-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T1So7pBU9BvQbfLDyPPQLNdsCr+v+toGsfaXY/Gl3O97pvwUaH82xMcZlixW6gBp wQttdC5oAtvmDbJpeJLBhw== 0000889812-99-001001.txt : 19990331 0000889812-99-001001.hdr.sgml : 19990331 ACCESSION NUMBER: 0000889812-99-001001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL EUROPEAN MEDIA ENTERPRISES LTD CENTRAL INDEX KEY: 0000925645 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24796 FILM NUMBER: 99576962 BUSINESS ADDRESS: STREET 1: 18 D ARBLAY STREET CITY: LONDON W1V 3FP ENGLA STATE: X0 BUSINESS PHONE: 8092961431 MAIL ADDRESS: STREET 1: CLARENDON HOUSE STREET 2: HAMILTON HM CX CITY: BERMUDA STATE: D0 10-K 1 ANNUAL REPORT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-K -------------------- Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1998 Commission File Number: 0-24796 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. (Exact name of registrant as specified in its charter) Bermuda Not Applicable (State or other jurisdiction of incorporation) (IRS Employer Identification No.) -------------------- Clarendon House Church Street Hamilton HM CX Bermuda (Address of principal executive offices) (441) 296-1431 (Registrant's telephone number) -------------------- Securities registered pursuant to Section 12(b) of the Act: NONE -------------------- Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $0.01 par value 9.375% Notes Due 2004 8.125% Notes Due 2004 -------------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of the voting stock of registrant held by non-affiliates of the registrant as of March 17, 1999 was approximately $168,249,576 -------------------- Number of shares of Class A Common Stock outstanding as of March 17, 1999: 18,106,789 Number of shares of Class B Common Stock outstanding as of March 17, 1999: 7,577,329 -------------------- DOCUMENTS INCORPORATED BY REFERENCE Document -------- Location in Form 10-K in Which Registrant's Proxy Statement Document is Incorporated for the Annual Meeting of ------------------------ Shareholders to be held on June 8,1999 Part III - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- PART I Item 1. Business..........................................................3 Item 2. Properties.......................................................22 Item 3. Legal Proceedings................................................22 Item 4. Submission of Matters to a Vote of Security Holders..............24 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..........................................................25 Item 6. Selected Financial Data..........................................25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................27 Item 8. Financial Statements and Supplementary data......................45 Item 9. Changes in and Disagreements with accountants on accounting and financial disclosure.............................................98 PART III Item 10. Directors and executive officers of the registrant...............98 Item 11. Executive compensation...........................................98 Item 12. Security Ownership Of Certain Beneficial Owners And Management...98 Item 13. Certain relationships and related transactions...................98 PART IV Item 14. Exhibits, financial statement schedules and reports on Form 8-K..99 SIGNATURES PART I Item 1. BUSINESS General Central European Media Enterprises Ltd. ("CME") is a Bermuda corporation. All references to the "Company" include CME and its direct and indirect Subsidiaries, and all references to "Subsidiaries" include each corporation or partnership in which CME has a direct or indirect equity or voting interest. The Company is the leading commercial television company in Central and Eastern Europe. The Company's national private television stations and networks in the Czech Republic, the Slovak Republic, Slovenia and Ukraine had the leading nationwide audience shares for 1998 and the Company's television network in Romania had the leading average audience share within its area of broadcast reach for 1998. The Company's television studios, production facilities and editing suites at its national television stations produced approximately 14,000 hours of original programming in 1998 to support the Company's broadcasting operations, making it the largest private producer of local television programming in Central and Eastern Europe. The Company's television stations and networks, which reach an aggregate of approximately 84 million people in six countries, consist of the following:
Population ---------- Technical Economic Voting Country (1) Stations and Networks Reach (2) Interest (3) Interest (3) - ------- ------ --------------------- --------- ------------ ------------- Czech Republic................ 10.3 Nova TV......................... 10.2 99.0% 99.0% Romania....................... 22.3 PRO TV / Acasa.................. 15.8 66.0% 66.0% Slovenia...................... 2.0 POP TV / Gajba TV............... 1.7 85.5% 78.0% Slovak Republic............... 5.4 Markiza TV...................... 5.0 80.0% 49.0% Ukraine....................... 49.8 Studio 1+1...................... 47.3 60.0% 60.0% Hungary....................... 10.2 TV3............................. 4.2 99.0% 99.0% -------------- ------------- Total..................... 100.0 84.2 ============== ============= - --------------------- (1) Country population in millions. Source: United States Bureau of the Census, February 1999. (2) "Technical Reach" measures the number of people in millions who are able to receive the signals of the indicated stations and networks. Source: CME stations (3) See discussion below under the heading "Corporate Structure". The Company's first national television operation began in February 1994 with the launch of Nova TV in the Czech Republic. Since then, Nova TV has consistently achieved an audience share in excess of 50%. The Company estimates that television advertising expenditures in the Czech Republic grew from approximately $67 million in 1993 to approximately $188 million in 1998. The Company believes that Nova TV has achieved its success in large part by providing a wide range of popular programming designed to appeal to a mass market audience, including a mix of locally produced news and entertainment formats and films and television series acquired from major international distributors, and a format distinctly different from that offered by competing stations in terms of image and local 3 focus. The Company believes that broadcasting a significant amount of locally produced programming and developing a distinctive independent news program gives a strong local identity to its stations, increases audience share and is desired by local regulatory authorities. The Company capitalized on its successful launch of Nova TV by adopting similar programming and operating strategies for PRO TV in Romania, POP TV in Slovenia, Markiza TV in the Slovak Republic and Studio 1+1 in Ukraine. Unless otherwise noted, all statistical and financial information presented in this report has been converted into United States dollars using exchange rates as of December 31, 1998. All references to '$' or 'dollars' are to United States dollars, all references to 'Kc' are to Czech korunas, all references to 'ROL' are to Romanian lei, all references to 'SIT' are to Slovenia tolar, all references to 'Sk' are to Slovak korunas, all references to 'Hrn' are to Ukrainian hryvna, all references to HUF are to Hungarian forints and all references to 'DM' are to German marks. The exchange rates as of December 31, 1998 used in this report are 29.86 Kc/$; 10,983 ROL/$; 161.20 SIT/$; 36.91 Sk/$; 3.43 Hrn/$; 217 HUF/$; and 1.67 DM/$. Corporate Structure Central European Media Enterprises Ltd. was incorporated on June 15, 1994 under the laws of Bermuda. CME's assets are held through a series of Dutch and Netherlands Antilles holding companies. See "Recent Developments" for a description of the Reorganization Agreement entered into on March 29, 1999 with SBS Broadcasting S.A. Laws, regulations and policies in CME's markets generally restrict the level of direct or indirect interests that any non-local investor such as CME may hold in companies holding broadcast licenses. As a result, broadcast licenses are generally held by companies majority owned by CME's local partners and CME owns controlling interests in service companies which provide programming, advertising and other services to the licenseholding companies. References to Nova TV, POP TV, Gajba TV, PRO TV, Acasa, Markiza TV and Studio 1+1 in this report may be to either the license company or the service companies or both, as the case may be.
CME CME License Voting TV Services Voting Country Expiration TV License Company Interest Company Interest - ------- ---------- ------------------- --------- ---------- -------- Czech Republic......... 2005 CET............................. 1.25% CNTS.................... 99% Romania................ 2002 -2006 Pro TV S.R.L.................... 49% MPI .................... 66% Media Pro S.R.L................. 0% Slovenia............... 2003 -2007 Tele 59 ........................ 10% Pro Plus................ 78% MMTV............................ 10% Slovak Republic........ 2007 Markiza-Slovakia s.r.o.......... 0% STS..................... 49% Ukraine................ 2007 Studio 1+1...................... 15% Innova, IMS, UAH........ 60% Prioritet............... 50%(1)
(1) 50% interest owned by UAH Czech Republic The Company currently owns a 99% voting and economic interest in Ceska Nezavisla Televizni Spolecnost s.r.o. ("CNTS"), with the remaining 1% voting and economic interest in CNTS held by CET 21 s.r.o. ("CET"). CET holds a terrestrial television broadcast license in the Czech Republic that expires in January 2005. Dr. Vladimir Zelezny, the General Director of both CET and CNTS, owns a controlling 60% participation interest in CET. CNTS is governed by a Memorandum of Association and Investment Agreement. The Company has the right to appoint five of the seven members of CNTS's Committee of Representatives, 4 which directs the affairs of CNTS. A representative of CET has certain delay and veto rights on non-economic programming matters related directly to the broadcast license. CNTS provides television and related services to CET, which broadcasts the Nova TV signal, pursuant to a Services Agreement with CET dated May 21, 1997 (the "Services Agreement"). In consideration for its activities under the Services Agreement, CNTS is entitled to retain revenues from sales of advertising on Nova TV less a monthly fee paid to CET. On March 19, 1999, CET provided CNTS with a copy of a letter, dated March 15, 1999 addressed to Dr. Zelezny as executive of CET and signed by the Chairman of the Czech Media Council, in which the Czech Media Council takes positions that appear inconsistent with the existing relationship between CNTS and CET. Among other things, the Czech Media Council has questioned the exclusive nature of the commercial relationship between CNTS and CET and the manner in which CET enters into certain broadcasting-related contracts. CME believes that the structure of Nova TV and the contracts and business dealings between CET and CNTS are in compliance with all applicable Czech laws and regulations. However, there can be no assurance that the Czech Media Council will conclude, as it has in the past, that such dealings are in compliance and there can be no assurance that the Czech Media Council will not require modifications of the arrangements between CET and CNTS. In this connection, CME has recently been engaged in discussions and negotiations with Dr. Zelezny regarding the relationship between CNTS and CET, including with respect to actions taken and proposed to be taken by CET concerning the acquisition of programming for CET and other matters with which CNTS disagrees. On behalf of CET, Dr. Zelezny has requested certain modifications in the CNTS Memorandum of Association and Investment Agreement and the Services Agreement, which modifications CME is resisting. CME has proposed to Dr. Zelezny alternative arrangements that it believes would solidify CNTS's contractual relationship with CET and satisfy Dr. Zelezny's concerns regarding the existing arrangements. However, there can be no assurance that CME and CNTS will be able to reach a satisfactory agreement with CET and Dr. Zelezny. CME and CNTS intend to take all available actions to protect their legal rights and financial interests in connection with Nova TV, and it is possible that the current disagreements with Dr. Zelezny could result in protracted litigation. If the Czech Media Council were to require significant changes in the current arrangements between CNTS and CET, or if the differences between CNTS and CET cannot be resolved, one or more material adverse affects on the business and financial condition of CNTS and CME could result, including a substantial reduction in the economic benefits currently enjoyed by CNTS and CME and, potentially, a termination of the existing commercial relationship between CNTS and CET. The Company owns a 76% interest in Radio Alfa a.s. v likvidoci, ("Radio Alfa"), formerly the service provider for a private national radio broadcaster in the Czech Republic. The license to operate the radio station expired in February 1999. Radio Alfa ceased to provide services as of December 31, 1998 and is being liquidated. Romania The Company's interest in PRO TV is governed by a Cooperation Agreement (the "Romanian Agreement") among the Company, Adrian Sarbu and Ion Tiriac, forming Media Pro International S.A. ("MPI"), through which PRO TV and Acasa, which was launched in February 1998, are operated. MPI provides programming to and sells advertising for the stations which comprise the PRO TV and Acasa network. Pursuant to the Romanian Agreement, the Company owns 66% of the equity of MPI. Interests in profits of MPI are equal to the partners' equity interests. The Company has the right to appoint three of the five members of the Council of Administration which directs the affairs of MPI. Although the Company has majority voting power in MPI, with respect to certain fundamental financial and 5 corporate matters the affirmative vote of either Mr. Sarbu or Mr. Tiriac is required. The Company owns 49% of the equity of PRO TV, SRL which holds 20 of the 23 licenses for the stations which comprise the PRO TV and Acasa network. Messrs. Sarbu and Tiriac own substantially all of the remainder of PRO TV, SRL. The remaining three licenses for the PRO TV network together with the licenses for the PRO FM and PRO AM radio networks are held by Media Pro SRL, a company owned by Messrs. Sarbu and Tiriac. In addition, in Romania, the Company owns 70% of each of Media Vision SRL ("Media Vision"), a production and dubbing company, and Video Vision International SRL ("Video Vision"), a post-production company. On March 18, 1999, the Company sold its 9.6% equity interest in MobilRom S.A., a GSM telephone operator in Romania. Slovenia The Company's interest in POP TV and Gajba TV is governed by a Partnership Agreement among the Company, MMTV 1 d.o.o. Ljubljana ("MMTV") and Tele 59 d.o.o. Maribor ("Tele 59"), forming Produkcija Plus d.o.o. ("Pro Plus"). Pro Plus provides programming to and sells advertising for the broadcast licenseholders MMTV and Tele 59 as well as additional affiliates. The Company currently owns 78% of the equity in Pro Plus, but has an effective economic interest of 85.5% as a result of its right to 33% of the profits of MMTV and 33% of the profits of Tele 59. Tele 59 currently owns a 21% equity interest in Pro Plus, and MMTV currently owns a 1% equity interest in Pro Plus. The Company owns 10% of the equity of each of Tele 59 and MMTV. Voting power and interests in profits of Pro Plus are equal to the partners' equity interests. All major decisions concerning the affairs of Pro Plus are made by the general meeting of partners and require a 70% affirmative vote. Certain fundamental financial and corporate matters require an 85% affirmative vote of the partners. The Company also owns a 20% interest in Meglic Telecom d.o.o. ("MTC") a cable operator in Ljubljana which owns a 67% economic interest in MMTV. In July 1996, the Company, together with MMTV and Tele 59, entered into an agreement to purchase a 66% equity interest in Kanal A, a privately owned television station in Slovenia, which competes with POP TV (the "Kanal A Agreement"). There is currently an injunction in effect preventing the completion of the Kanal A Agreement. See Item 3 "Legal Proceedings". Slovak Republic The Company's interest in Markiza TV is governed by a Participants Agreement dated September 28, 1995 (the "Slovak Agreement") between the Company and Markiza-Slovakia s.r.o. ("Markiza") forming Slovenska Televizna Spolocnost, s.r.o. ("STS"). Pursuant to the Slovak Agreement, the Company is required to fund all of the capital requirements of, and holds a 49% voting interest and an 80% economic interest in STS. Markiza, which holds the television broadcast license, and STS have entered into an agreement under which STS is entitled to conduct television broadcast operations pursuant to the license. On an ongoing basis, the Company is entitled to 80% of the profits of STS, except that until the Company is repaid its capital contributions plus a priority return at the rate of 6% per annum on such capital contributions, 90% of the profits will be paid to the Company. A Board of Representatives directs the affairs of STS, the composition of which includes two designees of the Company and three designees (two of whom have been named) of Markiza; however, all significant financial and operational decisions of the Board of Representatives require a vote of 80% of its members. In addition, certain fundamental corporate matters are reserved for decision by a general meeting of partners and require a 67% affirmative vote of the 6 partners. There is currently a litigation pending with respect to the ownership of Markiza. See "Item 3, Legal Proceedings". Ukraine The Studio 1+1 Group consists of several entities in which the Company holds direct or indirect interests. The Company owns a 60% (increased from 50% in December 1998) equity interest in each of Innova Film GmbH ("Innova"), Ukraine Advertising Holding B.V. ("UAH") and International Media Services ("IMS"). UAH holds a 50% equity interest in Prioritet, a Ukrainian company engaged in advertising sales. Innova holds 100% of Intermedia, a Ukrainian company ("Intermedia"), which in turn holds a 30% equity interest in a separate Ukrainian company which holds the license to broadcast programming and sell advertising on UT-2 (the "UT-2 License"). Innova, IMS, Intermedia and Prioritet have entered into arrangements regarding the provision of programming and advertising sales services to Studio 1+1. Interests in profits of each entity in the Studio 1+1 Group are equal to equity interests held in such entities. All significant decisions of the entities in the Studio 1+1 Group are reserved for decision of the shareholders, requiring a majority vote (other than decisions of the shareholders of the Ukrainian company which holds the UT-2 broadcast license, which require a 75% vote). Certain fundamental corporate matters of these entities require 61% shareholder approval. Hungary In Hungary, the Company owns a 99% (increased from 89% in December 1998) equity interest in Budapesti Kommunikacios Rt ("TV3"), a television station distributing its signal via MMDS in Budapest and via satellite to cable systems throughout Hungary. The Company has the right to appoint all of the five members of the Board of Directors of TV3, all decisions of which require a simple majority. See Item 3 "Legal Proceedings" regarding the Company's consortium Irisz TV. The Company wholly owns Videovox Studio Limited Liability Company ("Videovox"), a Hungarian dubbing and duplication company. Corporate CME Development Corporation, a wholly owned subsidiary of the Company, provides financial, legal, marketing, business development and administrative support services to the Company. CME Programming Services, Inc., a wholly owned subsidiary of the Company, provides programming, production and satellite transmission services to the Company's television broadcast operations in Central and Eastern Europe. See "Corporate Operations." The Company's registered offices are located at Clarendon House, Church Street, Hamilton HM CX Bermuda, and its telephone number is 441-296-1431. Certain of the Subsidiaries maintain offices at 18 D'Arblay Street, London W1V 3FP England, telephone number 44-171-292-7900. Operating Environment Private commercial television stations (those which derive the majority of their revenues from the sale of advertising) generally began broadcasting in the United States in the 1940s, in most parts of Western Europe in the 1980s, but not until the 1990s in Central and Eastern Europe. Commercial television has become an important medium for advertisers in the more developed advertising markets. For example, in 1998 television advertising 7 expenditures totaled $44 billion in the United States and an aggregate of $25 billion in the 15 countries in the European Union. The Company believes that, over time, television advertising expenditures in Central and Eastern European countries, which are currently relatively low, will follow a pattern of development similar to that of Western Europe and the United States. The following two tables set forth (i) the population, number of TV households, per capita GDP and cable penetration for those countries of Central and Eastern Europe where the Company has broadcast operations and (ii) the recent growth in television advertising expenditures in those countries.
TV Per Capita GDP % Cable Country Population (1) Households (2) 1998 (3) Penetration (4) - ------- -------------- ------------------ -------- --------------- Czech Republic...................... 10.3 3.9 $5,490 17% Romania............................. 22.3 6.7 $1,830 44% Slovenia............................ 2.0 0.6 $9,240 40% Slovak Republic..................... 5.4 1.8 $3,960 30% Ukraine............................. 49.8 18.5 $810 12% Hungary............................. 10.2 3.7 $4,610 41% ------------------- ------------------- Total........................... 100.0 35.2 ==================== ===================
- -------------------- (1) Source: United States Bureau of the Census, February 1999. (2) Source: IP European Key Facts: Television '98. A TV household is a residential dwelling with one or more television sets. (3) Source: Economist Intelligence Unit (except Slovenia, Source: TV East Europe January 1999). (4) Source: IP European Key Facts: Television '98 (except Slovenia and Ukraine, Source: CME stations). Television Advertising Expenditures
Country 1993 1994 1995 1996 1997 1998 ------- ---- ---- ---- ---- ---- ---- US dollars (millions) ------------------------------------------------------------------------- Czech Republic................................... $ 67 $ 96 $ 135 $ 165 $ 163 $ 188 Romania.......................................... N/A 9 25 44 74 87 Slovenia ........................................ 15 23 30 35 39 51 Slovak Republic.................................. 15 18 26 39 47 56 Ukraine.......................................... N/A N/A 9 21 53 65 Hungary.......................................... N/A 158 150 158 167 183
Note: All figures are current Company estimates. "N/A" - estimates not available. European Regulations Access to the available frequencies is controlled by regulatory bodies in each country in which the Company operates. New awards of licenses to use broadcast frequencies occur infrequently. The European Union If any Central or Eastern European country in which the Company operates becomes a member of the European Union (the "EU"), the Company's broadcast operations in such country would be subject to relevant legislation of the EU, including programming content 8 regulations. The Czech Republic, Hungary, Romania, the Slovak Republic and Slovenia have entered into or signed Association Agreements with the EU and some or all of these countries may be admitted to the EU as early as 2002. The EU's Television Without Frontiers directive (the "EU Directive") sets forth the legal framework for television broadcasting in the EU. It requires broadcasters, where "practicable and by appropriate means," to reserve a majority proportion of their broadcast time for "European works." Such works are defined as originating from an EU member state or a signatory to the Council of Europe's Convention on Transfrontier Television, as well as written and produced mainly by residents of the EU or Council of Europe member states. In addition, the EU Directive provides for a 10% quota of either broadcast time or programming budget for programs made by European producers who are independent of broadcasters. News, sports, games, advertising, teletext services and teleshopping are excluded from the calculation of these quotas. Further, the EU Directive provides for regulations on advertising, including limits on the amount of time that may be devoted to advertising spots, including direct sales advertising. Member states are free to introduce stricter content requirements than those in the EU Directive for broadcasters within their jurisdiction. The Company intends to align its broadcast operations with any applicable EU legislation. The Company believes that the EU Directive, as currently drafted, will not have a material adverse effect on its operations. Council of Europe The Company's broadcast operations are all located in countries which are members of the Council of Europe, a supranational body through which international conventions are negotiated. In 1990, the Council of Europe adopted a Convention on Transfrontier Television, which provides for European programming content quotas similar to those in the EU Directive. This Convention has been ratified by some of the countries in which the Company operates (including Hungary and the Slovak Republic), but all countries in which the Company operates have already implemented its principles into their national media legislation. Corporate Operations The Company's London based central service organization provides each television operation with a central resource, particularly in the start-up or early development phase of any project. The service functions provided include development, programming services and advertising sales. Development CME Development Corporation ("CME Development") provides services to CME to assist it in managing the growth of its current operations, expanding its operations into new strategic markets, forming potential joint ventures and strategic alliances and executing acquisitions. CME Development also assists CME in identifying attractive markets for expansion as well as local partners in such markets, determines the vehicles through which, as well as the manner in which, the Company will enter such markets and oversees the implementation of these plans. Programming Services 9 Through CME Programming Services, Inc. ("CME Programming"), the Company provides an array of program-related services to its television operations in Central and Eastern Europe, including facilitating international contacts; program acquisition; schedule advisory; coordination of viewer research; exchange of best practices and expertise among the stations; various programming related studies and analyses; and legal advice. The Company has begun to, and intends to continue to, reduce overall program costs by co-ordinating the purchase of rights to films and programming on a regional basis, which the Company believes will provide it with significant advantages with international studios relative to national competitors. Advertising Sales The Company's advertising sales department initiates, develops and maintains relationships between individual stations and networks and multinational advertisers and advertising agencies. The advertising sales department also provides the Company's stations and networks with advertising sales training and marketing, pricing and operational expertise. Other The Company provides technical expertise and support relating to broadcasting and transmission for all of its operations. The Company also provides certain centralized financial and legal services for its broadcast operations, including financial planning and analysis, cost control and network management. As seen in the table below, the Company's stations have the leading position in five out of six markets.
Launch Date ----------- Technical 1998 Audience Rank in CME Station (1) Reach (2) Share (3) market (3) - --------------- --------- --------- ---------- Nova TV......................... February 1994 99% 51.7% 1 PRO TV.......................... December 1995 71% 38.0% 1 POP TV.......................... December 1995 84% 38.0% 1 Markiza TV...................... August 1996 92% 50.0% 1 Studio 1+1...................... January 1997 95% 32.2% 1 TV3............................. October 1997 41% 3.0% 4
- ------------------ (1) Second channels in Romania (Acasa) and Slovenia (Gajba TV) are not included in this table (2) Source: CME stations (3) Nationwide audience share and rank (except Romania, which is audience share and rank within coverage area).Source: (Czech Republic: Taylor Nelson AGB, Romania: CSOP Gallup, Slovenia: Gral Marketing, Slovak Republic: Visio/MVK, Ukraine: SOCIS Gallup/Peoplemeter AGB Ukraine, Hungary: AGB Hungary) Operations in the Czech Republic: Nova TV General The Czech Republic is a parliamentary democracy of approximately 10.3 million people, which the Company believes has developed a stable market economy. Per capita GDP was an estimated $5,490 in 1998. On March 12, 1999, the Czech Republic formally joined NATO. Prior to 1992, television advertising in the Czech Republic was limited to two 10 public channels. Since the onset of privatization activities in 1992, the Company estimates that the television advertising market in the Czech Republic has expanded to approximately $188 million in 1998. Nova TV is the leading commercial television station in the Czech Republic. Nova TV broadcasts pursuant to a 12 year license awarded to CET, which expires in January 2005. Nova TV reaches 99% of the Czech Republic's population. By adopting a different programming strategy than that historically followed by public television stations, including a mix of locally produced news and entertainment formats and film and television series acquired from international distributors, Nova TV has built and maintained significant market share during its first five years of operations. According to surveys undertaken by the independent polling agency Taylor Nelson AGB using Peoplemeter devices, Nova TV achieved an average nationwide audience share of 52% in 1998. Audience share represents the percentage of televisions turned on at a particular time which are tuned to a particular television station. Programming Nova TV's programming strategy is to appeal to a mass market audience. The station broadcasts for 20 hours daily, including locally produced news, sports (including coverage of the Czech Republic's national soccer league), variety shows and other programming, as well as a broad range of popular films and series from international distributors. In 1998, Nova TV aired 3,275 hours of original local programming, which primarily consisted of light entertainment formats and game shows, a daily breakfast show, news broadcasts and news related shows and current and public affairs programming. In 1998, such original local programming comprised approximately 44% of Nova TV's broadcast time. Nova TV has acquired exclusive broadcasting rights in the Czech Republic or in the Czech language to a number of successful American and Western European programs and films (e.g., "Beverly Hills 90210", "Melrose Place", "Stargate", "Hercules" and "X-Files") produced by such companies as MGM, Warner Bros., Columbia Tri-Star Television and Paramount. In addition, Nova TV has recently entered into a three year exclusive deal for broadcasting the Ice Hockey World Championships. Nova TV has agreements with CNN, Reuters and APTN to receive foreign news reports and film footage to integrate into its news programs. Nova TV produced and co-organized many special events in 1998 including the Music Academy Awards and Miss Czech Republic. All foreign language programs and films are dubbed into the Czech language except for film musicals, which are subtitled. Advertising Nova TV derives its revenues principally from the sale of commercial advertising time. In the Czech Republic most television advertising is sold through independent agencies and media buying groups. Nova TV currently serves over 200 advertisers, including large multinational advertisers such as Procter & Gamble, Unilever, Henkel and Nestle. In 1998, no single advertiser accounted for more than 10% of Nova TV's revenues. Nova TV is permitted to broadcast advertising for up to 10% of its broadcast time. In addition, a further 10% of broadcast time may be used for "direct sales" advertising. Its primary competitor, CT1, a public television station, is restricted to 1% of daily broadcast time for advertising. The Council for Radio and Television Broadcasting in the Czech Republic (the 11 "Czech Radio and Television Council") and the Act on the Operation of Radio and Television Broadcasting make certain distinctions between private and public broadcasters. For example, private broadcasters, such as Nova TV, are permitted to interrupt programming with advertising, while public broadcasters may not. Competition Nova TV competes principally with CT1, which reaches 100% of the population, for audience, programming and advertising. Nova TV competes on a more limited basis with CT2, a public network of regional frequencies which reaches approximately 95% of the Czech Republic's population and Prima TV, a privately owned and operated television station serving approximately 75% of the country's population. There are no other significant television stations broadcasting Czech language programming to the Czech Republic. Limited competition for viewers also comes from local and foreign stations transmitted through cable and satellite television. Approximately 17% of all Czech Republic households currently have cable television and approximately 15% receive direct-to-home satellite television. The media authorities in the Czech Republic have licensed several companies to provide cable television services to the Czech Republic. The largest is Kabel Plus, with over 440,000 subscribers in the Czech and Slovak Republics. Czech authorities require cable operators to carry all over-the-air broadcasting within their areas free of charge. Nova TV competes for revenues with other media, such as newspapers, radio, magazines, outdoor advertising, transit advertising, telephone directory advertising and direct mail. Regulation Nova TV and the terms of the license granted to CET are regulated by the Czech Radio and Television Council pursuant to recently amended legislation. The license was granted to CET by the Czech Radio and Television Council until January 2005. See "Corporate Structure--Czech Republic" for a description of certain potential disputes regarding Nova TV. Under Czech legislation and license terms, Nova TV is required to comply with certain restrictions on programming and advertising. In addition to the restrictions discussed above under "--Advertising," advertising is not permitted during children's programming or the evening news. Restrictions on advertising content include that (i) tobacco advertising is prohibited, (ii) advertising targeted at children before or after children's programming is prohibited if such advertising promotes behavior that would endanger the health, physical or moral development of children, (iii) advertising of alcoholic beverages is restricted but not prohibited and (iv) members of the news department of Nova TV are prohibited from appearing in advertisements. There are also restrictions on the frequency of advertising breaks within a program. Operations in Romania: PRO TV and Acasa General Romania is a parliamentary democracy of approximately 22.3 million people. Per capita GDP was an estimated $1,830 in 1998. Approximately 86% of Romanian households have one or more television sets, and cable penetration is approximately 44%. According to the Company's estimates, television advertising totalled approximately $87 million in 1998. 12 PRO TV is a national television broadcast network in Romania which was launched in December 1995. PRO TV reaches approximately 71% of the Romanian population of 22.3 million, including 94% of the urban population. PRO TV broadcasts from studios located in Bucharest via digitally encoded satellite signals which deliver programming to terrestrial broadcast facilities and to approximately 250 cable systems throughout Romania. The Company anticipates that PRO TV will be able to continue to increase its reach from current levels through utilizing additional regional licenses which have been granted to entities currently controlled by PRO TV, SRL and through affiliations with other local broadcasters and agreements with cable carriers. Independent research from CSOP Gallup International in Romania shows that PRO TV is currently the top-rated television station in its broadcast area, with an average television viewer share of approximately 38% for 1998. In February 1998, MPI launched Acasa, a station reaching approximately 54% of the Romanian population, including approximately 86% of the urban population via satellite and cable distribution. From February to December 1998 Acasa had an average television viewer share in its broadcast area of approximately 7%. The Company has a controlling interest in Media Vision and Video Vision. Media Vision is the leading television production company in Romania and produces a significant portion of PRO TV's entertainment programming, including gameshows, concerts, music videos and live special events, and performs dubbing. Media Vision produces advertising spots for third party clients such as Coca Cola, Colgate-Palmolive and L'Oreal. Video Vision, Romania's leading provider of television post-production and graphics, provides a significant portion of PRO TV's and Acasa's graphics. MPI also operates PRO FM, a radio network which is broadcast through owned and affiliate stations to approximately 9 million people in Romania. In 1998, PRO FM had an average audience share of 14.8% in the Bucharest area. Programming PRO TV's programming strategy is to appeal to a mass market audience through a wide range of programming, including movies and series, news, sitcoms, telenovellas, soap operas and game shows. PRO TV broadcasts 24 hours of programming daily. Approximately 40% of PRO TV's programming is comprised of locally produced programming, including, news and news related programs, sports, a breakfast show, game shows and talk shows. PRO TV has secured exclusive broadcast rights in Romania to a large number of quality American and Western European programs and films (e.g., "Ally McBeal", "NYPD Blue", "Seinfeld", "E.R.", "Soldier of Fortune" and "Melrose Place") produced by such companies as Warner Bros. and Fox. PRO TV also receives foreign news reports and film footage from Reuters, APTN and ENEX to integrate into its news programs. In 1998 PRO TV aired such special events as the MTV European Music Awards and the MTV Movie Awards, and provided coverage of the NBA. All foreign language programs and films are subtitled in Romanian. Acasa's programming strategy is to target a female audience on weekdays through programming including telenovellas, films and soap operas. Sunday programming consists mostly of sports events targeted to male viewers, including coverage of the United States Open tennis tournament. Acasa's viewer demographics are complementary to PRO TV's, 13 providing an attractive advertising medium for small to medium sized companies that would not otherwise advertise on television. There are two hours of local programming per week, including a cookery show and interviews. The most popular shows in 1998 were "The Bold and the Beautiful", "Sisters" and "Days of our Lives". Advertising PRO TV derives revenues principally from the sale of commercial advertising time, sold both through independent agencies and media buying groups. PRO TV currently serves approximately 450 advertisers, including multinational companies such as Unilever, Coca Cola, Henkel, Colgate and Procter & Gamble. No single advertiser dominates the market. PRO TV is permitted to broadcast advertising for up to 20% of its broadcast time in any hour, subject to an overall daily limit of 15% of broadcast time. An additional 5% of broadcast time may be used for direct sales advertising. There are also restrictions on the frequency of advertising breaks (for example, news and children's programs shorter than 30 minutes cannot be interrupted). These restrictions are the same for public and private broadcasters. Competition Prior to the launch of PRO TV, TVR 1, a public station, was the dominant broadcaster in Romania. In 1998, PRO TV achieved an average audience share of 38% in its coverage area, while TVR 1's 1998 average audience share in PRO TV's coverage area was approximately 17%. TVR 1 reaches 99% of the Romanian population. Other competitors include the second public national station, TVR 2, with a 70% broadcast reach, and privately owned Antena 1, Tele 7 ABC and Prima TV, which reach approximately 50%, 35% and 35% of the population, respectively. Additional competitors include cable and satellite stations. Cable and satellite currently penetrate approximately 44% and 9%, respectively, of the Romanian market respectively. PRO TV competes for advertising revenues with other media such as newspapers, radio, magazines, outdoor advertising, telephone directory advertising and direct mail. Regulation Licenses for the television stations which show programming provided by PRO TV and which broadcast advertising sold by PRO TV are regulated by Romania's National Audio-Visual Commission. PRO TV's television licenses have been granted for seven-year periods. Licenses which cover 17% of the Romanian population, including the license for Bucharest expire in 2001. The remaining licenses expire on dates ranging from 2002 to 2006. Under regulations established by the National Audio-Visual Commission and the various licenses of stations which broadcast PRO TV, programming and advertising provided by PRO TV is required to comply with certain restrictions. These restrictions include a requirement that at least 40% of programming be "own" produced. Regulations related to advertising content include (i) a ban on tobacco and restrictions on alcohol advertising, (ii) advertising targeted at children or during children's programming must account for the overall sensitivity of that age group and (iii) members of the news department of PRO TV are prohibited from appearing in advertisements. 14 Operations in Slovenia: POP TV and Gajba TV General Slovenia, a parliamentary democracy of 2.0 million people, had an estimated per capita GDP of approximately $9,240 in 1998, the highest among the former Eastern bloc countries. Approximately 97% of Slovenian households have one or more televisions. According to the Company's estimates, television advertising totalled $51 million in 1998. The national television broadcast network POP TV reaches approximately 84% of the population of Slovenia, including Ljubljana, the capital of Slovenia, and Maribor, Slovenia's second largest city. Independent research shows that in the areas of Slovenia in which POP TV can be seen, the network had an average television viewer share of approximately 45% for 1998, the largest share of television viewers in Slovenia. In October 1997, the Company launched Gajba TV, the Company's second television broadcast network in Slovenia. Gajba TV is operated through Pro Plus and provides programming to, and sells advertising for, its affiliate broadcasters. The Gajba TV signal is also carried by a cable channel operated by Tele 59 in Maribor. Gajba TV reaches approximately 49% of the population of Slovenia. In 1998 it had an average television viewer share of approximately 3.6% in its coverage area. Programming POP TV's programming strategy is to appeal to a mass market audience through a wide variety of programming including movies, news, variety shows, features and dramatic series. POP TV broadcasts for 19 hours of programming daily, of which approximately 28% is locally produced programming, including news, game shows, music shows and variety shows. POP TV has secured exclusive program rights in Slovenia to a number of successful American and Western European programs and films (e.g., "E.R.", "X-Files", "Friends", "Beverly Hills 90210", "Melrose Place") produced by studios such as Warner Bros., Fox and Worldvision. Special events aired in 1998 included the Academy Awards, Miss World and Formula One racing. Pro Plus has agreements with CNN, Reuters and APTN to receive foreign news reports and film footage to integrate into news programs. All foreign language programs and films are subtitled in Slovenian. Gajba TV's programming strategy is to complement the POP TV profile with a variety of series and features including sci-fi, adventure and youth series as well as hourly local community shows. Gajba TV broadcasts for 10 hours per day, and features movies and series from international distributors as well as locally produced news, variety shows and other programs. Advertising POP TV derives revenues principally from the sale of commercial advertising time. Current multinational advertisers include firms such as Master Foods, Henkel, Procter & Gamble, Wrigley and Colgate, though no one advertiser dominates the market. During 1998 "Peoplemeter" devices were placed in a number of television homes, although they are not yet the primary source for POP TV's rating information. POP TV is permitted to broadcast advertising for up to 15% of its daily broadcast time and there are also restrictions on the 15 frequency of advertising breaks during films and other programs. The same rules apply to its competitors. Competition Historically, the television market in Slovenia has been dominated by SLO 1, a national public television station. The other national public station, SLO 2 provides programming which is complementary to SLO 1. SLO 1 reaches nearly all of Slovenia's TV households, and SLO 2 reaches 95% of Slovenia's TV households. No national private television frequency has been made available in Slovenia. Two private television stations which compete with POP TV in Slovenia, Kanal A and TV3, have achieved a relatively small audience share, together less than 14%, due primarily to their low budget programming and lack of extensive news programming. POP TV also competes with foreign television stations, particularly Croatian, Italian, German and Austrian stations. Cable penetration at 40% is relatively high compared with other countries in Central and Eastern Europe and approximately 21% of households have satellite dishes. In addition, POP TV competes for revenues with other media, such as newspapers, radio, magazines, outdoor advertising, telephone directory advertising and direct mail. In July 1996, the Company, together with MMTV and Tele 59, entered into an agreement to purchase a 66% equity interest in Kanal A, a privately owned television station in Slovenia which competes with POP TV. There is currently an injunction in effect preventing the implementation of the Kanal A Agreement. See Item 3 "Legal Proceedings." Regulation The POP TV and Gajba TV network stations operate under licenses regulated pursuant to the Law on Public Media adopted in 1994 and pursuant to the Law on Telecommunications adopted in 1997. The licenses granted to POP TV's affiliate stations have been granted for 10-year terms expiring in 2003 with respect to licenses reaching 53% of the population and in 2006 and 2007 with respect to the remaining licenses. Under Slovenian television regulations, POP TV and its affiliate stations are required to comply with a number of restrictions on programming and advertising. These restrictions include that 10% of the station's broadcast time must be internally produced programming, certain films and other programs may only be broadcast between 11:00 p.m. and 6:00 am, and POP TV news editors, journalists and correspondents must not reflect a biased approach toward news reporting. In addition to the restrictions discussed above under "--Advertising," advertising is not permitted during news, documentary or children's programming under 30 minutes in duration, or during religious programming. Restrictions on advertising content include a prohibition on tobacco advertising and on the advertising of alcoholic beverages other than low alcohol content beer. Operations in the Slovak Republic: Markiza TV General 16 The Slovak Republic is a parliamentary democracy with a population of 5.4 million where nearly 100% of households have television. Per capita GDP was an estimated $3,960 in 1998. Television advertising increased approximately 19% in 1998 to $56 million, according to the Company's estimates, yet television advertising spending per capita in the Slovak Republic in 1998 was still only approximately 55% of that of the Czech Republic. Markiza TV was launched as a national television station in the Slovak Republic in August 1996. Markiza TV reaches approximately 92% of the Slovak Republic's population of 5.4 million, including virtually all of its major cities. According to independent research, Markiza TV had an average national television viewer share for 1998 of approximately 50% versus 18% for its nearest competitor, STV 1. See Item 3 "Legal Proceedings". Programming Markiza TV's programming strategy is to appeal to a broad audience with specific groups targeted in marginal broadcasting hours. Markiza TV provides an average of 19.5 hours of programming daily, including news, movies, entertainment programmes and sport (including coverage of European Champion's League soccer, Formula One racing and ice hockey). Approximately 38% of Markiza TV's programming is locally produced, including a daily breakfast show, game shows, talks shows and news. Markiza TV has secured exclusive broadcast rights in the Slovak Republic to a large number of popular United States and European programs and films (e.g., "E.R.", "Savannah", "Baywatch", "Love Boat", "Scarlet", "JAG") produced by major international studios including Warner Bros., Columbia Tri Star, Polygram, Paramount Pictures and Twentieth Century Fox. All foreign language programming is dubbed into the Slovak language. Markiza TV also receives foreign news reports and film footage from CNN, Reuters and APTN, which it integrates into news programs. Advertising Markiza TV derives revenues principally from the sale of commercial advertising time through media buying groups and independent agencies. Advertisers include large multinational firms such as Procter & Gamble, Henkel, Unilever, Wrigley and Benckiser. Television stations are permitted to broadcast advertising for up to 10% of total daily broadcast time and up to 20% of broadcast time in any single hour. Currently, approximately 60% of Markiza TV's advertising revenues are sourced from agencies based in the Czech Republic. The Company expects that a greater proportion of advertising revenues will be sourced from the Slovak Republic as the local advertising market develops. Competition The Slovak Republic is served by two national public television stations, STV1 and STV2, which dominated the ratings until Nova TV and Markiza TV began broadcasting in 1994 and 1996, respectively. STV1 and STV2 reach nearly all of the Slovak population. Nova TV's signal reaches approximately one-third of the Slovak Republic's population and its launch provided the first alternative in the country to public television. Nova TV has maintained its popularity in the Slovak Republic, with an approximately 10% audience share for 1998. Markiza TV also competes with VTV, a private satellite broadcaster reaching 47% of 17 the population; public television stations located in Austria, the Czech Republic and Hungary with signals that reach the Slovak Republic; additional foreign private television stations; and foreign satellite stations. Regulation Markiza TV's broadcast operations are subject to regulations imposed by the Act on Radio and Television Broadcasting, the Act on Advertising and conditions contained in the license granted by the Council of the Slovak Republic for Broadcasting and Television Transmission (the "Slovak Television Council"). The Slovak Television Council granted the license to operate Markiza TV to the Company's local partner in STS for a period of 12 years, expiring in September 2007, under terms requiring the Company's local partner to enter into a partnership with the Company to found STS. Under the license pursuant to which Markiza TV operates, Markiza TV is required to comply with several restrictions on programming. These restrictions include the following broadcast time rules: 40% must be Slovak production (increasing to a minimum of 51% in September 1999); 10% must be programming for children or youth; broadcasts of first run films and series must have a minimum of 47% European production (of which there must be a minimum of 8% Slovak production) and no more than 45% United States production; and no more than 40% of foreign first run films and series may be in the Czech language (decreasing to 20% by the fourth year of broadcasting). Markiza TV's programming is required to be consistent with the Slovak Constitution and not promote violence, hate, intolerance, or immoral behavior or intentionally use indecent language. Programming endangering the psychological or moral growth of children and youth cannot be broadcast between 6:00 am and 10:00 p.m., and Markiza TV's news broadcasts must be objective and balanced and clearly differentiate between opinion and news. In addition to the restrictions discussed above under "--Advertising", regulations relating to advertising content include that (a) the news may not be sponsored and news staff may not appear in advertisements (b) tobacco advertising is prohibited, (c) advertising for children or in which children perform and which promotes behavior endangering the health, psychological or moral development of children is prohibited, and (d) advertising which endangers the viewer's morality, health, safety and environmental protection is prohibited. The advertisement of beer is permitted; however, advertisement of other alcoholic beverage is prohibited. There are also restrictions on the frequency of advertising breaks within a program. Operations in Ukraine: Studio 1+1 Group General Ukraine, a parliamentary democracy of 49.8 million people, is the most populous market served by the Company. Nearly 100% of Ukrainian households have television, cable penetration is approximately 12% and satellite penetration is negligible. Per capita GDP of $810 for 1998 is the lowest of all the Company's markets, though television advertising in Ukraine grew by over 20% from $53 million in 1997 to $65 million in 1998. Studio 1+1 broadcasts programming and sells advertising on Ukrainian National Channel Two ("UT-2"), one of Ukraine's state-owned television channels. UT-2 reaches approximately 95% of Ukraine's population. Television advertising in Ukraine was $65 million 18 in 1998 ($1.30 per capita). According to independent research, average national audience share in 1998 was 32% for Studio 1+1, 29% for Inter and 10% for UT-1. Studio 1+1 began broadcasting on UT-2 in January 1997. Programming Studio 1+1's programming strategy is to appeal to a mass market audience. The station broadcasts for 12 hours per day, including locally produced news, variety shows, game shows and magazine programmes as well as a broad range of popular and high quality films from international distributors. In 1998, Studio 1+1 produced and co-produced approximately 1,200 hours of programming (or approximately 35% of total programming hours), which primarily consists of a daily breakfast show, news broadcasts and news related programmes, talk shows, karaoke, game shows, a sport magazine, lifestyle magazine and comedy shows. In 1998, such original local programming together with other Ukrainian programming considered local programming by Ukrainian laws comprised approximately 49% of Studio 1+1's total broadcast time. Studio 1+1 has secured exclusive territorial or local language broadcast rights in Ukraine to a large number of successful high quality American, Russian and Western European programs and films (e.g. "X-Files", "Beverly Hills 90210", "Chicago Hope", "Melrose Place", "E.R.", "Dr. Quinn", "Pretender", "Baywatch") from many of the major studios, including Twentieth Century Fox, Warner Bros., Paramount Pictures, Walt Disney, Universal Pictures, CBS International, Worldvision Enterprises and PolyGram. Special events aired include the Academy Awards ceremony, the soccer World Cup and Miss Europe '98. Studio 1+1 has agreements with Reuters, CNN and SNTV for foreign news packages and other footage to be integrated into its programming. All foreign language programs and films (other than those in the Russian language) are dubbed into the Ukrainian language. Studio 1+1 broadcasts more than 80% of its total air time in the Ukrainian language. Advertising Studio 1+1 derives revenues principally from the sale of commercial advertising time through both media buying groups and independent agencies. Advertisers include large multinational firms such as Procter & Gamble, Coca-Cola, Unilever, Nestle and Dandy. In 1998 Procter & Gamble accounted for 12% of advertising sales. Studio 1+1 is permitted to sell 15% of its overall broadcast time for advertising and is subject to restrictions on the frequency of advertising breaks. The advertising restrictions are the same for public and private broadcasters. Competition Ukraine is served by four television channels: UT-1, UT-2 (on which Studio 1+1 broadcasts) and UT-3, which are state owned, and ICTV, a private broadcaster. Studio 1+1, through UT-2, has a broadcast reach of 95% of the Ukrainian population. The state run station UT-1 has a broadcast reach of approximately 98% of the Ukrainian population. ICTV, a private station, reaches 32% of Ukraine's population. The private station Inter, through UT-3, has a broadcast reach of approximately 78% of the Ukrainian population. Inter's program schedule consists primarily of rebroadcasts of the Russian-language ORT network. Regulation 19 Studio 1+1 provides programming to UT-2 pursuant to a ten-year television broadcast license contract expiring in January 2007. Broadcasts of Studio 1+1's programming and advertising on UT-2 are regulated by the State Committee on Television and Radio of Ukraine and the National Council on Television and Radio of Ukraine. These agencies enforce Ukraine's media laws, which include restrictions on the content of programming and advertising and limitations on the amount and placement of advertising in programs. All advertising of alcohol and tobacco on TV is banned in Ukraine. Programming produced in Ukraine must account for at least 70% of all programming and programming produced by Studio 1+1 must account for 49% of all programming. Operations in Hungary: TV3 General Hungary is a parliamentary democracy of 10.2 million people and had an estimated per capita GDP of $4,610 in 1998. On March 12, 1999 Hungary formally joined NATO. According to the Company's estimates television advertising totalled $183 million in 1998. Cable and satellite penetration are currently at 41% and 24% respectively. The 41% of the Hungarian population reached by TV3 are predominately in urban areas, including Budapest, and represent approximately 66% of the country's purchasing power. TV3 is distributed via MMDS in Budapest and via satellite to cable systems throughout Hungary. TV3 reaches approximately 41% of Hungary's population. In 1998, TV3 had an average viewer share of approximately 6% in its coverage area. Programming TV3's programming strategy is to target a young urban audience. TV3 broadcasts for 16 hours per day, including four hours per day of the music channel VH1, locally produced news, magazines, sport (including soccer coverage of the English Premier League and Spanish Soccer League) and popular American films and series. TV3 produces original local programming, which primarily consists of news and news-related shows, a breakfast show and magazines on cinema, culture, science and music. Such local programming currently comprises 30% of total broadcast time. TV3 has exclusive broadcast rights in Hungary to a number of successful American and Western European programs and films (e.g. "Frasier", "Police Academy", "Beverly Hills 90210", "Melrose Place", "Dynasty", "Married with Children", "The Simpsons", "MASH"), produced or distributed by such companies as Warner Bros., Fox, Columbia, MGM, Paramount, Orion, Canal + and Polygram. Special events aired in 1998 include coverage of the NBA. TV3 has agreements with Reuters and APTN to receive international news footage. All acquired programming is dubbed into the Hungarian language. Advertising TV3 derives revenues principally from the sale of commercial advertising time through independent agencies and media buying groups. Advertisers include Procter & Gamble, Unilever, Henkel and Master Foods. As a commercial television station, TV3 is allowed to advertise for 20% of every hour of broadcast time with a maximum of 15% of daily broadcast time, compared to the public TV stations, which may only advertise for 10% of every hour of 20 broadcast time. There are restrictions on advertising breaks related to the length of program being broadcast. Competition The national public channels, MTV1 and MTV2, reach 98% and 55%, respectively, of the Hungarian population. The commercial national stations TV2 and RTL Klub, were launched in October 1997. TV2 reaches 93% of the population and is on the air for 19 hours per day. RTL Klub reaches 88% of the population and is on air for 18 hours per day. TV3 competes for revenue with other media, such as newspapers, radio, magazines, outdoor advertising, transit advertising, telephone directory advertising and direct mail. Regulation TV3 is distributed by MMDS (multi channel multipoint distribution service) and satellite and is not required to operate pursuant to a broadcast license. However, TV3 is recognized as a national broadcaster by the Hungarian National Radio and Television Commission and is therefore subject to the Hungarian Radio and Television Act. Advertisements on TV3 may not exceed 15% of daily broadcast time and 12 minutes per hour. At least 20% of total annual broadcast time (not including feature films, advertisements, news, live sports and game shows) must be Hungarian produced. At least 15% of total annual broadcast time must be programming commissioned or purchased from an independent Hungarian production company that is not more than five years old. Six percent of total annual advertising revenues must be used for the creation of new Hungarian films or, in the alternative, 3% of annual advertising revenues may be donated to a Hungarian film production fund. Advertising of tobacco and alcohol is forbidden. Hungary - IRISZ TV In 1997, the Company formed a consortium, MKTV Rt. ("IRISZ TV"), which submitted an application for a national television broadcast licenses in a license tender competition. Following the award of these licenses to other consortia, IRISZ TV filed a complaint in the Budapest Capital Court challenging the license awards. See Item 3 "Legal Proceedings." Seasonality The Company, like other television operators, experiences seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year, which includes the summer holiday period (typically July and August), and highest during the fourth quarter of each calendar year. Employees As of March 12, 1999, CME had a corporate operations staff of 39 employees (versus 70 as of December 31, 1997) and its Subsidiaries had a total of approximately 2,900 employees (versus 2,500 as of December 31, 1997). None of CME's employees or the employees of any of its Subsidiaries are covered by a collective bargaining agreement. The Company believes that its relations with its employees are good. Recent Developments 21 On March 18, 1999, the Company sold its equity interest in MobilRom S.A., a GSM cellular telephone network in Romania. On March 24, 1999, Frederic T. Klinkhammer was elected President and Chief Executive Officer of CME, effective as of such date. Mr. Klinkhammer also was appointed to CME's Board of Directors. Mr. Klinkhammer was previously Chief Operating Officer and Executive Vice President of the Company. Mr. Klinkhammer succeeds Michel Delloye who is leaving CME to pursue other business opportunities. On March 29, 1999, the Company entered into a Reorganization Agreement with SBS Broadcasting S.A. ("SBS"), which provides, among other things, for (a) the sale by the Company to SBS of all of the assets, business, properties and rights of the Company (consisting primarily of the stock of CME Media Enterprises B.V., an intermediate holding company wholly owned by CME); (b) the assumption by SBS of, and indemnification of the Company with respect to, all liabilities, obligations and commitments of the Company; (c) the issuance by SBS to the Company of a number of shares of SBS common stock, par value $1.50 per share ("SBS Stock"), equal to 0.5 times the total number of shares of the Company's Class A Common Stock and Class B Common Stock outstanding immediately prior to the closing of such transaction; and (d) the immediate commencement of the winding up of the Company and distribution of the SBS Stock so received by the Company to the shareholders of the Company (followed as soon as practical thereafter by the final dissolution of the Company). Accordingly, upon the closing of the transactions contemplated by the Reorganization Agreement, each shareholder of the Company would receive 0.5 shares of SBS Stock for each share of Common Stock of the Company owned by such shareholder. The foregoing transaction is intended to be accounted for as a purchase, and to qualify as a reorganization under Section 268(a) of the Internal Revenue Code (and thus to be tax-free for US tax purposes to the shareholders of CME). The closing of the transaction is subject to a number of conditions precedent, some of which are beyond the control of the Company, including the approval of the shareholders of SBS. Ronald S. Lauder, who controls approximately 69% of the vote of the Company, has entered into a Shareholders Agreement with SBS whereby he commits to vote his shares of Class A and Class B Common Stock in favor of the transaction. In the event that the transaction is not consummated, the Reorganization Agreement provides various rights to the Company and to SBS, depending upon the circumstances. Item 2. PROPERTIES CME Development Corporation leases office space in London in two locations. One lease covers approximately 4,347 square feet of space and expires in 2004, except that the Company can terminate the lease at its option in 1999, subject to penalty. The second lease, for 2,205 square feet of office space in a nearby building, expires in 2006. Nova TV occupies approximately 65,000 square feet, and modern studios have been constructed in the building, which is owned by CNTS. The Company has entered into an agreement on behalf of MPI which gives the Company the option to acquire the facility in Bucharest which contains PRO TV's studios for a purchase price of approximately $1.8 million. The Company owns a portion of a building in Ljubljana which contains POP TV's studios and offices. Videovox owns the building in Budapest in which its studios are located. STS owns its principal office facility near Bratislava. Studio 1+1 and TV3 both lease office and studio space. Item 3. LEGAL PROCEEDINGS The Company has been informed by CET that in May 1997, one of the owners of CET filed a claim against CET in the Regional Commercial Court of Prague alleging that CET did not satisfy all required procedures for approving certain transfers of CET ownership interests and requesting that such transfers be invalidated on the grounds that CET approved such transfers at procedurally deficient general meetings. The Court ruled in favor of the plaintiff. CET appealed the decision. The Company believes that the outcome of this action will not have an impact on the ownership structure of CET, as the transfers at issue were reconfirmed at subsequent general meetings of CET which have not been challenged. The Company has been informed by CET that on July 31, 1998, the Czech Radio and Television Council notified CET that the Council had initiated an administrative proceeding to investigate allegedly unbalanced reporting of information on Nova TV in violation of Czech broadcasting regulations. Under applicable Czech media laws, such a proceeding could result in fines, withdrawal of the Nova TV broadcast license from CET or both. The Company has been informed that the proceeding has been terminated and that the written decision of the Council will be issued during the second quarter of 1999. See Item 1 "Business--Corporate Structure--Czech Republic" for a description of certain potential disputes regarding Nova TV, CNTS and CET. In August 1998, Gamatex Ltd., a Slovak company, asserted that it had obtained 100% ownership of Markiza-Slovakia s.r.o. through an auction process arising out of an unsatisfied claim against Markiza-Slovakia s.r.o. Markiza-Slovakia s.r.o. holds the Markiza TV broadcast license and owns a 51% voting interest in STS. A number of legal proceedings are pending in the District Court of Bratislava and Regional Court of Bratislava in which the original owners of Markiza-Slovakia s.r.o. have claimed that Gamatex's ownership claims are not legally valid. 22 STS has joined Markiza-Slovakia s.r.o. in a number of such proceedings, in particular proceedings to (i) confirm the interests of the original owners of Markiza-Slovakia s.r.o.; (ii) declare invalid Markiza-Slovakia s.r.o. and STS shareholders' meetings called by Gamatex without proper notice; and (iii) declare invalid Gamatex's claim to ownership in Markiza-Slovakia s.r.o. In July 1996, the Company, together with MMTV and Tele 59, entered into an agreement to purchase a 66% equity interest in Kanal A, a privately owned television station in Slovenia (the "Kanal A Agreement"). Scandinavian Broadcasting System SA ("SBS"), which claims to have certain rights to the equity of Kanal A pursuant to various agreements, has challenged the validity of the CME-Kanal A Agreement in a United Kingdom court. The Court has enjoined both SBS and the Company from taking certain actions either to enforce such entity's claim to equity in Kanal A or to block the claim of the other entity to equity in Kanal A. The Company has instituted a number of actions in Slovene courts to resolve these claims. On April 30, 1997, Perekhid Media Enterprise Ltd. ("Perekhid") filed a complaint in the Supreme Court of New York County, State of New York, against CME and Ronald S. Lauder, the non-Executive Chairman of the Company's Board of Directors. Perekhid alleged that the issuance of a license to the Studio 1+1 Group pursuant to which Studio 1+1 has been broadcasting programming on Ukrainian National Channel 2 ("UT-2"), constitutes a tortious interference by CME and Mr. Lauder with a Perekhid contract with the Ukrainian authorities for Perekhid to provide programming for and sell advertising time on UT-2. Perekhid's complaint sought compensatory damages of $250 million, punitive damages of $500 million, and an injunction against the Company and Mr. Lauder to prevent the continuation of the alleged conduct. On July 2, 1997, CME and Mr. Lauder filed a motion to dismiss the complaint. On April 8, 1998, the Court dismissed the complaint on grounds of forum non-conveniens. In June 1998, Perekhid filed a notice of appeal with the Court. Perekhid failed to proceed with such appeal within nine months from the date it filed the notice of appeal and as a result the appeal lapsed automatically in March 1999. On February 19, 1999, Atlantic Group Limited (formerly known as Perekhid Media Enterprise Ltd.) initiated proceedings against CME in the High Court in London, seeking $81,772,759 in damages. Atlantic Group Limited alleges that CME conspired with others to use unlawful means to procure the termination of Atlantic Group Limited's right to provide programming and advertising sales on UT-2. On March 17, 1999, CME issued a summons to dismiss the London proceedings. The summons is expected to be heard later in 1999. In mid 1997, the Hungarian National Radio and Television Commission awarded two national television broadcast licenses to two consortia. The Company's consortium, IRISZ TV, was an unsuccessful bidder in the license tender process. On July 4, 1997, IRISZ TV filed a complaint in the Budapest Capital Court against the Hungarian National Radio and Television Commission and the two successful consortia, alleging that the Hungarian National Radio and Television Commission and the two successful consortia (i) violated the tender procedures in connection with the acceptance of bids; (ii) violated the integrity and fairness of the tender; and (iii) breached its own published guidelines in the bid evaluation process. On March 25, 1998, the Court denied IRISZ TV's claims. On May 8, 1998, IRISZ TV filed a notice of appeal with the Supreme Court of Hungary. In a decision released on February 22, 1999, the Supreme Court of Hungary reversed in part the decision of the trial court and ruled that the Hungarian National Radio and Television Commission acted illegally by (i) failing to exclude the bid of the consortium Magyar RTL Televizio Rt. ("RTL") which operates the channel RTL Klub, on grounds of invalidity arising from formal defects in the bid; (ii) entering 23 into an agreement with RTL; and (iii) deviating from its own published guidelines in the bid evaluation process. The Supreme Court stated that the Hungarian Media Act requires the Hungarian National Radio and Television Commission to terminate RTL's license agreements as a result of the Commission's illegal acts but stated that the Supreme Court could not issue a termination order because of the Commission's status as an administrative body of the state and that the legal consequences of the Commission's failure to abide by the Media Act are for the Hungarian Parliament to determine. The Hungarian National Radio and Television Commission recently publicly announced that it intends to request that the Constitutional Court of Hungary declare unconstitutional a provision of the Hungarian Media Act which the Supreme Court relied upon in part in its decision. The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. The Company is not presently a party to any such litigation which could reasonably be expected to have a material adverse effect on its business or operations. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 24 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS CME's Class A Common Stock began trading on the Nasdaq National Market on October 13, 1994 under the trading symbol "CETV." On March 17, 1999, the last reported sales price for the Class A Common Stock was $8.75. The following table sets forth the high and low sales prices for the Class A Common Stock for each quarterly period during the last two fiscal years of the Company and for the first quarter of 1999, as reported by the Nasdaq National Market: Price Period High Low - ------------ ---- --- 1997 First Quarter........................................... 37.125 31.250 Second Quarter.......................................... 32.750 23.500 Third Quarter........................................... 26.750 22.375 Fourth Quarter.......................................... 32.875 23.438 1998 First Quarter........................................... 29.125 21.375 Second Quarter.......................................... 29.313 20.000 Third Quarter........................................... 22.125 9.625 Fourth Quarter.......................................... 9.625 4.750 1999 First Quarter (through March 17, 1999).................. 10.125 6.875 At March 17, 1999, there were 34 holders of record (including brokerage firms and other nominees) and approximately 597 beneficial shareholders of the Class A Common Stock and seven holders of record of the Class B Common Stock. There is no established public trading market for the Class B Common Stock. DIVIDEND POLICY The Company has not declared or paid and has no present intention to declare or pay in the foreseeable future any cash dividends in respect to any class of its Common Stock. The Company's ability to pay cash dividends is primarily dependent upon receipt of dividends or distributions from its Subsidiaries over which it has limited control. In addition, the indentures which govern the Company's 9.375% Senior Notes Due 2004 and 8.125% Senior Notes Due 2004 restrict the ability of CME to declare and pay cash dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 6 SELECTED FINANCIAL DATA (Selected Financial Data begins on the following page and ends on the page immediately preceding Item 7). 25 SELECTED CONSOLIDATED FINANCIAL DATA (dollars in thousands, except per share data) The selected financial information presented below for the five years ended December 31, 1998 is derived from the audited Consolidated Financial Statements of the Company. The following selected financial information should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the years ended December 31, 1998, 1997 and 1996, included elsewhere herein.
