The Next Level

Golden Telecom, Inc.Investor Presentation

Jean-Pierre Vandromme, CEOBoris Svetlichny, Senior Vice President, CFO&Treasurer

COMPENSATION STRUCTURECOMPENSATION STRUCTURE

Myths and RealityMyths and Reality

Olga Novikova

Vice President

Human Resources and Administrative Management

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What We Do as Everyone Else Does

Compensation• Base Salary - monthly pay• Bonus or sales commission (variable part)• Overtime• Medical insurance: employees, 50% children and spouses (for WW grade 14th and higher) $ 650 per year for an employee + children (325) and spouses

example: an employee + child+ spouse = $650 +$650 = $1300• Employees' Training and Development About $ 700 per employee per year• Partially compensation for lunches• Mobile phone compensation (under approved limits)• Corporate car/private vehicle usage compensation (383 corporate cars)• Salary transfer to the corporate credit cards• Teambuilding $250 per employee per year

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Small Things Matter!

• Bonuses Paid Quarterly for 95% of Staff • Possibility to choose the bank for salary transfer (3 banks); for middle and top managers – any bank• Dollar to Ruble fixed exchange rate (28,7)• Sick leave compensation to 100% of salary up to Grade 12 – 10 calendar days, 12-15 Grade – 20 calendar days, 16-20 Grade– all sick days, sick leave of 30+ days – 50% of salary • Maternity compensation If employed for 2 years 140 days for 100% of salary (multiplied by 28,7 exchange rate)• Welfare anniversary 50+ - $ 300, marriage – three days paid, child’s birth/adoption - $400, death of a close relative - $800.• Recruitment referral bonus for grades 14-16 - $1000, grades 12-13 - $ 700, grades 9-11 - $ 500

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Long-Term Incentive Plan –

Makes a Difference!

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What Is It About? • Management and sales teams play a crucial

role in ensuring growth of Golden Telecom capitalization

• The long-term incentive plan has been designed to allow managers (level 2,3,4) and sales staff to share in the growth and the success of the Company by providing an opportunity to gain significant cash premium.

– If the share price of the Company achieves a pre-set target

– If managers/sales stay with the Company for at least 3 years

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Plan Mechanism – Overview

• In December 2005 participants were granted stock appreciation rights (SARs)

• This gives participants an opportunity to receive a certain cash amount at fixed dates in the future (vesting dates)

• The participants gain the positive difference between share price at vesting and share price at grant (stock appreciation) multiplied by the number of SARs granted

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Plan Mechanism – SARs Granted

• 75% of SARs granted are subject to time-related vesting. In order to receive payouts on them

– Plan participant should stay employed with the Company until these SARs vest

– the Company share price should grow at least at a minimal rate i.e. cost of money – 5%. Cost of money is the rate of return on investment that the Company shareholders could get just investing in risk-free securities (e.g. long-term government bonds)

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Plan Mechanism – SARs Granted

• 25% of SARs granted are subject to performance-related vesting. Payouts on them will be given if

– Plan participant stays employed with the Company until these SARs vest

– the Company share price achieves a pre-set target during the first 3 years from grant

• If the Company share price does not achieve a pre-set target during this time, no payouts are made for the performance-related portion of SARs

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• Of the 75% of SARs that are subject to time-related vesting 1/3rd vests after 1 year, 1/3rd - after 2 years, and the remaining 1/3rd - after 3 years

• SARs that are subject to time-related vesting are premium-priced, so that the exercise price for these SARs is the stock price at grant plus the cost of money (currently, 5%)

• This means that in order to receive payouts on these SARs stock price should grow at at least 5% p.a.

Plan Mechanism – Vesting Schedule

Grant 1/3rd vests 1/3rd vests 1/3rd vests

December 2005 December 2006 December 2007 December 2008

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• Performance related vesting (25% SARS) vest as soon as the share price reaches $50 and stays at at least $50 for 30 consecutive days

• If this target is not achieved in 3 years after grant, “performance-related” SARs expire

• If SARs vest, plan participants can choose to exercise immediately or wait for the share price to increase further

• The right to exercise SARs expires 5 years after grant, so that plan participants can exercise his/her SARs any time between their vesting and the end of the 5-year plan cycle

Plan Mechanism – Vesting Schedule

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• December 2005 – Grant

– Participant is granted 8 400 SARs

• 6 300 of them are subject to time-related vesting

• 2 100 are subject to performance-related vesting

– Current share price is $30

– Target share price is $50

– Cost of money is 5%: minimum prices that must be achieved in order for “time-related” SARs to vest are:

*All figures are used for illustrative purposes

Plan Mechanism – Example*

December 2006

December 2007

December 2008

$31,5 $33,1 $34,7

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Plan Mechanism – Example*

• Assuming 18% growth rate in share price p.a. – this is the target set by shareholders

• Assuming exercise immediately on vesting

*All figures are used for illustrative purposes

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Plan Mechanism – Example*

• December 2006

– Current share price is $35.5

– 2 100 of time-related portion of SARs vest

– Performance-related portion of SARs does not vest

*All figures are used for illustrative purposes

Participant’s payout =2 100 SARs * ($35.5 - $31.5) =

$8 400

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*All figures are used for illustrative purposes

Plan Mechanism – Example*

Participant’s payout =2 100 SARs * ($42 - $33.1) =

$18 690

• December 2007– Current share price is $42– 2 100 of time-related portion of SARs vest– Performance-related portion of SARs does not vest

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Plan mechanism – example*

*All figures are used for illustrative purposes

• December 2008

– Current share price is $50

– 2 100 of time-related portion of SARs vest

– 2 100 performance-related SARs vest

Participant’s payout =2 100 SARs * ($50 - $34.7) +2 100 SARs * ($50 - $30) =

$74 130

Total payout over 3 years = $101 220

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What Happened in GT?

Performance Related SARs vested

Time Related SARs vested

In December 2006

2 100 SARS (54 - 31.5) = 47 250

2 100 SARs (54 - 30) = 50 400

Total pay-out for Y06= 97 650$

And this is only a HALF OF THE LTIP SAR