, which will ultimately result in the growth of the future company s (merging company s) value The Parties have, pursuant to this Agreement, decided to carry out the merger procedure starting from the assumption that the Croatian Competition Agency (hereinafter: CCA) will, within the meaning of the Competition Act, assess that there is no obstacle to carrying out the merger procedure, and that it will allow the concentration of H1 and Optima, as well as extend the period of concentration between the companies Hrvatski telekom d.d., Roberta Frangeša Mihanovića 9, Zagreb, OIB number (hereinafter: HT ), and Optima for additional three years The required preparatory legal actions have been carried out for the execution of the merger, valuation of the Parties has been completed and the share conversion ratio has been determined. Starting from the above presumptions, which are an integral part of the Agreement, the Parties have agreed as follows 2. Subject of the Agreement

11 2.1. The Parties regulate their mutual rights and obligations, as well as the rights and obligations in relation to their shareholders, which arise from the merger and transfer of all of the assets and all the rights and obligations of the company H1, as the merged company, to Optima, as the merging company, including the liquidation of the company H1 according to Article 512 paragraph 1 of the Companies Act The Parties agree that from the date of approval of this Agreement by the General Meetings of H1 and Optima until the date of registration of the merger in the court register of the Commercial Court in Zagreb, the Management Boards of Optima and H1 shall jointly agree upon and coordinate daily operations, especially in respect of authorized representatives and signatories in charge of the funds, then in connection with the disposal of the companies funds, drafting and preparation of the final balance sheet, and in connection with entering into agreements to be concluded during regular operations The Parties mutually agree that as of the date of signing of this Agreement until the date of registration of the merger in the court register of the Commercial Court in Zagreb they will in no significant manner reduce or encumber their assets. 3. Financial statements 3.1. The Parties have determined the share conversion ratio based on the Audited Financial Statements of the Parties for the year 2015, which were prepared as at 31 December 2015 (the thirty-first of December two-thousand-fifteen), and the valuation of the companies. 4. Share transfer conversion 4.1. By way of compensation for all transferred assets and all the rights and obligations of H1, Optima shall transfer to H1 shareholders Optima shares in the 1 : 0.75 (one to zero point seventy-five) ratio, so that in exchange for 1 (one) H1 share, H1 shareholders will receive 0.75 (zero point seventy-five) Optima shares, i.e. in exchange for 1 (one) H1 share, 0.75 Optima shares shall be transferred To those shareholders of H1 who, due to the share conversion ratio, are lacking a certain amount to acquire a whole number of an Optima share, the Company shall make an additional cash payment, in a proportional amount, and taking into account the value of one Optima share at 1.70 HRK (one Croatian kuna and seventy lipas), representing its market value as at 26 July 2016 (the twenty-sixth of July two-thousand-sixteen) According to the established conversion ratio and the H1 shareholder structure as at 30 June 2016 (the thirtieth of June two-thousand-sixteen), the total number of Optima shares required to carry out the merger procedure by rounding the number of shares down to the nearest lower whole number is 113 (one-hundred-and-thirteen) shares, and the amount required for additional cash payment if 102 HRK (one-hundred-and-two Croatian kunas). The exact amount of additional cash payments and the number of shares will be known on the date of completion of the shareholder list For the purpose of the transfer of Optima shares to H1 shareholders referred to under Article 4.1., Optima shall use its own shares and shall increase its share capital. 5. Increase of share capital 5.1. For the purpose of implementing the merger procedure, Optima shall increase its share capital for an amount required for the issuance of the corresponding number of shares, which will, together with the shares held by Optima, be awarded to H1 shareholders in order to complete the merger. The newly issued shares shall be ordinary registered shares, each in the nominal value of (ten) HRK.