Years Ended December 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Operating Data: (dollars in thousands) Net revenues................................... $182,367 $150,265 $135,985 $98,919 $53,566 Total station operating costs and expenses..... 146,275 98,651 85,101 52,542 36,083 Selling, general and administrative expenses... 28,806 22,953 21,357 7,725 6,009 Corporate operating costs and development expenses................................... 22,670 25,467 15,782 10,669 3,699 -------- -------- -------- ------- ------- Amortization of goodwill and allowance for development costs.......................... 16,809 14,845 2,940 3,442 985 Non-cash stock compensation charge............. -- -- -- 858 5,833 Capital registration tax....................... -- -- 809 1,375 -- Restructuring charge........................... 2,552 -- -- -- -- -------- -------- -------- ------- ------- Total operating expenses....................... 217,112 161,916 125,989 76,611 52,609 -------- -------- -------- ------- ------- Operating (loss) income........................ (34,745) (11,651) 9,996 22,308 957 Equity in loss of unconsolidated affiliates................................. (3,398) (10,340) (17,867) (14,816) (13,677) Loss on impairment of investments in unconsolidated affiliates (1).............. -- (20,707) -- -- -- Interest and other income...................... 7,624 10,113 2,876 1,238 179 Interest expense............................... (26,215) (16,122) (4,670) (4,959) (1,992) Foreign currency exchange (losses) gains ...... (8,412) (5,857) (2,861) 324 (245) -------- -------- -------- ------- ------- (Loss) income before provision for income taxes...................................... (65,146) (54,564) (12,526) 4,095 (14,778) Provision for income taxes..................... (15,856) (14,608) (16,405) (16,340) (3,331) -------- -------- -------- ------- ------- Loss before minority interest in consolidated subsidiaries............................... (81,002) (69,172) (28,931) (12,245) (18,109) Minority interest in loss (income) of consolidated subsidiaries.................. (156) 1,066 (1,072) (6,491) (2,396) -------- -------- -------- ------- ------- Net loss from continuing operations............ (81,158) (68,106) (30,003) (18,736) (20,505) Discontinued operations (2): Operating loss of discontinued operations...... (15,289) (16,986) -- -- -- Loss on disposal of discontinued operations.... (28,805) -- -- -- -- -------- -------- -------- ------- ------- Net loss....................................... $ (125,252) $ (85,092) $ (30,003) $(18,736) $(20,505) ========== ========= ========== ======== ======== Net loss per common share from: Continuing operations - basic and diluted.... $ (3.36) $ (2.85) $ (1.55) $ (1.28) Discontinued operations - basic and diluted.. (1.83) (0.71) -- -- -------- -------- -------- ------- $ (5.19) $ (3.56) $ (1.55) $ (1.28) ========== ======== ======== ======== Common shares used in computing per share amounts (000s) Basic and diluted.......................... 24,134 23,911 19,373 14,678 ========== ======== ======== ======== Other Data: Broadcast cash flow (3)........................ $27,048 $31,609 $ 41,444 $ 38,182 $ 12,233 Cash flow from operations...................... (28,380) (27,744) (3,044) 2,555 (1,532) Balance Sheet Data: Current assets....................... $ 155,108 $ 184,878 $ 146,159 $116,728 $ 71,447 Total assets......................... 385,466 451,683 365,130 222,027 115,332 Total debt........................... 232,057 231,937 55,096 20,285 32,592 Shareholders' equity................. 65,707 157,583 249,320 138,936 62,631
- ---------------------- 26 (1) On May 13, 1997, the Company announced its decision to discontinue funding of 1A TV Beteiligungsgessellschaft GmbH & Co. Betriebs KG ("1A TV"), which operated PULS, a regional television station in the Berlin-Brandenburg area of Germany. In May 1997, 1A TV declared bankruptcy. The Company wrote down its investments in Germany by $20,707,000 in 1997, thereby fully eliminating the carrying value of such investments. (2) During the fourth quarter of 1998, the Company sold its interests in the TVN television operations in Poland at a loss, resulting in the treatment of these interests and related operations as discontinued operations for all periods presented. The Company's financial statements have been restated for all periods presented in order to reflect the operations of Poland as discontinued operations. (3) "Broadcast cash flow", a broadcasting industry measure of performance, is defined as net broadcast revenues, less (i) station operating costs and expenses (excluding depreciation and amortization of acquired programming and of intangible assets), (ii) broadcast selling, general and administrative expenses, and (iii) cash program rights costs. Cash program rights costs are included in the period in which payment is made, which may not necessarily correspond to the timing of program use or amortization. Broadcast cash flow should not be considered as a substitute measure of operating performance or liquidity prepared in accordance with GAAP (see the accompanying Consolidated Financial Statements). Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The Company's revenues are derived principally from the sale of television advertising to local, national and international advertisers. To a limited extent, the Company engages in barter transactions in which its stations exchange commercial advertising time for goods and services. The Company, like other television operators, experiences seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year, which includes the summer holiday period, and highest during the fourth quarter of each calendar year. The primary expenses incurred in television operations are programming and production costs, employee salaries, broadcast transmission expenses and selling, general and administrative expenses. The Company has incurred and might in the future incur significant development expenses, including finding and negotiating with local partners, researching and preparing license applications, preparing business plans and conducting pre-operating activities, as well as reorganizing existing affiliate entities which hold the broadcast licenses. The primary internal sources of cash available for corporate operating costs and development expenses are dividends and other distributions from Subsidiaries. The Company's ability to obtain dividends or other distributions is subject to, among other things, restrictions on dividends under applicable local laws and foreign currency exchange regulations of the jurisdictions in which its Subsidiaries operate. The Subsidiaries' ability to make distributions is also subject to the legal availability of sufficient operating funds not needed for operations, obligations or other business plans and, in some cases, the approval of the other partners, shareholders or creditors of these entities. The laws under which the Company's operating Subsidiaries are organized provide generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital and required reserves and after the recovery of accumulated losses. Selected Combined and Attributable Financial Information The following two tables are neither required by United States generally accepted accounting principles ("GAAP") nor intended to replace the Consolidated Financial Statements prepared in accordance with GAAP. The tables set forth certain combined and 27 attributable financial information for the years ended December 31, 1998, 1997 and 1996 for the Company's operating entities. This financial information departs materially from GAAP. In the table "Selected Combined Financial Information," revenues and operating expenses of certain entities (Markiza TV and Studio 1+1) not consolidated in the Consolidated Statements of Operations during the periods shown, are aggregated with those of the Company's consolidated operations. In the table "Selected Attributable Financial Information", combined information is adjusted for CME's economic interest in each entity, which economic interest is the basis used for consolidation and equity method accounting in the Company's GAAP Consolidated Financial Statements as of December 31, 1998. The tables separate the results of the "Established Stations", which have national or nearly national coverage, from TV3, the Company's newest operation which reaches 41% of the Hungarian population. The tables are presented solely for additional analysis and not as a presentation of results of operations of each component, nor as combined or consolidated financial data presented in accordance with GAAP. See "Application of Accounting Principles". The following supplementary unaudited combined and attributable information includes certain financial information of Markiza TV and Studio 1+1 on a line-by-line basis, similar to that of the Company's consolidated entities. The 1998 $21,289,000 write-down of the TV3 program library, taken to reduce TV3's program library to the estimated net realizable value, is not reflected in the tables in order to provide a better indication of the underlying performance of TV3. In addition, intercompany transactions such as management service charges are not reflected in the tables. The Company believes that this unaudited combined and attributable information provides useful disclosure. The Established Stations refer to Nova TV, PRO TV, POP TV, Markiza TV and Studio 1+1. Nova TV began operations in February 1994. PRO TV and POP TV began operations in December 1995, Markiza TV began operations in August 1996 and Studio 1+1 began to generate significant revenues during the second quarter of 1997. Other Operations consist of Videovox, a Hungarian dubbing studio and duplication facility acquired by the Company in May 1996 and wholly-owned since May 1997, and Radio Alfa in the Czech Republic in which CME acquired a controlling interest in December 1996 and which ceased to provide services on December 31, 1998 and is being liquidated. TV3 began operations in October 1997. EBITDA consists of earnings before interest, income taxes, depreciation and amortization of intangible assets (which does not include programming rights). EBITDA is provided because it is a measure of operating performance commonly used in the television industry. It is presented to enhance an understanding of the Company's operating results and is not intended to represent cash flow or results of operations in accordance with GAAP for the periods indicated. The term "station expenses" used in the discussion of EBITDA immediately following the tables refers to the total of a station's (i) other operating costs and expenses, (ii) amortization of programming rights and (iii) selling, general and administrative expenses. "Broadcast cash flow", a broadcasting industry measure of performance, is defined as net broadcast revenues, less (i) station operating costs and expenses (excluding depreciation and amortization of acquired programming and of intangible assets), (ii) broadcast selling, 28 general and administrative expenses, and (iii) cash program rights costs. Cash program rights costs are included in the period in which payment is made, which may not necessarily correspond to the timing of program use or amortization. Broadcast cash flow should not be considered as a substitute measure of operating performance or liquidity prepared in accordance with GAAP (see the accompanying Consolidated Financial Statements). 29
SELECTED COMBINED FINANCIAL INFORMATION (1) (unaudited) ($000s) Year Ended December 31, -------------------------------------------------------------------------------------------------------- Net Revenue EBITDA Broadcast Cash Flow --------------------------------- ----------------------------- --------------------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- Nova TV.................. 108,826 99,163 109,242 54,887 49,921 53,441 47,489 48,326 53,128 PRO TV................... 41,937 30,155 15,803 (2,016) (1,298) (4,368) (3,069) (3,889) (5,290) Markiza TV .............. 37,793 31,296 7,462 2,483 5,259 (2,240) 2,634 4,044 (4,502) POP TV................... 22,122 14,989 9,080 (809) (1,613) (5,157) (2,015) (1,742) (6,394) Studio 1+1............... 23,598 16,661 - (2,047) 19 - (4,150) (1,419) - ------- ------ ------- ------ ------ ------ ------ ------ ------ Total Established Stations.............. 234,276 192,264 141,587 52,498 52,288 41,676 40,889 45,320 36,942 TV3 (2)............... 5,379 1,464 - (6,926) (3,086) - (15,215) (9,906) - Other Operations (3).. 4,103 4,494 1,860 (340) (799) (1,075) (340) (799) (1,075) ------- ------ ------- ------ ------ ------ ------ ------ ------ Total Combined Operations............ 243,758 198,222 143,447 45,232 48,403 40,601 25,334 34,615 35,867 ======= ======= ======= ====== ====== ====== ====== ====== ======
(1) Important information about this table appears under the heading "Selected Combined and Attributable Financial Information" immediately preceding this table. (2) TV3's EBITDA is without the impact of the $21,289,000 write-down in 1998 of the carrying value of capitalized costs of rights to program material. (3) Other operations include Radio Alfa and Videovox. 30
SELECTED ATTRIBUTABLE FINANCIAL INFORMATION (1) (unaudited) ($000s) Year Ended December 31, ----------------------------------------------------------------------------------------------------------------- Economic Net Revenue EBITDA Broadcast Cash Flow Interest (4) ------------------------------- ----------------------------- ---------------------------------- ----------- ------------------------------- ----------------------------- ---------------------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- Nova TV................ 99% 107,738 98,171 108,150 54,338 49,422 52,907 47,014 47,843 52,597 PRO TV................. 66% 27,678 19,902 10,430 (1,331) (857) (2,883) (2,026) (2,567) (3,491) Markiza TV............. 80% 30,234 25,037 5,970 1,986 4,207 (1,792) 2,107 3,235 (3,602) POP TV ...............85.5% 18,914 12,816 7,763 (692) (1,379) (4,409) (1,723) (1,489) (5,467) Studio 1+1..............60% 14,159 9,997 - (1,228) 11 - (2,490) (851) - ------- ------ ------- ------ ------- ------ ------ ------ ------- Total Established Stations.... 198,723 165,923 132,313 53,073 51,404 43,823 42,882 46,171 40,037 TV3 (2).............. 99% 5,325 1,449 - (6,857) (3,055) - (15,063) (9,807) - Other Operations(3). 100% 4,103 4,494 1,860 (340) (799) (1,075) (340) (799) (1,075) ------- ------ ------- ------ ------- ------ ------ ------ ------- Total Attributable Operations 208,151 171,866 134,173 45,876 47,550 42,748 27,479 35,565 38,962 ======= ======= ======= ====== ======= ====== ====== ====== =======
(1) Important information about this table appears under the heading "Selected Combined and Attributable Financial Information" immediately preceding this table. (2) TV3's EBITDA is without the impact of the $21,289,000 ($21,076,000 attributable in 1998) write-down of the carrying value of capitalized costs of rights to program material. (3) Other operations include Radio Alfa and Videovox. (4) Economic interest as of December 31, 1998. For comparison between the years ended December 31, 1998, 1997 and 1996, all results in this table are pro forma as if the December 31, 1998 percentages had also been in place during the years ended December 31, 1996 and 1997. See "Application of Accounting Principles" regarding the increase in the Company's interest in Studio 1+1 to 60%. 31 Combined EBITDA for the year ended December 31, 1998 compared to the year ended December 31, 1997 Established Stations The total combined EBITDA for the Established Stations increased by $210,000 from $52,288,000 for 1997 to $52,498,000 for 1998. The Russian financial crisis resulted in a number of advertisers reducing their advertising budgets in the fourth quarter of 1998 in many markets in Central and Eastern Europe, which adversely impacted net revenues at all of the Established Stations with the strongest impact in Ukraine (Studio 1+1) and Romania (PRO TV). Nova TV's EBITDA increased by $4,966,000, or 10%, to $54,887,000 for 1998, compared with $49,921,000 for 1997. Nova TV's net revenues increased by $9,663,000, or 10%, as a result of growth in the total television advertising market. This revenue growth was achieved despite difficulties in the Czech economy during 1998. Station expenses increased by a total of $4,697,000, or 9.5%, which primarily reflects inflationary pressures on prices and increased local production. POP TV's EBITDA improved from negative $1,613,000 for 1997 to negative $809,000 for 1998. Net revenues increased by $7,133,000, or 48%, to $22,122,000 for 1998 from $14,989,000 for 1997. The increase was a result of the growth of the overall television advertising market in Slovenia (from $39,000,000 in 1997 to $51,000,000 in 1998) and POP TV's increased audience share. POP TV's station expenses increased by $6,329,000, or 38%, for 1998 compared to 1997 primarily due to higher costs of acquired and locally produced programming. The cost of acquired programming increased primarily due to higher programming prices and the addition of Gajba TV, a second channel launched in October 1997. PRO TV's EBITDA decreased by $718,000 from negative $1,298,000 for 1997 to negative $2,016,000 for 1998. The decrease was primarily a result of an increase in station expenses, primarily attributable to costs associated with expansion of the network, including Acasa (the Company's second channel in Romania) launched in February 1998, higher prices of acquired programming and increased hours of self production. Net revenues for 1998 increased by $11,782,000, or 39%, over 1997 net revenues. During the fourth quarter of 1998, PRO TV's net revenues were negatively impacted by the Russian financial crisis, resulting in only 11% net revenue growth for fourth quarter 1998 over fourth quarter 1997. For comparison, first nine month 1998 net revenue was 46% higher than first nine month 1997 net revenue. Studio 1+1 recorded negative EBITDA of $2,047,000 for 1998 compared with positive EBITDA of $19,000 for 1997. Net revenues increased $6,937,000, or 42 %, from 1997 to 1998, due to an increase in Studio 1+1's audience share and significant growth in the Ukrainian television advertising market during the first eight months of 1998. The financial crisis in Russia negatively impacted the last four months of 1998 with fourth quarter net revenues $2,100,000, or 31%, lower than fourth quarter of 1997 net revenues. For comparison, first nine month 1998 net revenue was 92% higher than first nine month 1997 net revenue. Station expenses for 1998 were $9,003,000, or 54%, higher than in 32 1997 as Studio 1+1 did not reach full scale operational levels until the end of the third quarter of 1997. Markiza TV recorded an EBITDA decrease of $2,776,000 from $5,259,000 for 1997 to $2,483,000 for 1998. This decrease was primarily due to a programming library write-down of approximately $2,000,000 as well as higher production expenses due to an increase in production hours. Net revenues increased by $6,497,000, or 21%, reflecting Markiza TV's continued market leadership in ratings and advertising share. During the fourth quarter of 1998, Markiza's net revenues were adversely impacted by the Russian financial crisis and economic difficulties in the Czech Republic (approximately 60% of Markiza TV's advertising revenues are sourced from agencies based in the Czech Republic). TV3 TV3 in Hungary commenced operations in October 1997 and recorded negative EBITDA of $6,926,000 for 1998. The Company recorded a $6,664,000 write-down of TV3's program library in the fourth quarter of 1998 and a total write-down of $21,289,000 for 1998. Programming commitments were entered into in 1996 and 1997 in anticipation of the grant of a national license for Hungary. The Company was not granted a national license for Hungary and has been unable to enter into a partnership with the license winners during 1998. See Item 3, "Legal Proceedings". In light of TV3's distribution and audience share, the Company does not expect to be able to realize the full value of the program library. The carrying value of the capitalized costs of rights to program material has been adjusted down to its estimated net realizable value. The EBITDA reported on the table is before this write-down, as the Company believes it provides a better indication of the underlying performance of the station. Total Combined Operations The total Combined Operations EBITDA (before the write-down of TV3's programming library) decreased by $3,171,000 from $48,403,000 for 1997 to $45,232,000 for 1998. As described above, this decrease was primarily due to negative EBITDA reported by the Company's new operation in Hungary and the decrease in EBITDA of Markiza TV, Studio 1+1 and PRO TV, offset in part by the EBITDA improvements in CNTS and POP TV . Broadcast Cash Flow Differences between EBITDA and broadcast cash flow are the result of timing differences between programming use and programming payments. Application of Accounting Principles Although the Company conducts operations largely in foreign currencies, the Company prepares its consolidated financial statements in United States dollars and in accordance with GAAP. In CME's Consolidated Statements of Operations, consolidated entities include wholly-owned subsidiaries and the results of Nova TV, PRO TV, POP TV, 33 TV3, Videovox and Radio Alfa, and separately set forth the minority interests attributable to other owners of such companies. The results of Markiza TV, Studio 1+1 and the Company's former German regional television operations FFF, SFF and 1A TV have been accounted for using the equity method such that CME's interests in net earnings or losses of those operations is included in the consolidated earnings and an adjustment is made to the carrying value at which the investment is recorded on the Consolidated Balance Sheet. The Company records other investments at the lower of cost or market value. In late December 1998 the Company increased its equity interest in Studio 1+1 to a 60% controlling interest and, due to the timing of this transaction, the Studio 1+1 balance sheet is consolidated in the Company's Consolidated Balance Sheet as of December 31, 1998, but on the Company's Consolidated Statements of Operations and Consolidated Statements of Cash Flows, Studio 1+1 results are accounted for under the equity method through the date of consolidation (December 23, 1998). In the future, Studio 1+1 will be consolidated in all of CME's GAAP financial statements for all periods subsequent to the acquisition of this additional interest. 1A TV initiated a bankruptcy proceeding in May 1997. The Company terminated its ownership interests in FFF and SFF as of December 31, 1997. Foreign Currency The Company generates revenues primarily in Czech korunas ("Kc"), Romanian lei ("ROL"), Slovenian tolar ("SiT"), Slovak korunas ("Sk"), Hungarian forints ("HUF") and Ukrainian hryvna ("Hrn") and incurs expenses in those currencies as well as German marks, British pounds and United States dollars. The Romanian lei, Slovenian tolar, Ukrainian hryvna and Slovak koruna are managed currencies with limited convertibility. The Company incurs operating expenses for acquired programming in United States dollars and other foreign currencies. For entities operating in economies considered non-highly inflationary, including CNTS, POP TV, Markiza TV, Videovox, Radio Alfa, TV3 and certain Studio 1+1 entities, balance sheet accounts are translated from foreign currencies into United States dollars at the relevant period end exchange rate and statement of operations accounts are translated from foreign currencies into United States dollars at the weighted average exchange rates for the respective periods. The resulting translation adjustments are reflected in a component of shareholders' equity (in accumulated other comprehensive income (loss) ) with no effect on the consolidated statements of operations. PRO TV and certain Studio 1+1 entities operate in economies considered highly inflationary. Accordingly, non-monetary assets are translated at historical exchange rates, monetary assets are translated at current exchange rates and translation adjustments are included in the determination of net income. Currency translation adjustments relating to transactions of the Company in currencies other than the functional currency of the entity involved are reflected in the operating results of the Company. The exchange rates at the end of and for the periods indicated are shown in the table below. Balance Sheet Income Statement --------------------------------- ----------------------------------- At December 31, Weighted average for the years ending December 31, 1998 1997 % Change 1998 1997 % Change ---- ---- -------- ---- ---- -------- 34 Czech koruna equivalent of $1.00 29.86 34.64 13.8% 31.96 32.03 0.2% German mark equivalent of $1.00 1.67 1.80 7.2% 1.76 1.73 -1.7% Hungarian forint equivalent of $1.00 217 204 -6.4% 217 201 -8.0% Romanian lei equivalent of $1.00 10,983 8,023 -36.9% 8,863 7,077 -25.2% Slovak koruna equivalent of $1.00 36.91 34.78 -6.1% 35.20 33.64 -4.6% Slovenian tolar equivalent of $1.00 161.20 169.18 4.7% 165.99 160.37 -3.5% Ukrainian hryvna equivalent of $1.00 3.43 1.90 -80.5% 2.45 1.86 -31.7%
The Company's results of operations and financial position during 1998 were impacted by changes in foreign currency exchange rates since December 31, 1997. Results of Operations During the fourth quarter of 1998, the Company sold its interests in the TVN television operations in Poland at a loss, resulting in the treatment of these interests and related operations as discontinued operations for all periods described in Results of Operations. The Company's financial statements have been restated for all periods presented in order to reflect the operations in Poland as discontinued operations. Year ended December 31, 1998 compared to year ended December 31, 1997 CME's consolidated net revenues increased by $32,102,000, or 21%, to $182,367,000 for 1998 from $150,265,000, for 1997. Net revenues increased for each of the consolidated television operations (Nova TV, PRO TV, POP TV and TV3). However, the Russian financial crisis resulted in a number of advertisers reducing their advertising budgets in the fourth quarter of 1998 in many markets in Central and Eastern Europe, which adversely impacted net revenues at all CME stations. Nova TV, PRO TV and POP TV's net revenues improved primarily due to growth in their respective television advertising markets and despite the lingering effects of the Russian financial crisis on the advertising market in Romania and difficulties in the economy during 1998 in the Czech Republic. TV3 recorded net revenues of $5,379,000 in 1998, its first full year of operations. Total station operating costs and expenses (including amortization of program rights and depreciation of fixed assets and other intangibles) increased by $47,624,000, to $146,275,000 for 1998 from $98,651,000 for 1997. The increase is primarily attributable to increases in 1998 station operating costs and expenses of TV3 of $28,028,000, of which $21,289,000 reflects the write-down of the carrying value of TV3's capitalized costs of rights to program material to its estimated net realizable value. The increase in total station operating costs and expenses is also attributable to increases in operating costs and expenses at PRO TV of $13,137,000, POP TV of $5,012,000 and Nova TV of $2,757,000. PRO TV's station operating costs and expenses rose primarily as a result of expansion of network affiliates, higher prices of acquired programming and increased hours of self- production. In addition, programming amortization increased due to the second channel Acasa and depreciation increased due to the increase in network and broadcast equipment needed to expand the signal reach. Both Nova TV and POP TV's operating costs and expenses increases were primarily attributable to higher production 35 costs as a result of increased local production in response to audience demand and, in the case of POP TV, higher acquired programming costs due to an increase in programming prices. Station selling, general and administrative expenses increased by $5,853,000 to $28,806,000 for 1998 from $22,953,000 for 1997. The increase is primarily attributable to increases at PRO TV, TV3 (which commenced operations in October 1997) and POP TV. PRO TV's 1998 selling, general and administrative expenses were $2,763,000 higher as a result of administrative and marketing expenses related to the addition of Acasa and the development of production and post-production businesses. POP TV's selling, general and administrative expenses increased by $923,000 primarily due to increased marketing activity. Corporate operating costs and development expenses decreased by $2,797,000, or 11%, from $25,467,000 in 1997 to $22,670,000 in 1998 due to reduced development activity and lower corporate headcount. The increase in amortization of goodwill and allowance for development costs of $1,964,000, is primarily attributable to the write-off of goodwill associated with the Company's Hungarian operations and a provision against investments in Kanal A. In the second quarter of 1998, the Company recorded a restructuring charge of $2,552,000 based on its decision to change its focus from aggressive development and growth to further enhancing the operating performance of the Company's existing assets and pursuing opportunities for focused growth. The restructuring charge is comprised of severance and other associated costs. As a result of the above factors, the Company generated an operating loss of $34,745,000 for 1998 compared to an operating loss of $11,651,000 for 1997. Equity in loss of unconsolidated affiliates decreased by $6,942,000 to a loss of $3,398,000 for 1998 from a loss of $10,340,000 for 1997. This is a result of the Company's termination of its loss-making German operations as of December 31, 1997. Net interest and other income changed by $12,582,000 to negative $18,591,000 for 1998 from negative $6,009,000 for 1997. This was primarily attributable to a full year of interest expense related to CME's $100,000,000 principal amount 9.375% Senior Notes and DM 140,000,000 principal amount 8.125% Senior Notes, each due 2004, issued in August 1997 (collectively, the "Senior Notes"). The net foreign currency exchange loss increased to $8,412,000 for 1998 from $5,857,000 for 1997. The loss increased due to the effect of the appreciation of the German mark against the United States dollar on the Company's DM denominated Senior Notes and the effect of the appreciation of Czech koruna against the United States dollar on the Company's Czech koruna denominated loan with Ceska Sporitelna Bank ("CS"). This increase was offset in part by the effect of the appreciation of the Czech koruna on the Company's Czech koruna cash balances. 36 Provision for income taxes was $15,856,000 for 1998, an increase from $14,608,000 for 1997 due to an increase in CNTS's taxable income. Minority interest in income of consolidated subsidiaries was $156,000 in 1998 and minority interest in loss of consolidated subsidiaries was $1,066,000 in 1997. This results from changes in profitability and, to a lesser extent, changes in ownership of the consolidated subsidiaries. In December 1998, CME sold its interests in the TVN television operations in Poland to its former partner. The operating losses from the Company's Polish operations and the loss on the sale of the related assets appear on the Consolidated Statement of Operations under discontinued operations for both 1998 and 1997. As a result of these factors, the net loss of the Company was $125,252,000 for 1998 compared to $85,092,000 for 1997. Year ended December 31, 1997 compared to year ended December 31, 1996 The Company's net revenues increased by $14,280,000, or 11 %, to $150,265,000 in 1997 from $135,985,000 in 1996. The increase was primarily attributable to the increase in net revenues of PRO TV and POP TV and to the addition of the revenues of TV3 and Radio Alfa, offset by a decrease in net revenues of Nova TV. PRO TV's and POP TV's net revenues of $30,155,000 and $14,989,000, respectively, in 1997, reflect increases of $14,352,000, or 91%, and $5,909,000, or 65%, respectively. PRO TV's and POP TV's net revenues improved due to the growth in their respective television advertising markets and, to a lesser extent, increases in their audience shares. TV3 and Radio Alfa, which were not included in the Company's 1996 results, recorded net revenues of $1,464,000 and $1,808,000, respectively, for 1997. Videovox also contributed to the Company's net revenue growth with an increase of $939,000, or 55%, from $1,707,000 in 1996 to $2,646,000 in 1997. Nova TV's net revenues decreased by $10,079,000, or 9%, to $99,163,000 in 1997 from $109,242,000 in 1996. The decrease in Nova TV's United States dollar net revenues is due to the 18% devaluation of the Czech koruna against the United States dollar in 1997. Measured in local currency, Nova TV's net revenues from advertising sales increased by Kc 292,462,000, or 11%, which approximates the growth rate of the Czech television advertising market in local currency terms. Nova TV's United States dollar net revenues from advertising sales were approximately $16,750,000 lower than they would have been if the Czech koruna had remained unchanged against the United States dollar during 1997. Other revenues (principally barter and game show revenues) decreased by $4,093,000. Total station operating costs and expenses increased by $13,550,000, or 16%, to $98,651,000 in 1997 from $85,101,000 in 1996. The increase in total station operating costs and expenses is primarily attributable to increases in 1997 operating costs and expenses at PRO TV of $8,549,000, or 51.8%, to $25,047,000 and the addition of station operating costs and expenses of TV3 of $3,331,000. This increase was also attributable to 37 increases at POP TV of $2,654,000, or 20.8%, to $15,418,000 in 1997. PRO TV's and POP TV's operating costs and expenses rose as a result of increased expenses related to local production in response to increasing audience demand for local programming. This increase was partially offset by a decrease in Nova TV's operating costs and expenses in United States dollar terms from $54,578,000 to $50,796,000, primarily due to currency devaluation. In local currency terms, Nova TV's operating costs and expenses increased by Kc 141,994,000, or 10%, from Kc 1,484,849,000 to Kc 1,626,843,000, primarily due to higher salary and production costs in response to increased competition in the Czech television market. During 1997, Nova TV began production on various new entertainment formats to meet increasing audience demand for local programming. Station selling, general and administrative expenses increased by $1,596,000 to $22,953,000 in 1997 from $21,357,000 in 1996. This increase was primarily attributable to increases at PRO TV, which were primarily due to increased administrative costs associated with expansion of network affiliates, diversification into the production and post production businesses and increased marketing activity in response to competition entering the market. To a lesser extent, the increase in station selling, general and administrative expenses was attributable to the addition to the Company's results of TV3 and Radio Alfa in 1997. The increase was partially offset by a decrease in the selling, general and administrative expenses of Nova TV due to a lower bad debt provision in 1997 as a result of improvements in collecting receivables and the effect of the devaluation of the Czech koruna against the United States dollar. Corporate operating costs and development expenses for 1997 and 1996 were $25,467,000 and $15,782,000, respectively, an increase of $9,685,000, or 61%. The increase was primarily attributable to increased scope of operations and increased legal and consulting fees. Amortization of goodwill and allowance for development costs was $14,845,000 and $2,940,000 in 1997 and 1996, respectively. This increase was primarily attributable to the full-year amortization of goodwill related to the Company's purchase in August 1996 of an additional 22% economic interest in CNTS (the "Additional CNTS Purchase"), the Company's purchase in early 1997 of an additional 5.2% economic interest in CNTS (the "1997 CNTS Purchase") and the Company's purchase of a 5.8% economic interest in CNTS in August 1997 (the "Second 1997 CNTS Purchase"), together with the amortization of goodwill related to the Company's investment in Radio Alfa. As a result of the above factors, the Company generated an operating loss of $11,651,000 in 1997 compared to operating income of $9,996,000 in 1996. Equity in loss of unconsolidated affiliates decreased by $7,527,000 to $10,340,000 in 1997 from $17,867,000 in 1996 primarily as a result of the cessation of funding of 1A TV. Loss on impairment of investments in unconsolidated affiliates of $20,707,000 was a result of the write-down of the Company's investments in Germany. This write-down, together with losses incurred by the German operations, has resulted in a total charge of $27,389,000 to the Company's Consolidated Statements of Operations in 1997. 38 Net interest and other income decreased by $4,215,000 to negative $6,009,000 in 1997 from negative $1,794,000 in 1996. This decrease was attributable to interest expense related to CME's $100,000,000 principal amount 9.375% Senior Notes and DM 140,000,000 principal amount 8.125% Senior Notes, each due 2004, issued in August 1997 (collectively, the "Senior Notes"), together with the full-year impact of interest on the Company's borrowings with CS in connection with the Additional CNTS Purchase. The net foreign currency exchange loss of $5,857,000 in 1997 is primarily attributable to the devaluation of the local operating currencies against the United States dollar. These currencies devalued considerably more against the United States dollar in 1997 than in 1996. The net foreign currencies exchange loss was partially offset by a gain the Company realized on the Czech koruna debt funding for the Additional CNTS Purchase, which is not considered as a hedge against net investments in the Czech Republic. Provision for income taxes was $14,608,000 in 1997 versus $16,405,000 in 1996 as a result of the effect on Nova TV's taxable income of the devaluation of the Czech koruna against the United States dollar. Minority interest in loss of consolidated subsidiaries was $1,066,000 in 1997 and minority interest in income of consolidated subsidiaries was $1,072,000 in 1996. This increase was primarily the result of the Company's increased ownership in Nova TV, which continued to be profitable during 1997. In December 1998, CME sold its interests in the TVN television operations in Poland to its former partner. The operating losses from the Company's Polish operations for the year ended December 1997 have therefore been reclassified in the current year presentation as operating loss of discontinued operations. As a result of these factors,the net loss of the Company was $85,092,000 for 1997 compared to $30,003,000 for 1996. Programming Commitments in Hungary Programming commitments were entered into in 1996 and 1997 in anticipation of the grant of a national license for Hungary. The Company was not granted a national license for Hungary and has been unable to enter into a partnership with the license winners. In light of TV3's distribution and audience share, the Company does not expect to be able to realize the full value of the program library. Accordingly, the Company took write-downs with regard to commitments for programming rights for TV3 of $10,961,000, $3,664,000 and $6,664,000 for the second, third and fourth quarters of 1998. The Company currently estimates that it will take further write-downs of up to $7,593,000 with regard to future programming rights, of which approximately $2,129,000 is expected to be taken in 1999 and $5,464,000 is expected to be taken in 2000 as these obligations are incurred. Program rights acquired by the Company under license agreements, and the related obligations incurred are recorded as assets and liabilities when the programming is available for use and the license period begins which is in accordance with SFAS No. 63. See Item 3, "Legal Proceedings". 39 Liquidity and Capital Resources Net cash used in operating activities was $28,380,000 in 1998 compared to $27,744,000 in 1997. Net cash used in investing activities was $55,761,000 in 1998 compared to $109,834,000 in 1997. The decrease of $54,073,000 was primarily attributable to the lower investments made by the Company in its Polish operations in 1998 compared to 1997 and proceeds from the sale of its Polish operations to its former partner. Net cash provided by financing activities for 1998 was $22,796,000 compared to $161,330,000 in 1997. The decrease of $138,534,000 was primarily attributable to the issuance of CME's Senior Notes in August 1997 offset by the RSL equity investment in December 1998 (see below). In August 1997, CME issued the Senior Notes, which raised net proceeds of approximately $170,000,000. The Senior Notes are denominated in United States dollars, in part, and in German marks, in part. The United States dollar denominated Senior Notes bear interest at a rate of 9.375% per annum, and the German mark denominated Senior Notes bear interest at a rate of 8.125% per annum. The principal amount of the Senior Notes is repayable on their maturity date, August 15, 2004. The indentures governing the Senior Notes contain certain restrictions relating to the ability of CME and its Subsidiaries and affiliates to incur additional indebtedness, incur liens on assets, make investments in unconsolidated companies, declare and pay dividends (in the case of CME), sell assets and engage in extraordinary transactions. In December 1998, the Company received an equity investment of approximately $22,498,000 from RSL Capital LLC ("RSL"), a company wholly owned by Ronald S. Lauder, the non-executive Chairman of the Company's Board of Directors. RSL purchased 1,515,000 shares of the Company's Class B Common Stock for $15.00 per share. The purchase price per share is subject to adjustment as follows: If the last reported daily trading price of the Company's Class A Common Stock on NASDAQ does not equal or exceed $15.00 for at least 20 consecutive trading days during the period commencing November 13, 1998 and ending November 13, 1999 (the "Measurement Period"), the Company will issue additional shares of Class B Common Stock to RSL for no additional consideration so that the average per share price for the shares of the Company's Class B Common Stock acquired by RSL will equal the average last reported daily trading price of the Company's Class A Common Stock during the Measurement Period, provided, that, in no event shall the average price per share for the shares of the Company's Class B Common Stock acquired by RSL be less than $10.00 per share. On December 11, 1998, CME sold its interests in the TVN television operations in Poland to International Trading and Investments Holding S.A. ("ITI"), a company publicly traded on the Luxembourg Stock Exchange and the Company's partner in the TVN television operations. CME caused its subsidiaries to transfer to ITI and certain of ITI's affiliates all of CME's interests in the TVN operations together with certain outstanding receivables in exchange for $10 million in cash, a note in a principal amount of $40 million bearing interest at a rate of 5% per annum and maturing in December 2001 that is convertible into equity securities of ITI and exchangeable into similar debt securities of ITI, the release of a $10 million bank guarantee and the assumption by ITI of various 40 obligations of CME and its subsidiaries in respect of programming and satellites relating to the TVN operations. The note was recorded at a net present value of $19,836,000 due to the prevailing interest rates on similar instruments at the date of the transaction. Ronald S. Lauder, the non-executive Chairman of the Board of Directors of the Company, owns a non-controlling indirect minority interest in ITI. In May 1998, CNTS (Nova TV) declared a total dividend of Kc 550,000,000 ($16,963,000) of which the Company was paid Kc 525,010,000 ($16,192,000) during 1998. The remaining Kc 24,990,000 ($771,000) was paid to minority shareholders. As a result of the factors described above, the Company had cash and cash equivalents of $44,444,000 at December 31, 1998 compared to $104,490,000 at December 31, 1997. On August 11, 1997, the Company purchased a 5.8% interest in CNTS from certain of the partners of CET 21 (including Dr. Zelezny) for a purchase price of $28,537,000, to be paid in cash installments through February 15, 2000. As of December 31, 1998, the Company had paid $20,662,000 of the purchase price and is obligated to make further payments of $5,313,000 during 1999 and $2,562,000 during 2000. Each further payment is subject to increase to an amount equal to the value of such payment as if it had been invested in CME's Class A Common Stock at a purchase price of $23.375 per share. On August 1, 1996, the Company purchased CS's 22% economic interest and virtually all of CS's voting rights in CNTS for a purchase price of Kc 1 billion ($36,590,000). The Company also entered into a loan agreement with CS to finance 85% of the purchase price. The principal outstanding at December 31, 1998 was Kc 632,580,000 ($21,188,000). Quarterly repayments on the loan are required in the amount Kc 42,500,000 ($1,424,000) during the period from February 1999 through May 2002, and Kc 37,580,000 ($1,259,000) in August 2002. The Company expects CNTS's future cash requirements to continue to be satisfied through operating cash flows and available borrowing facilities. CNTS has a line of credit with CS for up to Kc 250,000,000 ($8,374,000) bearing interest at a rate 0.5% over the Prague Interbank Offer Rate ("PRIBOR"). This facility is secured by CNTS's equipment, vehicles and receivables. In October 1997, CNTS entered into a Kc 500,000,000 ($16,748,000) line of credit with ING Bank N.V. The line of credit, which may be drawn in Czech koruna, German marks or United States dollars, bears interest at a rate of 0.5% over the interbank offered rate for the applicable currency and matures in October 1999. CNTS had no borrowings under these facilities at December 31, 1998. In June 1997 in connection with CNTS's acquisition of Nova TV's main studios and offices, CNTS assumed obligations under a loan from CS (the "CS Loan") secured by a mortgage on the studios and offices. The CS Loan provides for quarterly payments of Kc 16,500,000 ($553,000), plus interest equal to three month PRIBOR plus 1.0%, to be paid through December 1999. As of December 31, 1998, the outstanding balance under the CS Loan was Kc 60,000,000 ($2,010,000). In February 1998, Markiza TV entered into a revolving credit facility with Bank Austria. The facility is for Sk 100,000,000 ($2,709,000) and matures in September 2000. 41 This facility is secured by Markiza TV's land and buildings. Bank Austria has notified Markiza TV that this facility is not available for draw-down as a result of the dispute regarding the ownership of Markiza-Slovakia s.r.o., the company which holds the Markiza TV broadcast license. The unavailability of this facility has had no material impact on Markiza TV's business to date. See Part I, Item 3 "Legal Proceedings". In April 1998, POP TV entered into a multicurrency $5,000,000 loan agreement with Creditanstalt AG which matures in May 2005. As of December 31, 1998, the outstanding balance under the loan was $3,554,000. The loan is secured by the land, buildings and equipment of POP TV and is guaranteed by CME. PRO TV has two borrowing facilities with Tiriac Bank in Romania. The first facility consists of a $2,000,000 line of credit which matures in June 2000. At December 31, 1998, $1,290,000 was outstanding under this facility. The second facility is a long-term loan for $4,000,000 which matures in December 2002. At December 31, 1998, $3,654,000 was borrowed under this facility. These facilities are secured by PRO TV's equipment and vehicles. TV3 has borrowings of HUF 279,000,000 ($1,286,000) from a local Hungarian bank. The loan matures in December 2000 and is secured by pledges of certain fixed assets of TV3. The Company has loaned $400,000 to TV3 since December 31, 1998. The Company has made approximately $385,000 in cash programming payments on behalf of TV3 since December 31, 1998, and has additional cash programming payments due for TV 3 in the amount $10,863,000, $4,567,000 and $4,567,000 for 1999, 2000 and 2001. It is anticipated that the Company will lend up to an additional $2,000,000 to TV3 throughout 1999. On February 26, 1999, the Company entered into a $15,000,000 secured revolving Credit Facility with ING Bank N.V. (the "ING Facility"). The ING Facility is for a term of three years and the commitment level is to be reduced in four equal semi-annual instalments starting in June 2000. The ING Facility is secured by the assets of a wholly-owned subsidiary of the Company, which holds the Company's interest in CNTS, and will be repaid from the dividends of CNTS. The rate of interest charged on the ING Facility is based on the ratio of the Company's indebtedness to CNTS's broadcast cash flow and may range from 3.75% to 2.50% over United States dollar LIBOR. The availability of the ING Facility is subject to the satisfaction of various conditions which have not yet been met. On March 18, 1999, the Company added to its cash balances by receiving net proceeds of approximately $39,000,000 from the sale of its 9.6% stake in MobilRom in Romania. The laws under which CME's operating Subsidiaries are organized provide generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves and after the recovery of accumulated losses. In the case of the Company's Dutch and Netherlands Antilles subsidiaries, the Company's voting power is sufficient to compel the making of distributions. The Company's voting power is sufficient to compel CNTS to make distributions. In the case of PRO TV, distributions may be paid from the profits of PRO TV subject to a reserve of 5% of annual profits until the aggregate reserves equal 20% of PRO TV's registered capital. A majority vote can compel PRO TV to make distributions. There are no legal reserve requirements in Slovenia. In the case of Markiza TV, distributions may be paid from net profits subject to an initial reserve requirement of 10% of net profits until the reserve fund equals 5% of registered capital. Subsequently, the reserve requirement is equal to 5% of net profits until the reserve fund equals 10% of registered capital. The Company's voting power in Markiza TV is not sufficient to compel the distribution of dividends. The Company's voting power in the Studio 1+1 Group is sufficient to compel the distribution of dividends. In the case of TV3, the Company's voting interest is sufficient to compel the payment of dividends. There are no legal reserve requirements in Hungary. 