Internet Gold Golden Lines : Project Buzz Definitive Proposal

Subject to Contract

Project BUZZ Definitive Proposal

January 1

6

, 2019

1

Bcom

Purchase

Price

Per Share

/

Proceeds to

IGLD

Bondholders

('Definitive

Proposal')

1.

Searchlight Capital Partners' ('SCP') offer is to acquire Internet Gold

-

Golden Lines Ltd.'s ('IGLD')

64.8% stake in B Communications Ltd. ('BCOM') for NIS 20 per share, of which 100% will be paid

in cash at closing (the 'Transaction').

2.

We estimate that at

this valuation, Series C and D bond

holders of IGLD (collectively, the '

IGLD

Bondholders') will generate

approximately NIS 530 million of

total

consideration

(assuming

100% take

-

up by the

IGLD

Bondholders)

,

equivalent to a 73% recovery on the face value of

their

NIS 728 million total claims as of September 30, 2018.

3.

Such consideration represents an approximately 27% premium to the current market value of

the Series C and D bonds (i.e., NIS 530 million proceeds

from the Transaction

versus NIS 419

million of

current

trading value

of Series C and D bonds

).

4.

The NIS 530 million of total consideration

to the IGLD Bondholders

is

comprised of (a) NIS 387

million from the sale IGLD's 64.8% stake in Bcom (19.4 million

Bcom

shares) plus (b) NIS 143

million from the

v

alue of the exist

ing cash, equivalents and short

-

term investments on IGLD's

ba

lance sheet

as of September 30, 2018.

5.

Our Definitive Proposal is conditioned on IGLD delivering to SCP

at Transaction closing

shares

representing at least 51.0% of Bcom shares

outstanding (i.e., SCP is

willing to transact

with IGLD

at levels at

which SCP

would acquire

between

51.0%

and

64.8%

of Bcom shares outstanding).

6.

Th

e

reduction

i

n the price from that

indicated

in our

Non

-

Binding

P

ro

posal dated

December

11

th

, 2018 is a result of

a series of material developments

since December 11, 2018

,

including

(a)

the deterioration of the business prospects and liquidity profiles of both

Bezeq

and Bcom;

and

(b)

the

market

environment in which both

companies

operate

.

Please see

Exhibit

B

for a list of

some of

these material developments

.

During this

approximately four

-

week

period, the share

prices of Bezeq and Bcom

have declined from NIS 4.00 to NIS 3.28 per share (18.1

% decline

) and

NIS 29.62 to NIS 19.03 per share (35.8

% decline), respectively.

7.

Subject to resolution of outstanding matters on mutually acceptable terms, we are prepared to

promptly negotiate and

conclude the definitive transaction documentation in form acceptable

to both parties (in each party's sole discretion), however, to commit the ti

m

e and resources

required to do so, we expect IGLD to enter

into exclusivity agreement by 17.00 Israel time

Tue

sday, January 22

nd

(

attached as Exhibit

E

)

.

Sources /

Certainty of

Financing

1.

We would finance the acq

uisition of IGLD's stake in Bcom

with cash from SCP's existing

managed equity funds, of which assets under management currently exceed $3.9 billion, in

addition to our local minority partner's equity co

-

investment, as required by law.

2.

We are at an advanced stage with our local

Israeli

pa

rtner and will be prepared to execute

definitive documentation concurrent with executing all related definitive

agreements

with IGLD.

3.

We would not require any debt financing or any third

-

party equity

beyond the

aforementioned

equity co

-

investment of our

local

partner

(as required by Israeli law)

.

Timing

to

Signing &

Closing

1.

We are

prepared to

work expeditiously in order to negotiate, conclude and

execute definitive

documentation

with IGLD

, to both parties mutual satisfaction,

withi

n ten (10

)

business

days of

receiving the appropriate access to satisfy our confirmatory infor

mation requirements listed in

Exhibit C

(

no

financing

contingencies

)

.

2.

An illustrative timeline to reaching a definitive agreement with IGLD b

y January 31

st

is attached

(Exhibit

A

)

,

although we would be prepared to execute an agreement beforehand once finalized.

3.

W

e do not anticipate

any delays in closing

the

Transaction

.