12 5.2. The Parties agree that the company Optima shall, immediately upon the registration of the merger and share capital increase in the court register of the Commercial Court in Zagreb, take all required actions to register the property rights of H1 shareholders over the shares of the merging company. 6. Transfer of assets 6.1. With the date of registration of the merger in the court register of the Commercial Court in Zagreb, H1 shall transfer to Optima all of its assets as valuated pursuant to the Financial Statements referred to in Article 3 herein, taking into account the usual business activities in the period until the registration of the merger in the court register of the Commercial Court in Zagreb. In that sense, the Parties agree that all actions taken by the company H1 from 1 January 2017 (the first of January two-thousand-sixteen) shall be deemed actions taken for the account of the company Optima as the merging company, provided that the merger will have taken place H1, as the merged company, authorizes Optima, as the merging company, to, upon the registration of the merger into the court register of the Commercial Court in Zagreb, register in the land registers and other public books and registries the transfer of titles over all of the real properties, movables and the rights whose transfer is registered into public books and registries from the name of the merged company to its own name and for its own benefit, pursuant to this Agreement and the Resolution of the Commercial Court in Zagreb to register the merger in the court register. 7. Rights carried by shares 7.1. The new shares to be issued by the company Optima for the purpose of capital increase and the implementation of the merger, as well as Optima s own shares referred to in Article 5 herein, shall, as of the moment of their acquisition, give the shareholders the same rights as the already issued ordinary Optima shares, as well as the right to participate in the profits for 2016 and subsequent years, in compliance with decisions of the General Meeting and other competent bodies. 8. Appointment of a commissioner 8.1. Središnje depozitarno klirinško društvo d.d. (Central Depository and Clearing Company), having its seat in Zagreb, Heinzelova 62a, shall be appointed as the share admission commissioner H1 shall enter into a separate commissioner agreement with the commissioner referred to in the preceding paragraph for the purpose of share admission and conversion in accordance with the provisions of this Agreement The commissioner shall admit (take over) Optima s shares in the name and for the account of all H1 shareholders and H1 shareholders shall refer solely to the said commissioner in connection with the transfer of shares after the completion of the registration of the merger in the court register. 9. Special privileges 9.1. The Parties agree and acknowledge that in this merger no privileges have either been or will be given to Management Board members, Supervisory Board members or shareholders of the companies participating in the merger The Parties agree that the merger shall cause no changes to the Management Board of the company Optima. The members of the Management Board and Supervisory Board of H1 shall cease to be members of the said bodies as of the date of registration of the merger in the court register of the commercial court in Zagreb and shall hold no positions in Optima s bodies. 10. Employment contracts Pursuant to the provisions of Article 137 of the Labor Act (Official Gazette, no. 93/14), with the date of registration of the merger in the court register of the Commercial Court in Zagreb, all employment contracts of H1 employees shall be transferred, in their unmodified form and scope,

13 including all rights and obligations arising from the transferred employment contracts, to Optima as the new employer. 11. Costs The costs of the notary public and any fees related to the implementation of this merger shall be settled by the company Optima, whereas each of the Parties shall bear its own costs arising from the negotiations and preparations for the merger. 12. Approvals Provided that CCA deems the H1 and Optima merger permitted, and extends the period of concentration between HT and Optima for additional 3 (three) years, the Parties shall convene their General Meetings and this Agreement shall become valid when the General Meetings approve it In the event that the General Meetings of Optima and H1 do not approve this Agreement, its provisions shall not be binding. 13. Dispute resolution Any misunderstandings or subsequently determined mutual claims arising in connection with the relations governed by this Agreement, the Parties shall resolve amicably, while taking into account the principle of equity and the purpose of the Agreement intended by the Parties In the event that no amicable solution is possible, the Commercial Court in Zagreb shall have jurisdiction over any disputes. 14. Modifications and amendments to the Agreement This Agreement may be modified or amended at any point only by a written agreement signed by properly authorized representatives of each Party. 15. Severability clause Should any provision of this Agreement prove invalid for any reason, all the remaining provisions of this Agreement shall remain in force and in effect. Notwithstanding the above, the Parties shall in that event enter negotiations in good faith to negotiate the terms of a provision that will satisfy both Parties and approximate the economic effect of the invalid provisions to the greatest extent possible and substitute those provisions. 16. Number of copies 16. This Agreement is made in 7 (seven) identical copies, one (1) of which shall be kept by each Party, and the remaining 5 (five) copies shall be used for the purposes of the registration of the merger in the court register and for notary public purposes.

14 17. Entry into force This Agreement shall enter into force when all of the following conditions have been met: a. When it has been signed by the authorized representatives of the Parties and when the notary public validates it as a notarized document b. When CCA has issued its resolution permitting the merger procedure and concentration of H1 and Optima and extends the period of the concentration between HT and Optima for additional 3 (three) years c. When it has been approved by the General Meetings of H1 and Optima Acknowledging their understanding and acceptance of the provisions of this Agreement, the authorized representatives of the Parties hereby sign the Agreement. Optima Zoran Kežman, President of the Management Board H1 Boris Štritof President of the Management Board Tomislav Tadić Member of the Management Board Tomislav Mesić Member of the Management Board