42 Except for the Company's working capital requirements, the Company's future cash needs will depend on the Company's financial performance and its future acquisition and development decisions. The Company continues to invest in its existing broadcast operations and might engage in the development of additional broadcast operations. The Company incurs certain expenses in identifying and pursuing broadcast opportunities before any investment decision is made. The Company believes that taken together its current cash balances (including cash received from the MobilRom sale in March 1999), internally generated cash flow and local financing of broadcast operations should be adequate to satisfy the Company's operating and capital requirements for its current operations for the next 12 to 18 months. To acquire additional broadcast rights or to fund other significant investments, the Company would require significant additional financing. Year 2000 Issue The "Year 2000 Issue" consists of computer programs and embedded technology in equipment defining years using the last two digits rather than all four digits of the applicable year and could result in the complete or partial failure of computer applications and equipment with embedded technology by or at the year 2000. The Company has established a Year 2000 compliance plan and timetable. A Committee chaired by the Company's Chief Operating Officer and comprised of technical personnel from each of the Company's television operations is overseeing the process. The Company has undertaken and expects to complete by mid-1999 (i) a systems and equipment review (both the Company's and that of third party vendors), (ii) an assessment of compliance costs and (iii) a plan for business continuity in the event that full compliance is not attainable and then proceed through implementation, testing and management. Based upon the Company's current estimates, incremental out-of-pocket costs of its Year 2000 program are expected to be immaterial. These costs are expected to be incurred primarily in fiscal 1999 and include third-party consultants, remediation of existing computer software and replacement and remediation of embedded chips. Such costs do not include internal management time, the effect of which is not expected to be material to the Company's results of operations or financial condition. The Company's broadcast operations are highly dependent upon equipment with embedded computer technology (cameras, mixing equipment, broadcast equipment, etc.), the widespread failure of which would have a material adverse impact on the Company's 43 results of operations. The Company will continually review its progress against its Year 2000 plans. Accounting rules require Year 2000 compliance costs to be expensed as incurred. Euro Conversion As part of the European Economic and Monetary Union (EMU), a single currency, the euro, will replace the national currencies of many of the member countries of the European Union. Although the Company does not currently conduct business in any of the countries which are adopting the euro, it holds debt denominated in German marks, one of the currencies scheduled to be replaced by the euro. Additionally, it is expected that several of the countries in which the Company operates are likely to join EMU at some point in the future. The conversion rates between the euro and the participating nations' currencies were fixed irrevocably as of January 1, 1999 and the participating national currencies will be removed from circulation between January 1, and June 30, 2002 and replaced by euro notes and coinage. During the "transition period" from January 1, 1999 through December 31, 2001, public and private entities as well as individuals may pay for goods and services using either checks, drafts, or wire transfers denominated in euro or the participating country's national currency. Under the regulations governing the transition to a single currency, there is a "no compulsion, no prohibition" rule which states that no one is obliged to use the euro until the notes and coinage have been introduced on January 1, 2002. In keeping with this rule, the Company expects to be euro "compliant" (able to receive euro denominated payments and able to invoice in euros as requested by vendors and suppliers, respectively) by the time national currencies are removed from circulation. The cost of software and business process conversion is not expected to be material. Forward-looking Statements Statements made in "Programming Commitments in Hungary" and "Liquidity and Capital Resources" regarding future investments in existing television broadcast operations, business strategies, commitments and the future need for additional funds from outside sources are forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, could differ materially from those described in or contemplated by the forward-looking statements. Important factors that contribute to such risks include the ability to acquire programming, the ability to attract audiences, the rate of development of advertising markets in countries where the Company currently operates, including the continuing impact of the Russian financial crisis on the economies of these countries, and general market and economic conditions in these countries. Important factors with respect to discussions and negotiations described in "Corporate Structure-Czech Republic" include legal and regulatory conditions in the Czech Republic. Important factors with respect to completion of the Company's Year 2000 compliance plan include the outcome of the Company's systems and equipment review and the extent to which Company and third party systems are found to be out of compliance. Item 7a. Quantitative and Qualitative Disclosures About Market Risk 44 The Company conducts business in a number of foreign currencies. As a result, it is subject to foreign currency exchange rate risk due to the effects that foreign exchange rate movements of these currencies have on the Company's costs and on the cash flows it receives from certain subsidiaries. Several of the Company's subsidiaries hold long-term debt under credit facilities that provide for interest at a spread above a basis rate (such as LIBOR). A significant rise in these basis rates would not materially adversely affect the Company's business, financial condition or results of operations. The Company does not utilize derivative financial instruments to hedge against changes in interest rates. The Company believes that it currently has no material exposure to market risk associated with activities in derivative or other financial instruments. In limited instances the Company enters into forward foreign exchange contracts to hedge foreign currency exchange rate risk. See Note 11 to the Consolidated Financial Statements. At December 31, 1998, CNTS was party to two foreign exchange contracts for the purchase of an aggregate of $1,000,000. The Company's value at risk from holding such contracts at December 31, 1998 was immaterial. On August 11, 1997, the Company purchased a 5.8% interest in CNTS from certain of the partners of CET 21 for a purchase price of $28,537,000, to be paid in installments through February 15, 2000. As of December 31, 1998, the Company had paid $20,662,000 of the purchase price and is obligated to make further payments of $5,313,000 during 1999, and $2,562,000 during 2000. Each further payment is subject to increase to an amount equal to the value of such payment as if it had been invested in CME's Class A Common Stock at the date of the closing of the purchase at a purchase price of $23.375 per share. At December 31, 1998, no such increase has accrued because the trading price of CME's Class A Common Stock was less than $23.375. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Financial Statements and Supplementary data begin on the following page and end on the page immediately preceding Item 9.) 45 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Central European Media Enterprises Ltd.: We have audited the accompanying consolidated balance sheets of Central European Media Enterprises Ltd. as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Central European Media Enterprises Ltd. as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with United States generally accepted accounting principles. ARTHUR ANDERSEN & CO. Hamilton, Bermuda March 29, 1999 46 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997 ($000s) ASSETS December 31, --------------------------- 1998 1997 ---- ---- CURRENT ASSETS: Cash and cash equivalents...................... $ 44,444 $ 104,490 Restricted cash................................ 67 800 Accounts receivable (net of allowances of $3,271, $3,658)........................... 41,237 37,437 Program rights costs........................... 29,632 22,950 Advances to affiliates......................... 11,058 8,527 Other short-term assets........................ 28,670 10,674 ---------- ---------- Total current assets......................... 155,108 184,878 Investments in unconsolidated affiliates....... 29,357 45,796 Investments.................................... - 12,951 Net assets of discontinued operations.......... - 44,587 Loans to affiliates............................ 9,514 12,293 Property, plant and equipment (net of depreciation of $50,477, $31,047)........... 66,282 56,553 Program rights costs........................... 21,206 12,851 License costs and other intangibles (net of amortization of $6,813, $4,282).............. 6,502 6,208 Goodwill (net of amortization of $33,968, $16,124)..................................... 70,196 66,451 Note receivable (Note 1)....................... 20,071 - Other assets................................... 7,230 9,115 ---------- ---------- Total assets................................. $385,466 $ 451,683 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities....... $ 69,187 $ 46,071 Duties and other taxes payable................. 11,722 10,612 Income taxes payable........................... 1,157 2,308 Current portion of credit facilities and obligations under capital leases............. 10,313 8,310 Dividends payable.............................. - 996 Investments payable............................ 12,281 14,182 Advances from affiliates....................... 2,533 566 ---------- ---------- Total current liabilities.................... 107,193 83,045 Deferred income taxes.......................... 302 170 Long-term portion of credit facilities and obligations under capital leases............. 23,296 24,204 Investments payable............................ 2,563 7,875 $100,000,000 9 3/8 % Senior Notes.............. 99,875 99,853 DM 140,000,000 8 1/8 % Senior Notes............ 83,729 77,513 Other Liabilities.............................. 2,099 199 Minority interest in consolidated subsidiaries................................. 702 1,241 Commitments and contingencies (Note 11) SHAREHOLDERS' EQUITY: Class A Common Stock, $0.01 par value: authorized: 100,000,000 shares at December 31, 1998 and December 31, 1997; issued and outstanding: 181 169 18,070,789 at December 31, 1998 and 16,934,894 at December 31, 1997............ Class B Common Stock, $0.01 par value: authorized: 15,000,000 shares at December 31, 1998 and December 31, 1997; issued and outstanding 76 71 7,577,329 at December 31, 1998 and 7,064,475 at December 31, 1997............ Additional paid-in capital..................... 356,378 332,386 Accumulated deficit............................ (288,348) (163,096) Accumulated other comprehensive income (loss).. (2,580) (11,947) ---------- ----------- Total shareholders' equity.............. 65,707 157,583 ---------- ----------- Total liabilities and shareholders' equity................................ $ 385,466 $451,683 ========== =========== The accompanying notes are an integral part of these consolidated financial statements. 47 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED STATEMENTS OF OPERATIONS ($000s, except per share data) For the years ended December, 31 -------------------------------- 1998 1997 1996 ---- ---- ---- Gross revenues $ 234,878 $ 194,373 $ 170,114 Discounts and agency commissions (52,511) (44,108) (34,129) ---------- ---------- ---------- Net revenues 182,367 150,265 135,985 STATION EXPENSES: Other operating costs and expenses 73,993 60,697 50,188 Amortization of programming rights 55,226 22,770 21,599 Depreciation of station fixed assets and other intangibles 17,056 15,184 13,314 ---------- ---------- ---------- Total station operating costs and expenses 146,275 98,651 85,101 Selling, general and administrative expenses 28,806 22,953 21,357 CORPORATE EXPENSES: Corporate operating costs and development expenses 22,670 25,467 15,782 Amortization of goodwill and allowance for development costs 16,809 14,845 2,940 Capital registration tax - - 809 Restructuring charge (Note 4) 2,552 - - ---------- ---------- ---------- 42,031 40,312 19,531 ---------- ---------- ---------- Operating (loss)/income (34,745) (11,651) 9,996 Equity in loss of unconsolidated affiliates (3,398) (10,340) (17,867) Loss on impairment of investments in unconsolidated affiliates - (20,707) - Net interest and other income (18,591) (6,009) (1,794) Foreign currency exchange loss, net (8,412) (5,857) (2,861) ---------- ---------- ---------- Loss before provision for income taxes, minority interest and discontinued operations (65,146) (54,564) (12,526) Provision for income taxes (15,856) (14,608) (16,405) ---------- ---------- ---------- Loss before minority interest and discontinued operations (81,002) (69,172) (28,931) Minority interest in (income)/loss of consolidated subsidiaries (156) 1,066 (1,072) ---------- ---------- ---------- Net loss from continuing operations (81,158) (68,106) (30,003) Discontinued operations: Operating loss of discontinued operations (15,289) (16,986) - Loss on disposal of discontinued operations (28,805) - - ---------- ---------- ---------- (44,094) (16,986) - ---------- ---------- ---------- Net loss $(125,252) $ (85,092) $ (30,003) ========== ========== ========== PER SHARE DATA Net loss per share (Note 3) Continuing operations - Basic and diluted $ (3.36) $ (2.85) $ (1.55) Discontinued operations - Basic and diluted (1.83) (0.71) - ---------- ---------- ---------- Net $ (5.19) $ (3.56) $ (1.55) ========== ========== ========== Weighted average common shares used in computing per share amounts: Basic and diluted 24,134 23,911 19,373 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 48
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) For the Period from December 31, 1995 to December 31, 1998 ($000s, except per share data) Accumulated Class A Class B Other Total Comprehensive Common Common Capital Treasury Accumulated Comprehensive Shareholders' Income Stock Stock Surplus Stock Deficit Income Equity (Loss) (a) (Loss) (b) ------------- -------- -------- -------- -------- ----------- ------------- --------------- BALANCE, December 31, 1995 103 81 187,997 (2,476) (48,001) 1,232 138,936 Comprehensive income (loss): Net Loss (30,003) (30,003) (30,003) Other comprehensive income (loss): Unrealized translation adjustments (4,462) (4,462) (4,462) -------------- Comprehensive loss (34,465) ============== Stock issued: Retirement of Treasury Stock (2) - (2,474) 2,476 - - - Capital contributed by shareholders, net of costs of $8,177 66 (9) 144,792 - - - 144,849 ------ ---- ------- ----- -------- -------- -------- BALANCE, December 31, 1996 167 72 330,315 - (78,004) (3,230) 249,320 Comprehensive income (loss): Net Loss (85,092) (85,092) (85,092) Other comprehensive income (loss): Unrealized translation adjustments (8,717) (8,717) (8,717) -------------- Comprehensive loss (93,809) ============== Stock issued: Capital contributed by shareholders 2 (1) 2,071 - - - 2,072 ------ ---- ------- ----- -------- -------- -------- BALANCE, December 31, 1997 169 71 332,386 - (163,096) (11,947) 157,583 Comprehensive income (loss): Net Loss (125,252) (125,252) (125,252) Other comprehensive income (loss): Unrealized translation adjustments 9,367 9,367 9,367 -------------- Comprehensive loss (115,885) ============== Stock issued: Capital contributed by shareholders, net of costs of $227 12 5 23,992 - - - 24,009 ------ ---- -------- ----- -------- -------- -------- BALANCE, December 31, 1998 181 76 356,378 - (288,348) (2,580) 65,707 ====== ==== ======== ===== ======== ======== ========
(a) Of the accumulated deficit of $288,348 at December 31, 1998, $85,164 represents accumulated losses in unconsolidated affiliates. (b) Represents foreign currency translation adjustments. The accompanying notes are an integral part of these consolidated financial statements. 49 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD CONSOLIDATED STATEMENTS OF CASH FLOWS ($000s)
For the years ended December 31, ------------------------------------------ 1998 1997 1996 ----- ----- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(125,252) $(85,092) $(30,003) Adjustments to reconcile net loss to net cash used in operating activities: Equity in loss of unconsolidated affiliates 3,398 10,340 17,867 Loss on impairment of investments in unconsolidated affiliates - 20,707 - Depreciation and amortization (excluding amortization of barter 90,732 51,634 33,288 programs) Discontinued operations 44,094 16,986 - (Profit) loss on disposal of investment - (2,255) - Minority interest in income (loss) of consolidated subsidiaries 156 (1,066) 1,072 Valuation allowance for development costs - 1,125 714 Foreign currency exchange loss, net 8,412 5,857 2,861 Accounts receivable 1,185 (6,619) (4,881) Cash paid for program rights (52,520) (35,006) (24,072) Advances to affiliates (1,102) (5,479) (3,334) Other short-term assets (2,906) (2,605) (1,702) Accounts payable and accrued liabilities 5,255 2,823 8,297 Income and other taxes payable 168 906 (3,151) ------------- ------------- ------------- Net cash used in operating activities (28,380) (27,744) (3,044) ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in unconsolidated affiliates (7,148) (8,264) (45,884) Other investments (34) (5,133) (3,600) Investments in discontinued operations (26,513) (51,065) (7,093) Cash proceeds from disposal of discontinued operations 10,000 - - Restricted cash 733 1,949 1,467 Acquisition of fixed assets (15,088) (15,322) (17,801) Acquisition of minority interest (9,930) (16,950) (5,607) Purchase of business, net of cash acquired - (2,471) (4,895) Loans and advances to affiliates (6,001) (8,827) (16,705) Payments for license costs, other assets and intangibles (1,780) (3,630) (1,343) Development costs - (121) (18,936) ------------- ------------- ------------- Net cash used in investing activities (55,761) (109,834) (120,397) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Credit facilities and payments under capital leases (2,354) (9,834) 1,409 Dividends paid to minority shareholders (1,777) (3,090) (3,575) Advances received from affiliates 950 - - Repayment of advances by affiliates - - (2,081) Issuance of debt, net of related costs - 169,572 - Capital contributed by shareholders 24,009 2,072 144,849 Other long term liabilities 1,968 (42) 137 Investments by minority shareholders in consolidated subsidiaries - 2,652 - ------------- ------------- ------------- Net cash provided by financing activities 22,796 161,330 140,739 ------------- ------------- ------------- IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH 1,299 (665) 243 ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents (60,046) 23,087 17,541 CASH AND CASH EQUIVALENTS, beginning of period 104,490 81,403 63,862 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS, end of period $44,444 $104,490 $81,403 ============= ============= ============= SUPPLEMENTAL INFORMATION Cash paid for: Interest $ 20,375 $ 5,648 $ 4,590 Income Taxes $ 16,613 $24,072 $22,048 The accompanying notes are an integral part of these consolidated financial statements.
50 1. ORGANIZATION AND BUSINESS See Note 15, "Sale Transaction". Central European Media Enterprises Ltd., a Bermuda corporation ("CME"), was formed in June 1994. CME has been in operation since 1991. CME, together with its subsidiaries and affiliates (CME and its subsidiaries and affiliates are collectively referred to as the "Company"), invests in, develops, and operates national and regional commercial television stations and networks in Central and Eastern Europe. The Company currently owns a 99% voting and economic interest in Ceska Nezavisla Televizni Spolecnost s.r.o. ("CNTS"), with the remaining 1% voting and economic interest in CNTS held by CET 21 s.r.o. ("CET"). CET holds a terrestrial television broadcast license in the Czech Republic that expires in January 2005. Dr. Vladimir Zelezny, the General Director of both CET and CNTS, owns a controlling 60% participation interest in CET. CNTS is governed by a Memorandum of Association and Investment Agreement. The Company has the right to appoint five of the seven members of CNTS's Committee of Representatives, which directs the affairs of CNTS. A representative of CET has certain delay and veto rights on non-economic programming matters related directly to the broadcast license. CNTS provides television and related services to CET, which broadcasts the Nova TV signal, pursuant to a Services Agreement with CET dated May 21, 1997 (the "Services Agreement"). In consideration for its activities under the Services Agreement, CNTS is entitled to retain revenues from sales of advertising on Nova TV less a monthly fee paid to CET. On March 19, 1999, CET provided CNTS with a copy of a letter, dated March 15, 1999 addressed to Dr. Zelezny as executive of CET and signed by the Chairman of the Czech Media Council, in which the Czech Media Council takes positions that appear inconsistent with the existing relationship between CNTS and CET. Among other things, the Czech Media Council has questioned the exclusive nature of the commercial relationship between CNTS and CET and the manner in which CET enters into certain broadcasting-related contracts. CME believes that the structure of Nova TV and the contracts and business dealings between CET and CNTS are in compliance with all applicable Czech laws and regulations. However, there can be no assurance that the Czech Media Council will conclude, as it has in the past, that such dealings are in compliance and there can be no assurance that the Czech Media Council will not require modifications of the arrangements between CET and CNTS. In this connection, CME has recently been engaged in discussions and negotiations with Dr. Zelezny regarding the relationship between CNTS and CET, including with respect to actions taken and proposed to be taken by CET concerning the acquisition of programming for CET and other matters with which CNTS disagrees. On behalf of CET, Dr. Zelezny has requested certain modifications in the CNTS Memorandum of Association and Investment Agreement and the Services Agreement, which modifications CME is resisting. CME has proposed to Dr. Zelezny alternative arrangements that it believes would solidify CNTS's contractual relationship with CET and satisfy Dr. Zelezny's concerns regarding the existing arrangements. However, there can be no assurance that CME and CNTS will be able to reach a satisfactory agreement with CET and Dr. Zelezny. CME and CNTS intend to take all available actions to protect their legal rights and financial interests in connection with Nova TV, and it is possible that the current disagreements with Dr. Zelezny could result in protracted litigation. If the Czech Media Council were to require significant changes in the current arrangements between CNTS and CET, or if the differences between CNTS and CET cannot be resolved, one or more material adverse affects on the business and financial condition of CNTS and CME could result, including a substantial reduction in the economic benefits currently enjoyed by CNTS and CME and, potentially, a termination of the existing commercial relationship between CNTS and CET. 51 The Company owns a 76% interest in Radio Alfa a.s. v likvidoci ("Radio Alfa"), which ceased operations on December 31, 1998 and is being liquidated. In Romania, the Company and its local partners operate PRO TV, a commercial television network, and a second channel, Acasa, through Media Pro International S.A. ("Media Pro International"). The Company owns a 66% equity interest in Media Pro International. The Company owns 49% of the equity of PRO TV, SRL, an affiliate station of Media Pro International holding many of the licenses for the stations comprising the PRO TV network. On March 18, 1999 the Company sold its 9.6% equity interest in MobilRom, a GSM cellular network in Romania, held through Unimedia, a holding company. In Slovenia, the Company operates POP TV, together with MMTV d.o.o. Ljubljana ("MMTV") and Tele 59 d.o.o. Maribor ("Tele 59"), through Produkcija Plus d.o.o. ("Pro Plus"). Under the names POP TV and Gajba TV, Pro Plus provides programming to, and sells advertising for, affiliated stations. The Company owns 78% of the equity of Pro Plus, but has an effective economic interest of 85.5% as a result of a 33% economic interest in MMTV and a 33% economic interest in Tele 59. Tele 59 owns a 21% equity interest in Pro Plus, and the remaining 1% equity interest in Pro Plus is owned by MMTV. The Company also owns a 20% interest in Meglic Telecom d.o.o. ("MTC") a cable operator in Ljubljana which owns a 67% economic interest in MMTV. In the Slovak Republic, the Company owns an 80% non-controlling economic interest and a 49% voting interest in Slovenska Televizna Spolocnost s.r.o. ("STS"), which operates the national television station Markiza TV. Markiza-Slovakia s.r.o., the broadcast license holder, and STS have entered into an agreement pursuant to which STS is entitled to provide exclusive commercial television services to Markiza-Slovakia s.r.o. In Hungary, the Company owns a 99% equity interest in Budapesti Kommunikacios Rt. ("TV3"), a television station operating in Budapest distributing its signal by satellite to cable systems throughout Hungary. The Company wholly owns Videovox Studio Limited Liability Company ("Videovox"), a Hungarian dubbing and duplication company and owns 24.9% of the equity of 2002 Tanacsado es Szolgaltato Korlatolt Felelosegu Tarsasag ("2002 Kft"), a broadcasting company. In Ukraine, the Company owns a 60% interest in a group of companies (collectively, the "Studio 1+1 Group"), which have the right to broadcast programming and sell advertising on Ukrainian National Channel 2 ("UT-2"). In December 1998, CME sold its interests in the TVN television operations in Poland to International Trading and Investments Holding S.A. ("ITI") in exchange for $10 million in cash, a note in a principal amount of $40 million bearing interest at a rate of 5% per annum and maturing on December 10, 2001 that is convertible into equity securities of ITI and exchangeable into similar debt securities of ITI, the release of a $10 million bank guarantee and the assumption by ITI of various obligations of CME and its subsidiaries in respect of programming and satellites relating to the TVN operations. The note was recorded at a net present value of $19,836,000 due to the prevailing interest rates on 52 similar instruments at the date of the transaction. Ronald S. Lauder, the non-executive Chairman of the Board of Directors of the Company, owns a non-controlling indirect minority interest in ITI. This transaction resulted in the treatment of these interests and related operations as discontinued operations for all periods presented in the accompanying financial statements. The accompanying financial statements have been restated for all periods presented in order to reflect the Company's Polish operations as discontinued operations. 2. FINANCING OF OPERATING AND CAPITAL NEEDS In 1998, the Company continued to use the cash proceeds from the Senior Notes issued in 1997. In December 1998, the Company received an equity investment of approximately $22,498,000 from RSL Capital LLC ("RSL"), a company wholly owned by Ronald S. Lauder, the non-executive Chairman of the Company's Board of Directors. RSL purchased 1,515,000 shares of the Company's Class B Common Stock for $15.00 per share. The purchase price per share is subject to adjustment as follows: If the last reported daily trading price of the Company's Class A Common Stock on NASDAQ does not equal or exceed $15.00 for at least 20 consecutive trading days during the period commencing November 13, 1998 and ending November 13, 1999 (the "Measurement period"), the company will issue additional shares of Class B Common Stock to RSL for no additional consideration so that the average per share price for the shares of the Company's Class B Common Stock acquired by RSL will equal the average last reported daily trading price of the Company's Class A Common Stock during the Measurement Period, provided, that, in no event shall the average price per share for the shares of the Company's Class B Common Stock acquired by RSL be less than $10.00 per share. The Company had cash of $44,373,000 and marketable securities of $71,000 at December 31, 1998 to enable it to finance its future activities. Dividends from Consolidated Subsidiaries and Unconsolidated Affiliates The laws under which CME's operating Subsidiaries are organized provide generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves and after the recovery of accumulated losses. In the case of the Company's Dutch and Netherlands Antilles subsidiaries, the Company's voting power is sufficient to compel the making of distributions. The Company's voting power is sufficient to compel CNTS to make distributions. In the case of PRO TV, distributions may be paid from the profits of PRO TV subject to a reserve of 5% of annual profits until the aggregate reserves equal 20% of PRO TV's registered capital. A majority vote can compel PRO TV to make distributions. There are no legal reserve requirements in Slovenia. In the case of Markiza TV, distributions may be paid from net profits subject to an initial reserve requirement of 10% of net profits until the reserve fund equals 5% of registered capital. Subsequently, the reserve requirement is equal to 5% of net profits until the reserve fund equals 10% of registered capital. The Company's voting power in Markiza TV is not sufficient to compel the distribution of dividends. The Company's voting power in the Studio 1+1 Group is sufficient to compel the distribution of dividends. In the case of TV3, the Company's voting interest is sufficient to compel the payment of dividends. There are no legal reserve 53 requirements in Hungary. In the Company's history, the only dividend received from any of the Company's Subsidiaries are those received from CNTS. General The Company believes that taken together its current cash balances (including cash received from the MobilRom sale in March 1999), internally generated cash flow and local financing of broadcast operations should be adequate to satisfy the Company's operating and capital requirements for its current operations for the next 12 to 18 months. To acquire additional broadcast rights or to fund other significant investments, the Company would require significant additional financing. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The significant accounting policies are summarized as follows: Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company's wholly-owned subsidiaries and the results of Nova TV, PRO TV, POP TV, TV3, Videovox and Radio Alfa (the "Consolidated Affiliates"), as consolidated entities and reflect the interests of the minority owners of these entities for the years presented, as applicable (Note 1). The results of Markiza TV (the "Unconsolidated Affiliates") in which the Company has, or during the periods presented had, minority or non-controlling ownership interests, are included in the accompanying Consolidated financial statements using the equity method. The results of the Studio 1+1 Group are consolidated in the 1998 balance sheet, but are included in the Consolidated Statements of Operations under the equity method through December 23, 1998, the date at which CME increased its ownership interest to 60% and began to consolidate the Studio 1+1 Group. Revenue Recognition Revenues primarily result from the sale of advertising time and are recognized in the period in which advertising is aired. Barter Transactions Revenue from barter transactions (television advertising time provided in exchange for goods and services) is recognized as income when commercials are broadcast, and programming, merchandise or services received are charged to expense or capitalized as appropriate when received or used. The Company records barter transactions at the estimated fair market value of goods or services received. In cases where bartered programs can only be obtained through a barter agreement, the Company values the barter at the value of the asset conveyed in exchange for the programs. In other cases where the Company has elected 54 to enter into barter agreements as an alternate method of payment, strictly for economic reasons, the Company values the barter agreement at the value of the asset received. If merchandise or services are received prior to the broadcast of a commercial, a liability is recorded. Likewise, if a commercial is broadcast by the Company's station prior to receiving the merchandise or services, a receivable is recorded. Cash and cash equivalents Cash and cash equivalents includes unrestricted cash in banks and highly liquid investments with original maturities of less than three months. Restricted cash (restricted for guarantees to third parties or vendors) at December 31, 1998 and 1997 is $67,000 and $800,000 respectively. Long-lived assets The Company periodically evaluates its long-lived assets using projected undiscounted future cash flows and operating income for each subsidiary. Program Rights and Production Costs Program rights acquired by the Company under license agreements and the related obligations incurred are recorded as assets and liabilities when the program is available and the license period begins. The assets are amortized using straight-line and accelerated methods based on the estimated period of usage, ranging from one to five years. The unamortized cost of such rights and liability for future payments under these agreements are included in the accompanying Consolidated Balance Sheets. Amortization estimates for program rights are reviewed periodically and adjusted prospectively. Payments made for program rights in which the license period has not begun before year end are classified as prepaid expenses. Production costs for self-produced programs are expensed when first broadcast except where the programming has potential to generate future revenues. When this is the case, production costs are capitalized and amortized on the same basis as programming obtained from third parties. Intangible Assets Intangible assets include goodwill, broadcast license, license acquisition costs and capitalized debt costs. Goodwill represents the Company's excess cost over the fair value of net assets acquired and is being amortized on a straight-line basis over the estimated useful life of the assets. Amounts recognized to date have been amortized over periods ranging from 2 to 8 1/2 years from the original date of acquisition. License costs and other intangibles reflect the costs of acquiring licenses to broadcast and the excess of the Company's investment above the Company's share of net assets received from newly formed, consolidated entities as well as the amounts paid to secure licenses. Broadcast license costs are capitalized and amortized over the life of 55 the related license. License acquisition costs are amortized over the lives of the related licenses which range from 5 to 10 years. These costs are reviewed for impairment whenever events or circumstances provide evidence that suggests that the carrying amount of license acquisition costs may not be recoverable. Capitalized debt costs represent the costs incurred in connection with obtaining debt financing. These costs are amortized over the life of the related debt instrument. Fair Value of Financial Instruments The Company accounts for the fair value of financial instruments in accordance with SFAS No. 107, 'Disclosures about Fair Value of Financial Instruments'. To meet the reporting requirements of SFAS No. 107, the Company calculates the fair value of financial instruments and includes this additional information in the notes to financial statements when the fair value is different from book value of those financial instruments. When the fair value is equal to the book value, no additional disclosure is made. The Company uses quoted market prices whenever available to calculate these fair values. When quoted market prices are not available, the Company uses standard pricing models for various types of financial instruments which take into account the present value of estimated future cash flows. At December 31, 1998 and 1997, the carrying value of all financial instruments (primarily loans payable and receivable and, in limited circumstances, foreign exchange contracts) approximated fair value. Income Taxes Deferred income taxes are provided on temporary differences between financial statement and taxable income. The primary sources of these differences are depreciation, amortization and tax losses carried forward. Foreign Currency Translation The Company generates revenues primarily in Czech korunas ("Kc"), Romanian lei ("ROL"), Slovenian tolar ("SiT"), Slovak korunas ("Sk"), Hungarian forints ("HUF") and Ukrainian hryvna ("Hrn") and incurs expenses in those currencies as well as German marks, British pounds and United States dollars. The Romanian lei, Slovenian tolar, Ukrainian hryvna and Slovak koruna are managed currencies with limited convertibility. The Company incurs operating expenses for acquired programming in United States dollars and other foreign currencies. For entities operating in economies considered non-highly inflationary, including CNTS, POP TV, Markiza TV, Videovox, Radio Alfa, TV3 and certain Studio 1+1 entities, balance sheet accounts are translated from foreign currencies into United States dollars at the relevant period end exchange rate; statement of operations accounts are translated from foreign currencies into United States dollars at the weighted average exchange rates for the respective periods. The resulting translation adjustments are reflected in a component of shareholders' equity with no effect on the consolidated statements of operations. PRO TV and certain Studio 1+1 entities operate in economies considered highly inflationary. Accordingly, non-monetary assets are translated at historical exchange rates, monetary assets are translated at current exchange rates and translation adjustments are included in the determination of net income. Currency translation adjustments relating to 56 transactions of the Company in currencies other than the functional currency of the entity involved are reflected in the operating results of the Company. The exchange rates at the end of and for the periods indicated are shown in the table below.
Balance Sheet Income Statement --------------------------------- -------------------------------------- At December 31, Weighted average for the year ending December 31, 1998 1997 % Change 1998 1997 % Change ---- ---- -------- ---- ---- -------- Czech koruna equivalent of $1.00 29.86 34.64 13.8% 31.96 32.03 0.2% German mark equivalent of $1.00 1.67 1.80 7.2% 1.76 1.73 -1.7% Hungarian forint equivalent of $1.00 217 204 -6.4% 217 201 -8.0% Romanian lei equivalent of $1.00 10,983 8,023 -36.9% 8,863 7,077 -25.2% Slovak koruna equivalent of $1.00 36.91 34.78 -6.1% 35.20 33.64 -4.6% Slovenian tolar equivalent of $1.00 161.20 169.18 4.7% 165.99 160.37 -3.5% Ukrainian hryvna equivalent of $1.00 3.43 1.90 -80.5% 2.45 1.86 -31.7%
In the accompanying notes, $ equivalents of Kc, ROL, SIT, Sk, HUF, Hrn and DM amounts have been included at December 31, 1998, 1997 or historical rates, as applicable, for illustrative purposes only. In limited instances, the Company enters into forward foreign exchange contracts and purchases foreign currency options to hedge foreign currency transactions for periods consistent with its identified exposures. Premiums on foreign currency options are amortized over the option period being hedged. Net Loss Per Share Net loss per share was computed by dividing the Company's net loss by the weighted average of Common Shares (both Class A and Class B) outstanding during the years ending December 31, 1998, 1997 and 1996. The impact of outstanding options and warrants has not been included in the computation of diluted net loss per share, as the effect of their inclusion would be anti-dilutive. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions 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 revenues and expenses during the reporting year. Actual results could differ from those estimates. Reclassifications Certain reclassifications were made to prior period amounts to conform to current period classifications. Segment Data During 1998, the Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related 57 Information. SFAS 131 supersedes SFAS 14, Financial Reporting for Segments of a Business Enterprise, replacing the "industry segment" approach with the "management" approach. The management approach designates the internal reporting that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. SFAS 131 also requires disclosures about products and services, geographic areas and major customers. The adoption of SFAS 131 did not affect results of operations or the financial position of the Company but did affect the disclosure of segment information (Note 14). Comprehensive Income (Loss) In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income", which requires companies to report all changes in equity during a period, except those resulting from investment by owners and distribution to owners, in a financial statement for the period in which they are recognized. The Company has chosen to disclose Comprehensive Income, which encompasses net income (loss) and foreign currency translation adjustments, in the accompanying Consolidated Statement of Shareholders' Equity (Deficit). Derivative Instruments and Hedging Activities -- New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement SFAS No. 133 as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be applied retroactively. The Company occasionally enters into forward foreign exchange contracts (See Note 11). No material impact is expected as a result of the adoption of SFAS No. 133 when it is applicable. 4. RESTRUCTURING CHARGE In the second quarter of 1998, the Company recorded a restructuring charge of $2,552,000 based on its decision to change its focus from aggressive development and growth to further enhancing the operating performance of the Company's existing assets and pursuing opportunities for focused growth. The restructuring charge is comprised of severance and other associated costs. 5. PROPERTY, PLANT AND EQUIPMENT 58 Property, plant and equipment is carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. It consists of the following:
Useful December 31, ----------------------- Lives 1998 1997 ----- ---- ---- Years $000 $000 Land and buildings ............................................ 25-50 18,686 16,800 Leasehold improvements......................................... 4-15 8,036 4,840 Station machinery, fixtures and equipment...................... 4-8 78,033 56,083 Other equipment................................................ 3-8 7,761 4,558 Construction in progress....................................... -- 4,243 5,319 ------------ ------------ 116,759 87,600 Less - Accumulated depreciation................................ (50,477) (31,047) ============ ============ 66,282 56,553 ============ ============
6. OTHER ASSETS Other assets consist of the following:
December 31, ------------------------------ 1998 1997 ---- ---- $000 $000 Current: Kanal A ............................................................ -- 1,000 Prepaid program rights and dubbing.................................. 4,968 4,711 VAT recoverable..................................................... 2,419 704 Investment in Unimedia.............................................. 15,310 -- Other............................................................... 5,973 4,259 =============== ================ 28,670 10,674 =============== ================ Long term: Satellite transponder deposits...................................... 1,440 1,331 Advances for technical equipment.................................... -- 1,395 Capitalized debt costs.............................................. 5,502 6,389 Other............................................................... 288 -- =============== ================ 7,230 9,115 =============== ================
In June 1995 the Company, through CME Programming Services Inc., obtained leasehold rights for a 12 year period to a 33 MHz transponder on the Eutelsat Hot Bird 3 satellite ("Hot Bird 3"), which launched in October 1997. The Company has paid a deposit of $350,000 against this lease. The annual charge for the lease is euro 3,443,000. Provided that the contract does not terminate before the expiration date (September 2009), the remaining $350,000 of the deposit is repayable to the Company by deduction from the final two invoices. In September 1997, the Company, through CME Programming Services Inc., extended and renegotiated its rights to two 9 MHz transponders on the Eutelsat IIF 1 satellite ("Eutelsat IIF 1"). The Company paid a deposit equivalent to a three month invoicing period of euro 440,000, which is refundable in approximately mid-1999. There are no longer any charges due under this lease. 59 In October 1997, the Company, through CME Programming Services Inc., obtained leasehold rights for an approximate 12 year period to a 16.5 MHz transponder on the Eutelsat Hot Bird 5 satellite ("Hot Bird 5"), which launched in November 1998.The Company has paid a deposit of euro 557,000 ($678,000). The annual charge for the lease is euro 1,900,000. Provided that the contract does not terminate before the expiration date (October 2010), the deposit is repayable to the Company by deduction from the final three invoices. Capitalized debt costs represent the costs incurred in connection with obtaining debt financing. These costs are amortized over the life of the related debt instrument. 7. INCOME AND CAPITAL TAXES PAYABLE (a) Provision for income taxes relates primarily to the profits of CNTS.
December 31, ------------------------------------------ 1998 1997 1996 ---- ---- ---- $000 $000 $000 Current, domestic taxes............................................. 15,712 15,342 16,826 Deferred foreign taxes.............................................. 144 (734) (421) ============= ============ ============= 15,856 14,608 16,405 ============= ============ =============
Income taxes are provided on CNTS profits, which cannot be offset against losses incurred elsewhere in the group or against corporate costs incurred in other jurisdictions. The effective income tax rate in the Czech Republic is 35%, 39% and 39% for the years ended December 31, 1998, 1997 and 1996, respectively. At the present time no income, profit, capital or capital gain taxes are levied in Bermuda and, accordingly, no provision for such taxes has been recorded by the Company. In the event that such taxes are levied, the Company has received an undertaking from the Bermuda Government exempting it from all such taxes until March 28, 2016. Deferred income tax assets
December 31, ---------------------------- 1998 1997 ---- ---- $000 $000 Provisions against receivables...................................... 1,046 725 Accelerated amortization of programming licenses.................... -- 602 Tax loss carryforwards.............................................. 1,981 1,348 Other............................................................... 45 724 -------------- -------------- 3,072 3,399 Valuation allowance on deferred tax asset........................... (1,806) (2,653) -------------- -------------- 1,266 746 -------------- --------------
Deferred income tax liabilities
December 31, ---------------------------- 1998 1997 ---- ---- $000 $000 Valuation allowance................................................. 489 --
60 Depreciation and amortization....................................... 467 466 Lease payments...................................................... 289 250 Other............................................................... 323 200 -------------- -------------- 1,568 916 ============== ============== Net deferred tax liability.......................................... 302 170 ============== ==============
Net operating losses incurred in 1998, 1997 and 1996 in Romania, Slovenia, Slovakia, Hungary and Ukraine are available for offset against taxable income in those countries in the future. Net operating losses experienced in these jurisdictions in certain years may not be fully available for offset against taxable income in the future in those countries. A valuation allowance has been provided for net operating loss carryforwards in these jurisdictions, as it is more likely than not, for a variety of reasons, including the uncertainties in the tax regimes, that they may not be fully utilized. (b) Capital Registration Tax Capital registration tax is payable on the contribution of capital to certain subsidiaries of CME. It has been included within corporate expenses for 1996, as it is not dependent upon the level of income, in the amount of $809,000. 8. INVESTMENTS PAYABLE
December 31, ----------------------------- 1998 1997 ---- ---- $000 $000 Short Term: CNTS....................................................... 5,312 9,162 Richard Knauff............................................. - 151 Radio Alfa................................................. 69 138 SFF........................................................ - 1,131 Unimedia................................................... 6,900 3,600 ============== ============== 12,281 14,182 ============== ============== Long Term: CNTS....................................................... 2,563 7,875 ============== ==============
CNTS On August 11, 1997, the Company made the Second 1997 CNTS Purchase when it purchased Nova Consulting a.s. ("NC") from certain of the partners of CET 21, for a purchase price of $28,537,000, to be paid on an installment basis through February 15, 2000, subject to adjustment as described below. NC owns a 5.8% interest in CNTS. A portion of the payments are subject to increase based upon the performance of CME's Class A Common Stock. As of December 31, 1998, the Company has paid $20,662,000 of the purchase price and is obligated to make further payments of $5,312,000 during 1999, and $2,563,000 during 2000. Any adjustments made in the future (none have been made through December 31, 1998) as a result of the performance of CME's Class A Common Stock will be accounted for as additional purchase price. 61 Unimedia At December 31, 1998, the Company had contributed, through Unimedia, $8,400,000 in equity capital in MobilRom, a mobile telephone company in Romania. Unimedia is obligated to contribute a further $3,600,000 to MobilRom, bringing Unimedia's total contribution to $12,000,000, representing 10% of the equity capital of MobilRom. This $3,600,000 is being offset from the gross sale price of the Company's interest in MobilRom (See Note 15). In addition, Unimedia is obligated to contribute $3,500,000 to MobilRom in order to satisfy its 10% share of a $35,000,000 capital call. The Company will pay $3,300,000 of the $3,500,000 and the remaining amount will be met by existing cash balances of Unimedia. 9. LOAN AND OVERDRAFT OBLIGATIONS Group loan obligations and overdraft facilities consist of the following:
December 31, ----------------------------- 1998 1997 ---- ---- $000 $000 CME B.V. Ceska Sporitelna Loan...................................... (a) 21,207 20,857 Tele 59 loan............................................... (b) 572 681 CME DC Capital Lease (vehicle ), net of interest.................. 22 98 CNTS Mortgage loan.............................................. (c) 2,010 3,638 PRO TV Line of credit............................................. (d) 1,290 1,999 Long-term loan............................................. (e) 3,662 3,854 POP TV Long-term loan............................................. (f) 3,553 -- Capital lease (vehicles), net of interest, and unsecured short-term loans........................................... 6 170 TV3 MKB loan................................................... (g) 1,287 1,217 -------------- -------------- 33,609 32,514 Less current maturities.................................... (10,313) (8,310) ============== ============== 23,296 24,204 ============== ==============
CME B.V. (a) On August 1, 1996, the Company entered into an agreement for the purchase of Ceska Sporitelna Bank ("CS")'s 22% economic interest and virtually all of CS's voting rights in CNTS for a purchase price of Kc 1 billion ($36,590,000). The Company has also entered into a loan agreement with CS to finance 85% of the purchase price. Quarterly repayments are required in the amount of Kc 42,500,000 during the period from February 62 1999 through May 2002, and Kc 37,580,000 in August 2002. The loan bears interest at 12.9% per annum. (b) The Company entered into a loan agreement on November 21, 1996 with Tele 59 to finance a loan to Tele 59 from SKB banka d.d. ("SKB"). The principal amount of the loan is DM 1,496,000 with principal repayments of DM 136,000 twice yearly. This loan matures in May 2004 and bears interest at 7.8% per annum. CNTS (c) In June 1997, CNTS assumed obligations under a loan from CS (the "CS Loan") secured by a mortgage on the Nova Facility. The CS Loan provides for quarterly payments of Kc 16,500,000. This loan matures in December 1999 and bears interest at three month PRIBOR plus 1.0% (13.36% at December 31, 1998). PRO TV (d) The line of credit, obtained from Tiriac Bank, provides a maximum facility of $2,000,000. This facility matures in June 2000 and bears interest at a rate of 4% over 6 month LIBOR (9.25% at December 31, 1998). (e) The long-term loan, also obtained from Tiriac Bank, has a maximum facility of $4,000,000. This facility matures in December 2002 and bears interest at a rate of 4% over 6 month LIBOR(9.25% at December 31, 1998). POP TV (f) Multicurrency $5,000,000 loan agreement with Creditanstalt AG. This loan matures in May 2005 and bears interest at a rate of 3% over FIBOR ( 6.72% at December 31, 1998) until the loan is equal to or less than $2,000,000 then the interest rate falls to 2% over FIBOR. TV3 (g) Loan of HUF 279,000,000 with a local Hungarian bank. This loan matures in December 2000 and bears interest at a Prime rate (19.25% at December 31, 1998). At December 31, 1998, maturities of debt are as follows:
Total $000 ----- 1999................................................................. 10,313 2000................................................................. 7,851 2001................................................................. 7,771 2002................................................................. 7,674 ============ 33,609 ============
Loan notes payable On August 20, 1997, the Company issued Senior Notes of $100,000,000 at 9.375% and DM 140,000,000 at 8.125%, due 2004 (collectively the "Senior Notes"). The Senior 63 Notes are unsecured senior indebtedness of the Company and rank pari passu with all existing and future unsecured unsubordinated indebtedness of the Company and are effectively subordinated to all existing and future indebtedness of the Company's subsidiaries. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after August 15, 2001 at the redemption prices set forth below.
Dollar Note DM Note Redemption Redemption Price Price ------- ------ 2001..................................................104.68750% 104.06250% 2002..................................................102.34375% 102.03125% 2003 and thereafter...................................100.00000% 100.00000%
In addition, in the event of one or more equity offerings or placings prior to August 15, 2000, the Company may, at its option, redeem up to 35% of the original principal amount of each series of Senior Notes from the net proceeds thereof at 109.375% of the principal amount in the case of the US dollar denominated Senior Notes and 108.125% of the principal amount in the case of the DM denominated Senior Notes, plus accrued and unpaid interest, if any, to the date of redemption. Interest is payable semi-annually in arrears on each February 15 and August 15, commencing February 15, 1998. Interest expense on the US dollar denominated Senior Notes and DM denominated Senior Notes for the period to December 31, 1998 was $9,375,000 and DM 11,375,000 ($ 6,478,000), respectively. The indentures pursuant to which the Senior Notes were issued contain certain restrictive covenants, which among other things, restrict the ability of the Company and its subsidiaries to : (i) incur additional indebtedness, (ii) pay dividends or make certain other distributions, (iii) make certain investments and other restricted payments, (iv) enter into certain transactions with affiliates, (v) create liens, (vi) sell assets and also create restrictions on the ability of certain of its subsidiaries to make certain payments to the Company. Management believes that, as of December 31, 1998, the Company was in compliance with such restrictive covenants. 10. STOCK OPTION PLAN The Company adopted the 1994 Stock Option Plan in 1994 and the 1995 Stock Option Plan in August 1995. The 1995 Stock Option Plan was amended in May 1998 ("1995 Amended Stock Option Plan"). Under the 1994 Stock Option Plan, the Compensation Committee is authorized to grant options for up to 900,000 shares of the Company's Class A Common Stock. Under the 1995 Amended Stock Option Plan the Compensation Committee is authorized to grant options for up to 3,200,000 shares of the Company's Class A Common Stock. Under the 1995 Amended Stock Option Plan options can be given to eligible persons on Class B Common Stock. The Stock Option Plans allow grants to consultants and non-affiliated directors. The maximum term of the options granted under the Stock Option Plans is ten years. Options granted may be either 64 incentive stock options under the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options. Under the 1995 Amended Stock Option Plan, non-affiliated directors are automatically granted each year options to purchase 10,000 shares of Class A Common Stock or Class B Common Stock if eligible. The Compensation Committee has granted substantially all options to purchase the 900,000 shares of Class A Common Stock created by the 1994 Stock Option Plan and does not intend to issue any more options under the 1994 Stock Option Plan. Under both plans the option exercise price equals the stock's market price on the date of grant. Options granted under the 1994 Stock option plan vest after two years and expire after ten years. Options granted under the 1995 Amended Stock Option Plan can have vesting periods of up to five years and expire at the latest after ten years. The exercise price of options granted under the 1995 Amended Stock Option Plan can be made at market value subject to an increase by the interest rate on US Treasury securities, compounded annually, with a maturity equal to that of the options. On September 18, 1998, the Company adopted the Stock Appreciation Rights Plan, this plan allows the company to grant up to 1,000,000 Stock Appreciation Rights (SAR's). The SAR's are subject to the same vesting and other general conditions as options granted under the 1995 Amended Stock Option Plan. When the SARs are exercised the employees will receive in cash the amount by which the CME stock price exceeds the exercise price at the time of exercise, if any, rather than purchase CME shares. The number of SARs granted through December 31, 1998 totalled 145,350. No compensation expense has been recognized through December 31, 1998 in connection with the granting of these SARs. A summary of the status of the Company's two stock option plans at December 31, 1998, 1997 and 1996 and changes during the years 1998, 1997 and 1996 is presented in the table and narrative below. The following table does not include the SARs.
1998 1997 1996 ------------------------------------------------------------------------------------------- Wtd. Wtd. Wtd. Avg. Avg. Avg. Exercise Option Exercise Option Exercise Option Shares Price $ Price $ Shares Price $ Price $ Shares Price $ Price $ -------- -------- ---------------------- -------- ----------- ---------- ------- ----------- Outstanding at start of year 2,308,949 20.31 0.20-33.50 1,534,103 17.41 0.20-21.75 1,049,600 13.81 0.20-20.00 Granted..... 580,000 20.28 11.44-24.56 974,450 24.30 23.00-33.50 636,800 21.51 20.75-21.75 Exercised... (133,749) 11.58 0.20-21.75 (143,751) 14.13 0.20-21.75 (139,644) 8.78 0.20-14.63 Forfeited... (173,666) 23.60 14.63-33.50 (55,853) 26.20 20.00-33.50 (12,653) 20.00 20.0 --------- -------- ---------- Oustanding at end of year.... 2,581,534 20.54 0.20-33.50 2,308,949 20.31 0.20-33.50 1,534,103 17.41 0.20-21.75 ========= ===== =========== ========= ===== ============ ========= ===== ===========
At December 31, 1998, 1997 and 1996, 1,643,872, 1,466,125 and 528,356 shares were exercisable, respectively. The Company accounts for these plans under APB No. 25, under which no compensation cost is recognized for stock options granted to employees with an exercise price at or above the prevailing market price on the date of the grant. Had compensation cost for these plans been determined consistent with the fair value approach required by SFAS No. 123, the Company's net loss and net loss per common share would increase to the following pro forma amounts: 65
Year ended December 31, --------------------------------------------- 1998 1997 1996 ----- ----- ----- $000s $000s $000s ----- ----- ----- Net Loss from continuing operations As Reported (81,158) (68,106) (30,003) Pro Forma (88,577) (74,942) (34,468) Net Loss from discontinued operations As Reported (44,094) (16,986) - Pro Forma (44,094) (16,986) - Net Loss As Reported (125,252) (85,092) (30,003) Pro Forma (132,671) (91,928) (34,468) Net Loss Per Common Share from As Reported (3.36) (2.85) (1.55) Continuing operations - basic and diluted ($) Pro Forma (3.67) (3.13) (1.78) Net Loss Per Common Share from As Reported (1.83) (0.71) - Discontinued operations - basic and diluted ($) Pro Forma (1.83) (0.71) - Total net Loss Per Common Share ($) As Reported (5.19) (3.56) (1.55) Basic and Diluted....................... Pro Forma (5.50) (3.84) (1.78)
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model, with the following assumptions used. Expected dividends yield are assumed to be 0% for each grant; expected lives range from 4 to 5 years; expected stock price volatility of 47.6%, 47.19% and 59.14% for 1996, 1997 and 1998 , respectively. Risk Free Date of Option Grant Interest Rate --------------------------------- ------------------- January 1, 1995 7.84% August 3, 1995 6.21% August 10, 1995 6.23% August 14, 1995 6.28% October 17, 1995 5.76% December 15, 1995 5.53% January 2, 1996 5.30% August 1, 1996 6.36% February 27, 1997 6.30% August 1, 1997 6.03% January 19, 1998 5.55% February 23, 1998 5.55% March 23, 1998 5.63% June 9, 1998 5.57% September 3, 1998 4.91% The effects of applying SFAS No. 123 in this pro forma disclosure may not be indicative of future amounts because SFAS No. 123 does not apply to stock options granted prior to January 1, 1995 and additional stock option grants are anticipated in future years. 11. COMMITMENTS AND CONTINGENCIES 66 Litigation On April 30, 1997, Perekhid Media Enterprise Ltd. ("Perekhid") filed a complaint in the Supreme Court of New York County, State of New York, against CME and Ronald S. Lauder, the non-Executive Chairman of the Company's Board of Directors. Perekhid alleged that the issuance to the Studio 1+1 Group of a license pursuant to which Studio 1+1 has been broadcasting programming on Ukrainian National Channel 2 ("UT-2"), constitutes a tortious interference by CME and Mr. Lauder with a Perekhid contract with the Ukrainian authorities for Perekhid to provide programming for and sell advertising time on UT-2. Perekhid's complaint sought compensatory damages of $250 million, punitive damages of $500 million, and an injunction against the Company and Mr. Lauder to prevent the continuation of the alleged conduct. On July 2, 1997, CME and Mr. Lauder filed a motion to dismiss the complaint. On April 8, 1998, the Court dismissed the complaint on grounds of forum non-conveniens. In June 1998, Perekhid filed a notice of appeal with the Court. Perekhid has nine months from the date it filed a notice of appeal to submit an appellate brief. On February 19, 1999, Atlantic Group Limited (formerly known as Perekhid Media Enterprise Ltd.) initiated proceedings against CME in the High Court in London, seeking $81,772,759 in damages. Atlantic Group Limited alleges that CME conspired with others to use unlawful means to procure the termination of Atlantic Group Limited's right to provide programming and advertising sales on UT-2. On March 17, 1999, CME issued a summons to dismiss the London proceedings. The summons is expected to be heard later in 1999. The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. The Company is not presently a party to any such litigation which management reasonably expect could have a material adverse effect on its business or operations. Financial Commitments -- Existing Entities It is anticipated that the majority of the Company's existing operations will be self-supporting in terms of funding during 1999, with cash being available through local credit facilities and/or generated from operations. Existing operations that will require the Company to provide additional funding are as follows: Studio 1+1 Group The company has provided $1,000,000 in the form of loans to the Studio 1+1 Group since December 31, 1998. It is anticipated that an additional $2,500,000 may be required throughout 1999 and will be contributed in the form of loans. TV3 Programming commitments were entered into in 1996 and 1997 in anticipation of the grant of a national license for Hungary. The Company was not granted a national license for Hungary and has been unable to enter into a partnership with the license winners. In light of TV3's distribution and audience share, the Company does not expect to be able to realize the full value of the program library. Accordingly, the Company wrote-down these assets by $21,289,000 during 1998. The Company currently estimates that it will take further write-downs of up to $7,593,000 with regard to future programming rights, 67 of which approximately $2,129,000 is expected to be taken in 1999 and the remaining in 2000 when the related license periods begin. Program rights acquired by the Company under license agreements, and the related obligations involved are recorded as assets and liabilities when the programming is available for use and the license period begins which is in accordance with SFAS No. 63. The Company has made approximately $385,000 in cash programming payments on behalf of TV3 since December 31, 1998 and has commitments to make additional cash programming payments on behalf of TV3 in 1999, 2000 and beyond, of approximately $10,863,000, $4,567,000 and $4,567,000, respectively. The Company has provided $400,000 in the form of loans to TV3 since December 31, 1998. Management anticipates that further funding of up to $2,000,000 will be required in 1999 which will likely be contributed in the form of loans. Financial Commitments - Discontinued or Former Entities Beginning in 1993, 1A TV received investment grants in an aggregate amount of DM8,544,000 from a German public bank, to partially finance the development of the station. The grants were guaranteed by a wholly-owned German subsidiary of the Company. The grants were repayable if 1A TV did not fulfill certain conditions, including maintaining specified levels of employment for a five year period. As a result of the bankruptcy proceedings initiated by 1A TV, the German public bank has demanded repayment of the investment grants from 1A TV and the guarantor, plus interest at the rate of 6.0% per annum. In January 1998, the Company filed an appeal of the demand for repayment with the German public bank, which is pending. Management believes that the maximum exposure is limited to the German assets, which have been fully provided for. Under the terms of a proposed settlement, which management believes is likely to be accepted by both parties, the Company would be required to repay DM 500,000 to the German public bank. Licenses The Company has no reason to believe that the licenses for stations will not be renewed. However, no statutory or regulatory presumption exists for the current license holder, and there can be no assurance that licenses will be renewed upon expiration of their initial terms. The failure of any such licenses to be renewed may adversely affect the results of the Company's operations. Currency exchange rate fluctuation The Company and its subsidiaries generate revenues and incur expenses in a variety of currencies. Fluctuations in the value of foreign currencies may cause United States dollar translated amounts to change in comparison with previous periods. Other than as described below under "Foreign Exchange Contracts", the Company has not hedged against fluctuations in foreign currency rates. Due to the number of currencies involved, the constantly changing currency exposures and the fact that all foreign currencies do not fluctuate in the same manner against the United States dollar, the Company cannot anticipate the effect of exchange rate fluctuations on its financial condition. Foreign Exchange Contracts 68 In limited instances, the Company enters into forward foreign exchange contracts to hedge foreign currency transactions for periods consistent with its identified exposures. At December 31, 1998, there were two forward exchange contracts outstanding for the purchase, in aggregate, of $1,000,000 by CNTS and the sale of Czech korunas. These contracts mature by February 1999. No material exposure exists at December 31, 1998 as a result of these contracts. Station Programming Rights Agreements The Company had programming rights commitments for $26,983,000 in respect of future programming which includes contracts signed with license periods starting after December 31, 1998. Lease Commitments For the fiscal years ended December 31, 1998, 1997 and 1996, the Company paid aggregate rent on all facilities of $2,181,000, $2,036,000 and $1,776,000 respectively. Future minimum lease payments at December 31, 1998 for non-cancellable operating leases with remaining terms in excess of one year (net of amounts to be recharged to third parties) are payable as follows: At December 31, 1998 --------------- $000s 1999............................. 3,159 2000............................. 3,807 2001............................. 3,807 2002............................. 3,807 2003............................. 3,526 2004 and thereafter.............. 21,937 ------------------------ 40,043 ======================= 12. RELATED PARTY TRANSACTIONS Related party transactions involve transactions between the Company and its stations, shareholders and partners and transactions between the stations and their shareholders and partners.
Consolidated Balance Sheet Items As of December 31, ----------------------------- 1998 1997 ---- ---- $000 $000 Advances to Affiliates Amounts due from Unconsolidated Affiliates Markiza TV................................................. 4,539 2,734 Studio 1 + 1............................................... -- 1,513
69
Advances to Affiliates Studio 1 + 1............................................... 3,469 -- POP TV..................................................... 1,029 721 Media Vision and Video Vision.............................. 1,112 2,816 Radio Alfa................................................. 74 64 Other...................................................... 213 49 Hungary.................................................... 622 630 -------------- -------------- Total 11,058 8,527 Loans to Affiliates Loans to Unconsolidated Affiliates Adrian Sarbu............................................... 2,246 2,246 Alexander Rodnyansky....................................... 5,000 -- Intermedia................................................. 1,302 1,302 Markiza ................................................... 777 777 Studio 1+1 Group........................................... -- 6,010 Mediavision................................................ -- 1,329 Videovision................................................ -- 552 Interest on ITI Notes...................................... 111 -- Loans to Affiliates Hungary - DDTV............................................. 78 77 ============== ============== Total 9,514 12,293 ============== ==============
Consolidated Statements of Operations Items Year Ended December 31, 1998 1997 1996 ---- ---- ---- $000 $000 $000 Corporate Operating Costs and Development Expenses Shareholder controlled affiliates.......................... 86 111 88 Interest Expense Shareholder and affiliate loans............................ -- -- 68 - --------------------------------------------------------------------------------------------------------------------
13. SUMMARY FINANCIAL INFORMATION FOR THE STUDIO 1+1 GROUP and MARKIZA TV
As at ------------------------------------------------------- December 31 1998 December 31, 1997 -------------- --------------------------------- Studio 1+1 Markiza TV Markiza TV Group ------------- ------------ --------------- $000s $000s $000s Current assets................................. 17,863 18,385 7,744 Non-current assets............................. 26,682 25,900 21,542 Current liabilities............................ (17,703) (13,328) (5,976) Non-current liabilities........................ (1,089) (998) (6,000) ---------- --------- -------- Net assets (liabilities)....................... 25,753 29,959 17,310 ========== ========= =========
70
For the years ended December 31, 1998 December 31, 1997 -------------------------------------- ---------------------------------------- Studio 1+1 Studio 1+1 Markiza TV Group Markiza TV Group ------------------ ------------------- ------------------- ------------------- $000s $000s $000s $000s ------ ------ ---- ------- Net revenues................................... 37,793 23,598 31,296 16,661 Operating loss................................. (3,503) (3,150) 799 (799) Net loss....................................... (3,619) (3,555) (674) (1,082)
The Company's share of the losses in Unconsolidated Affiliates for 1998 was $3,398,000 (including goodwill amortization related to the Studio 1+1 Group of $1,583,000) after intercompany eliminations of $2,857,000. The Studio 1+1 Group is included in the consolidated balance sheets as of December 31, 1998 and its results of operations from December 23, 1998 are included in the Consolidated Statement of Operations. The Company acquired its additional interest in Studio 1+1 in December 1998 for $5,000,000. The impact of the purchase of this additional interest had it occurred at January 1, 1997 is as follows:
For the years ended December 31, ------------------------------------ 1998 1997 ---- ---- Net revenues.............................................. $ 205,965 $ 199,028 Net loss from continuing operations....................... (82,069) (68,770) Net Loss per Share........................................ Continuing operations - basic and diluted............. (3.40) (2.88) Discontinued operations - basic and diluted........... (1.83) (0.71) ---------------- ---------------- Net................................................... (5.23) (3.59) ================ ================
This pro forma presentation includes the effects of the amortization of goodwill related to the transaction. 14. SEGMENT DATA The Company manages its business segments primarily on a geographic basis. The Company's reportable segments are comprised of CNTS (Czech Republic), PRO TV (Romania), Markiza TV (Slovakia), POP TV (Slovenia), Studio 1+1 Group (Ukraine) and TV3 (Hungary). Each operating segment provides products and services as further described in Note 1. The accounting policies of the various segments are the same as those described in the "Summary of Significant Accounting Policies" in Note 3. The Company evaluates the performance of its segments based on segment EBITDA (earnings before interest, taxes, depreciation and amortization). Costs for programming amortization are included in segment EBITDA. Costs excluded from segment EBITDA primarily consist of interest and foreign exchange gains and losses, corporate expenses and goodwill amortization and equity in losses of unconsolidated affiliates, as well as programming write-offs at the 71 corporate level for TV3 and other non-recurring charges for impairment of investments or discontinued operations. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements, thus no additional information is provided. Summary information by segment as of and for the years ended December 31, 1998, 1997 and 1996 is as follows: SEGMENT FINANCIAL INFORMATION
For the years ended December 31, --------------------------------------------------------------------- ($000s) --------------------------------- ----------------------------------- Net Revenues EBITDA --------------------------------- ----------------------------------- Station 1998 1997 1996 1998 1997 1996 ------- ---- ---- ---- ---- ---- ---- CNTS.............................. 108,826 99,163 109,242 54,887 49,921 53,441 PRO TV ........................... 41,937 30,155 15,803 (2,016) (1,298) (4,368) POP TV ........................... 22,122 14,989 9,080 (809) (1,613) (5,157) TV3 .............................. 5,379 1,464 - (6,926) (3,086) - Other Operations ................. 4,103 4,494 1,860 (340) (799) (1,075) ---------- ----------- ---------- ----------- ----------- ----------- Total Consolidated Operations 182,367 150,265 135,985 44,796 43,125 42,841 Studio 1+1 Group ...............(1) 23,598 16,661 - (2,047) 19 - Markiza TV ....................... 37,793 31,296 7,462 2,483 5,259 (2,240) ---------- ----------- ---------- ----------- ----------- ----------- Total Unconsolidated Operations 61,391 47,957 7,462 436 5,278 (2,240) ---------- ----------- ---------- ----------- ---------- ----------- Total Operations..................... 243,758 198,222 143,447 45,232 48,403 40,601 ========== =========== ========== =========== =========== ===========
Reconciliation to Consolidated Statements of Operations: Consolidated Operations 44,797 43,125 42,841 Programming write-off in TV3 (21,289) - - Intercompany elimination 834 720 Station depreciation (17,056) (15,184) (13,314) Corporate expenses (42,031) (40,312) (19,531) ---------- ---------- ------------ Operating (loss)/ income from continuing operations (34,745) (11,651) 9,996 =========== =========== ===========
(1) Studio 1+1 Group revenue and other items from December 23, 1998 to December 31, 1998, included in the Consolidated Statements of Operations, were not material. 15. SUBSEQUENT EVENTS Sale Transaction On March 29, 1999, the Company entered into a Reorganization Agreement with SBS Broadcasting S.A. ("SBS"), which provides, among other things, for (a) the sale by the Company to SBS of all of the assets, business, properties and rights of the Company (consisting primarily of the stock of CME Media Enterprises B.V., an intermediate holding company wholly owned by CME); (b) the assumption by SBS of, and indemnification of the Company with respect to, all liabilities, obligations and commitments of the Company; (c) the issuance by SBS to the Company of a number of shares of SBS common stock, par value $1.50 per share ("SBS Stock"), equal to 0.5 times the total number of shares of the Company's Class A Common Stock and Class B Common Stock outstanding immediately prior to the closing of such transaction; and (d) the immediate commencement of the winding up of the Company and distribution of the SBS Stock so received by the Company to the shareholders of the Company (followed as soon as practical thereafter by the final dissolution of the Company). Accordingly, upon the closing of the transactions contemplated by the Reorganization Agreement, each shareholder of the Company would receive 0.5 shares of SBS Stock for each share of Common Stock of the Company owned by such shareholder. The foregoing transaction is intended to be accounted for as a purchase, and to qualify as a reorganization under Section 268(a) of the Internal Revenue Code (and thus to be tax-free for US tax purposes to the shareholders of CME). The closing of the transaction is subject to a number of conditions precedent, some of which are beyond the control of the Company, including the approval of the shareholders of SBS. Ronald S. Lauder, who controls approximately 69% of the vote of the Company, has entered into a Shareholders Agreement with SBS whereby he commits to vote his shares of Class A and Class B Common Stock in favor of the transaction. In the event that the transaction is not consummated, the Reorganization Agreement provides various rights to the Company and to SBS, depending upon the circumstances. Stock Options Since December 31, 1998, 36,000 stock options for Class A Common Stock were exercised at a price of $0.20. 72 Sale of Investment in MobilRom On March 18, 1999, the Company sold its interest in the Romanian mobile telephone company MobilRom. As a result of this transaction the Company realized a gain in the first quarter of 1999 of approximately $25,800,000. The impact of MobilRom on the Company's results of operations for 1996, 1997 and 1998 was not material. ING Facility On February 26, 1999, the Company entered into a $15,000,000 secured revolving Credit Facility with ING Bank N.V. (the "ING Facility"). The ING Facility is for a term of three years and the commitment level is to be reduced in four equal semi-annual instalments starting in June 2000. The ING Facility is secured by the assets of a wholly-owned subsidiary of the Company, which holds the Company's interest in CNTS, and will be repaid from the dividends of CNTS. The rate of interest charged on the ING Facility is based on the ratio of the Company's indebtedness to CNTS's broadcast cash flow and may range from 3.75% to 2.50% over United States dollar LIBOR. The availability of the ING Facility is subject to the satisfaction of various conditions which have not yet been met. 73 REPORT TO INDEPENDENT PUBLIC ACCOUNTANTS To IA TV Beteiligungsgesellschaft GmbH & Co. Betriebs-KG: We have audited the accompanying balance sheet of IA TV Beteiligungsgesellschaft GmbH & Co. Betriebs-KG (a Limited Partnership organized under German law) as of December 31, 1995 and 1996, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibilty of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialk misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluting the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to avove present fairly, in al material respects, the financial position of IA TV Beteiligungsgesellschaft Gmbh & Co. Betriebs-KG as of December 31, 1995 and 1996, and the results of its operations and its cash flows for the years then ended in comformity with United States generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As described in Note 3 to the financial statements, the Partnership has incurred significant operating losses during the years 1994 through 1996, and is dependent upon additional capital to fund its operations. These factors raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amount and classification of liabilities that might result should the Partnership be unable to continue as a going concern. ARTHUR ANDERSEN Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft GmbH March 5, 1997 Berlin, Germany 74 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG BALANCE SHEET AS OF DECEMBER 31, 1996 AND 1995
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents....................... 1,721 3,015 Accounts receivable............................. 1,018 662 Program rights costs............................ 37 441 Value-added tax receivables..................... 287 534 Other receivables (Note 5)...................... 1,724 2,727 Prepaid expenses................................ 116 43 Contribution receivable......................... 112 2,500 ------------ ------------ Total current assets......................... 5,015 9,922 ------------ ------------ PROPERTY, PLANT & EQUIPMENT, including equipment held under lease, net (Note 6).................. 16,653 20,280 ------------ ------------ BROADCAST LICENSE COSTS, net...................... 44 55 ------------ ------------ OTHER INTANGIBLE ASSETS, net (Note 7)............. 2,306 2,504 ------------ ------------ Total assets................................. 24,018 32,761 ------------ ------------ ------------ ------------ LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Accounts payable and accrued liabilities (Note 8)........................................... 5,603 7,337 Duties and other taxes payable.................. 457 364 Related party payables.......................... 132 419 ------------ ------------ Total current liabilities.................... 6,192 8,120 ------------ ------------ NON CURRENT LIABILITIES: Capital lease obligation........................ 4,117 6,125 Deferred income (Note 9)........................ 5,657 6,861 ------------ ------------ Total non current liabilities................ 9,774 12,986 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 10) PARTNERS' CAPITAL: Contributed Capital............................. 135,575 111,000 Accumulated deficit............................. (127,523) (99,345) ------------ ------------ Total Partners' capital...................... 8,052 11,655 ------------ ------------ Total liabilities and partners' capital...... 24,018 32,761 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of this balance sheet. 75 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 TDM TDM ------- ------- REVENUES: Advertising.......................................... 4,872 4,847 ------- ------- STATION EXPENSES: Amortization of programming rights................... (652) (4,375) Depreciation of station equipment.................... (4,056) (3,846) Other operating costs and expenses................... (7,544) (13,321) Selling, general and administrative expenses......... (20,838) (18,374) ------- ------- Operating loss.................................... (28,218) (35,069) ------- ------- INTEREST AND OTHER INCOME.............................. 581 1,115 INTEREST EXPENSE....................................... (541) (851) ------- ------- 40 264 ------- ------- Net loss.......................................... (28,178) (34,805) ------- ------- ------- -------
The accompanying notes are an integral part of this statement. 76 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG STATEMENT OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Partners' capital, brought forward................ 11,655 8,960 Capital contributions during the year............. 24,575 37,500 Net loss for the year............................. (28,178) (34,805) ------------ ------------ Partners' capital, carried forward................ 8,052 11,655 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of this statement. 77 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 TDM TDM -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss)................................................ (28,178) (34,805) Adjustments to reconcile net (loss) to net cash used in operating activities: Depreciation and amortization.......................... 4,708 8,222 Increase in assets and liabilities: Accounts receivable.................................. (356) 193 Prepaid expenses..................................... (73) (21) Accounts payable and accrued liabilities............. (1,734) 1,360 Program and film rights.............................. (248) (3,368) Related party liabilities............................ (287) (158) Value-added tax receivables.......................... 247 464 Other receivables.................................... 1,003 1,392 Other payables....................................... 93 (1,145) -------- -------- Net cash used in operating activities.................. (24,825) (27,866) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditure....................................... (1,637) (1,295) Additions to other intangible assets...................... (240) (2,516) Disposals................................................. 157 1,039 Deferred income--investment grants and allowances......... 296 1,030 -------- -------- Net cash used in investing activities..................... (1,424) (1,742) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft............................................ 0 (864) Partners' capital contributions, net...................... 26,963 35,000 Capital lease payments.................................... (2,008) (1,857) -------- -------- Net cash provided by financing activities................. 24,955 32,279 -------- -------- Net decrease/increase in cash and cash equivalents.......... (1,294) 2,671 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 3,015 344 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD.................... 1,721 3,015 -------- -------- -------- --------
The accompanying notes are an integral part of this statement. 78 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 1. ORGANIZATION AND BUSINESS IA TV Beteiligungsgesellschaft mbH & Co. Betriebs-KG, Berlin ('IA Fernsehen' or 'the Partnership'), set up under German law as a Limited Partnership, was established in 1993. The management of the Partnership is carried out by IA TV Beteiligungsgesellschaft mbH, Berlin ('IA TV'), the sole general partner of IA Fernsehen. According to the Partnership agreement the general partner is not required to contribute any capital nor does he participate in Partnership profits or losses. IA TV has a supervisory board which monitors the activities of management. IA Fernsehen principally broadcasts television programs in the Berlin/Brandenburg area of Germany. Until the third quarter of 1995 this included the purchase and airing of acquired program rights for films and series. The Partnership limited the acquisition of such rights and has since been pondering more strongly on the broadcasting of self produced news and entertainment features with regional content. In May 1996 the station was relaunched and is since then broadcasting under the name of 'Puls Tv'. The Partnership was awarded the first private regional television license in Germany on August 4, 1993 from the Media Authority of Berlin-Brandenburg. The license is limited to a period of 7 years commencing from the date of broadcasting which was November 28, 1993. The license granted to the Partnership is, under the terms of the license, renewable. However, no statutory or regulatory presumption exists for the current license holder, and there can be no assurance that the Partnership will receive a renewal upon expiration of the initial term of the license. 2. FINANCING OF OPERATING AND CAPITAL NEEDS Under the provisions of the Partnership Agreement the limited Partners were required to contribute fixed capital of DM 10 mio. and variable capital of DM 90 mio. The total amount of fixed and variable capital of DM 100 mio. was called up as of June 30, 1995. According to the bylaws of the Partnership Agreement the partners may decide with a majority of 75 % of votes cast to call variable capital amounts exceeding DM 90 mio. The obligation and the right to contribute in such a case shall exist only for those limited partners who have voted in favour of a corresponding resolution or who give notice in writing to the General Partner within one month following such resolution that they will participate in the increase. The contributions shall be made in proportion to the share in fixed capital of the limited partners participating in the increase. In response to the capital needs of the Partnership the partners have resolved the following capital calls in 1996 that were mainly supported by one major partner:
TDM ------ March 26, 1996........ 10,000 June 19, 1996......... 2,500 August 6, 1996........ 2,500 August 28, 1996....... 2,000 September 17, 1996.... 2,500 September 17, 1996.... 575 November 12, 1996..... 4,500 ------ 24,575 ------ ------
79 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 3. GOING CONCERN Since its inception the Partnership has incurred losses of DM 127.5 mio. The initially agreed fixed and variable capital of DM 100 mio. as well as additional capital of DM 35.5 mio. was nearly used until year-end 1996. Until December 31, 1997, losses are projected to reach DM 15 mio. to DM 20 mio. Due to the amortization of liabilities and capital expenditures the necessary funding for 1997 is beyond DM 15 mio. as well and therefore exceeds the cash presently available and resolved capital calls. To maintain the operation as a going concern until year-end 1997 further capital calls and funding are necessary. Presently the Partnership is unable to fulfil its financial commitments. On September 4, 1996, the Partnership engaged an investment bank to seek a strategic investor who may acquire a share in the Partnership. Meanwhile the Partnership is provided with Partner's capital on a day to day basis. The factors described in the preceding paragraph raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amount and classification of liabilities that might result should the Partnership be unable to continue as a going concern. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Program and Film Rights The book value of film licences reduced from TDM 441 as of December 31, 1995 to TDM 37 as of December 31, 1996. Since the change of the program structure in 1995 the Partnership limited the purchase of film rights. In 1996 the Partnership changed its accounting policy for program and film rights from capitalization and amortization based upon the actual airing to directly expensing the costs for program rights. Production Costs Production costs for self-produced programs are recorded as operating costs. Property, Plant and Equipment and Intangible Assets Fixed and intangible assets are carried at cost and are depreciated on a straight line basis using the shorter of estimated useful lives, the underlying lease period or the term of the television license period. Replacements, renewals and improvements are capitalized. Maintenance and repairs are charged to expense as incurred. Investment grants and allowances that subsidize the assets of IA Fernsehen are recorded as deferred income and disclosed among other liabilities. Accordingly the assets are reported at their acquisition value net of amortization. The amortization of deferred investment grants and allowances relate to the underlying estimated useful lives of fixed assets acquired and are netted with the amortization of such assets. Income Taxes Income taxes have not been recorded in the accompanying financial statements as they are the obligation of the partners. Municipal trade tax on income is payable by the Partnership. No such tax is due for the period ending December 31, 1996 due to losses incurred by the Partnership in this period. 80 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Cash and cash equivalents Cash and cash equivalents include cash in banks and cash on hand. Revenue Recognition Revenues result from the sale of advertising time. Advertising revenue is recognized at the time the commercials are broadcast. Barter Transactions Revenue from barter transactions (television advertising provided in exchange for goods and services) is recognized as income when advertisements are broadcast, and merchandise or services received are charged to expense (or capitalized as appropriate) when received or used. Receivables and payables arising from barter transactions are offset when the services have been rendered to the customer and from the vendor. Barter transactions in 1996 of TDM 944 are included in advertising revenues and the related expenditures of TDM 917 are included in direct operating costs. 5. OTHER RECEIVABLES Other receivables consist of the following:
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Receivable from Deutsche Leasing AG (see Note 10)............................................. 1,497 1,610 Investment subsidies receivable................... 20 1,075 Other receivables................................. 207 42 ------------ ------------ 1,724 2,727 ------------ ------------ ------------ ------------
6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net consist of the following:
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Fixtures and fittings............................. 12,094 12,043 Station machinery and office equipment............ 19,219 17,875 -- thereof relating to assets held under lease: TDM 15,144 (1995: TDM 15,144) ------------ ------------ 31,313 29,918 Less-Accumulated depreciation..................... (14,660) (9,638) ------------ ------------ 16,653 20,280 ------------ ------------ ------------ ------------
81 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 7. OTHER INTANGIBLE ASSETS Other intangible assets, net consist of the following:
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Studio equipment software held under lease........ 2,586 2,500 Financial systems software........................ 578 425 ------------ ------------ 3,164 2,925 Less--Accumulated depreciation.................... (858) (421) ------------ ------------ 2,306 2,504 ------------ ------------ ------------ ------------
The studio equipment software represents a traffic system leased from Enterprise Air-Time Systems Limited, Thames Ditton, U.K. 8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following:
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Accounts payable, trade........................... 4,169 6,152 Vacation accrual.................................. 354 354 Ancillary rental cost............................. 339 245 Consulting fees................................... 241 -- Compensation...................................... 117 214 Contract risks.................................... 70 120 Miscellaneous accruals............................ 313 252 ------------ ------------ 5,603 7,337 ------------ ------------ ------------ ------------
Trade payables include an unsettled liability of TDM 1,980 relating to the operating lease contract with Enterprise Air-Time Systems Limited, Thames Ditton, U.K., for the new traffic system. 9. DEFERRED INCOME On October 5, 1993 the Partnership was awarded a first federal and state funded grant amounting to 23% of capital investment of up to DM 50 mio. between 1993 and 1996. Total investments relating to the underlying budget for this investment grant amounted to DM 37.1 mio. as of August 1996 with the Partnership having received investment grants of TDM 8,544. As all budgeted investments were finalized by that time the approval for investment grants was adjusted from initially TDM 11,287 to TDM 8,544. On August 26, 1996 the Partnership was awarded a second federal and state funded grant amounting to 25% of capital investments of up to DM 13 Mio. between 1996 and 1999. As of December 31, 1996 the Partnership has received investment grants of TDM 349 relating to this second investment grant approval. The Partnership is required to retain the underlying assets acquired, upon which these grants were received, in its business and region for a period of at least 3 years. Furthermore 130 employment positions are guaranteed to be maintained for a period of five years beginning with the first airing in 82 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 9. DEFERRED INCOME--(CONTINUED) November 1993. The second investment grant increases the number of guaranteed labour from 130 to 150 for a period of five years beginning with the completion of the budgeted investments. A failure to meet these two conditions could result in the Partnership having to repay some or all of the grants received. In addition the Partnership has the right, as governed by German tax law, to receive tax free investment subsidies of 5% respectively of 8% of the cost of acquired moveable fixed assets. The allowance is granted subject to the acquired fixed assets remaining in the business for a period of at least 3 years. Deferred investment grants and tax free subsidies are amortized according to the underlying estimated useful lives of fixed assets acquired. The total amount of grants and tax free subsidies received by the Partnership and recorded in the accompanying balance sheet as deferred income is as follows:
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Investment grants and subsidies................... 10,308 10,012 Less--Amortization to December 31................. (4,651) (3,151) ------------ ------------ 5,657 6,861 ------------ ------------ ------------ ------------
10. COMMITMENTS AND CONTINGENCIES Commitments under capital leases The Partnership signed a contract with an investment bank, the Deutsche Leasing AG, Berlin (Deutsche Leasing), to finance a part of its investments in studio equipment. The total lease financing of DM 10 mio. represented two thirds of the originally planned volume of investments in studio equipment of DM 15 mio. It was agreed that Deutsche Leasing retains a guarantee of DM 1 mio. at an interest rate payable to IA Fernsehen of 5.35% p.a. The loan of DM 10 mio. is financed at an annual interest rate of 6.9%. The loan has to be repaid to Deutsche Leasing by October 1998 with monthly installments of TDM 201. Deutsche Leasing is entitled to demand immediate repayment of the loan amount outstanding if IA Fernsehen fails to meet the terms of the loan agreement. The corresponding liability to the fixed assets held under finance lease is the DM 4.1 mio. payable to Deutsche Leasing as of December 31, 1996. Additionally, IA Fernsehen records a receivable from Deutsche Leasing of DM 1.5 mio. representing the guarantee (DM 1 mio.) and the unused finance volume (DM 0.5 mio.). The future obligations under the capital leases are as follows:
INTEREST AMORTIZATION TOTAL TDM TDM TDM -------- ------------ ----- 1997.... 239 2,172 2,411 1998.... 64 1,945 2,009 -------- ------------ ----- 303 4,117 4,420 -------- ------------ ----- -------- ------------ -----
83 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED) Commitments under operating leases --TV station headquarters The Partnership entered into an operating lease for the television station headquarters adjacent to the Television tower at the Alexanderplatz in Berlin on May 14, 1993. The lease term commenced on May 1, 1993 and expires on December 31, 1999. The lease provides for a renewal option. For the period ended December 31, 1996, the Partnership paid rent and operating expenses amounting to DM 1.8 mio. Under the agreement the monthly rent amounts to DM 105,000 until April 30, 1998. Thereafter it increases to DM 197,500 per month. In addition the Partnership is obliged to pay certain taxes, insurance costs and operating expenses, as provided in the lease agreement. According to the lease contract the Partnership is liable for possible third party claims arising from restitution filings on the premises leased. The Partnership as tenant cannot obtain valid evidence from the BVS ('Bundesanstalt fur vereinigungs-bedingte Sonderaufgaben'--the former privatization agency of the German Government) regarding any pending restitution claims. Should the Partnership be forced to terminate its rental agreement prior to December 31, 1999, the lessor has agreed to negotiate the amount of capital expenditures incurred to be reimbursed. The management will cooperate with the lessor in order to obtain information on possible restitution claims. According to the lease contract the Partnership is liable to guarantee the pedestrians' safety on all passageways around the rented building. The Partnership has taken steps to provide for such safety. Furthermore the Partnership has to carry out maintenance work relating to the building at its own cost. This obligation may result in additional costs which have not been evaluated and correspondingly not been accrued for. The Company has minimum future obligations under the operating lease relating to the TV station headquarters as follows:
TDM ----- 1997.... 1,620 1998.... 2,360 1999.... 2,730
--Traffic system On May 24, 1995, the Partnership entered into a lease agreement for a traffic system with the Enterprise Air-Time Systems Limited, Thames Ditton, U.K. The lease term commenced on May 24, 1995, and expires on May 24, 2005. The agreement may be terminated by written notice if a party e.g. ceases to carry on its business. The traffic system was capitalized at TDM 2,568 and correspondingly accrued for under trade liabilities. Amortization of TDM 266 for 1996 was expensed. The future payments represent the repayment of the liability and will annually be increased with reference to the 84 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED) development of the Electrical and Electronical Engineering Index. The future obligations under the terms of this operating lease are as follows:
TDM ----- 1997.......... 248 1998.......... 248 1999.......... 248 2000.......... 248 thereafter.... 1,236
Government Regulation Broadcast operations in Germany are subject to extensive Government regulation. Television in Germany is regulated by the Media Authority of each region, and the Media Authority Berlin-Brandenburg ('MABB') is responsible for the activities of the Partnership. Regulations govern the issuance, renewal, transfer and ownership of station licenses, as well as the timing and content of programming and the timing, content and amount of commercial advertising permitted. There are also regulations requiring that certain percentages of programming are being produced or originated in local markets. The ownership of a private TV station is closely monitored to avoid a single shareholder being able to exercise a dominant influence on the business and program of a TV station. The Partnership communicated in writing the changes effected and intended regarding the Partners' capital, the Partners' voting rights and the program structure to MABB and obtained assurance to comply with the rules of the TV license. Employment Agreements The managing directors of the Partnership are employed at the general partner. In 1996 the following persons have been managing directors:
APPOINTMENT PER DISMISSAL PER PARTNERS' PARTNERS' RESOLUTION RESOLUTION -------------------- ----------------------- Dr. Dietmar Straube.... September 19, 1995 September 30, 1996 Stefan Ziegenhagen..... March 26, 1996
In accordance with para 4.1 of the General Partner's Agreement IA TV Beteiligungs--gesellschaft mbH shall have at least two managing directors. The Partnership is aware of this deficiency and will take corrective action. None of the resolutions or changes of 1995 and 1996 have been inscribed in the commercial register. In 1996 an average of 148 employees and 103 freelancers worked for the Partnership. Generally employment agreements may be terminated by either party within 1 to 2 months upon prior written notice. Litigation Various competitors of IA Fernsehen have taken legal action against the Media Authority Berlin-Brandenburg to overturn its decision in awarding the Partnership the broadcast license for IA Fernsehen. The Partnership and legal counsel believe that its broadcast license for IA Fernsehen is in 85 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED) no danger. The Media Authority has informed the Partnership that these legal actions have no realistic chance of success. The Company is from time to time involved in litigation incidental to the conduct of its business. Management and its counsel believe such pending litigation will not have a material adverse effect on the company's financial condition. 86 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Slovenska televizna spolocnost, s.r.o. We have audited the accompanying balance sheets of Slovenska televizna spolocnost, s.r.o. as of December 31, 1996 and 1995, and the related statements of income and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Slovenska televizna spolocnost, s.r.o. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with United States generally accepted accounting principles. ARTHUR ANDERSEN Bratislava, Slovak Republic 13 March 1997 87 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS)
DECEMBER 31, DECEMBER 31, 1995 1996 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents....................... 15,257 30,756 Accounts receivable (net of allowances of 3,387 TSK)......................................... -- 169,979 Program rights costs, net (Note 3).............. -- 5,155 Amounts due from shareholders................... -- 6 Other assets (Note 4)........................... 52,214 141,681 ------------ ------------ Total current assets......................... 67,471 347,577 ------------ ------------ INVESTMENT (Note 5)............................... -- 100 PROPERTY, PLANT & EQUIPMENT (net of depreciation of 299 SK and 39,843 SK) (Note 6)............... 36,248 682,480 PROGRAM RIGHTS COST, net (Note 3)................. -- 166,618 INTANGIBLE ASSETS (net of amortisation of 27 SK, 1,324 SK) (Note 7).............................. 198 13,782 PRE OPERATIONAL COSTS (net of amortisation of nil, 5,016 SK) (Note 3).............................. 5,459 55,185 ------------ ------------ Total assets................................. 109,376 1,265,742 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................ 4,910 158,537 Accrued Liabilities (Note 8).................... 1,005 24,233 Duties and other taxes payable.................. 167 17,162 Amounts due to Shareholders (Note 9)............ -- 10,521 Amounts due to related parties (Note 10)........ -- 1,192 ------------ ------------ Total current liabilities.................... 6,082 211,645 ------------ ------------ NON CURRENT LIABILITIES: Shareholder loan (Note 9)....................... -- 294,192 ------------ ------------ Total non current liabilities................ -- 294,192 ------------ ------------ SHAREHOLDERS' EQUITY: (Note 13) Capital stock................................... 100 100 Other contributed capital....................... 105,446 893,768 Accumulated deficit............................. (2,252) (133,963) ------------ ------------ Total shareholders' equity................... 103,294 759,905 ------------ ------------ Total liabilities and shareholders' equity... 109,376 1,265,742 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these balance sheets. 88 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. INCOME STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS)
1995 1996 ------ -------- REVENUES: Advertising............................................... -- 227,026 Other..................................................... 1 5,334 ------ -------- 1 232,360 ------ -------- ------ -------- STATION EXPENSES: Depreciation of station equipment......................... (299) (39,544) Amortisation of programming rights........................ -- (74,769) Amortisation of intangibles and pre-operational costs..... (27) (6,313) Other operating costs and expenses........................ (1,908) (177,374) Selling, general and administrative expenses.............. -- (49,966) ------ -------- Operating loss.............................................. (2,233) (115,606) ------ -------- ------ -------- INTEREST AND OTHER INCOME (NOTE 14)......................... 4 7,750 INTEREST EXPENSE (NOTE 15).................................. (23) (23,855) ------ -------- Net loss.................................................... (2,252) (131,711) ------ -------- ------ --------
The accompanying notes are an integral part of these income statements. 89 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS)
1995 1996 -------- ---------- Cash flows from operating activities: Net loss.................................................. (2,252) (131,711) Depreciation and amortization............................. 326 45,857 Depreciation of program rights............................ -- 74,769 Provision for bad debts................................... -- 3,387 -------- ---------- Operating profit before changes in operating assets....... (1,926) (7,698) (Increase) decrease in operating assets: Accounts receivable.................................... -- (173,366) Other assets........................................... (52,214) (84,037) Increase (decrease) in operating liabilities: Accounts payable....................................... 4,910 153,627 Accrued liabilities.................................... 1,005 23,228 Duties and other taxes payable......................... 167 16,995 Amounts due to shareholders............................ -- 10,521 Amounts due to related parties......................... -- 1,192 -------- ---------- Net cash (used)/ from operating activities............. (48,058) (59,538) -------- ---------- -------- ---------- Cash flows from investing activities: Investments in program rights............................. -- (251,978) Investments............................................... -- (100) Net purchase of property, plant & equipment............... (36,547) (685,776) Net purchase of intangible assets......................... (225) (14,881) Pre-operational cost capitalised.......................... (5,459) (54,742) -------- ---------- Net cash (used)/ from investing activities.................. (42,231) (1,007,477) -------- ---------- -------- ---------- Cash flows from financing activities: Increase in shareholder loan.............................. -- 294,192 Capital increase.......................................... 100 -- Increase in other contributed capital..................... 105,446 788,322 -------- ---------- Net cash(used)/ from financing activities................... 105,546 1,082,514 -------- ---------- -------- ---------- Net increase in cash and cash equivalents................... 15,257 15,499 -------- ---------- -------- ---------- Cash and cash equivalents at the beginning of the year.... -- 15,257 -------- ---------- Cash and cash equivalents at end of year.................. 15,257 30,756 -------- ---------- -------- ----------
The accompanying notes are an integral part of this statement. 90 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) (1) ORGANIZATION AND BUSINESS Slovenska televizna spolocnost, s.r.o. (STS or the Company) was established as a Limited Liability Company under the Laws of the Slovak Republic on October 9, 1995, to develop an independent, private television station, TV Markiza, and to both technically secure the preparation of television broadcasting and to provide full scale television programming. Programming prepared by STS, is broadcast by Markiza Slovakia, s.r.o., in accordance with the license granted to Markiza Slovakia, by The Council of the Slovak Republic for Broadcasting and Television Transmission. The license provides for broadcast within the territory of the Slovak Republic utilising terrestrial signals, achieving an initial 65% national coverage. The license is limited for a period of 12 years commencing August 7, 1995. The provision of programming to Markiza Slovakia by STS, is performed in accordance with the terms of an agreement between these parties, under which Markiza Slovakia grants STS the rights to all revenues derived from broadcasting in exchange for a 51% ownership interest and a 20% economic interest in the Company, subject to the repayment of the original capital contribution made by Central Media Enterprises, B.V. (CME). (2) FINANCING OF OPERATING AND CAPITAL NEEDS The share capital of 100 TSK is 51% owned by Markiza Slovakia, s.r.o., a limited liability company established under the Laws of the Slovak Republic, and 41% owned by CME, a Limited Liability Company established under the Laws of The Netherlands. In addition to the share capital provided, contributions amounting to 893,768 TSK have been received from CME for the provision of operating funds to the Company. As a result of this increased contribution, and in accordance with the Participants agreement between the shareholders, CME is entitled to 80% of the Company's profits and losses and 80% of the proceeds upon liquidation of the Company's assets. In addition to shareholders capital, CME have granted loans to the Company amounting to 294,192 TSK, as of December 31, 1996, inclusive of accrued interest of 6,815 TSK. (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements, consisting of the balance sheet as of December 31, 1996 and 1995, and the related statements of income, cash-flow statements and notes to the financial statements for the year ended 31 December 1996 are presented in accordance with US GAAP and, accordingly, give a true and fair view of the Company's net worth, financial position and results. a) Basis of accounting The Company maintains its books of accounts and prepares statements for regulatory purposes in accordance with Slovak accounting principles. The accompanying financial statements are based on the accounting records of the Company, together with appropriate reclassifications necessary for fair presentation in accordance with US GAAP. 91 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) b) Property, Plant and Equipment and Intangible Assets Fixed and Intangible assets are carried at cost less accumulated depreciation. Depreciation is computed using the straight line method over the estimated useful lives of the related assets. (Notes 6 and 7). c) Assets held under Capital Leases Assets held under capital leases are accounted for in accordance with Statement of Financial Accounting Standards No. 13, 'Accounting for Leases', and recorded in Property, Plant and Equipment. The related liability is included in obligations under capital lease. d) Program Rights and Production Costs Program rights acquired by the Company under license agreements and the related obligations incurred are recorded as assets and liabilities when the license period begins, and the assets are amortised to expense using accelerated methods based on the estimated period of usage, ranging from one to five years. Amortisation estimates for program rights are reviewed periodically and adjusted prospectively. Program rights costs are shown net of amortisation of 74,769 TSK. Payments made for program rights for which the license period has not begun before the year end are classified as prepaid expenses and amount to 5,436 TSK at December 31, 1996. (See Note 4). The elements of program rights for which the licence period will expire within one year, amounting to 5,155 TSK have been reclassified as current assets. Production costs for self-produced programs are capitalised, and expensed when first broadcast except where the programming has potential to generate future revenues. When this is the case, production costs are capitalised and amortised on the same basis as programming obtained from third parties. e) Pre Operational Costs The Company has capitalised 60,201 TSK in costs incurred in connection with the organisation and incorporation of the business prior to the commencement of broadcasting of its programming. These costs will be amortised over four years from the commencing of broadcasting of the station. Amortisation of 5,016 TSK has been provided to December 31, 1996. (1995--nil) f) Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, 'Accounting for Income Taxes.' No tax is due for the period ending December 31, 1996 due to losses incurred by the Company in this period. g) Foreign Currency Transactions Transactions denominated in foreign currencies are recorded at the exchange rate in effect at the date of the transaction. Outstanding foreign currency obligations and receivables have been translated at the exchange rate in effect as of the balance sheet date. Translation gains or losses have been charged to other income and expense. 92 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) h) Cash and cash equivalents Cash and cash equivalents include cash in banks and on hand. The Company does not have any restricted cash balances. i) Revenue Recognition Revenues primarily result from the sale of advertising time and are recognized at the time the advertisements are broadcast. j) Barter Transactions Revenue from barter transactions (television advertising provided in exchange for goods and services) is recognised as income when advertisements are broadcast, and programming, merchandise or services received are charged to expense (or capitalised as appropriate) when received or used. Barter revenues and related expenditures of 11,977 TSK have been recognised for the year within advertising revenues and operating expenses respectively. The Company does not believe that the bartered programming has significant value on its second showing on Slovak television as it has been the experience of the industry that first runs, on average, account for a substantial majority of the program's potential revenue. Thus, no asset or liability is recorded on the balance sheet for the potential rebroadcast of bartered programming. The Company records barter transactions at the estimated fair value of the production or services received. In cases where bartered programs can only be obtained through a barter agreement the Company values the barter at the value of the asset given up. In other cases where the Company has elected to enter into barter agreements as an alternate method of payment, strictly for economic reasons, the Company values the barter agreement at the value of the asset received. If merchandise or services are received prior to the broadcast of a commercial, a liability is recorded. Likewise, if a commercial is broadcast first, a receivable is recorded. Receivables and payables arising from barter transactions are offset when the services have been rendered to the customer and the services rendered, or the merchandise received from the vendor. (4) OTHER ASSETS Other assets consist of the following:
DECEMBER 31, 1995 DECEMBER 31, 1996 ----------------- ----------------- Value-added tax......................... 2,189 18,765 Operational advances 50,018 116,413 Prepayments --programming......................... -- 5,436 --other............................... -- 854 Other................................... 7 213 -------- ----------------- 52,214 141,681 -------- ----------------- -------- -----------------
In 1996, the Company entered into an agreement with Slovak Telecom for the provision of the broadcasting infrastructure and signal transmission. In accordance with this, advances of 127,000 TSK were remitted to Slovak Telecom, against future signal transmission charges. This agreement accounts for 50,000 TSK and 108,632 TSK at December 31, 1995 and 1996, respectively. 93 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) (5) INVESTMENTS The Company hold 100% (100 TSK) of the share capital of company, 'Vyhra'. A limited liability company established by STS under the Laws of the Slovak Republic. Vyhra has not traded since its establishment. (6) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net consist of the following:
USEFUL DECEMBER 31, DECEMBER 31, LIVES 1995 1996 ------ --------------- --------------- Land and buildings...................... 25 -- 243,838 Technical Equipment..................... 4-8 1,197 394,595 Other................................... 4 -- 70,552 Construction in progress................ -- 15,102 -- Advances for tangibles.................. -- 20,248 13,338 --------------- --------------- 36,547 722,323 Less--Accumulated depreciation.......... (299) (39,843) --------------- --------------- 36,248 682,480 --------------- --------------- --------------- ---------------
(7) INTANGIBLE ASSETS Intangible assets, net consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1996 --------------- --------------- Software................................ 25 7,013 Other................................... 200 8,093 --------------- --------------- 225 15,106 Less--Accumulated amortisation.......... (27) (1,324) --------------- --------------- 198 13,782 --------------- --------------- --------------- ---------------
(8) ACCRUED LIABILITIES Accrued liabilities consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1996 --------------- --------------- Legal and Professional fees............. -- 194 Personnel accruals...................... 1,005 15,381 Social fund............................. -- 297 Other................................... -- 8,361 --------------- --------------- 1,005 24,233 --------------- --------------- --------------- ---------------
94 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) (9) AMOUNTS DUE TO SHAREHOLDERS Shareholder Loan The Company has borrowed a total of 287,377 TSK over the period from July 10, 1996 to August 26, 1996. These loans are unsecured, repayable after a period of no less than 5 years, maturing in 2007, and bearing interest at the rate of 6% per annum Interest of 6,815 TSK has accrued as at December 31, 1996 relating to the period to this date. Other The Company owes 10,521 TSK to CME as at December 31, 1996, in relation to consultancy services for the six months to the year end and for programming services provided to the Company by CME. (10) AMOUNTS DUE TO RELATED PARTIES The Company has liabilities to Ceska nezavisla televizni spolecnost, s.r.o. (TV Nova) at December 31, 1996, amounting to 1,192 TSK, relating to the purchase of programs. (11) LOAN OBLIGATIONS The Company has no loan obligations other than that disclosed in Note 9. (12) COMMITMENTS AND CONTINGENCIES Commitments under Capital Leases The Company has no material Capital Lease commitments at December 31, 1996. Commitments under Operating Leases The Company has entered into operating leases for three properties located in Bratislava. The lease terms commenced June 15, and July 1, 1996 and expire June 30, 1999 or have unlimited terms. Where a definitive term is set, the lease provides for a renewal option. For the fiscal year ended December 31, 1996, the Company paid aggregate rent on all facilities of 8,083 TSK. The Company has minimum future obligations under operating leases relating to property with definitive terms as follows:
YEAR DM TSK - -------- --- ----- 1996.... 96 1,969* 1997.... 96 1,969 1998.... 96 1,969 1999.... 48 985 --- ----- 336 6,892 --- ----- --- -----
- ------------------ *translated using the exchange rate as at December 31, 1996. Monthly payments relating to leases with unlimited terms amount to 56 TSK. 95 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) Programming Rights Commitments The Company has commitments amounting to 80,122 TSK in respect of rights for future programming. The Company has also entered into certain barter agreements in 1996 that continue through 1997 and beyond, by which television advertising will be provided in exchange for programming. As the value of this advertising time will only be established at the time of broadcast, it is not possible to quantify the impact of these agreements. (13) SHAREHOLDERS' EQUITY The movement on shareholders' equity in the year is as follows:
OTHER TOTAL CONTRIBUTED ACCUMULATED SHAREHOLDERS' SHARE CAPITAL CAPITAL DEFICIT EQUITY ------------- ----------- ----------- ------------- Balance as at December 31, 1995.... 100 105,446 (2,252) 103,294 Contributions...................... -- 788,322 -- 788,322 Loss for the year.................. -- -- (131,711) (131,711) ----- ----------- ----------- ------------- Balance as at December 31, 1996.... 100 893,768 (133,963) 759,905 ----- ----------- ----------- ------------- ----- ----------- ----------- -------------
(14) INTEREST INCOME Interest income consists of the following:
1995 1996 ---- ----- Bank & short term deposit......................... 4 2,509 Realised foreign exchange gains................... -- 190 Other............................................. -- 5,051 ---- ----- 4 7,750 ---- ----- ---- -----
(15) INTEREST EXPENSE Interest expense consists of the following:
1995 1996 ---- ------ Shareholder loan interest......................... -- 6,815 Foreign exchange losses --realised...................................... -- 529 --unrealised.................................... -- 14,333 Other............................................. 23 2,178 ---- ------ 23 23,855 ---- ------ ---- ------
96 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) (16) NUMBER OF EMPLOYEES The number of employees as of December 31, 1996, was 380 full time and 3 part-time. (17) TAXATION The reconciliation between the accounting loss and the taxable base of the Corporate Income Tax is as follows:
1996 -------- Profit for the year............................... (131,711) Permanent differences Non deductible expenses......................... 12,667 Temporary differences Unrealised exchange looses...................... 19,340 Difference with tax depreciation................ 4,124 US GAAP Adjustments............................. (54,733) -------- Taxable income, (loss)............................ (150,313) -------- --------
Following the prudence principle and due to the uncertainty on the recoverability of the tax credit following the current Slovak tax legislation, the Management of STS has decided not to record the tax carry forward (60,125 TSK) or the deferred tax (asset, 21,893 TSK, liability, 9,386 TSK) as of December 31, 1996. 97 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated herein by reference to the section entitled "Election of Directors and Executive Officers" in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders. Item 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the sections entitled "Executive Compensation," "Compensation Committee Report on Executive Compensation" and "Performance Graph" in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference to the section entitled "Certain Relationships and Related Transactions" in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders. 98 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following Financial Statements of the Company are included in Part II, Item 8 of this Report: Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements (a)(2) The following Financial Statements of 1A TV Beteiligungsgesellschaft MBH & Co. Betreibs-KG are included in Part II, Item 8 of this Report: Report of Independent Public Accountants Balance Sheet as of December 31, 1996 and 1995 Statement of Operation for the years ended December 31, 1996 and 1995 Statement of Partners' Capital for the years ended December 31, 1996 and 1995 Statement of Cash Flows for the years ended December 31, 1996 and 1995 Notes to Financial Statements (a)(3) The following Financial Statements of Slovenska Televizna Spolocnost, s.r.o. are included in Part II, Item 8 of this Report: Report of Independent Public Accountants Balance Sheet as of December 31, 1995 and 1996 Income Statements for the periods ended December 31, 1995 and 1996 Statements of Cash Flows for the periods ended December 31, 1995 and 1996 Notes to Financial Statements (a)(5) The following exhibits are included in this report: 99 EXHIBIT INDEX Exhibit Number Description - ------ ----------- 3.01* -- Memorandum of Association (incorporated by reference to Exhibit 3.01 to the Company's Registration Statement No. 33-80344 on Form S-1, filed June 17, 1994). 3.02* -- Bye-Laws of Central European Media Enterprises Ltd., as amended, dated as of May 2, 1997 (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997). 3.03* -- Memorandum of Increase of Share Capital (incorporated by reference to Exhibit 3.03 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994). 3.04* -- Memorandum of Reduction of Share Capital (incorporated by reference to Exhibit 3.04 to Amendment No. 2 to the Company's Registration Statement No. 33-80344 on Form S-1, filed September 14, 1994). 3.05* -- Certificate of Deposit of Memorandum of Increase of Share Capital executed by Registrar of Companies on May 20, 1997 (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997). 4.01* -- Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.01 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994). 4.02* -- Specimen Note for 9 3/8% Senior Notes Due 2004 (incorporated by reference to Exhibit 4.1 to the Company's Amendment No. 3 to Form S-3 filed on August 14, 1997) 4.03* -- Specimen Note for 8 1/8% Senior Notes Due 2004 (incorporated by reference to Exhibit 4.1 to the Company's Amendment No. 3 to Form S-3 filed on August 14, 1997) 4.04* -- Form of Indenture for 9 3/8% Senior Notes Due 2004 (incorporated by reference to Exhibit 4.2 to the Company's Amendment No. 3 to Form S-3 filed on August 14, 1997) 4.05* -- Form of Indenture for 8 1/8% Senior Notes Due 2004 (incorporated by reference to Exhibit 4.2 to the Company's Amendment No. 3 to Form S-3 filed on August 14, 1997) 10.01*+ -- Central European Media Enterprises Ltd. Amended and Restated 1994 Stock Option Plan, as amended to October 17, 1995. (incorporated by reference to 100 Exhibit Number Description - ------ ----------- Exhibit 10.01A to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.02+ -- Central European Media Enterprises Ltd. 1995 Stock Option Plan, as amended and restated to September 3, 1998 10.03 -- Memorandum of Association and Investment Agreement by and between CME Czech Republic B.V. and CET 21 spol s.r.o dated May 4, 1993 and as amended 10.04* -- Credit Agreement between Ceska Sporitelna, a.s. and Ceska Nezavisla Televizni Spolecnost, s.r.o. (incorporated by reference to Exhibit 10.16 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994). 10.05* -- Term Promissory Note in favor of Ronald S. Lauder dated September 9, 1994 and Warrant for the Purchase of Shares of Common Stock issued to Ronald S. Lauder dated as of September 9, 1994 (incorporated by reference to Exhibit 10.17 to Amendment No. 2 to Registration Statement No. 33-80344 on Form S-1, filed September 14, 1994). 10.06* -- Partnership Agreement of Produkcija Plus d.o.o. Ljubljana, dated February 10, 1995 among CME Media Enterprises B.V., Boutique MMTV d.o.o. Ljubljana, and Tele 59 d.o.o. Maribor. (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.07* -- Letter Agreement, dated March 23, 1995, among, Kanal A, Boutique MMTV d.o.o. Ljubljana, Tele 59 d.o.o. Maribor, Euro 3 and Baring Communications Equity as advisor to Baring Communications Equity Limited, regarding Produkcija Plus d.o.o. (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.08* -- Credit Agreement, dated as of November 14, 1994, between Ceska Sportelma, a.s. and Ceska Nezavisla Televizni Spolecnost, s.r.o. (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.09* -- Lease, dated February 2, 1995, between CME Development Corporation Inc. and JRT (Properties) Limited for the term of ten years for the offices at 9 Poland Street and 17, 18 and 19 D'Arblay Street in London. (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.10* -- Contract for Space Segment Service dated June 9, 1995, between British Telecommunications plc ('BT') and CME Programming Services, Inc. for the provision of programming transmission services by BT and the payment 101 Exhibit Number Description - ------ ----------- thereon (incorporated by reference to Exhibit 10.25A to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1995). 10.10A* -- Guarantee by Central European Media Enterprises Ltd. in respect of obligations due to British Telecommunications plc by CME Programming Services, Inc. dated June 9, 1995 (incorporated by reference to Exhibit 10.25B to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1995). 10.11* -- Cooperation Agreement among CME Media Enterprises B.V., Ion Tiriac and Adrian Sarbu (incorporated by reference to Exhibit 10.27 to the Company's Registration Statement No.33- 96900 on Form S-1 filed September 13, 1995). 10.12* -- Preliminary Agreement, dated June 12, 1995, between CME Media Enterprises B.V. and Markiza-Slovakia s.r.o. (incorporated by reference to Exhibit 10.28 to the Company's Registration Statement No. 33-96900 on Form S-1, filed September 13, 1995). 10.12A* -- Memorandum of Association between CME Media Enterprises, B.V. and Markiza-Slovakia s.r.o. (incorporated by reference to Exhibit 10.28A to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.12B* -- Articles of Association of Slovenska Televizna Spolocnost, s.r.o. founded by CME Media Enterprises, B.V. and Markiza-Slovakia s.r.o. (incorporated by reference to Exhibit 10.28B to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.13* -- Contract of Sale, dated July 7, 1995 between In Razvoj in Svetovanje d.o.o. Ljubljana and Produkcija Plus d.o.o. Ljubljana and Central European Media Enterprises Group (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.14* -- Loan Agreement, dated December 4, 1995, between CME Media Enterprises, B.V., and Inter Media S.R.L. (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.15* -- Contocurrent Credit Contract kept with the Current Account, dated as of November 1, 1995 between Ceska Sporitelna a.s. and Czech Independent Television Company s.r.o. (Ceska Nezavisla Televizni Spolecnost s.r.o.) (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.16* -- Transfer Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.03 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 102 Exhibit Number Description - ------ ----------- 10.16A* -- Annex to Transfer Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.04 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 10.17* -- Loan Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.05 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 10.18* -- Agreement on a Future Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.06 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 10.19* -- Loan Agreement between Vladimir Zelezny and CME dated August 1, 1996 (incorporated by reference to Exhibit 10.01 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.19A* -- Amendment to the Loan Agreement of August 1, 1996 and agreements referred to as Security Documents between Vladimir Zelezny and CME, dated as of March 11, 1997 (incorporated by reference to Exhibit 10.38A to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.20* -- Ronald S. Lauder Warrant for the Purchase of Shares, dated October 2, 1996 (incorporated by reference to Exhibit 10.03 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.21* -- Agreement between CME, Boris Fuchsmann, Alexander Rodniansky and Innova Film GmbH in English, dated October 25, 1996 (incorporated by reference to Exhibit 10.10 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.22* -- Agreement between CME, Boris Fuchsmann, Alexander Rodniansky and Innova Film GmbH in German, dated October 25, 1996 (incorporated by reference to Exhibit 10.11 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.23* -- Poland Street Lease Agreement, dated April 2, 1996 (incorporated by reference to Exhibit 10.18 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.24* -- Share Purchase Agreement between Ceska Sporitelna a.s. and CME Media Enterprises B.V., dated December 12, 1996 (incorporated by reference to Exhibit 10.58 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.25* -- Agreement on Assignment of Claim between Ceska Sporitelna, a.s. and CME Media Enterprises B.V., dated December 12, 1996 (incorporated by reference to Exhibit 10.59 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 103 Exhibit Number Description - ------ ----------- 10.26* -- Assignment of Shares Agreement between Balaclava B.V., Adrian Sarbu (as shareholders of PRO TV Ltd.), CME Media Enterprises B.V., Grigoruta Roxana Dorina and Petrovici Liana, dated December 6, 1996 (incorporated by reference to Exhibit 10.60 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.27* -- Net Reimbursement Agreement by and among International Teleservices Limited, International Media Services, Limited and Limited Liability Company 'Prioritet', dated February 13, 1997 (incorporated by reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.28* -- Agreement by and between International Media Services, Ltd and Innova Film GmbH, dated January 23, 1997 (incorporated by reference to Exhibit 10.65 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.29* -- Amended and Restated Charter of the Enterprise 'Inter-Media', dated January 23, 1997 (incorporated by reference to Exhibit 10.66 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.30* -- Amended and Restated Charter of the Broadcasting Company 'Studio 1+1', dated January 23, 1997 (incorporated by reference to Exhibit 10.67 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.31* -- Amended and Restated Foundation Agreement on the Establishment and Operation of the Broadcasting Company 'Studio 1+1,' dated January 23, 1997 (incorporated by reference to Exhibit 10.68 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.32* -- Protocol of the Participants' Assembly of the Broadcasting Company 'Studio 1+1,' dated January 23, 1997 (incorporated by reference to Exhibit 10.69 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.33* -- Marketing, Advertising and Sales Agreement by and between International Media Services Ltd and Innova Film GmbH, dated January 23, 1997 (incorporated by reference to Exhibit 10.70 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.33A* -- Amendment Agreement to Marketing, Advertising and Sales Agreement between Innova Film GmbH and International Media Services Limited, dated May 7, 1997 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997). 10.34* -- Marketing and Sales Agreement by and between International Media Services Ltd. and Prioritet, dated January 23, 1997 (incorporated by reference to Exhibit 10.71 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.34A* -- Termination Agreement between International Media Services Ltd. and Prioritet, dated May 7, 1997 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997). 104 Exhibit Number Description - ------ ----------- 10.35* -- IMS Advertising Service Agreement between International Media Services Ltd. and Limited Liability Company --Prioritet--, dated May 7, 1997 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997). 10.36* -- Advertising Consultancy Agreement between Intermedia and Limited Liability Company --Prioritet--, dated May 7, 1997 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997). 10.37* -- Service Agreement between R. S. Lauder Gaspar & Co., LP and Central European Media Enterprises Ltd., dated as of April 1, 1997 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997). 10.38* -- Contract on Purchase of Real Estate between Central European Development Corporation Praha, spol s.r.o. and Ceska Nezavisla Televizni Spolecnost, spol. s.r.o., dated May 21, 1997 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997). 10.39*+ -- Employment Agreement between CME Development Corporation and John Schwallie, dated as of November 21, 1997 (incorporated by reference to Exhibit 10.72 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.40*+ -- Employment Agreement between Central European Media Enterprises Ltd. and John Schwallie, dated as of November 21, 1997 (incorporated by reference to Exhibit 10.72 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.41*+ -- Employment Agreement between CME Development Corporation and Fred Klinkhammer, dated as of January 1, 1998 (incorporated by reference to Exhibit 10.72 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.41A+ Amendment No. 1 to Employment Agreement between CME Development Corporation and Fred Klinkhammer, dated as of March 23, 1999. 10.42*+ -- Employment Agreement between Central European Media Enterprises Ltd. and Fred Klinkhammer, dated as of January 1, 1998 (incorporated by reference to Exhibit 10.72 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.42A+ Amendment No. 1 to Employment Agreement between Central European Media Enterprises Ltd. and Fred Klinkhammer, dated as of March 23, 1999. 105 Exhibit Number Description - ------ ----------- 10.43*+ -- Employment Agreement, dated as of March 23, 1998, between CME Development Corporation and Michel Delloye (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998) 10.44*+ -- Employment Agreement, dated as of March 23, 1998, between Central European Media Enterprises Ltd. and Michel Delloye (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998) 10.45*+ -- Agreement, dated as of March 25, 1998, among Central European Media Enterprises Ltd., CME Development Corporation, CME Programming Services Inc., The Acorn Consulting Group, Inc. and Leonard M. Fertig (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998) 10.46* -- Sale and Purchase Agreement, dated December 10, 1998, between Central European Media Enterprise Ltd. and International Trading and Investments Holding S.A. (incorporated by reference to Exhibit 2.1 to Form 8-K filed on December 28, 1998) 10.47+ -- Central European Media Enterprises Ltd. Stock Appreciation Rights Plan, effective as of September 3, 1998 10.48+ -- Central European Media Enterprises Ltd. Director, Officer and Senior Executive Co-Investment Plan 10.49 -- Revolving Facility Agreement between CME Czech Republic B.V. and ING Bank N.V dated February 26, 1999 10.50 -- Contract on cooperation in ensuring service for television broadcasting between Ceska Nezavisla Televizni Spolecnost, spol. s.r.o. and CET 21, spol. s.r.o. dated May 21, 1997 and Supplement dated May 21, 1997 10.51 -- Stock Purchase Agreement between Central European Media Enterprises Ltd. and RSL Capital, dated as of December 3, 1998. 21.01 -- List of subsidiaries. 23.01 -- Consent of Arthur Andersen & Co. 24.01 -- Power of Attorney, dated as of March 8, 1999, authorizing Michel Delloye, Frederic T. Klinkhammer and John A. Schwallie as attorney for Ronald S. Lauder, Michel Delloye, Robert R. Grusky, Peter R. Goldscheider, Herbert S. Schlosser, Nicolas G. Trollope and John A. Schwallie. 27.01 -- Financial data schedule. (b) -- Current Reports on Form 8-K: 106 Registrant filed a current report on Form 8-K on December 28, 1998 reporting the sale of the Company's interest in TVN Television Operations in Poland, under Item 2: Disposition of Assets The following pro forma Financial Statements were filed in such Form 8-K Pro Forma Consolidated Balance Sheet as of September 30, 1998 Pro Forma Consolidated Statements of Operations for the Year Ended December 31, 1997 Pro Forma Consolidated Statements of Operations for the Nine Months Ended September 30, 1998 (c) -- Exhibits: See (a)(5) above for a listing of the exhibits included as part of this report. (d) -- Report of Independent Public Accountants on Schedule II-- Schedule of Valuation Allowances. - ----------------------- * -- Previously filed exhibits + -- Exhibit is a management contract or compensatory plan 107 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Central European Media Enterprises Ltd. By: /s/ John A. Schwallie ------------------------------- John A. Schwallie Vice President - Finance and Chief Financial Officer March 29, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- * - -------------------------------- Chairman of the Board of Directors March 29, 1999 Ronald S. Lauder /s/ Frederic T. Klinkhammer - -------------------------------- President, Chief Executive Officer and March 29, 1999 Frederic T. Klinkhammer Director (Principal Executive Officer) /s/ John A. Schwallie - -------------------------------- Vice President - Finance and Chief March 29, 1999 John A. Schwallie Financial Officer (Principal Financial Officer and Principal Accounting Officer) * - -------------------------------- Vice President, Secretary and Director March 29, 1999 Nicolas G. Trollope * - -------------------------------- Director March 29, 1999 Robert R. Grusky * - -------------------------------- Director March 29, 1999 Herbert S. Schlosser * - -------------------------------- Director March 29, 1999 Peter R. Goldscheider
* By: /s/ John A. Schwallie ---------------------------- John A. Schwallie Attorney-in-fact 108 INDEX TO SCHEDULES Report of Independent Public Accountants on Schedule:.....................S-2 Schedule II: Schedule of Valuation Allowances............................S-3 S-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To: Central European Media Enterprises Ltd.: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Central European Media Enterprises Ltd. included in this filing and have issued our report thereon dated March 29, 1999. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the accompanying index is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen & Co. Hamilton, Bermuda March 29, 1999 S-2 Schedule II Schedule of Valuation Allowances $000s
Balance at Charged to Charged to Balance at January 1, Costs and Other December 1998 Expenses Accounts Deductions 31, 1998 ---------- ---------- ---------- ---------- --------- Bad debt provision................ 3,658 (225) (555) 393 3,271 Development costs................. 2,660 -- -- -- 2,660 Restructuring costs............... -- 2,552 -- (2,042) 510 Balance at Charged to Charged to Balance at January 1, Costs and Other December 1997 Expenses Accounts Deductions 31, 1997 ---------- ---------- ---------- ---------- --------- Bad debt provision................ 3,200 1,274 -- (816) 3,658 Development costs................. 996 1,400 264 -- 2,660 Balance at Charged to Charged to Balance at January 1, Costs and Other December 1996 Expenses Accounts Deductions 31, 1996 ---------- ---------- ---------- ---------- --------- Bad debt provision................ 1,105 2,095 -- -- 3,200 Development costs................. 4,373 714 -- (4,091) 996
S-3 EX-10.02 2 STOCK OPTION PLAN CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. 1995 STOCK OPTION PLAN As Amended and Restated to September 3, 1998 -------------------------------------------- 1. Purpose The purpose of the 1995 Stock Option Plan (the "Plan") is to induce employees, nonemployee consultants and directors who are not employees of the Company or a Subsidiary ("nonemployee directors") to retain their association with Central European Media Enterprises Ltd (the "Company"), its affiliates and its present and future subsidiaries (each a "Subsidiary"), as defined in Section 424(f) of the Internal Revenue Code of 1986 [of the USA], as amended (the "Code"), to attract new employees, nonemployee consultants and directors who are not employees and to encourage such employees, nonemployee consultants and directors who are not employees to secure or increase on reasonable terms their stock ownership in the Company. The Board of Directors of the Company (the "Board") believes that the granting of stock options (the "Options") under the Plan will promote continuity of management and increased incentive and personal interest in the welfare of the Company by those who are or may become primarily responsible for shaping and carrying out the long range plans of the Company and securing its continued growth and financial success. Options granted hereunder are intended to be either (a) "incentive stock options" (which term, when used herein, shall have the meaning ascribed thereto by the provisions of Section 422(b) of the Code) or (b) options which are not incentive stock options ("non-incentive stock options") or (c) a combination thereof, as determined by the Committee (the "Committee") referred to in Section 5 hereof at the time of the grant thereof. 2. Effective Date of the Plan The Plan was adopted by resolution of the Board of Directors of the Company (the "Board") on August 2, 1995 and ratified by a majority of the votes cast by holders of outstanding shares of the -1- common stock, $.01 par value, of the Company (the "Common Stock"), at the Company's annual general meeting of shareholders held on May 3, 1996. The Plan was amended by the Board on March 17, October 4, 1997 and March 11, 1998 (the "March 11 Board Meeting"). The decision of the March 11 Board Meeting was ratified in certain respects by the Company's annual general meeting of shareholders held on June 5 1998. The Plan was further amended by the Board on September 3 1998. 3. Stock Subject to Plan 3,200,000 of the authorized but unissued shares of the Class A Common Stock (the "Class A Common Stock") and 320,000 of the authorized but unissued shares of the Class B Common Stock (the "Class B Common Stock"), are hereby reserved for issue upon the exercise of Options granted under the Plan; provided, however, that the aggregate number of shares of Common Stock that may be issued under the Plan shall not exceed 3,200,000, provided further, however, that the number of shares so reserved may from time to time be reduced to the extent that a corresponding number of issued and outstanding shares of the Class A Common Stock or Class B Common Stock are purchased by the Company and set aside for issue upon the exercise of Options; and provided further, however, that the number of shares of Class A Common Stock reserved shall be reduced by the number of shares of Class B Common Stock that are delivered pursuant to the exercise of Options hereunder. If any Options expire or terminate for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for the purposes of the Plan. 4. Administration The Plan shall be administered by the Committee referred to in Section 5 hereof. Subject to the express provisions of the Plan, the Committee shall have complete authority, in its discretion, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements or certificates (which need not be -2- identical), to determine the individuals (each a "Participant") to whom and the times and the prices at which Options shall be granted, the period during which each Option shall be exercisable and the vesting schedule therefor (which may vary with each optionee and may be granted on a basis less favourable to the optionee than that provided in Section 10 hereof), the number of shares of the Class A Common Stock of Class B Common Stock to be subject to each Option and whether such Option shall be incentive stock or Class B Common Stock to be subject to each Option and whether such Option shall be incentive stock option or a non-incentive stock option and to make all other determinations necessary or advisable for the administration of the Plan; provided, however, that Options on Class B Common Stock shall be granted only to persons eligible to be a holder of Class B Common Stock pursuant to the Company's Bye-laws; and provided further, however, that only the Board shall grant Options to nonemployee directors, other than Options granted to nonemployee directors pursuant to Section 20.B. hereof, and to determine the terms thereof. In making such determinations, the Committee or the Board, as the case may be, may take into account the nature of the services rendered by the respective employees, nonemployee consultants and nonemployee directors, their present and potential contributions to the success of the Company and the Subsidiaries and such other factors as the Committee or the Board in its discretion shall deem relevant. The Committee's or Board's determination on the matters referred to in this Section 4 shall be conclusive. Any dispute or disagreement which may arise under or as a result of or with respect to any Option shall be determined by the committee, in its sole discretion, and any interpretations by the Committee of the terms of any Option shall be final, binding and conclusive. 5. Committee The Committee shall consist of two or more members of the Board both or all of whom shall be "Non-Employee Directors" within the meaning of Rule 16b 3(b)(i) promulgated under the Securities Exchange Act of 1934, as amended [of the USA] (the "Exchange Act"). The Committee shall be appointed annually by the Board, which may at any time and from time to time remove any members of the Committee, with or without cause, appoint additional members to the Committee and fill -3- vacancies, however caused, in the Committee. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members present at a meeting duly called and held. Any decision or determination of the Committee reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made at a meeting duly called and held. 6. Eligibility An Option may be granted only to a key employee or nonemployee consultant of the Company or a Subsidiary. A director of the Company or a Subsidiary who is not an employee of the Company or a Subsidiary shall be eligible to receive an Option, but only as provided in Section 4 and 20 hereof. 7. Option Prices A. The initial per share option price of an Option which is an incentive stock option shall be the price determined by the Committee, but not less than the fair market value of a share of the Class A Common Stock or Class B Common Stock on the date of grant; provided, however, that, in the case of a Participant who owns more than 10% of the total combined voting power of the Common Stock at the time an Option which is an incentive stock option is granted to him, the initial per share option price shall not be less than 110% of the fair market value of a share of the Class A Common Stock or Class B Common Stock on the date of grant. B. The initial per share option price of any Option which is a non-incentive stock option granted to an employee or nonemployee consultant shall be the price determined by the committee, but not less than either the fair market value of a share of Class A Common Stock on the date of grant or the average fair market value of a share of Class A Common Stock -4- over a period specified in the grant following the date the Option is granted not to exceed 20 business days. The Committee may provide that the option price per share will increase to reflect the cost of the capital or any other objective measure or may set the initial exercise price at an amount in excess of the fair market value at the time of grant. The per share option price of any Option granted to a nonemployee director pursuant to Section 20.A. shall be determined in the same manner as the per share option price for options granted to employees and nonemployee consultants, and the per share option price of an Option granted to a nonemployee director pursuant to Section 20.B. shall be determined as provided in Section 20.B. C. For all purposes of the Plan, the fair market value of a share of the Class A Common Stock or the Class B Common Stock on any date shall be equal to (i) if, on such day, shares of the Class A Common Stock shall be traded on a national securities exchange, the closing sales price of a share of the Class A Common Stock as published by such national securities exchange or if there is no sale of the Class A Common Stock on such date, the average of the bid and asked price on such exchange at the close of trading on such date, or (ii) if the shares of the Class A Common Stock are not listed on a national securities exchange on such date, and are traded on a national securities market, the average of the bid and asked price in the over-the-counter market at the close of trading on such date, or (iii) if the provisions of clause (i) and clause (ii) shall not be applicable, such amount as shall be determined in good faith by the Board. 8. Option Term Participants shall be granted Options for such term as the Committee shall determine, not in excess of ten years from the date of the granting thereof; provided, however, that, in the case of a Participant who owns more than 10% of the total combined voting power of the Common Stock at the time an Option which is an incentive stock option is granted to him, the term with respect to such Option -5- shall not be in excess of five years from the date of the granting thereof. The Committee may provide that the length of the term of an Option will vary with the length of the period over which the Option first becomes exercisable. 9. Limitations on Amount of Incentive Stock Options Granted The Aggregate fair market value of the shares of the Class A Common Stock or Class B Common Stock for which any Participant may be granted incentive stock options which are exercisable for the first time in any calendar year (whether under the terms of the Plan or any other stock option plan of the Company) shall not exceed $100,000. 10. Exercise of Options A. Each Option shall be exercisable and the total number of shares subject thereto shall be purchasable in installments, which need not be equal, as specified in the Option. Except as otherwise determined by the Committee, the first installment shall not become exercisable during the period commencing on the date of the granting of such Option and ending on the day next preceding the first anniversary of such date. An installment once exercisable shall remain exercisable until the Option expires or is terminated. B. Except as hereinbefore otherwise set forth, an Option may be exercised either in whole at any time or in part from time to time. C. An Option may be exercised only by a written notice of intent to exercise such Option with respect to a specific number of shares of the Class A Common Stock or Class B Common Stock and payment to the Company of the amount of the option price for the number of shares of the Class A Common Stock or the Class B Common Stock so specified; provided, however, that all or any portion of such payment may be made in kind by the -6- delivery of shares of the Class A Common Stock or Class B Common Stock, as the case may be, having a fair market value equal to the portion of the option price so paid; provided, further, however, that, subject to the requirements of Regulation T (as in effect from time to time) promulgated under the Exchange Act, the Committee may implement procedures to allow a broker chosen by a Participant to make payment of all of any portion of the option price payable upon the exercise of an Option and receive, on behalf of such Participant, all or any portion of the shares of the Class A Common Stock or Class B Common Stock issuable upon such exercise. D. Notwithstanding the terms of this Section 10, the Board may, in its discretion, permit any Option to be exercised, in whole or in part, prior to the time when it would otherwise be exercisable. 11. Transferability No Option shall be assignable or transferable except by will and/or by the laws of descent and distribution and, during the life of any Participant, each Option granted to him may be exercised only by him; provided, however that the Board or Committee may provide that a Participant may transfer an Option for no consideration to any member of his or her immediate family or to any trust for the benefit of the Participant's immediate family. 12. Termination of Employment or Service In the event a Participant leaves the employ of the Company and the Subsidiaries, or the services or the contract of a nonemployee consultant of the Company and the Subsidiaries is terminated or a Participant ceases to serve as a nonemployee director (a "Termination"), an Option may thereafter be exercised only as hereinafter provided: -7- (a) If Termination occurs by reason of (i) disability, (ii) death or (iii) retirement at or after age 65, each Option theretofore granted to him which shall not have theretofore expired or otherwise been cancelled shall become exercisable in full and shall, to the extent not theretofore exercised, terminate upon the earlier to occur of the expiration of one (1) year after the date of such Termination and the date of termination specified in such Option; (b) If Termination occurs by reason of (i) termination by the Company or a Subsidiary other than for Cause or (ii) the Participant's voluntary termination, each Option theretofore granted to him which shall not have theretofore expired or otherwise have been cancelled shall, to the extent not theretofore exercised, terminate upon the earlier to occur of the expiration of ninety (90) days after the date of Termination and the date of termination specified in such Option, and (c) If termination occurs by reason of termination by the Company for Cause, each Option theretofore granted to him which shall not have theretofore expired or otherwise been cancelled shall immediately terminate; "Cause" shall mean (i) the commission by a Participant of any act or omission that would constitute a felony under United States federal, state or equivalent foreign law, or an indictable offense under Bermuda law, (ii) a Participant's gross negligence, recklessness, dishonesty, fraud, disclosure of trade secrets or confidential information, willful malfeasance or willful misconduct in the performance of services to the Company or its Subsidiaries, (iii) willful misrepresentation to shareholders or directors which is injurious to the Company; (iv) a willful failure without reasonable justification to comply with reasonable directions of a Participant's supervisor; or (v) a willful and material breach of a Participant's duties or obligations under any agreement with the Company or a Subsidiary. 13. Adjustment of Number of Shares -8- A. In the event that a dividend shall be declared upon the Class A Common Stock payable in shares of the Class A Common Stock, the number of shares of the Class A Common Stock then subject to any Option, the number of shares of the Class A Common Stock reserved for issuance in accordance with the provisions of the Plan but not yet covered by an Option and the number of shares referred to in Section 20.B. hereof shall be adjusted by adding to each share the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. B. In the event that the outstanding shares of the Class A Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, whether through reorganization, stock split-up, combination of shares, sale of assets, merger or consolidation in which the Company is the surviving corporation, then, there shall be substituted for each share of the Class A Common Stock then subject to any Option, for each share of the Class A Common Stock reserved for issuance in accordance with the provisions of the Plan but not yet covered by an Option and for each share of the Class A Common Stock referred to in Section 20.B. hereof, the number and kind of shares of stock or other securities into which each outstanding share of the Class Common Stock shall be so changed or for which each such share shall be exchanged. C. In the event that there shall be any change, other than as specified in this Section 13, in the number or kind of outstanding shares of the Class A Common Stock, or of any stock or other securities into which the Class A Common Stock shall have been changed, or for which it shall have been exchanged, then, if the Committee shall, in its sole discretion, determine that such change equitably requires an adjustment in the number or kind of shares then subject to any Option, the number or kind of shares reserved for issuance in accordance -9- with the provisions of the Plan but not yet covered by an Option and the number or kind of shares referred to in Section 20.B. hereof, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of the Plan and of each stock option agreement or certificate entered into in accordance with the provisions of the Plan. D. In the case of any substitution or adjustment in accordance with the provisions of this Section 13, the option price in each stock option agreement or certificate for each share covered thereby prior to such substitution or adjustment shall be the option price for all shares of stock or other securities which have been substituted for such share or to which such share shall have been adjusted in accordance with the provisions of this Section 13. E. No adjustment or substitution provided for in this Section 13 shall require the Company to sell a fractional share under any stock option agreement or certificate. F. In the event of the dissolution or liquidation of the Company, or a merger, reorganization or consolidation in which the Company is not the surviving corporation, then, except as otherwise provided in second sentence of this Section 13, each Option, to the extent not theretofore exercised, shall be immediately exercisable in full. G. This Section 13 shall apply, pari passu, with respect to Class B Common Stock. 14. Purchase for Investment, Withholding and Waivers. Unless the shares to be issued upon the exercise of an Option by a Participant shall be registered prior to the issuance thereof under the Securities Act of 1933, as amended [of the USA], such Participant will, as a condition of the Company's obligation to issue such shares, be required to give a representation in writing that he is acquiring such shares, be required to give a representation in writing that he is acquiring such shares for his own account as an investment and not with a view -10- to, or for sale in connection with, the distribution of any thereof. In the event of the death of a Participant, a condition of exercising any Option shall be the delivery to the Company of such tax waivers and other documents as the Committee shall determine. In the case of each stock option, a condition of exercising the same shall be the entry by the person exercising the same into such arrangements with the Company with respect to all federal, state, local and foreign withholding tax requirements as the Committee may determine. 15. No Stockholder Status. Neither any Participant nor his legal representatives, legatees or distributees shall be or be deemed to be the holder of any share of the Class A Common Stock or Class B Common Stock covered by an Option unless and until a certificate for such share has been issued. Upon payment of the purchase price thereof, a share issued upon exercise of an Option shall be fully paid and non-assessable. 16. No Restrictions on Corporate Acts. Neither the existence of the Plan nor any Option shall in any way affect the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Class A Common Stock or Class B Common Stock or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding whether of a similar character or otherwise. 17. No Employment Right or Right to Continued Service. -11- Neither the existence of the Plan nor the grant of any Option shall require the Company or any Subsidiary to continue any Participant in the employ of the Company or such Subsidiary, as a nonemployee consultant of the Company or a Subsidiary or as a director of the Company. 18. Termination and Amendment of the Plan. The Board may at any time terminate the Plan or make such modifications of the Plan as it shall deem advisable; provided, however, that the Board may not without further approval of the holders of a majority of the shares of the Common Stock voting as a single class as provided in the Company's Bye-Laws present in person or by proxy at any special or annual meeting of the stockholders, increase the number of shares as to which Options may be granted under the Plan (as adjusted in accordance with the provisions of Section 13 hereof), or change the manner of determining the option prices, or extend the period during which an Option may be granted or exercised. Except as otherwise provided in Section 13 hereof, no termination or amendment of the Plan may, without the consent of the Participant to whom any Option shall theretofore have been granted, adversely affect the rights of such Participant under such Option. 19. Expiration and Termination of the Plan. The Plan shall terminate on the business day preceding the tenth anniversary of its effective date or at such earlier time as the Board may determine. Options may be granted under the Plan at any time and from time to time prior to its termination. Any Option outstanding under the Plan at the time of the termination of the Plan shall remain in effect until such Option shall have been exercised or shall have expired in accordance with its terms. 20. Options for Outside Directors. A. A nonemployee director shall be eligible to receive Options. Except as otherwise provided in this Section 20, each such Option shall be subject to all of the terms and -12- conditions of the Plan. B. I. Upon the effective date of the Company's first registration statement under the Securities Act of 1933, as amended [of the USA], each nonemployee Director shall be granted an Option to purchase 10,000 shares of the Class A Common Stock. II. At each annual meeting of the Company, each nonemployee director who shall have served as a nonemployee director since the immediately preceding annual meeting shall be granted a non-incentive stock option to purchase 10,000 shares of the Class A Common Stock or Class B Common Stock. III. The initial per share option price of each Option granted to a nonemployee director pursuant to this Section 20.B. shall be equal to the average fair market value of a share of Class A Common Stock for the ten (10) consecutive business days immediately following the date the Option is granted, or 105% of the ten (10) consecutive business day average thereof, in the case of a grant of an Option on shares of Class B Common Stock. IV. The term of each Option granted to a nonemployee director pursuant to this Section 20.B. shall be ten years from the date of the granting thereof. V. All or any portion of the payment required upon the exercise of an Option granted to a nonemployee director may be made in kind by the delivery of shares of the Class A Common Stock or Class B Common Stock, as the case may be, having a fair market value on the date the Option is exercised equal to the portion of the option price so paid. C. The provisions of this Section 20 may not be amended except by the vote of a majority of the members of the Board and by the vote of a majority of the members of the Board who are nonemployee directors. -13- 21. Governing Law. The Plan shall be governed by the laws of Bermuda. -14- EX-10.03 3 MEMORANDUM OF ASSOCIATION AND INVESTMENT AGREEMENT MEMORANDUM OF ASSOCIATION AND INVESTMENT AGREEMENT (updated version as agreed on May 4, 1993 and amended on June 1, 1993, December 8, 1994, March 15, 1996, July 17, 1996, November 14, 1996, December 17, 1996, February 3, 1997, April 24, 1997, May 21, 1997, December 9, 1997 and December 15, 1998) The following agreement is entered into by and between: 1. CME Czech Republic B. V., with its registered office in the Netherlands, 1017 DG Amsterdam, Nieuwe Spiegelstraat 26 (hereinafter referred to as "CME") and 2. CET 21, spol. s r. o., with its registered office at V Jami 12, Praha 1 (hereinafter referred to as "CET") for the purposes and intents outlined as follows: PREAMBLE -------- A. CME is an investment company focusing on the development of companies which, in the Central Europe geographical area, are emerging companies as well as the start-op of significant projects, inter alia, mass media projects, such as the development of new television stations. CME has been named under the conditions of the License described herein below as a direct participant in the agreement implementing the License. B. CS is the leading Czech bank with a long-standing tradition of over 100 years which desires to participate in the investment in companies whose reputation may have a positive impact among its broadly based clientele. C. CET is registered as an s. r. o. (limited liability company) which applied for a country-wide license for operating a private, independent television station in the Czech Republic in conjunction with CME as referred to hereinabove. Effective as of February 9, 1993, CME was granted and became the holder of a license for nation wide broadcasting No. 001/1993, (hereinafter referred to as "the License" in its present and amended form, including, but not limited to extensions and renewals), issued by the Council of the Czech republic for Radio and Television Broadcasting (hereinafter referred to as "the Council") on sad date for a period of twelve (12) years, a copy of which is Attachment No. 1 to this Agreement. The License shall expire on January 30, 2005. D. The parties hereto (hereinafter also referred to individually as "Member" and collectively as "Members") desire to develop under the License, an independent, private television station in 1 the Czech Republic, the name of which is yet to be determined by the Members (hereinafter referred to as the "Television Station"). The Members agree that the Television Station will be managed by a company to be formed and organised by the Members according to the provisions of this document and which will be called, Czech Independent Television Company, s. r. o. (hereinafter referred to as "the Company"). E. The Company shall comply with the conditions of the project of the independent Television Station CET 21 (hereinafter "the Project"), a copy of which is attached as Attachment No. 2 to this Agreement, and to operate the Television Station under the conditions of the License. For this purpose, the Members hereby enter into this Agreement on May 4, 1993. I. FOUNDATION/CONDITIONS 1.1 The Members shall agree to form the Company as a limited liability company operating under the laws of the Czech Republic. 1.2 The Company will have its registered office at Vladislavova 20, Prague 1. 1.3 The registered capital of the Company shall be CZK 400,100,000 (in words: four hundred million one hundred thousands Czech Crowns). 1.4 The registered capital of the Company shall be created by contributions by the individual Members in the amounts and in the forms set forth below: 1.4.1 CET: a) CET shall contribute to the Company unconditionally, unequivocally, and on an exclusive basis the right to use, exploit by the Company know-how connected with the License, its maintaining and protection b) The value of the CET non-monetary contribution shall be CZK 48,000,000 (forty eight million) which was established on the basis of provision of Section 109 of the Commercial Code upon mutual agreement among the Members and which was unconditionally accepted by all of the Members, including the concept of the future constant ownership interest of CET c) The value of the fully-paid contribution of CET shall represent a 12% ownership interest in the Company. 2 1.4.3 CME: The contribution of CME is CZK 352,100,000 (in words: three hundred fifty two millions one hundred thousands Czech crowns) and is formed by: a) the monetary contribution in the total amount of CZK 178,952,000 (in words: one hundred seventy eight million nine hundred fifty two thousands Czech Crowns) consisting of the monetary contribution of CME in the amount of CZK 90,852,000 (in words: ninety million eight hundred fifty two thousands Czech Crowns) paid by CME consecutively to the day of incorporation of the Company into the Companies Registry, i. e. on July 8, 1993, and on November 12, 1993 and on December 21, 1993, by the monetary contribution of Eeska spo0itelna, a. s., in the amount of CZK 88,000,000 (in words: eighty eight million Czech Crowns) paid by Eeska spo0itelna, a. s., consecutively to the day of incorporation of the Company into the Companies Registry, i. e. on July 8, 1993, and on September 28, 1993 and on November 13, 1993 and then transferred to CME pursuant to the Agreements on the Transfer of the Participation Interest of July 17, 1996 and December 9, 1997 and by the monetary contribution of NOVA-Consulting, a. s., in the amount of CZK 100,000 (in words: one hundred thousand Czech Crowns) paid up on the day of the registration of NOVA-Consulting, a. s., as the partner of the Company to the Companies Registry, i. e. on May 21, 1997 and then transferred to CME pursuant to the decision of the General Meeting of the Company of December 9, 1997 after the termination of the participation of NOVA-Consulting, a. s., in the Company pursuant to the Agreement on the Termination of the Participation of NOVA-Consulting, a. s., in the amount of December 9, 1997; and b) the in-kind contribution of CZK 173,148,000 (in words: one hundred seventy three million one hundred forty eight thousands Czech Crowns), which is formed by the price of movable assets, other rights and other property, used by the Company (hereinafter referred as "Property"). The Property was taken over by Company's Executive Dr. Vladimir o elezny and was filed in the accounting documents of the Company. The list of the Property was included in the Appendix No.: 3 to this Agreement. 1.8 The Participation Interests of the Partners shall be as follows: CME - 99% CET - 1% 1.9 The Company does not have a Reserve Fund at the time of the Company's foundation. At the time the Company becomes profitable, it shall create and contribute to a Reserve Fund 10% of its net profit; however, such contribution shall not exceed five percent 5% of the Company's registered capital. Thereafter, the Reserve Fund shall receive a contribution of five percent 5% of the net profit annually until such time as the Reserve Fund reaches ten percent 10% of the Company's registered capital. Possible further allocations to the Reserve Fond shall be determined by the General Meeting of the Company. 3 II. INVESTMENTS REPAYMENT OF INVESTMENT PROFIT SHARING The Members, in anticipation of necessary investments into the Company, led by a desire to avoid any potential future need for clarification, have entered into the following agreement with respect to their contributions pertaining to the development and management of the Television Stations: 2.2 The Members shall provide additional financing of up to nine hundred million Czech Crowns (CZK 900,000,000) on an as needed basis as determined by the Company's Committee of Representatives through bank loans primarily to be provided by CS under competitive conditions. Any and all loans made by the Members to the Company shall be made on an arms-length basis at the best available market terms of repayment. 2.4 The Members shall contribute to the Company unconditionally on time, and no right of any third parties shall be attached to their contributions. 2.6 None of the above shall result in the waiver of any right which any and all Members and the Company may have against any Member in conjunction with the damages that have resulted from the aforementioned failure. 2.8 The Members have specifically agreed that CET possesses one percent (1%) of the ownership interest in the Company representing a constant amount pursuant to this Agreement up to CZK 1.3 bill. in capitalisation. 2.9 The Partners shall divide the profit pursuant to the following ratio: CME - 99% CET - 1% 2.10 To provide for incentives for the Management of the Company, the Company shall allocate to Management in its financial plan a performance bonus of 3% of the Company's annual gross profit. III. SCOPE OF BUSINESS, THE COMPANY'S OBJECTIVES AND GOVERNING BODIES 3.1 The scope of business of the Company shall in general terms include the development and management of a new independent, private, country-wide television broadcasting station in 4 compliance with the License and the conditions attached thereto. The subject of the company's activities shall be: O production and sale of non-recorded tracks of sonic or sonic-pictorial records and sale and lending of recorded sonic and sonic-pictorial records; O agency activity in the sphere of culture; O production of audio-visual works; O purchase of goods for sale purposes and sale in the scope of the registered craft; O advertising and propagation; O publishing; O mediation in the sphere of culture; O mediation in trade; O organizational and technical arrangement of the TV broadcasting; O production of TV and audio-visual programs; O advertising agency; O mediation of investment, business and industry; O advisory activity in the sphere of media 3.2 In particular, the Company's objectives shall be: O to provide on excellent mix of news, entertainment, and information television which is responsive to the tastes and interests of the residents of the Czech Republic; O to maintain on independent television station which is free from the influence of any political or special interest group; O to create a merit-oriented work environment with fair advancement opportunities for a relatively small, highly motivated staff; and O to earn profits and provide a high return on investment for its Members. 3.3 The Company shall have the following bodies: a. General Meeting; b. The Committee of Representatives; c. Executives; d. Supervisory Board; and e. Advisory Programming Board. IV. GENERAL MEETING 4.1 The first General Meeting of the Company's Members shall be held no later than 30 days after the day of execution of this Agreement. 4.2 The first General Meeting of the Company shall approve the Articles of Association of the Company, and undertake all actions required by law to register the Company. The Members shall appoint a Committee of Representatives and the General Meeting may delegate the rights 5 and duties apart from as set forth m Section 4.4 below to the Committee of Representatives (hereinafter referred to as "the Committee"). 4.3 The General Meeting shall convene at least once a year at such time and place as determined by the Executives but not later than six months after the year end. The General Meeting shall decide on all matters as required by law including but not limited to the delegation of such powers to the Committee as the Members deem appropriate and as permitted by Law. 4.4 Within the competence of the General Meeting shall be to decide on the following matters: a) to approve the annual budget; b) to approve the annual financial statements, to distribute the profits, and to cover losses; c) to approve and to amend the Company Articles of Association; d) to decide on the amendments of the Memorandum of Association (Section 114 of the Commercial Code); e) to decide on the increase or reduction of the registered capital; f) to elect, recall and remunerate company executives as more specifically set forth under Section 6.5; g) to expel a Member (in accordance with Sections 113 and 121 of the Commercial Code); h) to decide on the winding up of the Company, if the Articles of Association so permit; i) to elect the Supervisory Board Members; j) to approve purchasing, long term leasing, mortgaging of real estate investments, loans or guarantees in excess of thirty million Czech Crowns (CZK 30 mill.) not reflected in the Company's annual budget; k) to decide on remuneration for attendance of meetings by the Committee, Advisory Programming Board (hereinafter "Programming Board") and Supervisory Board. 6 l) decide on other matters, entrusted into its competence by the Commercial Code, Memorandum of Association or Articles of Association. 4.5 The General Meeting shall constitute a Quorum when Members whose ownership interests total at a minimum of seventy-nine percent (79%) are present. Each Member shall cast votes equal to the ownership interest which it holds. All resolutions of the General Meeting, with exception of resolutions where in accordance with generally bounded legal provision the higher amount of votes is required, will require 65% of votes of all Members. 4.6 The rules governing the General Meeting procedure shall be set forth in the Company's Articles of Association. V. THE COMMITTEEE OF REPRESENTATIVES 5.1 The Committee shall be appointed directly by the Members and will decide on matters of economic management, basic investments, all decisions of a strategic nature, all other significant decisions which may affect the Company included but not limited to the control of the General Director, and all other decisions not specifically reserved to the General Meeting. 5.2 The Committee shall have seven (7) Representatives who are appointed by the respective Members as follows: a) CME shall appoint five (5) Representatives, one of whom must be the General Director; b) CS shall appoint one (1) Representative; and c) CET shall appoint one (1) Representative; During the appointment the Members shall observe the conditions of the License. 5.3 The Members appoint their Representatives for an indefinite period of time. The Representatives can be recalled and replaced at any time by the appointing Member. 5.4 A decision by the Committee is required for the following : a) to call additional funds and financing (pursuant to Section 2.1 and 2.2 above); 7 b) the submission of an annual budget and business plan of the Company to the General Meeting; c) the purchase of real estate, long term leases (over 2 years), buildings, pledging as collateral the company assets, mortgaging Company owned assets or a substantial part thereof valued over two million five hundred thousands Czech Crowns (CZK 2,500,000) if in excess of budget per item but not exceeding thirty million Czech Crowns (CZK 30,000,000) cumulatively; d) long term (over 1 year) financing commitments pertaining to programming valued over ten million Czech Crowns (CZK 10,000,000) beyond the budget; e) deciding of the economic aspects of the programming principles, programming structure and programming plan of the television Station upon consultation with the Chairman of the Programming Board; f) to make recommendations pursuant to Article XI. hereof; g) to establish procedural rules for the Management; h) to enter into a managerial contract with the General Director; and i) to decide on all of the matters not specifically reserved to the decision of the General Meeting and on all matters specifically delegated by the General Meeting to the Committee. 5.5 Upon deciding on maters related to programming (except for the financial and economics aspects thereof), implementation of the Project or the conditions of the License, the Member of the Committee nominated by CET shall be entitled to discontinue the discussion of the Committee on this issue, provided he gives cause for such act. the reason to discontinue the discussion may only be the fact that the proposed resolution of the Committee shall endanger the fulfilment of the terms and conditions of the License or shall be discordant to these terms and conditions. The chairman of the Committee or, in case of his absence, another Member of the Committee presiding over the Committee meeting shall be obliged to ask CET and the Programming Board immediately for advice, views and opinions on the proposed Committee resolution and on the reason given by the Member of the Committee nominated by CET. The requested views and opinions must be submitted to the Committee within fifteen (15) days after the delivery of the request for views and opinions to the Board. The Committee shall not unreasonably reject the recommendation of the Programming Board. 5.6 The Committee may, at any time, inspect the books and records of the Company. The 8 Committee may delegate its authority vis-a-vis the Management to one or more of the Committee members and may commission experts to carry out specific assignments. 5.7 The Committee, after its appointment by the Members at its first session, shall elect its Chairman and Vice Chairman. Representatives of CME shall have the right to nominate the Chairman and the Vice Chairman. The right to Chair the Committee of Representatives Meeting cannot be transferred or assigned. 5.8 A Committee of Representatives' Meeting may be called by any one of the seven (7) Representatives, provided that he or she give a minimum of thirty day notice prior to the meeting, each of whom shall also have the right to propose items for the agenda. Each Committee session must be attended by a minimum five (5) Representatives or their proxies. 5.9 To pass a resolution, the Committee must approve each proposal voted upon by a simple majority of Members votes, except those matters defined in provisions 5.4 a) - d), h) and i) including matters when no less than five affirmative votes is required. 5.10 All Committee members shall be reimbursed by the Company for their out f pocket expenses in attending Committee meetings. For their attendance at Committee meetings, they shall also receive a reasonable remuneration as determined by the General Meeting from time to time. VI. EXECUTIVES 6.1 The Company will have two executives consisting of the General Director who shall be elected by the General Meeting as set forth in Sections 4.4 f) and 6.5 and a second executive who shall be nominated by the General Director and elected by the General Meeting, pursuant to Sections and 4.4 f) and 6.5. 6.2 Dr. Vladimir Zelezny and Mr. Rudolf Hanus were appointed by the Members the first authorised executives. 6.3 The Executives are the statutory bodies of the Company and in accordance with the Commercial Code are entitled to represent the Company in its business activities vis-a-vis third persons. This provision is subject to Section 9.4. 6.4 For intracompany purposes, the Committee shall supervise or direct the Executives and the executive which shall concurrently be the General Director shall supervise the second Executive. In regard to business management of the Company and upon representation of the Company the authorised executives shall be obliged to respect resolutions, views and recommendations of the Committee. This limitation of executives is in accordance with 9 Section 133 subsection 2 of the Commercial Code and shall be ineffective in relation to third parties. 6.5 CET shall have the right to nominate the Executive, who shall be at the same time the General Director of the Company. The General Director election requires 67% of votes. In the case the proposal of CET shall not received 67% of votes, the General Director is nominated gradually by other Members in sequence of amount of their participation interests. The General Director election requires again 67% of votes. 6.6 The Executive may be recalled by a General Meeting decision. The recalling of the Executive shall necessitate the same majority by which the Executive was elected. In the case of the General Director, the General Director may be recalled by a General Meeting decision, which had obtained at least 79% of votes of all Members, and only on the basis of recommendation by the Committee, provided that the reason of the recall was a violation of the License or such act of the General Director, which may directly cause a withdrawal of the License. 6.7 The Executive may also act as the statutory authority for CET 21. VII. SUPERVISORY BOARD 7.1 The Supervisory Board shall consist of three (3) members with economic backgrounds. Each Member shall propose one Supervisory Board member, and the CS representative shall be the Supervisory Board chairman. The Supervisory Board shall be entitled to require from any of the Company's bodies or employees information, opinions or explanations necessary for exercising its authority. 7.2 The powers of the Supervisory Board are limited to the extent allowed by law to the powers set forth in Section 138 subsection b) - d) of the Commercial Code: 1. shall inspect ledgers, other business documents and accounting documents, and check their data; 2. shall review the annual financial statement; 3. shall submit reports to the General Meeting within a term stipulated by the Memorandum of Association, otherwise within one year. 7.3 The following persons were nominated by the Members as the first members of the Supervisory Board: 10 Mr. Bohuslav Poduska, residing at Fantova 1794, 155 00 Praha 5 - Stod o lky Mr. Hans Hoenig, residing at Am Eulenhorst 7A, Berlin 1000027 Mr. Fedor Gal, residing at Guevarova 713, Praha 6 VIII. ADVISORY PROGRAMMING BOARD 8.1 The Company shall have an advisory Programming Board which will have seven (7) members, three (3) of which shall be appointed by CET, two (2) shall be appointed by CS, and one (1) shall be appointed by CME. The seventh member shall be the Programming Director of the Company. Only one of the CET Members and one CS employee respectively can be appointed to the Programming Board. 8.2 The Programming Board members are appointed and can be recalled in the same manner as set forth above for the Committee members. The first Board meeting shall be called by the executive which shall concurrently by the General Director within thirty (30) days after the registration of the Company. 8.3 The Programming Board members shall elect the Chairman of the Programming Board at the first Programming Board meeting. The Chairman of the Programming Board shall be invited to present at Committee sessions and to be heard by the Committee prior to any voting on all and any matters regarding the programming of the Television Station. 8.4 The Programming Board shall be an advisory body of the Company to develop, implement and oversee the principles of programming except for the financial and economics aspects thereof in accordance with the terms of the License and the business plan. The Programming Board shall review the programming plans of the Company and present its recommendations to the Committee. 8.5 The resolutions and recommendations of the Programming Board require the approval of a simple majority of a minimum of five (5) present Programming Board members. 8.6 The Programming Board shall meet on an as-needed basis, depending on the programming cycle of Television Station. Programming Board meetings shall be called by the Chairman of the Programming Board. 8.7 The Programming Board shall establish its own procedural rules, the principles of which shall not be inconsistent with any provision of this Agreement. 8.8 The Company shall reimburse the Members of the Programming Board for their out of pocket 11 expenses in attending the Programming Board meetings. The General Meeting shall decide on the remuneration of the Members of the Programming Board for their attendance at the Programming Board meetings. IX. GENERAL DIRECTOR AND THE COMPANY'S MANAGEMENT 9.1 The term for the General Director shall be 3 years. The General Director shall be the highest representative of the executive management of the Company and shall be responsible for due operation of the Company and for fulfilment of tasks imposed by individual bodies of the Company. 9.2 The General Director appoints and recalls all other company management except for his deputy. The General Director is responsible for the management of the Company on a daily basis. By he twenty-fifth (25) day of each month, the General Director shall submit the prior month's balance sheet and income and expenses statement to the Committee along with a written report regarding the business and developments of the Company. Instructions directed by the Committee to the Management shall be implemented through the mediation of the General Director. The Executive, who is at the same time the General Manger of the Company is authorised to approve and change the organisation frame of the Company. 9.3 The Members hereby appoint the first General Director of the Company, Dr. Vladimir o elezny and expressly agree that such appointment does not require reconfirmation by the first General Meeting. 9.4. The General Director, or his designee, and an additional individual to be designated by CET shall be jointly authorised to represent the Company to the Council for Radio and Television Broadcasting in compliance with the conditions set forth in the License. 9.5 The working conditions and the remuneration of the General Director, shall comply with the Committee 9.6 Subject to Section 6.4, the Management, through its General Director, shall comply with Committee's instructions and must obtain prior specific or general consent of the Committee or the General Meeting to effect the following transactions: a) amendment of adopted annual budgets and business plans; as well as the following transaction outside the adopted annual budgets and business plan; b) conclusions, amendments and termination of lease agreements with a term of more than two (2) years or with a monthly rent exceeding CZK 600,000; 12 c) sale of the Company's fixed assets in a value exceeding three million Czech Crowns (CZK 3,000,000); d) purchase, sale and encumbrance of real estate or rights attached thereto, exceeding the value of three million Czech Crowns (CZK 3,000,000); e) granting of loans exceeding the value of six hundred thousand Czech Crowns (CZK 600,000) except loans to employees of the Company up to a total amount equal to one monthly gross salary of such employee; f) taking of loans; g) assumption of obligations as a surety or a guarantee exceeding the value of six hundred thousands Czech Crowns (CZK 600,000); h) establishment and dissolution of other enterprises as well as purchase and sales of other enterprises and participation in such; i) establishment and dissolution of branches and offices; j) decisions on the economic and financial aspects of the Company's programming principles, programming structure and programming plan; and k) any transactions and actions outside the ordinary course of business of the Company. X. REPRESENTATIONS 10.1 CME is duly registered and validly existing and in a good standing under the laws of the Netherlands and is duly authorised to execute and perform this Agreement which it deems fully enforceable for which it requires no further approval of any of administrative bodies of the Government. 10.2 CS is duly registered as o joint stock company and validly existing and in good standing under the laws of the Czech Republic and is duly authorised to enter into this Agreement which it deems fully enforceable. CS has received approval from the Czech National Bank to obtain a 22% ownership interest in the Company in accordance with Section 17 of the Act No. 21/1992 13 Coll. 10.3 CET 21 is duly registered and validly existing and in good standing under the laws of the Czech Republic and is duly authorised to enter into this Agreement which it deems fully enforceable and for which it requires no further approval of any of its governing bodies or the Government. 10.4 CME, CS and CET hereby agree to be bound and to respect all of the conditions of the License mandated by the Council. In particular CME and CS agree to abide by condition No. 18 not to interfere by any means with the programming of Television station and especially not to interfere with the journalistic independence of the news department. 10.5 In the event that any party brings an action, or threatens to bring an action, or any other administrative proceeding against CET for an activity or action caused by the Company, or as a result of CET<180>s status as the named holder of the License, and as long as this action does not stem from gross negligence or wilful misconduct on the part of CET, than the Members hereby agree to cause the Company to bear the costs of such defence of CET and shall indemnify CET for all costs associated therewith. 10.6 In the event that CET intentionally causes harm to the Company or to the License, the CET shall indemnify the Company for all costs associated therewith. 10.7 CET, CME and CS agree not to take any action that could reasonably be expected to obstruct the possibility of obtaining an extension or renewal of the License. Furthermore, CET, CME and CS, m consideration of the Company's efforts and investments, do hereby pledge not to take any action, either by way of commission or omission, to put into jeopardy the grant of the License in general, and under the Czech Act on Television Broadcasting (No. 468/1991 Coll.) in particular and not to assign in whole or in part any right under the aforesaid License to any third person not a party to the contract, except for the assignee, who may be designated by the Company, subject to the approval of the Council. 10.8 The Partners acknowledge that in accordance with the Section 10 subsection 2 of the Act No. 468/1991 Coll., as amended, and the prevailing interpretation of the legal public the License is not transferable. In case of change of regulation and the prevailing interpretation of the legal public the CET 21 will be obliged pursuant to prior agreed conditions to offer the License to the Company on a priority basis in order it may be duly transferred to the Company. CET is obliged not to entrust the subject of its contribution, neither any other right connected with the License, neither the License into the ownership or use of any legal entity of individual person other than the Company, which would grant to this or other legal entity any rights to the subject of its contribution to the Company or directly to CET, which would result in the setting up of the similar right as the Company has; and it is obliged neither to 14 start any negotiations with other legal entity or individual person on the establishing of such legal relationship. Any such agreement with other legal entity or individual person will be invalid from the beginning (ex tunc). If CET breach this provision, it will pay to CME the contractual penalty in the amount of double of its contribution pursuant to the Article 1.4.1. The claim of the Participants to compensate the damages is not excluded by the payment of the contractual penalty. XI. REDEMPTION OF INTERESTS 11.1 With the consent of the affected Member, fully paid up ownership interests may be redeemed at any time by resolution of the Committee. 11.2 Even without the consent of the affected Members, fully paid up ownership interests may be redeemed by resolution of the Committee. i) if the ownership interest has been attached; or ii) if the Member has been declared bankrupt and the bankruptcy proceedings have not been delayed prior to the adoption of the resolution. 11.3 In both cases of subsections (i) and (ii) above the Company shall reimburse to the Member concerned the fair market value of the ownership interest, unless otherwise agreed upon in the individual case. The fair market value shall be determined by a firm of certified accountants of international reputation appointed by the Committee. 11.4 In both cases of subsection (i) and (ii) above the Committee may, as on alternative to redemption, resolve on the transfer of the ownership interest otherwise redeemable to Members of third parties of its choice, who shall reimburse to the Member concerned the fair market value of the ownership interest, unless otherwise agreed upon in the individual case. Subsection (ii), second sentence shall be applicable. XII. CHANGE OF CONTROL 12.1 The Member can transfer his participation interest or any part thereof to other Member or another only with consent of the General Meeting, while CET 21, spol. s r. o., NOVA-Consulting, a. s., and Eeska spo0itelna, a. s. may transfer their participation interest or any part thereof without consent after they priory offered their participation interest or any part thereof to CME for the market price examined by an independent accounting firm and CME would not accepted this offer in 30 days. This provision does not refer to CME. 15 12.2 If the remaining Partner do not agree with the proposed transfer, they will be obligated to purchase the share at a purchase price which is equal to the market price. The market price might be examined prior to the signing of a contract by one of the six major auditing companies, which will be chosen by the Partner that wants to conduct he transfer. XIII. SIGNING ON BEHALF OF THE COMPANY The Executive who is currently the General Director signs on behalf of the Company. In his absence, the Second Executive the Deputy General Director, shall be authorised to sign. XIV. TERMINATION 14.1 This agreement is concluded for an indefinite period of time for as long as the Company has not ceased its operations under the License and has not been deleted from the Companies Registry. 14.2 All Members shall cause the Company jointly to apply on a timely basis for the renewal of the license. XV. RESOLUTION OF DISPUTES All disputes arising in connection with and any controversy or claim arising out of or relating to this Agreement or the establishment of the Company that are not otherwise resolved by the parties shall be finally settled under the Rules of UNCITRAL and Arbitration of the International Chamber of Commerce in force from time to time. The place of arbitration shall be Vienna, Austria and the law applicable to the arbitration procedure shall be determined by referring to the laws of the place of arbitration. The panel of at a minimum three (3) arbitrators shall determine the matters in dispute in accordance with the law of the Czech Republic. The English language shall be used throughout the arbitrage proceedings. The parties agree, that the decision of the arbitrators shall be the sole and exclusive remedy between them regarding any claims, counterclaims, issues or accounting presented or pled to the arbitrators; that any monetary award shall be made, and shall promptly be payable, free of any tax, deduction or offset; and that any costs, fees or taxes incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting enforcement. All notices by one party to the other in connection with the arbitration shall be in accordance with the provisions of Section 16.2 hereof. XVI. MISCELLANEOUS 16.1 Reasonable and supported expenses related to the acquisition of the License and the formation of the Company including expenses of legal counsel shall be borne or reimbursed by the 16 Company. 16.2 Alt notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and may be given by any of the following methods: i) personal delivery; ii) facsimile transmissions; iii) registered or certified mail, postage prepaid, return receipt requested; or iv) delivery service. Notices shall be sent to the appropriate party at its address or facsimile number given below (or any other address or facsimile number of such party as shall be specified by notice given hereunder): a) if to CME to: JUDr. Martin Radvan, LL. M. Harrach Palace Jind O isska 20 110 00 Praha 1 fax No.: (420-2) 24213919 b) if to CS to: Squire, Sanders & Dempsey Adria Palace, Jungmannova 31/36 110 00 Praha 1 fax No.: (42-2) 2315482 Attention: Dr. Milan Ganik c) if to CET to: CET 21, spol. s r. o. V jam O 12 110 00 Praha 1 fax No.: (420-2) 268598 Attention: Prof. Josef Alan All such notices, requests, demands, waivers and communications shall be deemed received 17 upon (i) actual receipt thereof by the address; (ii) actual delivery thereof to the appropriate address; or (iii) in the case of a facsimile transmission, upon transmission thereof by the sender and the issuance by the transmitting machine of a confirmation slip confirming that the number of pages constituting the notice have been transmitted without error. In the case of notices sent by facsimile transmission, the sender shall contemporaneously mail a copy of notice to the addressee at the address provided for above. However, such mailing shall in no way alter the time at which the facsimile notice is deemed received. 16.3 This Agreement, the exhibits, schedules and other documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties thereto with respect to their subject matter. This Agreement, together with the exhibits hereto, supersedes all prior agreements and understanding, oral and written, with respect to this subject matter (including, without limitation, the letters of intent). 16.4 Should any provision of the Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any of the other provisions of this Agreement, which remaining provisions shall remain full force and effect and the application of such invalid or unenforceable provision to persons or circumstances other than those as to which it is held invalid unenforceable shall be valid and be enforced to the fullest extent permitted by law. If any provision of this Agreement is held to be invalid or unenforceable for any reason, it shall be adjusted rather than voided, if possible in order to achieve the intent of the parties to this Agreement to the fullest extent possible. 16.5 This Agreement and all of the provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except as expressly contemplated by this Agreement, neither this Agreement not any of the rights, interests or obligations hereunder shall be assigned directly or indirectly, by any party hereto without the prior written consent of the other parties. 16.6 Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligations, covenant, agreement or condition herein may be waived by the party or parties entitled to the benefits thereof only by a written instrument signed by the party granting such waiver. No delay on the party of any party in exercising any right, power, privilege hereunder shall operate as a waiver thereof, not shall any waiver of any other right, power or privilege hereunder, nor shall any single or partial exercise of any right, power or privilege hereunder preclude another or further exercise thereof or the exercise of any other right, power or privilege hereunder. 16.7 The Members, shall obligate their officers and members of management which represent their interest in the Company, to declare at the time of assuming their function in the Company that their function does not in any event constitute a conflict of interest with any other activity specifically, that they have no personal employment, financial or other connection with another business organisation with the same or similar business. The form of the declaration for employees shall constitute the Attachment No. 4. 18 16.8 This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which collectively shall constitute one and the same instrument. 16.9 This Agreement shall be governed by the laws of the Czech Republic (regardless of the laws that might otherwise govern applicable principles of conflicts of law) as to all matters, including but not limited to matters of validity, content, effect, performance and remedies, except where the application of a different law is mandatory. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorised officers or representatives of the parties hereto as of the date first written above. 19 EX-10.41A 4 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT Amendment No. 1, dated as of March 23, 1999, to the Employment Agreement, dated as of January 1, 1998 (the "Employment Agreement"), between Fred Klinkhammer ("Executive") and CME Development Corporation (the "Company"). WHEREAS, Executive is currently serving as Executive Vice President, Managing Director and Chief Operating Officer of the Company; WHEREAS, the Company has determined that it is in the Company's best interest to promote Executive from his current position to become President and Chief Executive Officer of the Company; NOW, THEREFORE, Executive and the Company agree to amend the Employment Agreement, effective as of March 23, 1999, as follows: 1. Section 1(b) is hereby amended to replace the reference to "December 31, 2002" in the first sentence thereof with "March 22, 2004". 2. Section 2(a) is hereby deleted in its entirety, and a new Section 2(a) shall be inserted in lieu thereof to read as follows: In general. Executive shall be employed as President and Chief Executive Officer and shall perform such duties and services, consistent with such position for the Company, as may be (i) specified in the By-Laws of the Company or (ii) assigned to him from time to time by the Board of Directors of Central European Media Enterprises Ltd. (the "Board"). The duties of the Executive shall include serving as an officer or director or otherwise performing services for any "Affiliate" of the Company as requested by the Company. An "Affiliate" of any person means any entity that controls, is controlled by or is under common control with such person. 3. Section 2(b) is hereby amended to replace the reference to "one-third" in the first sentence thereof with "two-thirds". Section 2(b) is further amended to replace the reference to "CEO" in the second sentence thereof with "Board". Section 2(b) is further amended to replace the first reference to "Company" in the last sentence thereof with "Board". 4. Section 3(a) is hereby deleted in its entirety, and a new Section 3(a) shall be inserted in lieu thereof to read as follows: Base Salary. Effective March 23, 1999, and for the duration of the Employment Period thereafter, the Company shall pay Executive a base salary (the "Base Salary") at an initial annual rate of US$120,000. The Base Salary shall be payable in such installments (but not less frequent than monthly) as the salaries of other executives of the Company are paid. The Base Salary shall be reviewed annually by the Compensation Committee of the Board of Directors of Central European Media Enterprises Ltd. (the "Compensation Committee"). The Base Salary shall be increased annually (commencing March 23, 2000) by 5%, and may be increased in excess of such amount at the option and sole discretion of the Compensation Committee. 5. Section 3(b) is hereby deleted in its entirety, and a new Section 3(b) shall be inserted in lieu thereof to read as follows: Annual Bonus. The Company shall provide Executive with the opportunity to earn an annual cash bonus at the level established for the Chief Executive Officer under the Annual Bonus Plan for Executives and Officers established under the Compensation Principles approved by the Board of Directors of Central European Media Enterprises Ltd. (the "Board") on March 11, 1998. Under the Annual Bonus Plan, Executive will be eligible to receive a bonus for each full year of his employment equal to 75% of his Base Salary if the performance goals ("target") established by the Compensation Committee for such year are met. Sixty percent (60%) of the annual bonus, if any, will be based on the achievement of Company-wide objectives established by the Compensation Committee, and 40% on an evaluation of personal performance as determined by the Compensation Committee. The actual bonus may range from zero (if 80% of the established goals are not achieved) to 50% of Base Salary if performance is at 80% of target, 75% of Base Salary if performance is at 100% of target to a maximum of 100% of Base Salary if performance is at or above 150% of target, in each case interpolated for actual performance. Executive has been provided a copy of the Compensation Principles. 6. Section 4(b) is hereby amended to replace the reference to "15,000 pounds" in the last sentence thereof with "34,000 pounds". Section 4(b) is further amended to add a new final sentence thereof to read as follows: During the Employment Period, the Company shall provide Executive with a suitable car and driver for his use. 7. Section 5(d) is hereby amended to delete the definition for the defined term "Severance Benefit" in its entirety, and to insert in lieu thereof a new definition to read as follows: 2 "Severance Benefit" means an amount equal to the greater of (i) the minimum amount of Base Salary Executive would have been entitled to receive for the duration of the Term and (ii) three times Executive's Base Salary as of the Termination Date. 8. Section 5(d) is hereby further amended to delete the reference to "CEO or" in clause (iv) under the defined term "Termination for Cause". 9. Section 5(d) is hereby further amended to delete clause (ii) under the defined term "Termination for Good Reason", and to insert a new clause (ii) in lieu thereof to read as follows: (ii) a material reduction in Executive's titles, positions, duties, responsibilities or reporting lines from those described in Section 2 hereof, except the loss of Executive's position and title as Chief Executive Officer (and the duties, responsibilities and reporting lines associated with such position and title) in connection with a sale or merger of the Company which occurs prior to March 23, 2000; 10. Section 7(a) is hereby amended to replace the reference to "US$50,000" with "US$75,000". Executive: CME Development Corporation - -------------------------- -------------------------------- Fred Klinkhammer By: Dated: March 23, 1999 3 EX-10.42A 5 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT Amendment No. 1, dated as of March 23, 1999, to the Employment Agreement, dated as of January 1, 1998 (the "Employment Agreement"), between Fred Klinkhammer ("Executive") and Central European Media Enterprises Ltd. (the "Company"). W I T N E S S E T H : WHEREAS, Executive is currently serving as Executive Vice President and Chief Operating Officer of the Company pursuant to the Employment Agreement; WHEREAS, the Company has determined that it is in the Company's best interest to promote Executive from his current position to become President and Chief Executive Officer of the Company; NOW, THEREFORE, Executive and the Company agree to amend the Employment Agreement, effective as of March 23, 1999, as follows: 1. Section 1(b) is hereby amended to replace the reference to "December 31, 2002" in the first sentence thereof with "March 22, 2004". 2. Section 2(a) is hereby deleted in its entirety, and a new Section 2(a) shall be inserted in lieu thereof to read as follows: In general. Executive shall be employed as President and Chief Executive Officer, with overall responsibility for the Company's business and operations, and shall perform such duties and services, consistent with such position for the Company, as may be (i) specified in the Bye-Laws of the Company or (ii) assigned to him from time to time by the Board of Directors of the Company (the "Board"). On or promptly following March 23, 1999, Executive shall be named to the Company's Board and the Board will propose Executive for election and re-election to the Board during the remainder of the Employment Period. The duties of the Executive shall include serving as an officer or director or otherwise performing services for any "Affiliate" of the Company as requested by the Company. An "Affiliate" of any person means any entity that controls, is controlled by or is under common control with such person. Executive shall report to the Board. 3. Section 2(b) is hereby amended to replace the reference to "two-thirds" in the first sentence thereof with "one-third". Section 2(b) is further amended to replace the reference to "CEO" in the second sentence thereof with "Board". Section 2(b) is further amended to delete the last sentence thereof, and to insert in lieu thereof a new last sentence to read as follows: Executive shall travel to such location or locations outside of the United Kingdom and the United States as may be requested by the Board, or which Executive believes is necessary or advisable, in the performance by Executive of his duties hereunder or to the extent appropriate to improve and advance the interests of the Company and its Affiliates. 4. Section 3(a) is hereby deleted in its entirety, and a new Section 3(a) shall be inserted in lieu thereof to read as follows: Base Salary. Effective March 23, 1999, and for the duration of the Employment Period thereafter, the Company shall pay Executive a base salary (the "Base Salary") at an initial annual rate of US$230,000. The Base Salary shall be payable in such installments (but not less frequent than monthly) as the salaries of other executives of the Company are paid. The Base Salary shall be reviewed annually by the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee"). The Base Salary shall be increased annually (commencing March 23, 2000) by 5%, and may be increased in excess of such amount at the option and sole discretion of the Compensation Committee. 5. Section 3(b) is hereby deleted in its entirety, and a new Section 3(b) shall be inserted in lieu thereof to read as follows: Annual Bonus. The Company shall provide Executive with the opportunity to earn an annual cash bonus at the level established for the Chief Executive Officer under the Annual Bonus Plan for Executives and Officers established under the Compensation Principles approved by the Board on March 11, 1998. Under the Annual Bonus Plan, Executive will be eligible to receive a bonus for each full year of his employment equal to 75% of his Base Salary if the performance goals ("target") established by the Compensation Committee for such year are met. Sixty percent (60%) of the annual bonus, if any, will be based on the achievement of Company-wide objectives established by the Compensation Committee, and 40% on an evaluation of personal performance as determined by the Compensation Committee. The actual bonus may range from zero (if 80% of the established goals are not achieved) to 50% of Base Salary if performance is at 80% of target, 75% of Base Salary if performance is at 100% of target to a maximum of 100% of Base Salary if performance is at or above 150% of target, in each case interpolated for actual performance. Executive has been provided a copy of the Compensation Principles. 2 6. Section 3(c) is hereby deleted in its entirety, and a new Section 3(c) shall be inserted in lieu thereof to read as follows: Special Long-Term Incentive Bonus. Given that the share price of the Company is largely dependent on the performance of the individual television stations, if Executive is employed by the Company or any successor corporation on December 31, 2003, and if the Fair Market Value of a Class A Share of Company Stock on December 31, 2003 has increased from $8.3125, the mean between the high and low prices of the Company's Class A Shares as reported by NASDAQ for March 22, 1999, and the percentage increase is greater than the percentage increase in the NASDAQ Composite Average during the same period, Executive will receive a special one-time bonus of US$1,000,000. 7. Section 3(d) is hereby amended to add a new second paragraph thereof to read as follows: The Company shall grant Executive an additional option to purchase 300,000 Class A Shares of the Company as of March 23, 1999, at an exercise price per share equal to $8.3125, the mean between the high and low prices of the Company's Class A Shares as reported by NASDAQ for March 22, 1999 ("Option C"). Option C shall become exercisable as to 150,000 shares on March 23, 1999 and as to the remaining 150,000 shares in five equal installments on each of the first five anniversaries of March 23, 1999, provided Executive is employed by the Company on each such anniversary date. Option C shall expire on March 23, 2009. Option C shall become immediately exercisable in full in the event that Executive's employment with the Company is terminated (i) by the Company other than for Cause, (ii) by the Executive for Good Reason, (iii) by reason of the death or Disability of the Executive or (iv) by the Company following a Change in Control (as these terms are hereinafter defined). Once exercisable, Option C shall remain exercisable for the specified term, except that (i) if Executive's employment is terminated for Cause Option C shall immediately terminate and (ii) if Executive's employment terminates for any other reason, Option C shall remain exercisable for the lesser of the remaining term of Option C and three years following termination of employment. 8. Section 4(b) is hereby amended to replace the reference to "(pound)30,000" in the last sentence thereof with "(pound)70,000". 9. Section 5(d) is hereby amended to delete the definition for the defined term "Severance Benefit" in its entirety, and to insert in lieu thereof a new definition to read as follows: 3 "Severance Benefit" means an amount equal to the greater of (i) the minimum amount of Base Salary Executive would have been entitled to receive for the duration of the Term and (ii) three times Executive's Base Salary as of the Termination Date. 10. Section 5(d) is hereby further amended to delete the reference to "CEO or" in clause (iv) under the defined term "Termination for Cause". 11. Section 5(d) is hereby further amended to delete clause (ii) under the defined term "Termination for Good Reason", and to insert a new clause (ii) in lieu thereof to read as follows: (ii) a material reduction in Executive's titles, positions, duties, responsibilities or reporting lines from those described in Section 2 hereof, except the loss of Executive's position and title as Chief Executive Officer (and the duties, responsibilities and reporting lines associated with such position and title) in connection with a sale or merger of the Company which occurs prior to March 23, 2000; 12. Section 7(a) is hereby amended to replace the reference to "US$150,000" with "US$175,000". Executive: Central European Media Enterprises Ltd. - -------------------------- --------------------------------------- Fred Klinkhammer By: 4 EX-10.47 6 STOCK APPRECIATION RIGHTS PLAN CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. STOCK APPRECIATION RIGHTS PLAN 1. Purpose The purpose of the Central European Media Enterprises Ltd. Stock Appreciation Rights Plan (the "Plan") is to induce key employees and nonemployee consultants of the Company or a Subsidiary to retain their association with Central European Media Enterprises Ltd. (the "Company"), its affiliates and its present and future subsidiaries (each a "Subsidiary"), to attract new employees and nonemployee consultants and to encourage and compensate such individuals by means of performance related incentives. The Board of Directors of the Company (the "Board") believes that the granting of stock appreciation rights (the "SARs") under the Plan will promote continuity of management and increased incentive and personal interest in the welfare of the Company by those who are or may become primarily responsible for shaping and carrying out the long range plans of the Company and securing its continued growth and financial success. 2. Effective Date of the Plan The Plan was authorized by resolution of the Board of Directors of the Company (the "Board") on September 3, 1998, effective as of September 3, 1998. 3. Administration The Plan shall be administered by the Committee referred to in Section 4 hereof. Subject to the express provisions of the Plan, the Committee shall have complete authority, in its discretion, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective SAR agreements, to determine the individuals (each a "Participant") to whom and the times and the base prices at which SARs shall be granted, the periods during which SARs shall be exercisable and the vesting schedule therefor (which may vary with each grantee and may be granted an a basis less favorable to the grantee than that provided in Section 8 hereof), the number of shares of the Company's Class A common stock, par value $.01 per share (the "Common Stock"), to which SARs relate and to make all other determinations necessary or advisable for the administration of the Plan. In making such determinations, the Committee or the Board, as the case may be, may take into account the nature of the services rendered by the respective employees and nonemployee consultants, their present and potential contributions to the success of the Company and the Subsidiaries and such other factors as the Committee or the Board in its discretion shall deem relevant. The Committee's or Board's determination on the matters referred to in this Section 3 shall be conclusive. Any dispute or disagreement which may arise under or as a result of or with respect to any SAR shall be determined by the Committee, in its sole discretion, and any interpretations by the Committee of the terms of any SAR shall be final, binding and conclusive. 4. Committee The Committee shall consist of two or more members of the Board both or all of whom shall be "Non-Employee Directors" within the meaning of Rule 16b-3(b)(i) promulgated under the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee shall be appointed annually by the Board, which may at any time and from time to time remove any members of the Committee, with or without cause, appoint additional members to the Committee and fill vacancies, however caused, in the Committee. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members present at a meeting duly called and held. Any decision or determination of the Committee reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made at a meeting duly called and held. 5. Eligibility A SAR may be granted only to a key employee or nonemployee consultant of the Company or a Subsidiary. 6. Stock Appreciation Rights A. A SAR shall represent the right to receive a payment from the Company equal to the excess of the fair market value of a share of Common Stock at the date of exercise over a specified price fixed by the Committee (the "Base Price"). Each SAR grant shall be evidenced by an award agreement setting forth the terms and conditions of such SAR (the "SAR Agreement"). B. The Base Price of any SAR shall be the price determined by the Committee, but not less than the lesser of (i) the fair market value of a share of Common Stock on the date of grant and (ii) the average fair market value of a share of Common Stock over a period specified in the grant following the date the SAR is granted not to exceed twenty (20) business days. The Committee may provide that the Base Price per SAR will increase to reflect the cost of capital or any other objective measure or may set the initial Base Price at an amount in excess of the fair market value at the time of grant. C. For all purposes of the Plan, the fair market value of a share of the Common Stock on any date shall be equal to (i) if, on such day, shares of the Common Stock shall be traded on a national securities exchange, the closing sales price of a share of the Common Stock as published by such national securities exchange or if there is no sale of the Common Stock on such date, the average of the bid and asked price on such exchange at the close of trading on such date, or (ii) if the shares of the Common Stock are not listed on a national securities exchange on such date, and are traded on a national securities market, the average of the bid and asked price in the over-the-counter market at the close of trading on such date, or (iii) if the provisions of clause (i) and clause (ii) shall not be applicable, such amount as shall be determined in good faith by the Board. D. The number of shares of Common Stock with respect to which SARs may be granted under the Plan shall be limited to 1,000,000, subject to equitable adjustment by the Committee in the event of a stock split, stock dividend or recapitalization of the Common Stock. 7. SAR Term Participants shall be granted SARs for such term as the Committee shall determine, not in excess of ten years from the date of the granting thereof. The Committee may provide that the length of the term of a SAR will vary with the length of the period over which the SAR first becomes exercisable. 8. Exercise of SARs A. SARs shall become exercisable in installments, which need not be equal, as specified in the SAR Agreement. Except as otherwise determined by the Committee, the first installment shall not become exercisable during the period commencing on the date of the granting of such SAR to him and ending on the day next preceding the first anniversary of such date. An installment once exercisable shall remain exercisable until the SAR expires or is terminated. B. Except as hereinbefore otherwise set forth, a SAR may be exercised either in whole at any time or in part from time to time. C. A SAR may be exercised only by a written notice of intent to exercise such SAR with respect to a specific number of shares of Common Stock. D. Notwithstanding the terms of this Section 10, the Board may, in its discretion, permit any SAR to be exercised, in whole or in part, prior to the time when it would otherwise be exercisable. E. Subject to Section 12 hereof, upon exercise of a SAR, the Participant shall be entitled to receive payment in cash, Common Stock or in a combination of cash and Common Stock, as determined by the Committee, of an amount determined by multiplying: (i) the excess (if any) of the fair market value (determined in accordance with Section 6.C above) of a share of Common Stock at the date of exercise over the Base Price fixed by the Committee with respect to such SAR, by (ii) the number of shares of Common Stock with respect to which the SAR is exercised; provided, however, that no Common Stock shall be issued upon exercise of a SAR unless the Plan has been approved by the Company's shareholders, if such approval is required under applicable law or pursuant to the listing requirements of any national securities exchange on which the Common Stock is listed. 9. Transferability No SAR shall be assignable or transferable except by will and/or by the laws of descent and distribution and, during the life of any Participant, each SAR granted to him may be exercised only by him; provided, however that the Board or Committee may provide that a Participant may transfer a SAR for no consideration to any member of his or her immediate family or to any trust for the benefit of the Participant's immediate family. 10. Termination of Employment or Service In the event a Participant leaves the employ of the Company and the Subsidiaries, or the services or the contract of a nonemployee consultant of the Company and the Subsidiaries is terminated (a "Termination"), a SAR may thereafter be exercised only as hereinafter provided: (a) If Termination occurs by reason of (i) disability, (ii) death or (iii) retirement at or after age 65, each SAR theretofore granted to him which shall not have theretofore expired or otherwise been canceled shall become exercisable in full and shall, to the extent not theretofore exercised, terminate upon the earlier to occur of the expiration of one (1) year after the date of such Termination and the date of termination specified in such SAR Agreement; (b) If Termination occurs by reason of (i) termination by the Company or a Subsidiary other than for Cause or (ii) Participant's voluntary termination, each SAR theretofore granted to him which shall not have theretofore expired or otherwise have been canceled shall, to the extent not theretofore exercised, terminate upon the earlier to occur of the expiration of ninety (90) days after the date of Termination and the date of termination specified in such SAR Agreement; and (c) If Termination occurs by reason of termination by the Company for Cause, each SAR theretofore granted to him which shall not have theretofore expired or otherwise been canceled shall immediately terminate; "Cause" shall mean (i) the commission by a Participant of any act or omission that would constitute a felony under United States federal, state or equivalent foreign law, or an indictable offense under Bermuda law; (ii) a Participant's gross negligence, recklessness, dishonesty, fraud, disclosure of trade secrets or confidential information, willful malfeasance or willful misconduct in the performance of services to the Company or its Subsidiaries; (iii) willful misrepresentation to shareholders or directors which is injurious to the Company; (iv) a willful failure without reasonable justification to comply with reasonable directions of Participant's supervisor; or (v) a willful and material breach of Participant's duties or obligations under any agreement with the Company or a Subsidiary. 11. Adjustment of Number of Shares A. In the event that a dividend shall be declared upon the Common Stock payable in shares of Common Stock, the number of shares of the Common Stock to which any SAR relates shall be adjusted by adding to each share the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. B. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, sale of assets, merger or consolidation in which the Company is the surviving corporation, then, there shall be substituted for each share of Common Stock to which any SAR relates the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged. C. In the event that there shall be any change, other than as specified in this Section 11, in the number or kind of outstanding shares of Common Stock, or of any stock or other securities into which the Common Stock shall have been changed, or for which it shall have been exchanged, then, if the Committee shall, in its sole discretion, determine that such change equitably requires an adjustment in the number or kind of shares as to which any SAR relates, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of the Plan and of each SAR Agreement entered into in accordance with the provisions of the Plan. D. In the case of any substitution or adjustment in accordance with the provisions of this Section 11, the Base Price for each SAR granted prior to such substitution or adjustment shall be the Base Price for all stock appreciation rights which shall have been substituted for such SAR. E. In the event of the dissolution or liquidation of the Company, or a merger, reorganization or consolidation in which the Company is not the surviving corporation, then, except as otherwise provided in the second sentence of this Section 11, each SAR, to the extent not theretofore exercised, shall be immediately exercisable in full. 12. Tax Withholding and Waivers In the event of the death of a Participant, a condition of exercising any SAR shall be the delivery to the Company of such tax waivers and other documents as the Committee shall determine. In the case of each SAR, a condition of exercising the same shall be the entry by the person exercising the same into such arrangements with the Company with respect to all federal, state, local and foreign withholding tax requirements as the Committee may determine. 13. No Stockholder Status Neither any Participant nor his legal representatives, legatees or distributees shall be or be deemed to be the holder of any share of Common Stock to which a SAR relates. 14. No Restrictions on Corporate Acts Neither the existence of the Plan nor any SAR shall in any way affect the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding whether of a similar character or otherwise. 15. No Employment Right or Right to Continued Service. Neither the existence of the Plan nor the grant of any SAR shall require the Company or any Subsidiary to continue any Participant in the employ of the Company or such Subsidiary or as a nonemployee consultant of the Company or a Subsidiary. 16. Termination and Amendment of the Plan The Board may at any time terminate the Plan or make such modifications of the Plan as it shall deem advisable; provided, however, that except as otherwise provided in Section 11 hereof, no termination or amendment of the Plan may, without the consent of the Participant to whom any SAR shall theretofore have been granted, adversely affect the rights of such Participant under such SAR. 17. Expiration and Termination of the Plan The Plan shall terminate on the business day preceding the tenth anniversary of its effective date or at such earlier time as the Board may determine. Options may be granted under the Plan at any time and from time to time prior to its termination. Any SAR outstanding under the Plan at the time of the termination of the Plan shall remain in effect until such SAR shall have been exercised or shall have expired in accordance with its terms. 18. Governing Law The Plan shall be governed by the laws of Bermuda. EX-10.48 7 DIRECTOR, OFFICER AND SENIOR EXECUTIVE CO-INVESTMENT PLAN CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. DIRECTOR, OFFICER AND SENIOR EXECUTIVE CO-INVESTMENT PLAN 1. Purposes The purposes of this Central European Media Enterprises Ltd. Director, Officer and Senior Executive Co-Investment Plan (the "Plan") are (a) to encourage certain select senior executives of Central European Media Enterprises Ltd. (the "Company") and its subsidiaries and key station managers to hold a meaningful amount of their liquid net worth in Common Stock of the Company and to invest personal capital in the Company, thereby encouraging such executive to think as owners of the Company with real risk of loss, as well as upside return, further aligning their interests with those of the Company and its shareholders and (b) to encourage and facilitate investment in and purchases of shares of the Company's Common Stock by such executives and key station managers and by the non-employee directors of the Company. 2. Administration The Plan shall be administered by the Compensation Committee of the Company's Board of Directors (the "Board"), or such other committee as shall be designated by the Board to administer the Plan, which shall consist of at least two directors of the Company chosen by the Board each of whom is a director of the Company who is both a "Non-Employee Director" with the meaning of Rule 16b-3 under the Exchange Act and an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Committee"). Subject to the provisions of the Plan, the Committee shall possess the authority (a) to select the officers, employees and key station managers eligible to participate in the Plan ("Participants"); (b) to determine the period or periods during any year within which Participants may purchase stock from the Company under the Plan; (c) establish rules and procedures under the Plan requiring prior notice by Participants of the number of shares to be purchased and the proposed date of such purchase; (d) to determine and to set the terms and conditions of all loans under the Plan for the purchase of stock and the loan documentation relating thereto, including any pledges of the Common Stock acquired under the Plan; (e) to interpret the Plan; (f) to make and amend rules and regulations relating to the Plan and; (f) to make all other determinations necessary or advisable for the administration of the Plan. Any decision or action taken or to be taken by the Committee, arising out of or in connection with the construction, administration, interpretation and effect of the Plan and of its rules and regulations, shall, to the maximum extent permitted by applicable law, be within its absolute discretion (except as otherwise specifically provided herein) and shall be conclusive and binding upon all Participants and any person claiming under or through any Participant or any non-employee director who has purchased shares from the Company pursuant to the Plan. No member of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any award granted hereunder. 3. Eligible Participants The most senior corporate executives and key station managers of the Company and its subsidiaries selected by the Committee shall be eligible (i) for loans from the Company to facilitate purchases of Class A Common Stock of the Company pursuant to the Plan and (ii) to purchase shares of the Company's Class A Common Stock from the Company pursuant to the Plan. The Company's non-employee directors, for these purposes including the Chairman and Vice Chairman so long as such person receives no compensation for his services to the Company other than as a non-executive Chairman or Vice Chairman, as the case may be (each, a "non-employee director") shall be eligible to purchase shares of the Company's Class A Common Stock from the Company pursuant to the Plan in order than such non-employee directors might meet any share purchase requirements related to any option grants the Company may make to such persons, but non-employee directors shall not be eligible for loans under the Plan to purchase such shares. 4. Maximum Amount of Loans The maximum aggregate principal amount of all loans made pursuant to the Plan outstanding at any time may not exceed US$2,000,000. The maximum aggregate principal amount of all loans outstanding at any time made to any individual may not exceed such individual's annual base salary at the time any such loan is made. 5. Terms and Conditions of Loans If a Participant purchases shares of the Class A Common Stock of the Company in the open market or from the Company pursuant to the Plan, other than pursuant to the exercise of a stock option, (the "Matched Shares"), the Company may, make a matching loan to such Participant not to exceed the Fair Market Value (as defined below) of the Matched Shares, the proceeds of such loan to be used by such Participant to purchase additional shares of Class A Common Stock (either in the open market or from the Company pursuant to the Plan). Any such loan shall be subject to any limitations imposed by law. The Committee shall establish the terms and conditions of the loans, which shall be secured by a pledge of the shares of' Class A Common Stock purchased with the proceeds thereof. The loans may be non-recourse (other than to the pledged shares) or, if so determined by the Committee at the time such a loan is made, partially or fully recourse. Shares purchased with the proceeds of a loan may, not be sold until the Participant's employment with the Company is terminated or after seven years, whichever period is shorter, unless the Committee shall have consented to an earlier sale. Any such loans will bear interest at the 7-year Treasury Note rate in effect at the time of the loan. and interest shall be due at the end of each calendar year. Any such loan shall not have a maturity that is later than the earliest of: (a) the expiration of 7 years from the date the loan is made; (b) termination of the Participant's employment for any reason other than death or disability; (c) one year after termination of the Participant's employment by reason of death or disability; and (d) a Participant's sale of Matched Shares (in which case the loan shall become due on a pro rata basis with the Matched Shares sold). A Participant will be required to apply 25% of his or her annual cash bonus, or such higher figure as the Committee determines, to repay the principal of any such loan. Any such loan shall have such other terms and conditions as the Committee determines, and shall be evidenced by a promissory note and pledge agreement in form and substance satisfactory to the Committee. 6. Terms and Conditions of Stock Purchases Participants and non-employee directors shall be eligible to purchase shares of Class A Common Stock from the Company under the Plan. The Committee shall determine the maximum number of shares that may be sold under the Plan in any year to any Participant or non-employee director. Notwithstanding the foregoing, a non-employee director shall not be eligible to purchase an aggregate number of shares of Class A Common Stock from the Company under the Plan that exceeds the sum of (a) the number of shares subject to outstanding stock options previously granted by the Company to such non-employee director plus (b) 25,000. The purchase price for each share of Class A Common Stock to be sold pursuant to the Plan shall be the average of the Fair Market Value of a share of Class A Common Stock over the 10 day period following the effective date of any notice delivered by such purchaser to so purchase shares of Class A Common Stock. As used herein, "Fair Market Value" shall be the mean between the high and the low trading prices of the Company's Class A Common Stock on any create of determination as reported on the Nasdaq National Market System (or such other recognized market or quotation system on which the trading prices of the Class A Common Stock are reported at such time). 7. Adjustment of Shares In the event of any change in the Class A Common Stock of the Company by reason of any stock dividend, stock split, recapitalization, reorganization, merger, consolidation, split-up, combination, or exchange of shares, or rights offering to purchase Common Stock at a price substantially below fair market value, or of any similar change affecting the Common Stock, the number and kind of shares which thereafter are subject to purchase under the Plan shall be adjusted automatically, consistent with such change to prevent substantial dilution or enlargement of the rights granted to, or available for, participants in the Plan. 8. No Right to Employment The Plan and any awards under the Plan shall not confer upon any director any right with respect to continuance as a director of the Company, nor shall they interfere in any way with any right the Company or any subsidiary may have to terminate an individual's service to the Company or such subsidiary at any time. 9. Term of the Plan; Amendment; Modification The Plan shall commence on the date it is approved by the Company's shareholders and shall terminate on the tenth anniversary of such date. Notwithstanding the foregoing, the Board of Directors may terminate the Plan at any time. The Plan may be amended or modified by the Board of Directors, provided that Board shall not be authorized, without the approval of the Company's shareholders, to (a) increase the number of shares of Class A Common Stock that can be sold under the Plan, (b) reduce the purchase price of a share of Class A Common Stock sold under the Plan below its Fair Market Value, or (c) increase the principal amount of loans that may be outstanding at any time. No amendment, modification or termination of the Plan shall adversely affect the right of any participant under any existing loan without the written consent of the participant. 10. Governing Law This Plan shall be construed and enforced according to the laws of Bermuda. EX-10.49 8 REVOLVING FACILITY AGREEMENT Execution Copy $15,000,000 REVOLVING FACILITY AGREEMENT between CME CZECH REPUBLIC B.V. as Borrower CME CZECH REPUBLIC II B.V. CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CENTRAL EUROPEAN MEDIA ENTERPRISES N.V. CME MEDIA ENTERPRISES B.V. as Guarantors ING BANK N.V. as Arranger, Facility Agent, Security Agent and Bank Clifford Chance Amsterdam CONTENTS Clause Page No. PART 1 DEFINITIONS AND INTERPRETATION 1. Definitions and Interpretation................................... 1 PART 2 THE FACILITY 2. The Facility.....................................................16 3. Utilisation of the Facility......................................16 PART 3 INTEREST 4. Payment and Calculation of Interest..............................18 5. Market Disruption and Alternative Interest Rates.................18 PART 4 REPAYMENT, PREPAYMENT AND CANCELLATION 6. Repayment........................................................19 7. Prepayment and Cancellation......................................22 PART 5 RISK ALLOCATION 8. Taxes............................................................23 9. Tax Receipts.....................................................24 10. Changes in Circumstances.........................................24 PART 6 REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT 11. Representations..................................................27 12. Financial Information............................................32 13. Financial Condition..............................................34 14. Covenants........................................................38 15. Events of Default................................................50 PART 7 GUARANTEE 16. Guarantee and Indemnity..........................................56 PART 8 DEFAULT INTEREST AND INDEMNITY 17. Default Interest and Indemnity...................................59 PART 9 PAYMENTS 18. Currency of Account and Payment..................................61 19. Payments.........................................................61 20. Set-Off..........................................................63 21. Sharing..........................................................63 PART 10 FEES, COSTS AND EXPENSES 22. Commitment Commission and Fees...................................65 23. Costs and Expenses...............................................65 PART 11 AGENCY PROVISIONS 24. The Facility Agent, the Arranger and the Banks...................67 PART 12 ASSIGNMENTS AND TRANSFERS 25. Assignments and Transfers........................................72 PART 13 MISCELLANEOUS 26. Calculations and Evidence of Debt................................74 27. Remedies and Waivers, Partial Invalidity.........................74 28. Notices..........................................................75 29. Amendments.......................................................75 PART 14 LAW AND JURISDICTION 30. Law and Jurisdiction.............................................77 THE SCHEDULES The First Schedule : The Banks (Definition of "Bank" and "Commitment") The Second Schedule : Form of Transfer Certificate (Definition of "Transfer Certificate") The Third Schedule : Condition Precedent Documents (Clause 2.3(Conditions Precedent)) The Fourth Schedule : Notice of Drawdown (Definition of "Notice of Drawdown") The Fifth Schedule : Applicable Margin Financial Tests (Definition of "Applicable Margin" and Clause 12.6 (Requirements as to Financial Statements)) The Sixth Schedule : Intercompany Indebtedness (Definition of "Intercompany Loan") The Seventh Schedule : Confidentiality Agreement (Definition of "Confidentiality Agreement") The Eighth Schedule : Litigation (Clause 11.24 (Litigation)) The Ninth Schedule : Form of Compliance Certificate (Definition of "Compliance Certificate") THIS AGREEMENT is made on the 26th day of February 1999 BETWEEN: (1) CME CZECH REPUBLIC B.V. (the "Borrower"); (2) CME CZECH REPUBLIC II B.V. ("CME CZECH II"), CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. ("CME Ltd."), CENTRAL EUROPEAN MEDIA ENTERPRISES N.V. ("CME N.V.") and CME MEDIA ENTERPRISES B.V. ("CME B.V.") (the "Guarantors"); (3) ING BANK N.V. (the "Arranger"); (4) ING BANK N.V. as facility agent (the "Facility Agent"), security agent (the "Security Agent") and Bank. IT IS AGREED as follows: PART 1 DEFINITIONS AND INTERPRETATION 1. Definitions and Interpretation 1.1 Definitions In this Agreement the following terms have the meanings given to them in this Clause 1.1. "Advance" means, save as otherwise provided herein, an advance of funds made or to be made by the Banks hereunder. "Affiliate" means as to any person: (a) any other person (other than a subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with such person; or (b) any other person who is a director or officer: (i) of such person; (ii) of any subsidiary of such person; or (iii) of any person described in clause (a) above. For the purposes of this definition, control of a person shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise. "Agents" means the Facility Agent and the Security Agent (and "Agent" means any one of them). "Agreement on Pledge of Dividends of Nova TV" means the agreement on pledge of dividends of Nova TV dated 26 February 1999 entered into by the Borrower in favour of the Security Agent in relation to the Borrower's right, title and interest in and to all distributions of profit (present and future) paid or to be paid by Nova TV. "Applicable Margin" means the rate per annum determined in accordance with the tests set out in the Fifth Schedule. "Available Commitment" means, in relation to a Bank at any time and save as otherwise provided herein, its Commitment at such time less the aggregate of its portions of the Advances which are then outstanding Provided that such amount shall not be less than zero. "Available Facility" means, at any time, the aggregate amount of the Available Commitments at such time adjusted, in the case of any proposed drawdown, so as to take into account: (a) any reduction in the Commitment of a Bank pursuant to the terms hereof; (b) any Advance which, pursuant to any other drawdown, is to be made; and (c) any Advance which is due to be repaid and which is not in default in payment, on or before the proposed drawdown date. 5 "Bank" means: (a) ING Bank N.V. (until it has ceased to be a party hereto in accordance with the terms hereof); and (b) any bank which has become a party hereto in accordance with the provisions of Clause 25.4 (Assignments by Banks) or Clause 25.5 (Transfers by Banks). "Basle Paper" means the paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988 and prepared by the Basle Committee on Banking Regulations and Supervision, as amended in November 1991. "Borrower's Pledge of Bank Accounts" means the pledge agreement entitled "Pledge of Bank Accounts" between the Borrower as pledgor and the Security Agent as pledgee dated 26 February 1999 whereby the Borrower agrees, inter alia, to pledge all its right, title and interest in and to each bank account (present and future) specified therein in favour of the Security Agent. "Borrower's Pledge of Intercompany Loans" means the pledge agreement entitled "Pledge of Intercompany Loans" between the Borrower as pledgor and the Security Agent as pledgee dated 26 February 1999 whereby the Borrower agrees, inter alia, to pledge to the Security Agent all its right, title and interest in and to all loans made by the Borrower to any member of the Group. "Borrower Pledge of Shares" means the agreement and deed of pledge between CME Czech II as pledgor, the Borrower and the Security Agent as pledgee dated 26 February 1999 whereby CME Czech II agrees, inter alia, to pledge all the issued and outstanding share capital of the Borrower in favour of the Security Agent. "Capital Adequacy Requirement" means a request or requirement relating to the maintenance of capital by banks, including one which makes any change to, or is based on any alteration in, the interpretation of the Basle Paper or which increases the amounts of capital required thereunder, other than a request or requirement made by way of implementation of the Basle Paper in the manner in which it is being implemented at the date hereof. "CET 21" means CET 21 s.r.o.. "CME B.V.'s Pledge of Receivables and Intercompany Loans" means the pledge agreement entitled "Pledge of Receivables and Intercompany Loans" between CME B.V. as pledgor and the Security Agent as pledgee dated 26 February 1999 whereby CME B.V. agrees, inter alia, to pledge to the Security Agent all its right, title and interest: (a) under or pursuant to the Network Access Agreement; and (b) in and to all loans made by CME B.V. to the Borrower. "CME Development Corporation" means CME Development Corporation, a corporation 6 incorporated under the General Corporation Law of the State of Delaware. "CME Development Corporation's Pledge of Receivables" means the pledge agreement entitled "Pledge of Receivables" between CME Development Corporation as pledgor and the Security Agent as pledgee dated 26 February 1999 whereby CME Development Corporation agrees, inter alia, to pledge to the Security Agent all its right, title and interest under or pursuant to the Management Support Agreement. "CME Ltd.'s Bank Accounts" means its account numbered 2-100-20938-5 at Fleet Bank, 60 East 42nd Street, New York, NY 10165 and its account numbered 1010609107 at Bank of Bermuda, 6 Front Street, Hamilton, Bermuda. "CME Ltd.'s Pledge of Intercompany Loans" means the pledge agreement entitled "Pledge of Intercompany Loans" between CME Ltd. as pledgor and the Security Agent as pledgee dated 26 February 1999 whereby CME Ltd. agrees, inter alia, to pledge to the Security Agent all its right, title and interest in and to all loans made by CME Ltd. to each member of the Group. "CME Programming Services" means CME Programming Services Inc., a corporation incorporated under the General Corporation Law of the State of Delaware. "CME Programming Services' Pledge of Receivables" means the pledge agreement entitled "Pledge of Receivables" between CME Programming Services as pledgor and the Security Agent as pledgee dated 26 February 1999 whereby CME Programming Services agrees, inter alia, to pledge to the Security Agent all its right, title and interest under or pursuant to the programming services agreement between CME Programming Services and Nova TV dated 27 June 1996. "Commitment" means, in relation to a Bank at any time and save as otherwise provided herein, the amount set opposite its name in the First Schedule (The Banks). "Compliance Certificate" means a certificate executed by the chief financial officer or by two other authorised officers of CME Ltd. substantially in the form set out in the Ninth Schedule. "Computer System" means any computer systems, computer hardware and software and all equipment operated by electronic means. "Confidentiality Agreement" means, in relation to any Bank, a confidentiality agreement entered into by it substantially in the form set out in the Seventh Schedule. "Consolidated Total Tangible Assets" shall have the meaning ascribed thereto in Clause 13.2 (Definitions). "CS Loan" means the principal amount made available by _eska Spo_itelna a.s. under the CS Loan Agreement. "CS Loan Agreement" means the loan agreement between CME B.V. and _eska Spo_itelna a.s. 7 dated 1 August 1996 pursuant to which _eska Spo_itelna a.s. agreed to lend to CME B.V. an aggregate principal amount of CZK 850,000,000. "Debt Service" shall have the meaning ascribed thereto in Clause 13.2 (Definitions). "December/June period" means any period commencing on 1 December in any year from 1999 onwards and ending on the next succeeding 30 June. "Dollar Collection Account" means, the Borrower's account numbered 02.17.85.570 with ING Bank N.V., Amsterdam branch. "Event of Default" means any circumstances described as such in Clause 15.1 (Failure to Pay) to Clause 15.21 (Discontinuation of Broadcasting). "Facility" means the dollar revolving loan facility granted to the Borrower in this Agreement. "Facility Documents" means any one or all of this Agreement, the Security Documents, the Payment Instruction and any other document, instrument or agreement entered into by any Obligor or Nova TV and the Arranger, the Facility Agent and/or any Bank and designated as such by an Obligor and the Facility Agent together with all amendments of, and supplements to any of the foregoing (and "Facility Document" shall be construed accordingly). "Facility Office" means, in relation to the Facility Agent or any Bank, the office identified with its signature below (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) or such other office as it may from time to time select. "Fee Payment" means any Relevant Payment other than a dividend. "Final Maturity Date" means 30 November 2001 (or, if such day is not a business day, the immediately preceding business day). "GAAP" means (i) the generally accepted accounting principles in effect from time to time in the United States of America, applied on a consistent basis; and (ii) in relation only to the Original Financial Statements of CME B.V., the generally accepted accounting principles in effect from time to time in the Netherlands, applied on a consistent basis. "Group" means, at any time, CME Ltd., its subsidiaries, any person which, directly or indirectly, is controlled by CME Ltd. and any person in which CME Ltd., such subsidiary or such person has an equity interest. "Guarantee" means, in relation to any person, any obligation of such person directly or indirectly guaranteeing any indebtedness of any other person and, without limiting the generality of the foregoing, any obligation, direct or indirect of such person: (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such indebtedness or other obligation (whether arising by virtue of partnership 8 arrangements, by any agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, to maintain financial statement conditions or otherwise); or (b) entered into for the purpose of assuring in any other manner the obligee of such indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part) Provided that the term "Guarantee" shall not include endorsements of negotiable instruments for collection or deposit in the ordinary course of business. The term "Guarantee" or "Guaranteed" used as a verb has a corresponding meaning. "Guilder Account" means, the Borrower's account numbered 66.87.21.847 with ING Bank N.V., Amsterdam branch. "Information Memorandum" means each of the documents dated August 1997, December 1997 and October 1998 concerning the Borrower and the Guarantors prepared in relation to this transaction and distributed by the Arranger to selected banks during August 1997, December 1997 and October 1998. "Instructing Group" means: (a) whilst no Advances are outstanding hereunder, a Bank or group of Banks whose Commitments amount (or, if each Bank's Commitment has been reduced to zero, did immediately before such reduction to zero, amount) in aggregate to more than 66_ per cent. of the Total Commitments; and (b) whilst at least one Advance is outstanding hereunder, a Bank or group of Banks to whom in aggregate more than 66_ per cent. of the Loan is owed. "Intercompany Loan Agreement" means each agreement entered into by the Borrower or CME Ltd. as lender or creditor with any other member of the Group in relation to any Intercompany Loan which shall comply with Clause 14.12 (Terms of Intercompany Loans). "Intercompany Loan" means the financial indebtedness specified in the Sixth Schedule and each other loan granted by the Borrower or CME Ltd. to any other member of the Group. "July/November period" means any period commencing on 1 July in any year from 2000 onwards and ending on the next succeeding 30 November. "LIBOR" means, in relation to any Advance or unpaid sum: (i) the offered rate per annum (if any) appearing on page 3750 of the Telerate screen which displays the London Interbank Offered Rate for deposits in dollars and for the specified period or any equivalent successor to such page at or about 11.00 a.m. on the Quotation Date for the specified period; or 9 (ii) if no such offered rate appears on the Telerate screen for the purposes of paragraph (i) above, the rate per annum determined by the Facility Agent to be equal to the arithmetic mean (rounded upwards, if not already such a multiple, to the nearest whole multiple of one-sixteenth of one per cent.) of the rates (as notified to the Facility Agent) at which each of the Reference Banks was offering to prime banks in the London Interbank Market deposits in dollars and for the specified period at or about 11.00 a.m. on the Quotation Date for such period; and, for the purposes of this definition, "specified period" means the Term of such Advance or, as the case may be, the period in respect of which LIBOR is to be determined in relation to such unpaid sum. "Limited Recourse Agreement" means the statement from _eska Spo_itelna a.s., dated 26 November, 1998 whereby _eska Spo_itelna a.s. declares, inter alia, its consent to the transfer of a Participation Interest (as referred to therein) in Nova TV from CME B.V. to the Borrower and that it has no claims whatsoever against CME B.V. and the Borrower in respect of such transfer. "Loan" means the aggregate principal amount for the time being outstanding hereunder. "Local Currency Collection Account" means the Borrower's account numbered 02.19.26.026 with ING Bank N.V., Amsterdam branch. "Management Support Agreement" means the management support agreement dated 27 June 1996 and made between CME Development Corporation and Nova TV. "Management Fees" means any management fees payable by Nova TV pursuant to the Management Support Agreement or any replacement thereof. "Network Access Agreement" means the network access agreement dated 27 June 1996 and made between CME B.V. and Nova TV. "Network Access Fees" means any network access fees payable by Nova TV pursuant to the Network Access Agreement or any replacement thereof. "New Station" means a subsidiary of CME B.V. or CME Ltd. (other than (i) any subsidiary of Nova TV, (ii) TVN and (iii) TV3) whose primary purpose is to operate a television station. "Notes" means the $100,000,000 CME Ltd. 9_% Senior Notes due 2004 and the 8_% DM 140,000,000 Senior Notes due 2004. "Notice of Drawdown" means a notice substantially in the form set out in the Fourth Schedule (Notice of Drawdown). "Nova TV" means _eska Nezavisla Televizni Spole_nost, spol. s.r.o., a limited liability company 10 established under the laws of the Czech Republic. "Nova TV Licence" means the television broadcast licence issued by the Council of the Czech Republic for Radio and Television Broadcasting to CET 21 on 9 February 1993 pursuant to which CET 21 is broadcasting. "Obligors" means the Borrower and the Guarantors and any other person which provides security or a guarantee at any time in respect of the obligations of any other Obligor under any of the Facility Documents (and "Obligor" means any of them). "Original Financial Statements" means: (i) in the case of CME Ltd. and CME B.V., its audited consolidated financial statements for its financial year ended 31 December 1997; (ii) in the case of Nova TV, its audited unconsolidated financial statements for its financial year ended 31 December 1997; and (iii) in the case of the Borrower and CME Czech II, its management statements for the period ended 30 September, 1998. "Partnership Agreement" means the Memorandum of Association and Investment Agreement, dated 4 May 1993, originally among CME B.V., _eska Spo_itelna a.s. and CET 21 and now among the Borrower and CET 21, as amended on 1 June 1993, 28 July 1994, 8 December 1994, 15 March 1996 15 March 1996, 17 July 1996, 14 November 1996, 17 December 1996, 3 February 1997, 24 April 1997, 21 May 1997 and 9 December 1997. "Payment Instruction" means the payment instruction given pursuant to Clause 14.23 (Payment Instruction). "Permitted Encumbrance" means in respect of any revenues or assets (other than shares issued by CME N.V., 79% of the voting and economic interest in Nova TV, all or any rights, title, benefit or interest of Nova TV in or to the Nova TV Licence or the Service Agreement and all or any assets or revenues which are expressed to be the subject of any encumbrance created pursuant to any of the Facility Documents): (i) any encumbrance arising by operation of law in the ordinary course of business and securing amounts not more than 90 days overdue; (ii) any banker's right of set-off arising by operation of law in the ordinary course of business or pursuant to the general terms and conditions applicable to banking mandates or deposit confirmations of bankers; (iii) any encumbrance created by Nova TV over all or any of its assets or revenues (which, for the avoidance of doubt, shall exclude the Nova TV Licence and the Service Agreement); 11 (iv) any encumbrance arising out of title retention provisions in a supplier's standard conditions of supply of goods acquired by any Relevant Member of the Group in the ordinary course of business; (v) any encumbrance over property acquired by a Relevant Member of the Group which already existed at the date of acquisition of such property and was not created in contemplation of such acquisition provided that the encumbrance is not extended nor the amount secured thereby increased after the date of such acquisition; (vi) any encumbrance over the whole or any part of the assets of any subsidiary of any Relevant Member of the Group acquired after the date of this Agreement which was in existence prior to the time that subsidiary became a subsidiary of such Relevant Member of the Group and was not created in contemplation of that acquisition provided that the encumbrance is not extended nor the amount secured thereby increased after the date of the acquisition; and (vii) any encumbrance over any asset to the extent that the aggregate principal amount secured by all such encumbrances does not at any time exceed $10,000,000 or such greater amount as the Facility Agent may agree from time to time. "Potential Event" means any event that would constitute an Event of Default or a Review Event but for the fact that notice is required to be given or time is required to elapse or both. "Programming Services Agreement" means the programme and film acquisition support agreement dated 27 June 1996 and made between CME Programming Services and Nova TV. "Programming Fees" means any programming fees payable by Nova TV pursuant to the Programming Services Agreement or any replacement thereof. "Proportion" means, in relation to a Bank: (a) whilst no Advances are outstanding hereunder, the proportion borne by its Commitment to the Total Commitments (or, if the Total Commitments are then zero, by its Commitment to the Total Commitments immediately prior to their reduction to zero); or (b) whilst at least one Advance is outstanding hereunder, the proportion borne by its share of the Loan to the Loan. "Quotation Date" means, in relation to any period for which an interest rate is to be determined hereunder, the day on which quotations would ordinarily be given by prime banks in the London Interbank Market for deposits in dollars for delivery on the first day of that period Provided that, if, for any such period, quotations would ordinarily be given on more than one date, the 12 Quotation Date for that period shall be the last of those dates. "Reduction Dates" means each of the dates specified in Clause 6.2 (Reduction). "Reference Banks" means the principal London offices of ING Bank N.V., National Westminster Bank PLC and Citibank N.A. or such other bank or banks as may from time to time be appointed by the Facility Agent after consultation with CME Ltd. "Relevant Jurisdiction" means, in relation to: (i) CME Ltd., Bermuda; (ii) CME N.V., the Netherlands Antilles; (iii) CME B.V., CME Czech II and the Borrower, The Netherlands; (iv) Nova TV, the Czech Republic; and (v) any other Obligor, its jurisdiction of its incorporation or establishment. "Relevant Member of the Group" means the Borrower, each of the Guarantors and Nova TV. "Relevant Payment" means any dividends distributable by Nova TV to any member of the Group or any payments in respect of any agreement relating to the provision of management services, network access or programming services by any member of the Group to Nova TV or relating to the distribution of income or profits to any member of the Group by Nova TV. "Repayment Date" means, in relation to any Advance, the last day of the Term thereof. "Restricted Dividend" means any dividend declared or paid by Nova TV out of income or profits derived from any of its financial years ending after 31 December 1998. "Restricted Fee Payment" means any Fee Payment payable by Nova TV in relation to income or profits derived from any of its financial years ending after 31 December 1998. "Restricted Payment" means: (a) any dividend or other distribution on any share capital of a person (except dividends payable solely in share capital of such person); or (b) any payment on account of the purchase, redemption, retirement or acquisition of: (i) any share capital of such person; or (ii) any option, warrant or other right to acquire share capital of such 13 person (except any payment made therefor in share capital of such person). "Review Event" means any circumstances described in Clause 15.25 (i)-(vii) (Review Events). "Security Agency Agreement" means the security agency agreement of even date herewith between the Obligors as at the date hereof, the Arranger, the Agents and the Banks. "Security Documents" means: (i) the Borrower's Pledge of Bank Accounts; (ii) CME Ltd.'s Pledge of Intercompany Loans; (iii) the Borrower's Pledge of Intercompany Loans; (iv) CME B.V.'s Pledge of Receivables and Intercompany Loans; (v) the Agreement on Pledge of Dividends of Nova TV; (vi) CME Programming Services' Pledge of Receivables; (vii) CME Development Corporation's Pledge of Receivables; (viii) the Borrower Pledge of Shares; (ix) the Security Agency Agreement, and each other agreement, document or instrument entered into from time to time by any member of the Group in favour of the Security Agent and/or the Banks or designated as a Security Document by the Facility Agent and the Borrower or such member of the Group provided that such agreement, document or instrument secures, inter alia, the obligations of the Borrower hereunder and/or under any other Facility Document and has not been expressly released by the Security Agent and/or the Banks. "Service Agreement" means the agreement on cooperation in ensuring service for television broadcasting dated 21 May 1997 and a supplement thereto of even date therewith and made between Nova TV and CET 21. "Studio 1+1" means the group of companies comprised of the following: (i) Broadcasting Company "Studio 1+1", a limited liability company incorporated under the laws of the Ukraine; (ii) Limited liability company Prioritet Ltd., a limited liability company 14 incorporated under the laws of the Ukraine; (iii) Enterprise Intermedia, a legal entity incorporated in the Ukraine; (iv) Innova Film GmbH, a limited liability company incorporated under the laws of the Federal Republic of Germany; (v) International Media Services Ltd., a limited liability company incorporated under the laws of Bermuda; (vi) CME Ukraine Holding GmbH, a limited liability company incorporated under the laws of Austria; (vii) Ukraine Advertising Holding B.V., a limited liability company incorporated under the laws of The Netherlands; and (viii) CME Ukraine B.V., a limited liability company incorporated under the laws of the Ukraine. "Term" means, save as otherwise provided herein, in relation to any Advance, the period for which such Advance is borrowed as specified in the Notice of Drawdown relating thereto. "Total Commitments" means the aggregate at the relevant time of the Banks' Commitments. "Transfer Certificate" means a certificate substantially in the form set out in the Second Schedule (Form of Transfer Certificate) signed by a Bank and a Transferee whereby: (a) such Bank seeks to procure the transfer to such Transferee of all or a part of such Bank's rights, benefits and obligations hereunder as contemplated in Clause 25.3 (Assignments and Transfers by Banks); and (b) such Transferee undertakes to perform the obligations it will assume as a result of delivery of such certificate to the Facility Agent as is contemplated in Clause 25.5 (Transfers by Banks). "Transfer Date" means, in relation to any Transfer Certificate, the date for the making of the transfer as specified in the schedule to such Transfer Certificate. "Transferee" means a bank to which a Bank seeks to transfer all or part of such Bank's rights, benefits and obligations hereunder. "TVN" means Federacja Sp. zo.o.. "TV3" means Budapesti Kommunikacios Rt. "Year 2000 Compliant" means, in relation to any Computer System, that any reference to or 15 use of a date before, on or after 31 December 1999 in the operation of that Computer System will not have a material adverse effect on the use of that Computer System. . 1.2 Interpretation Any reference in this Agreement to: an "Agent" or any "Bank" shall be construed so as to include its and any subsequent successors, Transferees and assigns in accordance with their respective interests; "authorised officer or officers" means the chief financial officer or any other two authorised officers; a "business day" shall be construed as a reference to a day (other than a Saturday or Sunday) on which banks generally are open for business in Amsterdam, London and New York City; a "disposal" shall include any sale, lease, assignment or transfer and "disposed of" shall be construed accordingly; an "encumbrance" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof or any agreement to give any security interest); the "equivalent" on any given date in one currency (the "first currency") of an amount denominated in another currency (the "second currency") is a reference to the amount of the first currency which could be purchased with the amount of the second currency at the spot rate of exchange quoted by the Facility Agent at or about 9.15 a.m. on such date for the purchase of the first currency with the second currency or, if no such spot rate of exchange is quoted by the Facility Agent at or about such time on such date, the spot rate of exchange quoted by the Facility Agent at or about 9:15 a.m. on the immediately preceding business day; "financial indebtedness" means, of any person, at any date, without duplication: (a) all obligations of such person for the payment of borrowed money; (b) all reimbursement obligations of such person related to letters of credit or acceptance credits, and all such obligations of such person evidenced by bonds, debentures, notes or other similar instruments; (c) all obligations of such person to pay the deferred purchase price of property or services (other than normal trade credit which is not more than 90 days overdue); (d) all obligations of such person as lessee which are capitalised in accordance with generally accepted accounting principles; (e) all financial indebtedness of others secured by an encumbrance on any asset of such person, whether or not such financial indebtedness is assumed by such 16 person; (f) all financial indebtedness of others Guaranteed by such person; and (g) money owing in respect of any interest rate swap or cross-currency or forward sale or purchase contract of similar effect to any thereof entered into by that person; a "holding company" of a company or corporation shall be construed as a reference to any company or corporation of which the first-mentioned company or corporation is a subsidiary; "indebtedness" shall be construed so as to include any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent; a "Material Adverse Change" shall be construed as a material adverse change in the business or financial condition of the Borrower or any Relevant Member of the Group which affects the Borrower's or such Relevant Member of the Group's ability to perform or comply with all or any of its material obligations (which shall include, for the avoidance of doubt, all payment obligations) under any Facility Document. Without prejudice to the above, a "Material Adverse Change" shall be deemed to occur if Consolidated Broadcast Cash Flow of CME B.V. or CME Ltd. is for any twelve calendar month period: (i) ending on 31 December 1998 less than $12,000,000 (or its equivalent in any other currency); or (ii) ending on the last day of any financial quarter of CME Ltd, or CME B.V., as the case may be, ending after 31 December 1998, less than $15,000,000 (or its equivalent in any other currency) Provided that: (a) for the twelve calendar month period ending 31 December 1998 Studio 1+1 shall be excluded from Consolidated Broadcast Cash Flow of CME B.V. and CME Ltd.; and (b) for each twelve month period ending on or prior to the end ofthe third financial quarter in 1999 (in the case of TVN) or 2000 (in the case of TV3), TVN and/or TV3 (as the case may be) shall be excluded from Consolidated Broadcast Cash Flow of CME B.V. and CME Ltd. a "month" is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a business day, it shall end on the next succeeding business day, unless that day falls in the calendar month succeeding that in which it would otherwise have ended, in which case it shall end on the immediately preceding business 17 day Provided that, if a period starts on the last business day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last business day in that later month (and references to "months" shall be construed accordingly); any amount being "outstanding" in relation to any person shall include any amount constituting any contingent liability of such person as well as any actual liability, whether present or future and whether or not the relevant amount has been advanced to or on behalf of such person; a "person" shall be construed as a reference to any person, firm, company, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing; "relevant indebtedness" shall have the meaning ascribed to it in Clause 15.6 (Cross Default); "relevant party" shall be construed in accordance with Clause 13.1 (Financial Condition of the Group). a "subsidiary": (i) means, in relation to any Relevant Member of the Group, each person which is or is required to be consolidated with such Relevant Member of the Group for the purposes of preparing consolidated financial statements in accordance with GAAP; and (ii) of a company or corporation other than a Relevant Member of the Group shall be construed as a reference to any company or corporation: (a) which is controlled, directly or indirectly, by the first-mentioned company or corporation; (b) more than half the issued share capital of which is beneficially owned, directly or indirectly, by the first-mentioned company or corporation; or (c) which is a subsidiary of another subsidiary of the first-mentioned company or corporation and, for these purposes, a company or corporation shall be treated as being controlled by another if that other company or corporation is able to direct its affairs and/or to control the composition of its board of directors or equivalent body; "tax" shall be construed so as to include any tax, levy, impost, duty or other charge of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same); 18 "VAT" shall be construed as a reference to value added tax including any similar tax which may be imposed in place thereof from time to time; and the "winding-up", "dissolution" or "administration" of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business. 1.3 Currency Symbols "$" and "dollars" denote lawful currency of the United States of America, "CZK" and "Czech Crowns" denote the lawful currency of the Czech Republic and "DEM" denotes lawful currency of the Federal Republic of Germany. 1.4 Amendments; times Save where the contrary is indicated, any reference in this Agreement to: (i) this Agreement or any other agreement or document (other than the Basle Paper) shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented; (ii) a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended or re-enacted; and (iii) a time of day shall be construed as a reference to London time. 1.5 Headings Clause, Part and Schedule headings are for ease of reference only. 1.6 Singular and Plural In this Agreement, words and expressions importing the singular shall, where the context permits or requires, include the plural and vice versa. 19 PART 2 THE FACILITY 2. The Facility 2.1 Grant of the Facility The Banks grant to the Borrower, upon the terms and subject to the conditions hereof, a dollar revolving loan facility in a maximum aggregate principal amount of $15,000,000. 2.2 Purpose and Application The Facility is intended to finance and refinance the making of loans to CME B.V. for the funding of investments and capital expenditures, general working capital and operating expenditures associated with the Group's operations. Accordingly, the Borrower shall apply all amounts raised by it hereunder in or towards satisfaction of such purposes and neither the Agents, the Arranger and the Banks nor any of them shall be obliged to concern themselves with such application. 2.3 Condition Precedent Documents Save as the Banks may otherwise agree, the first Notice of Drawdown may only be delivered by the Borrower hereunder if the Facility Agent has confirmed to the Borrower that it has received all of the documents listed in the Third Schedule (Conditions Precedent) and that each is, in form and substance, satisfactory to the Facility Agent. The Facility Agent will promptly give notice of such satisfaction to the Borrower and the Banks. 2.4 Banks' Obligations Several The obligations of each Bank hereunder are several and the failure by a Bank to perform its obligations hereunder shall not affect the obligations of any of the Obligors towards any party hereto nor shall any other party be liable for the failure by such Bank to perform its obligations hereunder. 2.5 Obligor's Obligations With a view to ensuring the validity and enforceability of the Agreement on Pledge of Dividends of Nova TV the present and future, actual and contingent obligations of each of the Borrower and the Guarantors under any or all of the Facility Documents and any and all other documents or agreements entered into in connection therewith to any of the Arranger, the Agents and the Banks shall be owed and due to (i) the Arranger, such Agent or such Bank and (ii) the Security Agent jointly, so that any one or more of the Arranger, such Agent or such Bank (unless any provision of any Facility Document contemplates that the Security Agent shall act on behalf of all of the Banks or an Instructing Group), as the case may be, or the Security Agent may exercise the rights and remedies of the Arranger, such Agent or such Bank Provided that nothing herein shall restrict the application of Clause 21 (Sharing) or Clause 3 (Application of Proceeds) of the Security Agency Agreement. 20 3. Utilisation of the Facility 3.1 Drawdown Conditions An Advance will be made by the Banks to the Borrower if: (a) not more than ten business days before and not later than 9.00 a.m. on the third business day before the proposed date for the making of such Advance, the Facility Agent has received from the Borrower a Notice of Drawdown therefor, receipt of which shall oblige the Borrower to borrow the amount therein requested on the date therein stated upon the terms and subject to the conditions contained herein; (b) the proposed date for the making of such Advance is a business day falling one month or more before the Final Maturity Date; (c) the proposed amount of such Advance is (i) an amount of not less than $2,500,000 and an integral multiple of $500,000 which is less than the amount of the Available Facility or (ii) equal to the amount of the Available Facility; (d) the proposed Term of such Advance is a period of one, three, six or twelve months ending on or before the Final Maturity Date Provided that if the Borrower fails to give notice of its selection of the length of any Term the length of such term shall be one month; (e) neither of the events mentioned in Clause 5 (Market Disruption and Alternative Interest Rates) shall have occurred; and (f) no Event of Default, Review Event or Potential Event has occurred which is continuing unwaived and the representations set out in Clause 11 (Representations) which are to be repeated under Clause 11.27 (Repetition of Representations) are true on and as of the proposed date for the making of such Advance provided that this Clause 3.1(f) shall not apply to any Advance which is in the same or a lesser amount as an existing Advance or Advances falling due for repayment on the proposed date for the making of such Advance and such Advance is to be applied in refinancing such existing Advance or Advances (but without prejudice to the rights of the Facility Agent and the Banks under Clauses 15.22 (Acceleration and Cancellation), 15.23 (Advances Due on Demand) and 15.25 (Review Events)). 3.2 Each Bank's Participation Each Bank will participate through its Facility Office in each Advance made pursuant to Clause 3.1 (Drawdown Conditions) in the proportion borne by its Available Commitment to the Available Facility immediately prior to the making of that Advance. 3.3 Reduction of Available Commitment If a Bank's Commitment is reduced in accordance with the terms hereof after the Facility Agent has received the Notice of Drawdown for an Advance, then the amount of that Advance shall be reduced accordingly. 21 PART 3 INTEREST 4. Payment and Calculation of Interest 4.1 Payment of Interest On the Repayment Date relating to each Advance and if such Advance has a Term which exceeds six months, at the end of the six month period commencing on the date of making such Advance the Borrower shall pay accrued interest on that Advance. 4.2 Calculation of Interest The rate of interest applicable to an Advance from time to time during its Term shall be the rate per annum which is the sum of the Applicable Margin at such time and LIBOR on the Quotation Date therefor. 5. Market Disruption and Alternative Interest Rates If, in relation to any Advance: (a) the Facility Agent determines that at or about 11.00 a.m. on the Quotation Date for the Term in respect of such Advance the Telerate service is not available and none or only one of the Reference Banks was offering to prime banks in the London Interbank Market deposits in dollars for the proposed duration of such Term; or (b) before 3.00 p.m. on the Quotation Date for such Term the Facility Agent has been notified by a Bank or each of a group of Banks to whom in aggregate fifty per cent. or more of such Advance if made would be owed that the rate at which such deposits were being so offered does not accurately reflect the cost to it of obtaining such deposits, then, notwithstanding the provisions of Clause 4 (Payment and Calculation of Interest): (i) the Facility Agent shall notify the other parties hereto of such event; (ii) such Advance shall not be made; and (iii) if the Facility Agent or the Borrower so requires, within five days of such notification the Facility Agent and the Borrower shall enter into negotiations with a view to agreeing a substitute basis for determining the rates of interest which may be applicable to Advances in the future and any such substitute basis that is agreed shall take effect in accordance with its terms and be binding on each party hereto Provided that the Facility Agent may not agree any such substitute basis without the prior consent of each Bank. 22 PART 4 REPAYMENT, PREPAYMENT AND CANCELLATION 6. Repayment 6.1 Repayment The Borrower shall repay each Advance made to it in full on the Repayment Date relating thereto. 6.2 Reduction The Total Commitments shall, on each of the dates set out below, be reduced to the amount (subject to any further reduction to such amount in accordance with Clause 6.6 (Restriction on Relevant Payments)) set opposite such date (to the extent not already reduced in accordance herewith): Reduction Date Reduced Total Commitments $ 30 June 2000 11,250,000 30 November 2000 7,500,000 30 June 2001 3,750,000 30 November 2001 0 Each reduction of the Total Commitments shall reduce the Commitment of each Bank rateably. 6.3 Repayments to allow Reductions The Borrower shall, on each of the Reduction Dates specified in Clause 6.2 (Reduction), repay (subject always to Clause 17.4 (Broken Periods)) an amount of the Loan which shall ensure that the amount of the Loan when aggregated with the amount of the Available Facility as at the end of such Reduction Date shall be equal to or less than the amount set opposite such Reduction Date in Clause 6.2 (Reduction). 6.4 Notice of Relevant Payments Whenever Nova TV declares a dividend or becomes obliged to make a Fee Payment, CME B.V. shall, within five business days, notify the Facility Agent of the amount and the date(s) for payment thereof and provide the Facility Agent with evidence of such amount and date(s) in the form of: (i) in the case of a dividend, a copy of the annual audited financial statements or the minutes of a meeting of the shareholders of Nova TV certified, in each case, as true by a duly authorised officer or officers of CME B.V.; or (ii) in the case of a Fee Payment, a certificate of a duly authorised officer or officers of CME B.V. 6.5 Application of Relevant Payments If Nova TV: (i) pays a Restricted Dividend and the credit balance on the Dollar Collection Account is less than the amount by which the Total Commitments are then scheduled to be reduced on the then next succeeding Reduction Date; or 23 (ii) makes a Restricted Fee Payment and the aggregate of: (a) the amount of all Restricted Dividends at that time yet to be paid by Nova TV prior to the next succeeding Reduction Date (such amount to be calculated solely by reference to the evidence delivered pursuant to Clause 6.4); and (b) the credit balance on the Dollar Collection Account is less than the amount by which the Total Commitments are then scheduled to be reduced on the then next succeeding Reduction Date then CME B.V. shall promptly ensure that a dollar amount equal to the amount of such Restricted Dividend or Fee Payment is credited to the Dollar Collection Account. CME B.V. may comply with its obligations under this Clause by: (1) ensuring that the Borrower issues an instruction to the Facility Agent to convert the local currency amount of the relevant Restricted Dividend or Fee Payment into dollars for credit to the Dollar Collection Account; (2) direct payment by CME B.V. of dollars to the Dollar Collection Account; or (3) by a combination of the foregoing. If CME B.V. has not complied with such obligations within five business days of notice from the Facility Agent requiring the same, the Facility Agent shall be irrevocably entitled (and the Borrower hereby authorises the Facility Agent) to convert any amounts standing to the credit of the Local Currency Collection Account or the Guilder Account into dollars at the Facility Agent's relevant spot rate of exchange and to credit the same to the Dollar Collection Account. 6.6 Restriction on Relevant Payments If Nova TV pays a Restricted Dividend during a December/June period which is not calculated by reference to the income or profits earned by Nova TV during the financial year preceding that in which such December/June period begins and: (i) (a) the amount of such Restricted Dividend, when aggregated with (b) the credit balance on the Dollar Collection Account, exceeds (c) the amount by which the Total Commitments are to be reduced on the 30 June Reduction Date on which such December/June period ends (the amount of (a) plus (b) less (c) hereinafter called an "Excess Dividend Amount"); and (ii) the amount by which the Total Commitments are then scheduled to be reduced on the next 30 November Reduction Date exceeds the amount of Restricted Dividend or Fee Payments at that time yet to be paid in the July/November period ending on such 30 November Reduction Date, calculated solely by 24 reference to the evidence delivered pursuant to Clause 6.4 (such excess being hereinafter referred to as the "Relevant Payment Shortfall") then the amount to which the Total Commitments are scheduled to be reduced on such 30 June Reduction Date shall be further reduced by the lesser of: (1) such Excess Dividend Amount; and (2) such Relevant Payment Shortfall whereupon the provisions of Clause 6.5 shall apply to such Restricted Dividend. 6.7 Withdrawals from Accounts Withdrawals may not be made from the Dollar Collection Account, the Local Currency Collection Account or the Guilder Account by the Borrower if an Event of Default or Review Event has occurred which is continuing unwaived (unless such amounts are applied in immediate irreversible prepayment of the Loan) or if CME B.V. is under an obligation to credit an amount to the Dollar Collection Account under Clause 6.5. Withdrawals from the Dollar Collection Account may otherwise be made only if: (i) after such withdrawal, the credit balance on the Dollar Collection Account would not be less than the amount by which the Total Commitments are then scheduled to be reduced on the then next succeeding Reduction Date; or (ii) the Total Commitments are simultaneously reduced by an amount equal to the amount of such withdrawal. In the case of (ii) above the proceeds of the relevant withdrawal must be applied in immediate prepayment of the Loan to the extent necessary to ensure that the amount of the Loan is not more than the amount of the Total Commitments following such reduction. Nothing in this Clause 6 shall prevent the withdrawal of any amounts standing to the credit of any account pursuant to any Security Document for application in discharge of the Loan. 6.8 Calculation of Amounts of Relevant Payments The amount of any Restricted Dividend or Fee Payment shall be calculated net of withholding on account of tax and, if denominated in any currency other than dollars: (i) at the Facility Agent's spot rate for the purchase of dollars with such currency at 11.00 a.m. on (a) the day in question or (b) if such Restricted Dividend or Fee Payment is one referred to in Clauses 6.5 (other than Clause 6.5(ii)(a)) or 6.6(i), on the second business day prior to the date of payment of such Restricted Dividend or Fee Payment; or (ii) if CME B.V. has entered into any forward foreign exchange contract in relation to such Restricted Dividend or Fee Payment for the purchase of dollars with an amount equal to the amount of such Restricted Dividend or Fee Payment, in accordance with such contract. 25 6.9 No Other Repayments The Borrower shall not repay all or any part of any Advance outstanding hereunder except at the times and in the manner expressly provided herein but shall, subject to the terms and conditions hereof, be entitled to reborrow any amount repaid. 6.10 Netting If on any date: (i) a Bank is obliged to participate in the making of an Advance; and (ii) a payment is due to be made to that Bank pursuant to Clause 6.1 (Repayment) by the Borrower, then (without prejudice, for the avoidance of doubt, to the obligation of the Borrower to repay such Advance in full on its Repayment Date, subject to the provisions of this Agreement) the Facility Agent shall set off the amount payable by such Bank in respect of such Advance and the amount payable by the Borrower and only the net amount (if any) shall be payable by such Bank or, as the case may be, the Borrower (and the Facility Agent shall promptly advise the Borrower and such Bank of the net amount (if any) payable by such Bank to the Borrower or by the Borrower to such Bank). Such Bank or, as the case may be, the Borrower shall make such net amount (if any) available to the Facility Agent in accordance with the provisions of this Agreement on the relevant date. 7. Prepayment and Cancellation 7.1 Prepayment The Borrower may, at any time, if it has given to the Facility Agent not less than five business days' prior notice to that effect, prepay the whole or any part of any Advance (being a minimum amount of $2,500,000 and an integral multiple of $500,000) on any business day subject to the provisions of Clause 17.4 (Broken Periods) and provided that the Borrower shall on the date of prepayment of any Advance (or part thereof) pursuant to this Clause 7.1 (Prepayment) pay all interest accrued thereon up to the date of repayment thereof. 7.2 Cancellation The Borrower may, at any time, by giving to the Facility Agent not less than five business days' prior notice to that effect, cancel the whole or any part (being a minimum amount of $2,500,000 and an integral multiple of $500,000) of the Total Commitments; any such cancellation shall be applied in reduction of the amount (until such amount is zero) to which the Total Commitments are to be reduced pursuant to Clause 6.2 (Reduction) on any Reduction Date by applying such amount in reduction of the amount by which Total Commitments are to be reduced on each Reduction Date in chronological order and shall reduce the Commitment of each Bank rateably. 7.3 Notice of Cancellation Any notice of prepayment or cancellation given by the Borrower for the purposes of Clause 7.1 (Prepayment) or 7.2 (Cancellation) shall be irrevocable and shall specify the date upon which such prepayment or cancellation is to be made and the amount of such prepayment or cancellation and, in the case of a notice of prepayment, shall oblige the Borrower to make such prepayment on such date. 26 7.4 Cancellation of a Bank's Commitment If any Bank claims indemnification from the Borrower under Clause 8.2 (Tax Indemnity) or Clause 10.1 (Increased Costs), the Borrower may, if no Potential Event, Event of Default or Review Event has occurred which is continuing unwaived, within thirty days thereafter and by not less than ten business days' prior notice to the Facility Agent (which notice shall be irrevocable), cancel such Bank's Commitment whereupon such Bank shall cease to be obliged to participate in further Advances and its Commitment shall be reduced to zero. 27 PART 5 RISK ALLOCATION 8. Taxes 8.1 Tax Gross-up All payments to be made by the Borrower or any Guarantor to the Arranger, an Agent or any Bank under any Facility Document shall be made free and clear of and without deduction for or on account of tax unless the Borrower or such Guarantor is required to make such a payment subject to the deduction or withholding of tax, in which case the sum payable by the Borrower or such Guarantor in respect of which such deduction or withholding is required to be made shall be increased to the extent necessary to ensure that, after the making of the required deduction or withholding, such person receives and retains (free from any liability in respect of any such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or withholding been made or required to be made. 8.2 Tax Indemnity Without prejudice to the provisions of Clause 8.1 (Tax Gross-up), if any party to this Agreement (other than the Borrower or any Guarantor) or an Agent on its behalf is required to make any payment on account of tax (not being a tax imposed on and calculated by reference to the net income paid to and received by such party's Facility Office by the jurisdiction in which such party is incorporated or in which such party's Facility Office is located) on or in relation to any sum received or receivable under any Facility Document by such person or an Agent on its behalf (including any sum received or receivable under this Clause 8) or any liability in respect of any such payment is asserted, imposed, levied or assessed against such party or an Agent on its behalf, the Borrower or the Guarantor from whom such sum was received or receivable shall, upon demand of the Facility Agent, promptly indemnify such party against such payment or liability, together with any interest, penalties, costs and expenses payable or incurred in connection therewith. 8.3 Filings Each Bank and Agent shall cooperate with the Borrower in respect of any application to the relevant revenue authorities by the completion and execution of such certificates, claim forms or other documentation as such Bank or Agent is reasonably able to complete and execute without incurring any liability on its part and as the Borrower may reasonably request, to enable the Borrower to obtain authorisation from the relevant revenue authorities to make interest payments in full to such Bank or Agent without deduction or withholding of tax. No additional amount shall be payable pursuant to Clause 8.1 (Tax Gross-up) or Clause 8.2 (Tax Indemnity) in respect of any deduction or withholding for or on account of tax which would not have been required to be deducted or withheld or which would not have arisen if the person to whom such a payment was made or is payable had complied with the obligations expressed to be assumed by it under this Clause 8.3 (Filings) if the Borrower has requested the relevant Bank or Agent to complete and execute the relevant certificates, forms or other documents, provided that the Borrower shall continue to be liable to pay any amount or additional amount pursuant to Clause 8.1 (Tax Gross Up) or Clause 8.2 (Tax Indemnity) which would not have been payable if the relevant certificates, forms or other documents had been completed and executed, notwithstanding that such liability arises after the Borrower has 28 requested such completion and execution if the relevant Bank or Agent is taking all reasonable steps open to it to effect such completion and execution in a reasonably expeditious manner. 8.4 Tax credits If any Bank receives the benefit of any tax credit, refund or allowance resulting from a payment which includes an additional amount paid by the Borrower under Clause 8 (Taxes), it shall, to the extent that it can do so without prejudice to the retention of the relevant benefit, pay to the Borrower such part of that benefit as the Bank considers to be attributable to the additional amount paid by the Borrower under Clause 8 (Taxes) which will leave the Borrower in no less favourable a position that it would have been in if no additional amount had been required to be paid provided that: (a) the Bank shall be the sole judge of the amount of any such benefit and of the date on which it is received; (b) the Bank shall have a discretion as to the order and manner in which it employs or claims tax credit, refunds and allowances available to it and, in particular, shall be entitled to arrange its tax affairs in whatever manner it thinks fit; and (c) the Bank shall not be obliged to disclose to the Borrower any information regarding its tax affairs or tax computations. 8.5 Claims by Banks A Bank intending to make a claim pursuant to Clause 8.2 (Tax Indemnity) shall notify the Facility Agent of the event by reason of which it is entitled to do so, whereupon the Facility Agent shall notify the Borrower thereof Provided that nothing herein shall require such Bank to disclose any confidential information relating to the organisation of its affairs. 9. Tax Receipts 9.1 Notification of Requirement to Deduct Tax If, at any time, the Borrower or a Guarantor is required by law to make any deduction or withholding from any sum payable by it under any Facility Document (or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated), the Borrower or such Guarantor shall promptly notify the Facility Agent. 9.2 Evidence of Payment of Tax If the Borrower or a Guarantor makes any payment under any Facility Document in respect of which it is required to make any deduction or withholding, it shall pay the full amount required to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and shall deliver to the Facility Agent for each Bank, within thirty days after it has made such payment to the applicable authority (or, if later, within 10 business days of receipt), an original receipt (or a certified copy thereof) issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld in respect of that Bank's share of such payment. 29 10. Changes in Circumstances 10.1 Increased Costs If, by reason of (i) any change in law or in its interpretation or administration and/or (ii) compliance with any Capital Adequacy Requirement or any other request from or requirement of any central bank or other fiscal, monetary or other authority: (a) a Bank or any holding company of such Bank is unable to obtain the rate of return on its capital which it would have been able to obtain but for such Bank's entering into or assuming or maintaining a commitment or performing its obligations (including its obligation to participate in the making of Advances) under this Agreement; (b) a Bank or any holding company of such Bank incurs a cost as a result of such Bank's entering into or assuming or maintaining a commitment or performing its obligations (including its obligation to participate in the making of Advances) under this Agreement; (c) there is any increase in the cost to a Bank or any holding company of such Bank of funding or maintaining all or any of the loans comprised in a class of loans formed by or including such Bank's share of the Advances; or (d) a Bank or any holding company of such Bank becomes liable to make any payment on account of tax or otherwise (not being a tax imposed on such Bank or such holding company and calculated by reference to the net income paid to and received by such Bank's Facility Office by the jurisdiction in which such Bank or such holding company is incorporated or in which such Facility Office is located) on or calculated by reference to the amount of such Bank's share of the Advances and/or to any sum received or receivable by it hereunder, in each case in an amount which such Bank considers material then the Borrower shall, from time to time on demand of the Facility Agent, promptly pay (without duplication of amounts otherwise payable pursuant to Clause 8 (Taxes) or any other provision of this Agreement) to the Facility Agent for the account of that Bank amounts sufficient to hold harmless and indemnify that Bank or such Bank's holding company from and against, as the case may be, (1) such reduction in the rate of return of capital (or such proportion of such reduction as is, in the reasonable opinion of that Bank, attributable to its obligations hereunder), (2) such cost, (3) such increased cost (or such proportion of such increased cost as is, in the opinion of that Bank, attributable to its participating in the funding or maintaining of Advances) or (4) such liability, each as referred to in paragraphs (a) to (d) above. 10.2 Exceptions Clause 10.1 shall not apply to any cost, reduction, increased cost or liability: (a) compensated for under Clause 8; 30 (b) attributable to any breach by the relevant Bank (or its holding company) of any applicable law or any request or requirement of any central bank or other fiscal, monetary or other authority; or (c) relating to tax on a Bank's (or its holding company's) overall net income. 10.3 Increased Costs Claims A Bank intending to make a claim pursuant to Clause 10.1 (Increased Costs) shall notify the Facility Agent of the event by reason of which it is entitled to do so, whereupon the Facility Agent shall notify the Borrower thereof Provided that nothing herein shall require such Bank to disclose any confidential information relating to the organisation of its affairs. 10.4 Illegality If, at any time, it is unlawful for a Bank to make, fund or allow to remain outstanding all or part of its Commitment or its share of the Advances, then that Bank shall, promptly after becoming aware of the same, deliver to the Borrower through the Facility Agent a notice to that effect and: (a) such Bank shall not thereafter be obliged to participate in the making of any Advances and the amount of its Commitment shall be immediately reduced to zero; and (b) if the Facility Agent on behalf of such Bank so requires, the Borrower shall repay the Bank's share of any outstanding Advances on the Repayment Date relating thereto (or, if earlier, the latest date permitted by applicable law) together with accrued interest thereon and all other amounts owing to such Bank hereunder. 10.5 Mitigation If circumstances are such that the Borrower is obliged to pay any additional amounts for the benefit of a Bank pursuant to Clause 8.1 (Tax Gross-up) or a Bank intends to claim indemnification from the Borrower under Clause 8.2 (Tax Indemnity) or Clause 10.1 (Increased Costs) such Bank shall, after consultation with the Facility Agent and the Borrower and to the extent that it can do so lawfully and without prejudice to its own position, consider what steps it might reasonably take (including a change in its Facility Office or the transfer of its rights, benefits and obligations hereunder to another financial institution acceptable to the Borrower and willing to participate in the Facility) with a view to mitigating the effect of such circumstances on the Borrower. 31 PART 6 REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT 11. Representations The Borrower and each of the Guarantors makes the representations and warranties set out in Clause 11.1 (Status and Due Authorisation of Borrower and the Guarantors) to Clause 11.25 (Security Documents) (provided that the representations contained in Clause 11.17 (Ownership of Assets by the Borrower) shall be made or repeated only in accordance with any Notice of Drawdown and in accordance with Clause 11.27 (Repetition of Representations)) and the Borrower and each of the Guarantors acknowledges that the Agents, the Arranger and the Banks have entered into the Facility Documents in reliance on those representations and warranties. 11.1 Status and Due Authorisation of the Borrower and the Guarantors It is a corporation duly organised and (to the extent such concept is recognised) in good standing under the laws of its Relevant Jurisdiction with power (i) to enter into each of the Facility Documents, and each Intercompany Loan Agreement to which it is expressed to be a party, (ii) to own its properties and to carry on its business as it is now being conducted and (iii) to exercise its rights and perform its obligations under each such Facility Document and each Intercompany Loan Agreement to which it is expressed to be a party and all corporate and other action required to authorise its execution of each such Facility Document and Intercompany Loan Agreement and its performance of its obligations thereunder has been duly taken. 11.2 Status and Due Authorisation of Nova TV Nova TV is a limited liability company duly organised and (to the extent such concept is recognised) in good standing under the laws of the Czech Republic with power (i) to enter into each Facility Document to which it is a party and the Service Agreement, (ii) to own its properties and conduct its business as it is now being conducted and (iii) to exercise its rights and perform its obligations under each Facility Document to which it is a party and the Service Agreement and all corporate and other action required to authorise the owning of its properties and the conduct of its business as it is now being conducted and its execution of each Facility Document to which it is a party and the Service Agreement and its performance of its obligations thereunder has been duly taken. 11.3 Withholding Tax Under the laws of the Czech Republic Nova TV is not required to make any withholding for tax from any payment it may make to the Borrower in respect of any dividends. 11.4 Claims Pari Passu The claims of the Agents, the Arranger and the Banks against each Obligor and Nova TV under each of the Facility Documents and against CME B.V. or the Borrower in relation to any claim that may arise as a result of the enforcement of the Borrower's Pledge of Intercompany Loans will rank at least pari passu with the claims of all the other unsecured and unsubordinated creditors of such Obligor or Nova TV or CME B.V. under the laws of the Relevant Jurisdiction of such Obligor or Nova TV or CME B.V. (as the case may be) save those whose claims are preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application. 32 11.5 Governing Law In any proceedings taken in any Relevant Jurisdiction in relation to any Facility Document the law expressly chosen by the parties to such Facility Document, as the governing law of such Facility Document, will be recognised and enforced. 11.6 Validity and Admissibility in Evidence All acts, conditions and things required to be done, fulfilled and performed in order (a) to enable each Relevant Member of the Group lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in each of the Facility Documents, in the Partnership Agreement, in the Service Agreement and in each Intercompany Loan Agreement to which it is expressed to be a party, (b) to ensure that the obligations expressed to be assumed by each Relevant Member of the Group in each of the Facility Documents, the Partnership Agreement, the Service Agreement and each Intercompany Loan Agreement are legal, valid and binding and (c) to make each of the Facility Documents to which it is a party, the Partnership Agreement, the Service Agreement and each Intercompany Loan Agreement admissible in evidence in the Relevant Jurisdiction of the Relevant Member(s) of the Group party to such Facility Document, Partnership Agreement, Service Agreement or Intercompany Loan Agreement, have been done, fulfilled and performed. 11.7 No Filing or Stamp Taxes Under the laws of each Relevant Jurisdiction no filing, recording or enrolment with any court or other authority in such Relevant Jurisdiction and no stamp, registration or similar tax is required to be paid on or in relation to any of the Facility Documents, the Partnership Agreement or the Service Agreement save for any filing, recording, enrolment, stamp, registration, or other similar tax which has already been made or paid. 11.8 Binding Obligations The obligations expressed to be assumed by each Relevant Member of the Group in each of the Facility Documents, the Partnership Agreement, the Service Agreement and each Intercompany Loan Agreement are legal and valid obligations binding on it in accordance with the terms thereof except where the same may be limited by applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally or by equitable principles. 11.9 No Winding-up No Relevant Member of the Group has taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened (other than any steps or proceedings of a frivolous or vexatious nature as determined by an independent reputable law firm) against any Relevant Member of the Group for its winding-up, dissolution, administration or re-organisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or of any or all of its assets or revenues. 11.10 No Event of Default No Event of Default, Review Event or Potential Event has occurred and is continuing. 11.11 No Material Defaults No Relevant Member of the Group is in breach of or in default under any term of its constitutive documents, any agreement or instrument to which it is a party or which is binding on it or any of its assets or any term of any applicable law, ordinance, rule or regulation or any order, judgment or decree of any court, arbitrator or governmental authority, in each case, to an extent or in a manner which would reasonably be expected to lead to a Material 33 Adverse Change. 11.12 Original Financial Statements The Original Financial Statements of each Relevant Member of the Group (other than CME N.V.) were prepared in accordance with GAAP and (in conjunction with the notes thereto) fairly present in conformity with GAAP the consolidated (or, as the case may be, unconsolidated) financial condition of such Relevant Member of the Group (and, if applicable, its subsidiaries) at the date as of which they were prepared and the results of such Relevant Member of the Group's operations during the financial year or other period to which they relate then ended. 11.13 No Material Adverse Change Since 31 December 1997, there has been no Material Adverse Change. 11.14 Ownership of Assets by CME Ltd. Except as permitted by or in accordance with the Security Documents, CME Ltd. is the absolute sole beneficial owner of (i) all the outstanding shares of CME N.V., (ii) all of the rights and benefits relating to CME Ltd.'s Bank Accounts (and the monies held therein) and (iii) all outstanding Intercompany Loans made by it free (in each case) from encumbrances and it has not granted (or agreed to grant) any rights of pre-emption over the shares in CME N.V. or otherwise disposed (or agreed to dispose) of the whole or any part of such shares, rights, benefits or Intercompany Loans. Furthermore, CME Ltd.'s only assets are (a) shares in CME N.V., (b) one share in CME Media Enterprises (UK), (c) shares in a company incorporated in England (provided that promptly upon CME Ltd. becoming the owner of such shares it shall contribute the loan of $ 22,497,750 made by it to CME B.V. and referred to in the Sixth Schedule to such company as share premium and all such shares except one shall be transferred to CME N.V. who shall transfer the same to CME B.V.), (d) the monies from time to time standing to the credit of CME Ltd.'s Bank Accounts, (e) the outstanding Intercompany Loans secured in accordance with CME Ltd.'s Pledge of Intercompany Loans, (f) any assets secured in favour of the Security Agent in accordance with Clause 14.6 (Ownership of Assets by CME Ltd.) and (g) the rights relating to each of the foregoing and assets used solely in managing and administering CME Ltd. or the aforementioned activities of CME Ltd.. 11.15 Activities of CME N.V. CME N.V. is the absolute sole beneficial owner of (i) all the outstanding shares in CME B.V., (ii) 1% of the outstanding share capital of CME Medienbeteiligungen GmbH, (iii) cash raised by the issue of further shares in CME N.V. as permitted hereunder and (iv) all intercompany loans made by it as permitted hereunder and carries on no business other than the holding of all the outstanding shares of CME B.V. and 1% of the outstanding share capital of CME Medienbeteiligungen GmbH (and related management and administering activities) and owns no assets other than the aforementioned shares and assets and any assets used solely in managing and administering CME N.V. or the aforementioned activities of CME N.V.. 11.16 Ownership of Assets by CME B.V. and CME Czech II Except pursuant to the Security Documents, CME B.V. is the absolute, sole beneficial owner of all of the issued share capital of CME Czech II and CME Czech II is the absolute, sole beneficial owner of all the issued share capital of the Borrower in each case free from encumbrances, counterclaim or dispute and 34 neither CME B.V. nor CME Czech II has granted (or agreed to grant) any rights of pre-emption over or otherwise disposed (or agreed to dispose) of the whole or any part of such shares. 11.17 Ownership of Assets by the Borrower Except pursuant to the Security Documents, the Borrower is the absolute, sole beneficial owner of (i) at least 79% of the voting and economic interests in Nova TV and exclusively entitled to all profit distributions relating to such economic interests, (ii) all of the rights and benefits relating to each of the bank accounts (and the monies held therein) secured under the Borrower's Pledge of Bank Accounts and (iii) all Intercompany Loans made by it, free (in each case) from encumbrances, rights of counter-claim (in the case of assets other than the bank accounts secured by the Borrower's Pledge of Bank Accounts and rights relating thereto) or dispute by any person (other than, in the case of any bank account, the relevant bank at which such account is held) and: (a) at least 79% of the voting and economic interests in Nova TV remain free from any rights of pre-emption granted (or agreed to be granted) to any person and have not been disposed of (and are not subject to any agreement for disposal); and (b) the Borrower has not subordinated or disposed of (or agreed to subordinate or dispose of) the whole or any part of such rights, benefits or Intercompany Loans referred to in (ii) and (iii) above. The Borrower owns no other assets other than voting and economic interests in Nova TV, the monies from time to time standing to the credit of the bank accounts secured under the Borrower's Pledge of Bank Accounts, the Intercompany Loans secured in accordance with the Borrower's Pledge of Intercompany Loans and the rights relating to any of the foregoing and assets used solely in managing and administering the aforementioned activities of the Borrower and those activities mentioned in Clause 14.7. 11.18 Full Disclosure The factual information contained in the Information Memorandum (other than sections 8 and 9 of the Information Memorandum dated August 1997 thereof for which neither the Borrower nor any Guarantor is accepting responsibility and save as disclosed to the Facility Agent in writing prior to the date hereof) is at the date hereof (or in the case of the Information Memorandum prepared in August 1997 and December 1997 were at the date the same were prepared) accurate in all material respects and all statements of opinion, projections and forecasts contained therein have been made in good faith and based on estimates and assumptions which CME Ltd. considers reasonable as at the date hereof (or in the case of the Information Memorandum prepared in August 1997 and December 1997 which CME Ltd. considered reasonable as at the date the same were prepared). Neither the Borrower nor any Guarantor has omitted to state a material fact necessary to make the information contained in the Information Memorandum (other than sections 8 and 9 of the Information Memorandum dated August 1997 which neither the Borrower nor any Guarantor is accepting responsibility) relating to any Relevant Member of the Group not misleading in any material respect as at the date hereof. 11.19 Encumbrances Save as permitted by Clause 14.9 (Negative Pledge), no encumbrance 35 exists over all or any of the present or future revenues or assets of any Relevant Member of the Group. 11.20 No Obligation to Create Security The execution of each of the Facility Documents and the exercise of the rights and performance of the obligations thereunder by each party thereto will not result in the existence of nor oblige any Relevant Member of the Group to create any encumbrance over all or any of its present or future revenues or assets other than any Permitted Encumbrance. 11.21 Execution of the Facility Documents The execution of each of the Facility Documents to which it is expressed to be a party and the Service Agreement by any Relevant Member of Group and its exercise of its rights and performance of its obligations thereunder do not and will not: (a) conflict with any agreement, mortgage, bond or other instrument or treaty to which it is a party or which is binding upon it or any of its assets; (b) conflict with its constitutive documents and rules and regulations or with the Partnership Agreement; or (c) conflict with any applicable law, ordinance, rule, regulation or official or judicial order in any material respect. 11.22 Compliance with Law Each Relevant Member of the Group is conducting and has conducted its business in compliance in all material respects with all material applicable laws, regulations and authorisations of all relevant governmental authorities (including without limitation the Securities and Exchange Commission). Each Relevant Member of the Group has duly obtained all material consents, licenses, approvals and authorisations from all relevant governmental authorities and other third persons and has effected all declarations, filings and registrations with all relevant governmental authorities and other third persons necessary for the due execution, delivery and performance by it of each of the Facility Documents, the Partnership Agreement, the Service Agreement and each Intercompany Loan Agreement to which it is a party and the continued conduct of its business except for those relating to future operations and transactions which are expected to be obtained as a matter of course and those which the failure to obtain would not reasonably be expected to lead to a Material Adverse Change. 11.23 Exclusivity The Nova TV Licence has been issued to CET 21 exclusively. Nova TV has the exclusive right to benefit from, use and enjoy the rights associated with the Nova TV Licence and each of the Nova TV Licence and the Service Agreement is in full force and effect and no notice of revocation, cancellation or withdrawal thereof has been given by any relevant person and neither Nova TV nor CET 21 is in breach of any of its obligations under the Nova TV Licence or the Service Agreement. The execution of, the exercise of rights and the performance by any Relevant Member of the Group of its obligations under any of the Facility Documents will not conflict with, breach or cause any default under the Nova TV Licence or the Service Agreement. 36 11.24 Litigation, etc. Save as disclosed in the Eighth Schedule: (i) as at the date hereof, there is no action, suit, investigation, arbitration or other proceeding pending or, to the best of the knowledge and belief of the Borrower and each Guarantor, threatened against (a) any member of the Group which other than Nova TV, would reasonably be expected to result in, individually or in conjunction with any other action, suit, investigation, arbitration or other proceeding, a Material Adverse Change or (b) Nova TV or CET 21 ; and (ii) as at any date after the date hereof, there is no action, suit, investigation, arbitration or other proceeding pending or, to the best of the knowledge and belief of the Borrower and each Guarantor, threatened against any member of the Group or CET 21 which would reasonably be expected to result in, individually or in conjunction with any other action, suit, investigation, arbitration or other proceeding, a Material Adverse Change. 11.25 Security Documents Each of the Security Documents shall, as at the date of delivery of the first Notice of Drawdown to the Facility Agent hereunder and at all times when this representation and warranty is repeated thereafter, create a first ranking, valid, perfected and enforceable security interest in respect of the revenues and/or assets referred to therein subject, in the case of the Agreement on Pledge of Dividends of Nova TV and any dividends which have not been declared by Nova TV, to the due execution by the Borrower of a further pledge of dividends pursuant to and in accordance with Clause 3.2 of the Agreement on Pledge of Dividends of Nova TV (subject to any limitations arising from administration, bankruptcy, insolvency, liquidation, reorganisation and similar laws generally affecting the rights of creditors). 11.26 Repetition of Representations Each of the representations and warranties contained in Clauses 11.1 (Status and Due Authorisation of Borrower) to 11.25 (Security Documents) (other than 11.3 (Withholding Tax), 11.13 (No Material Adverse Change) and 11.18 (Full Disclosure)) shall be repeated on the date of the making of any Advance to which Clause 3.1 (f) (Drawdown Conditions) applies by reference to the facts and circumstances then existing and as if references therein to "Original Financial Statements" in relation to any Relevant Member of the Group was a reference to the most recent set of financial statements delivered in relation to such Relevant Member of the Group pursuant to Clauses 12.1 (Annual Statements (CME Ltd. and CME B.V.)) and 12.2 (Annual Statements (others)). 12. Financial Information 12.1 Annual Statements (CME Ltd. and CME B.V.) CME Ltd. shall as soon as the same become available, but in any event within 100 days after the end of each of its financial years, deliver to the Facility Agent in sufficient copies for the Banks the consolidated financial statements of CME Ltd. and CME B.V. for such financial year. 37 12.2 Annual Statements (others) CME Ltd. shall, as soon as the same become available, but in any event within 100 days of the end of each financial year of each other Relevant Member of the Group (other than CME N.V.), deliver to the Facility Agent in sufficient copies for the Banks the unconsolidated or, if such Relevant Member of the Group (other than the Borrower and CME Czech II) has any subsidiary, the consolidated financial statements of each such other Relevant Member of the Group for such financial year. 12.3 Quarterly Statements (CME Ltd. and CME B.V.) CME Ltd. shall as soon as the same become available, but in any event within 55 days after the end of each of the first three quarters of each of its financial years, deliver to the Facility Agent in sufficient copies for the Banks the consolidated financial statements of CME Ltd. and CME B.V. for such period. 12.4 Quarterly Statements (others) CME Ltd. shall as soon as the same become available, but in any event within 55 days after the end of each of the first three quarters of each financial year of each other Relevant Member of the Group (other than CME N.V.), deliver to the Facility Agent in sufficient copies for the Banks the unconsolidated financial statements of each such other Relevant Member of the Group for such period. 12.5 Other Information CME Ltd. shall from time to time on the request of the Facility Agent, furnish the Facility Agent with such information about the business or financial condition of any Relevant Member of the Group as the Facility Agent may reasonably require. In respect of any information which is provided other than in the form of a notice or a certificate, the Facility Agent may request in writing that the Relevant Member of the Group who provided such information gives the Facility Agent confirmation in a written statement as to whether or not such information is incorrect or misleading in any material respect. If the Facility Agent has not received such written statement within ten business days of its request in writing, the Relevant Member of the Group who provided such information shall be deemed to have provided the Facility Agent with a written statement that such information is not incorrect or misleading in any material respect. 12.6 Requirements as to Financial Statements CME Ltd. shall ensure that: (a) each set of financial statements delivered by it pursuant to this Clause 12 (Financial Information) is certified either by the chief financial officer of CME Ltd. or by two other duly authorised officers of CME Ltd. as fairly presenting the consolidated or, as the case may be, unconsolidated financial condition of the Relevant Member of the Group to which such financial statements relate as at the end of the period to which those financial statements relate and of the results of their operations during such period; (b) each set of financial statements delivered by it pursuant to Clause 12.1 (Annual Statements (CME Ltd. and CME B.V.)) and 12.2 (Annual Statements (others)) has been audited by reputable international accountants (including, without limitation, KPMG, Arthur Andersen, Deloitte Touche Tohmatsu, Ernst & Young and PricewaterhouseCoopers or any successors thereto); and 38 (c) each set of financial statements delivered by it pursuant to Clauses 12.1 - 12.4 inclusive is accompanied by a Compliance Certificate and, in the case of any annual statements, an auditor's certificate in each case (i) confirming compliance with Clause 13 (Financial Condition) in respect of or as at the end of the relevant quarter to which such statements are made up (ii) containing a calculation of the test set out in the Fifth Schedule and (other than in the case of an auditor's certificate) (iii) stating whether any Event of Default, Review Event or Potential Event exists on the date of such Compliance Certificate and, if any Event of Default, Review Event or Potential Event then exists, specifying the nature and extent thereof and the action (if any) which it is taking or proposes to take with respect thereto as at the end of the relevant quarter. 12.7 Accounting Policies The Borrower and each Guarantor shall ensure that each set of financial statements delivered to the Facility Agent pursuant to this Clause 12 (Financial Information) is prepared using accounting policies, practices, procedures and reference period consistent with those applied in the preparation of the corresponding Original Financial Statements unless, in relation to any such set of financial statements, the Borrower or such Guarantor notifies the Facility Agent that there have been one or more changes in any such accounting policies, practices, procedures or reference period and the auditors for the time being of the Borrower or Relevant Member of the Group (in the case of annual statements) or the chief financial officer of CME Ltd. (in any other case) provide: (a) a description of the changes and the adjustments which would be required to be made to those financial statements in order to cause them to use the accounting policies, practices, procedures and reference period upon which the relevant Original Financial Statements were prepared; and (b) sufficient information, in such detail and format as may be reasonably required by the Facility Agent, to enable the Banks to make an accurate comparison between the financial position indicated by those financial statements and the relevant Original Financial Statements, and any reference in this Agreement to those financial statements shall be construed as a reference to those financial statements as adjusted to reflect the basis upon which the relevant Original Financial Statements were prepared. 13. Financial Condition 13.1 Financial Condition of the Group CME Ltd. shall ensure that the financial condition of CME B.V., CME Ltd., the Borrower and Nova TV (each a "relevant party") as evidenced by the most recent of the yearly and quarterly financial statements of such relevant party delivered in accordance with Clause 12 (Financial Information) shall be such that: (i) Leverage Ratio: At all times the ratio of Consolidated Indebtedness of such relevant party to Consolidated Tangible Net Worth of such relevant party as at 39 the end of each financial year or the end of each financial quarter of such relevant party ending during any period set out below shall not exceed the ratio set opposite such period under the name of such relevant party set out below Provided that for the period up to and including the third financial quarter in 2000 of each of CME B.V. and CME Ltd., TVN and TV 3 shall be excluded from the figures relating to CME B.V. and CME Ltd.: LEVERAGE RATIO Period CME Ltd. CME B.V. Nova TV 1998 2.0:1 2.0:1 1.5:1 1999 2.0:1 2.0:1 1.25:1 2000 2.0:1 2.0:1 1.0:1 2001 2.0:1 2.0:1 1.0:1 (ii) Consolidated Broadcast Cash Flow Ratio: The ratio of Consolidated Indebtedness of such relevant party as at the end of each financial year or the end of each financial quarter of such relevant party falling within any period set out below to Consolidated Broadcast Cash Flow of such relevant party in respect of any twelve calendar month period which ends at the end of each such financial year or financial quarter of such relevant party shall not exceed the ratio set opposite such period under the name of such relevant party set out below Provided that: (a) for the twelve calendar month period ending 31 December 1998 Studio 1+1 shall be excluded from Consolidated Broadcast Cash Flow of CME B.V. and CME Ltd.; and (b) for each twelve month period ending on or prior to the end of the third financial quarter in 1999 (in the case of TVN) or 2000 (in the case of TV3), TVN and/or TV3 (as the case may be) shall be excluded from Consolidated Broadcast Cash Flow of CME B.V. and CME Ltd. CONSOLIDATED BROADCAST CASH FLOW RATIO Period CME Ltd. CME B.V. Nova TV 1 October - 31 7.0:1 7.0:1 1.25:1 December 1998 1 January - 31 6.5:1 6.5:1 1.25:1 March 1999 40 1 April - 30 5.0:1 5.0:1 1.25:1 June 1999 1 July - 30 4.0:1 4.0:1 1.25:1 September 1999 1 October - 31 2.0:1 2.0:1 1.25:1 December 1999 2000 2.0:1 2.0:1 1.25:1 2001 2.0:1 2.0:1 1.25:1 (iii) Interest Coverage Ratio: The ratio of Net Cash Flow of the Borrower to Total Interest Expense of the Borrower in respect of any twelve calendar month period ending at the end of any financial year or financial quarter which ends during any year specified below shall not be less than that set opposite such year below: Year Ratio 1998 5.0:1.0 1999-2001 6.0:1.0 (iv) Debt Service Coverage Ratio: The ratio of Net Cash Flow of the Borrower as at the end of any twelve calendar month period ending at the end of any financial year or financial quarter to Debt Service for the Borrower for such period shall not be less than 2.00:1. (v) Maximum Financial Indebtedness The principal amount of financial indebtedness of Nova TV shall not exceed the greater of CZK 1,000,000,000 and the equivalent in Czech Crowns of $32,787,000 (being the dollar equivalent of CZK 1,000,000 calculated at CZK 30.5: $1) at any time. 13.2 Definitions In this Clause 13 (Financial Condition) (subject to Clause 13.3): (a) "Consolidated Broadcast Cash Flow" means, in respect of any relevant party and any twelve month period, the Consolidated Net Revenues of such relevant party for such period less the sum of: (i) consolidated operating expenses (other than depreciation and amortisation and, in the case of Nova TV, any Fee Payment) of such relevant party and each of its subsidiaries for such period; (ii) consolidated selling and general and administrative expenses of such relevant party and each of its subsidiaries for such period; and (iii) cash paid for programme rights by such relevant party and each of its 41 subsidiaries during such period to any person other than such relevant party or any subsidiary of such relevant party; (b) "Consolidated Indebtedness" means, in relation to any relevant party, all consolidated indebtedness of such relevant party and each of its subsidiaries (other than Permitted Debt and all indebtedness owed in respect of the provision of any goods or services in the ordinary course of trading which are due for payment within twelve months and all dividends and taxes declared as due and payable but including the CS Loan); (c) "Consolidated Net Revenues" means, in relation to any relevant party, all revenues after discounts to advertisers of such relevant party and each of its subsidiaries on a consolidated basis; (d) "Consolidated Tangible Net Worth" means, in relation to any relevant party, the excess of the Consolidated Total Tangible Assets of such relevant party over the Consolidated Total Liabilities of such relevant party; (e) "Consolidated Total Liabilities" means, in relation to any relevant party, the aggregate on a consolidated basis of such relevant party's and each of its subsidiaries' current liabilities and long-term liabilities other than, in relation to CME Ltd. and CME B.V., any Permitted Debt; (f) "Consolidated Total Tangible Assets" means, in relation to any relevant party, the total assets of such relevant party and each of its subsidiaries on a consolidated basis less any amount attributable to goodwill, programming rights (after amortisation), licences, organisation costs and development costs and any other intangible asset (after amortisation); (g) "Debt Service" means, in respect of any period and in relation to the Borrower the sum of all scheduled reductions in the Total Commitments to be implemented in accordance with Clause 6.2 (Reduction) and Total Interest Expense of the Borrower paid or accrued during such period; (h) "Net Cash Flow" means, in respect of any period and in relation to the Borrower the sum of: (i) dividends received and interest income received from loans made by the Borrower to any other member of the Group, the aggregate principal amount of all loans made by the Borrower to CME B.V. as at the beginning of such period less the aggregate principal amount of all loans made by the Borrower to CME B.V. as at the end of such period (if such figure is a positive number), Management Fees, Network Access Fees, Programming Fees, royalties and other cash received (excluding any cash received as a result of disposal of any asset or revenue (other than assets which are obtained and held for resale)) by the Borrower during such period; less 42 (ii) overheads and other cash expenses of the Borrower and any Restricted Payments of the types referred to in paragraph (a) of the definition thereof by the Borrower other than Total Interest Expense of the Borrower; (i) "Permitted Debt" means: (1) in relation to CME Ltd., all financial indebtedness in respect of the Notes and all other financial indebtedness of CME Ltd. which is subordinated to the satisfaction of the Facility Agent to the rights of the Arranger, the Agents and the Banks hereunder and under the Facility Documents; and (2) in relation to CME B.V., all Intercompany Loans made to it by CME Ltd.; and (j) "Total Interest Expense" means, in respect of any period in relation to the Borrower, the amount of all interest, commissions, discounts and other fees in respect of financial indebtedness of the Borrower incurred or payable by the Borrower including capitalised interest, during such period. 13.3 New Stations For the purposes of each of the definitions in paragraphs (a) to (f) inclusive each New Station which was formed, incorporated or acquired (whichever is the later) directly or indirectly by CME B.V. or CME Ltd. during the twelve month period ending on the last day of any financial year or financial quarter (as the case may be) in relation to which such definition is to be calculated shall be excluded from such calculation. 13.4 Accounting Terms All accounting expressions which are not otherwise defined herein shall be defined in accordance with GAAP. 14. Covenants 14.1 Restricted Payments CME Ltd. shall ensure that: (a) neither the Borrower nor CME B.V. will pay, make or declare any Restricted Payment (except that the Borrower may make any Restricted Payment of the type referred to in paragraph (a) of the definition thereof provided that no Event of Default or Review Event has occurred which is continuing or would occur as a result of the making of such Restricted Payment); and (b) the Borrower will not issue any further shares or other equity after the date hereof unless, at the time of such issue, such shares or other equity is the subject of fully perfected, first ranking security in favour of the Security Agent on behalf of the Banks from time to time to the satisfaction of the Facility Agent. 14.2 Consolidations and Mergers CME Ltd. shall ensure that no Relevant Member 43 of the Group will consolidate or merge with or into any person without the consent of an Instructing Group (such consent not to be unreasonably withheld or delayed). It will be unreasonable to withhold consent to a merger or consolidation between Nova TV and CET 21 (a "Nova merger") if: (i) after the Nova merger takes effect the Borrower will own directly not less than 79% of the equity and economic interests in the surviving or principal entity resulting from the Nova merger and such entity will own the Nova TV License; (ii) no Event or Default or Review Event will result from the Nova merger; and (ii) an Instructing Group is satisfied in its sole and absolute discretion that the Nova merger will not result in a Material Adverse Change nor adversely affect the interests of the Banks. 14.3 Sales of Assets Without prejudice to Clause 14.11 (Limitation on Loans and Advances), CME Ltd. shall ensure that no Relevant Member of the Group will sell, assign, abandon, lease or otherwise dispose of, directly or indirectly, all or any part of its assets or revenues Provided that: (i) CME Ltd. may dispose of: (a) its one share in CME Media Enterprises (UK) to any person; (b) cash by way of loan to CME B.V. in accordance herewith or by way of subscription for an equity participation in CME N.V. or by way of any Restricted Payment not prohibited hereunder or by way of payments not prohibited hereunder in respect of any financial indebtedness; or (c) any assets used in the course of the management or administration of the business of CME Ltd as described in Clauses 11.14 (Ownership of Assets of CME Ltd.); (ii) CME N.V. may dispose of: (a) 1% of the outstanding share capital of CME Medienbeteiligungen GmbH to CME B.V.; (b) cash by way of loan to CME B.V. or by way of subscription for an equity participation in CME B.V. or by way of any Restricted Payment not prohibited hereunder; or (c) any assets used in the course of the management or administration of the business of CME N.V. as described in Clauses 11.15 (Activities of CME N.V.) and 14.4 (Changes in Business) Provided that CME N.V. shall not be permitted to sell, assign, abandon, lease or otherwise dispose of any of its shares in CME B.V.; (iii) CME B.V. and CME Czech II may dispose of: 44 (a) any assets in the ordinary course of business of the disposing entity on an arm's length basis at fair market value including (in the case of CME B.V.) the disposal of equity interests in any person held by CME B.V. or CME Czech II excluding, for the avoidance of doubt: (i) shares and voting rights in the Borrower; and (ii) disposals of shares and voting rights in CME Czech II by CME B.V.; (b) assets in exchange for other assets comparable or superior as to type; (c) obsolete assets; (d) any assets which in any financial year do not exceed 20% of CME B.V.'s or CME Czech II's (as the case may be) Consolidated Total Tangible Assets as determined from the latest relevant annual audited financial statements delivered to the Facility Agent pursuant to Clause 12 (Financial Information); or (e) cash by way of loan to any member of the Group or by way of subscription for an equity interest in any member of the Group or by way of any Restricted Payment not prohibited hereunder or by way of payments not prohibited hereunder in respect of any financial indebtedness; (iv) the Borrower may dispose of: (a) its equity participation in Nova TV (provided that no such disposal shall be permitted if, as a result, the Borrower would cease to own, beneficially, 79% of the equity and economic interests in Nova TV) but only if the proceeds thereof are applied in permanent reduction or discharge of the CS Loan; (b) cash by way of (i) any Restricted Payment permitted hereunder or (ii) any loan to CME B.V. in accordance with Clause 14.11 (Limitation on Loans and Advances); or (c) any assets used in the course of the management or administration of the business of the Borrower as described in Clauses 11.17 (Ownership of Assets by the Borrower) and 14.7 (Activities of the Borrower); (v) Nova TV may dispose of: (a) any assets (other than any right, title or interest in or in relation to the Nova TV Licence or the Service Agreement) in the ordinary course of its business on an arm's length basis at fair market value; 45 (b) any assets which in any of its financial years do not exceed 5% of its Consolidated Total Tangible Assets (other than any right, title or interest in or in relation to the Nova TV Licence or the Service Agreement), in each case determined from its latest relevant annual audited financial statements delivered to the Facility Agent pursuant to Clause 12 (Financial Information); or (c) cash by way of any Restricted Payment or by way of payments not prohibited hereunder in respect of any financial indebtedness. 14.4 Changes in Business CME Ltd. shall ensure that none of itself, CME B.V., CME Czech II and Nova TV will: (i) make any change in the nature or in the present method of conducting business which could reasonably be expected to result in a Material Adverse Change; or (ii) (in the case of Nova TV only) engage in any business other than business of the same general type as now conducted by it under and/or in accordance with the Nova TV Licence and the Service Agreement, and shall ensure that CME N.V. shall not carry on any business other than holding all the outstanding share capital of CME B.V. and 1% of the outstanding share capital in CME Medienbeteiligungen GmbH and shall not own any assets other than those specified in Clause 11.15 (Activities of CME N.V.). 14.5 Maintenance of Nova TV Licence and Intellectual Property Rights CME Ltd. shall ensure that Nova TV will ensure that each of the Nova TV Licence and the Service Agreement is preserved, renewed and kept in full force and effect and that the "Nova" name is not sold or used by any person other than a member of the Group or by way of the merchandising of any products. 14.6 Ownership of Assets by CME Ltd. CME Ltd. shall not: (i) own any assets or revenues unless such assets and revenues (other than rights to receive dividends and the shares owned by it in CME N.V., CME Ltd.'s Bank Accounts, the one share owned by it in CME Media Enterprises (UK) Ltd and shares in a company incorporated in England (provided that promptly upon CME Ltd. becoming the owner of such shares it shall contribute the loan of $ 22,497,750 made by it to CME B.V. and referred to in the Sixth Schedule to such company as share premium and all such shares except one shall be transferred to CME N.V. who shall transfer the same to CME B.V.) are the subject of fully perfected first-ranking security in favour of the Security Agent to secure the claims of the Agents, Arranger and the Banks and each of them under the Facility Documents or are used solely in the management and administering of its activities referred to in Clause 11.14 (Ownership of Assets By CME Ltd.); or (ii) grant or permit to exist any rights of pre-emption in respect of the shares of 46 CME N.V. 14.7 Activities of the Borrower Without prejudice to any other provision hereof, the Borrower shall not engage in any business or activity or incur any liability (other than operating expenses up to a maximum of $10,000 per financial year of the Borrower) or own any revenues or assets whatsoever other than as stated in Clause 11.17 (Ownership of Assets by the Borrower) or enter into any agreement, instrument or arrangement whatsoever other than: (i) the execution, delivery and performance of its obligations under, and the exercise of the rights granted to it by, the Facility Documents to which it is a party and the transactions hereby and thereby contemplated; (ii) for the purposes of documenting the making of, or the making of, Intercompany Loans and Restricted Payments permitted hereunder; (iii) in order to manage its voting and economic rights or interests in Nova TV and matters incidental thereto; or (iv) any agreement, instrument or arrangement solely for the purpose of effecting the sale and transfer to any other person of its voting and economic interests in Nova TV provided that such voting and economic interests following such sale are no less than 79%. 14.8 Loans to CME N.V., the Borrower, and Nova TV None of CME N.V., the Borrower and Nova TV will incur (or permit to subsist) any financial indebtedness other than: (i) in the case of Nova TV, financial indebtedness not exceeding in aggregate the greater of CZK 1,000,000,000 and the equivalent in Czech Crowns of $32,787,000 (being the dollar equivalent of CZK 1,000,000,000 calculated at CZK 30.5: $1) from any person, such financial indebtedness to be used solely for the business and operations of Nova TV and not for the purposes of making any Restricted Payment, payment of any Management Fees, Network Access Fees or Programming Fees or for the purpose of making any loan or providing financial indebtedness to any other person; and (ii) in the case of CME N.V. and the Borrower, financial indebtedness incurred under the Facility Documents or (in the case of the Borrower) pursuant to the application of Clause 6.5 (Application of Relevant Payments), and the Borrower shall ensure within sixty days of the date hereof that its constitutive documents are amended to ensure that it does not have power to incur any financial indebtedness other than financial indebtedness permitted under the Facility Documents or pursuant to the application of Clause 6.5 (Application of Relevant Payments). 14.9 Negative Pledge CME Ltd. shall ensure that no Relevant Member of the Group will create, assume or suffer to exist any encumbrance on any of its revenues or assets now owned or hereafter acquired by it, except for: 47 (i) a Permitted Encumbrance granted to any person other than the holders of the Notes or any of them or any person on their or its behalf; and (ii) any security interest created pursuant to the Facility Documents. 14.10 Limitation on Sale-Leasebacks CME Ltd. shall ensure that no Relevant Member of the Group will enter into any arrangement with any person providing for the leasing by it of any property that has been or is to be sold or transferred by it to such person more than 60 days after the acquisition thereof or the completion of construction and commencement of full operation thereof. 14.11 Limitation on Loans and Advances CME Ltd. shall ensure that none of the Relevant Members of the Group will make or commit to make, or allow to remain outstanding any advance, loan or extension of credit to, or enter into any Guarantee (other than any Guarantee hereunder) with respect to the obligations of, any person, except: (i) extensions of trade credit in the ordinary course of business; (ii) loans and advances by any Relevant Member of the Group (other than the Borrower and CME N.V.) to its officers and directors (or its employees) Provided that such loans and advances are: (a) approved by the chief financial officer of such Relevant Member of the Group as the case may be, for travel, entertainment or relocation expenses in the ordinary course of business; and (b) not in excess, in aggregate, of $3,000,000 or equivalent thereof from time to time; and (iii) (without prejudice to Clause 14.8 (Loans to CME N.V., the Borrower, and Nova TV) and except as a result of the application of Clause 6.5 (Application of Relevant Payments)) loans and advances: (a) by CME Ltd. to CME B.V. (provided such loans comply with Clause 14.12 (Terms of Intercompany Loans) and are subject to an Intercompany Loan Agreement) and Guarantees issued by CME Ltd. to any person in respect of any indebtedness of any member of the Group; (b) by CME B.V. or CME Czech II to any member of the Group (other than the Borrower, CME N.V. or CME Ltd.) and Guarantees issued by CME B.V. or CME Czech II to any person in respect of any indebtedness of any member of the Group (other than the Borrower, CME N.V. or CME Ltd) Provided that any such loans or advances made by CME B.V. or CME Czech II to Nova TV (1) shall be made on commercially reasonable terms which are on terms which are as good as or better for the Nova TV than the terms that it could have obtained from a commercial lender in an arms' length transaction and (2) shall not cause a breach of any provision hereof; or 48 (c) by CME N.V. to CME B.V; or (d) by the Borrower to CME B.V. under an Intercompany Loan Agreement by way of the making of a loan of the proceeds of any amounts drawn down hereunder or of any amount held by it which is not required to be placed in the Dollar Collection Account in accordance with Clause 6.5 (Application of Relevant Payments) or which is held by it (whether in the Local Currency Collection Account, the Guilder Account or otherwise) and which is not required to be converted into dollars and transferred to the Dollar Collection Account in accordance with Clause 6.5 (Application of Relevant Payments) provided that all right, title and interest of the Borrower in or to such indebtedness referred to in this Clause 14.11(iii)(d) shall be secured in favour of the Security Agent to secure the claims of the Agents, Arranger and the Banks and each of them under the Facility Documents to the satisfaction of the Facility Agent; or (e) by CME B.V. or CME Czech II to any person who is party to a joint venture or similar arrangement with a member of the Group; or (f) by Nova TV to Radio Alpha a.s. in an aggregate principal amount outstanding at any time not exceeding $1,000,000 (or its equivalent in another currency). 14.12 Terms of Intercompany Loans CME Ltd. shall ensure that: (i) all Intercompany Loans made are governed by Dutch law or such other law as may be agreed by the Facility Agent in its sole and absolute discretion (and the Facility Agent hereby agrees that the Intercompany Loans referred to in the Sixth Schedule (Intercompany Indebtedness) from CME Ltd. to CME B.V. and any future loan from CME Ltd. to CME B.V. may be governed by Bermudan law); (ii) all Intercompany Loans made by the Borrower with the proceeds of any Advance shall produce earnings for the Borrower which exceed the cost to the Borrower of borrowing such Advance and shall mature on a date which is no later than the final maturity date of the Facility (whether in the normal course, by default or otherwise); (iii) all Advances are used for the making or refinancing of Intercompany Loans to CME B.V. provided that, to the extent any such Intercompany Loan is funded by an Advance, the proceeds of repayment of any such Intercompany Loan shall be used only either to repay Advances or to make another Intercompany Loan to CME B.V.; and (iv) it shall not demand repayment of the principal amount of any Intercompany Loan which is outstanding at the date hereof when any amount is due or owing (whether present or future, actual or contingent) under the 49 Facility Documents or any of them or the Arranger, the Agents and the Banks or any of them remain under any actual or contingent obligations under the Facility Documents or any of them unless such the principal amount to be repaid is demanded solely for the purpose of making scheduled payments of interest (excluding, without limitation, default interest) in respect of the Notes and then only when such amount is due or is about to become due and the amount repaid as a result of such demand is promptly applied solely for such purpose. 14.13 Transactions with Affiliates CME Ltd. shall ensure that none of the Relevant Members of the Group will: (i) enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any member of the Group or assume or suffer to exist any employment or consulting contract with any Affiliate referred to in paragraph (b) of the definition thereof except any transaction or contract which is in the ordinary course of business, and which is upon fair and reasonable terms no less favourable than those that would be obtained in a comparable arm's length transaction with a person not a member of the Group or an Affiliate referred to in paragraph (b) of the definition thereof and which is otherwise not prohibited hereunder; (ii) make any advance or loan to any Affiliate referred to in paragraph (b) of the definition thereof or to any trust of which any Affiliate referred to in paragraph (b) of the definition thereof is a beneficiary, or to any person on the guarantee of either of the foregoing; or (iii) pay any fees (other than reasonable directors' fees or expenses) or expenses to, or reimburse or assume any obligation for the reimbursement of any expenses incurred by any Affiliate referred to in paragraph (b) of the definition thereof, Provided that nothing contained in this Clause 14.13 (Transactions with Affiliates) shall be deemed to prohibit any Relevant Member of the Group (i) from entering into or performing any consulting, management, stock option or employment agreements with an employee of such Relevant Member of the Group or (ii) from making loans and advances permitted by Clause 14.11 (Limitations on Loans and Advances). 14.14 Bank Accounts The Borrower and CME Ltd. will ensure that it shall not have any bank accounts, except those bank accounts pledged in favour of the Security Agent and/or the Banks under the Borrower's Pledge of Bank Accounts, CME Ltd.'s Bank Accounts and those opened after providing the Facility Agent with five business days' prior written notice of details thereof provided that neither the Borrower nor CME Ltd. shall permit any funds to be credited to any such account unless such account and all right, title and interest in or to the same have been secured in favour of the Security Agent to secure the claims of the Agents, Arranger and the Banks and each of them under the Facility Documents to the satisfaction of the Facility Agent. 14.15 Enforcement of Rights under the Licence CME Ltd. shall ensure that Nova 50 TV shall use its best efforts to ensure that CET 21 shall, diligently enforce and protect all its rights under the Nova TV Licence and use its reasonable endeavours to pursue to the extent necessary, appropriate and economically feasible any claims it may have against any third parties in relation thereto. 14.16 Untrue Representations After the delivery of any Notice of Drawdown and before the making of the Advance requested therein, the Borrower shall notify the Facility Agent of the occurrence of any event which results in or may reasonably be expected to result in any of the representations contained in Clause 11 (Representations) and which are to be repeated on the making of such Advance being untrue at or before the time of the making of such Advance. 14.17 Claims Pari Passu CME Ltd. shall ensure that at all times the claims of the Agents, the Arranger and the Banks against each Obligor and Nova TV under each of the Facility Documents to which it is a party and against CME B.V. and the Borrower in relation to any claim that may arise as a result of the enforcement of the Borrower's Pledge of Intercompany Loans rank under the laws of the Relevant Jurisdiction of such Obligor, Nova TV or CME B.V. (as the case may be) at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those whose claims are preferred by any bankruptcy, insolvency, liquidation or other similar laws of general application. 14.18 Distribution of Profits etc. CME Ltd. shall ensure that no Relevant Member of the Group shall enter into or permit the continuance of any partnership, profit-sharing or royalty agreement or other arrangement whereby the Borrower's or Nova TV's income or profits are, or might be: (i) shared with any person (other than a shareholder); or (ii) distributed in such a manner that the Borrower's proportion of such income or profits is reduced in any way or in such a manner whereby the timing or amount of any such distribution would be altered from that which would be the case absent the entering into such partnership, profit-sharing, royalty or other arrangement or (save as stated herein) enter into or permit to subsist any arrangement whereby Nova TV is restricted in distributing its income or profits or paying Management Fees, Network Access Fees or Programming Fees to any member of the Group. 14.19 Compliance with Laws CME Ltd. shall ensure that each Relevant Member of the Group shall comply in all material respects with all material applicable laws, ordinances, rules, regulations, and requirements of governmental authorities necessary in connection with the entering into of the Facility Documents and/or the normal course of its business, (including its business conducted in connection with the Nova TV Licence or the Service Agreement), except where the necessity of compliance therewith is being contested in good faith by appropriate proceedings. 14.20 Insurance CME Ltd. shall ensure that each Relevant Member of the Group will maintain insurance with responsible and reputable insurers in such amounts and covering such risks as is usually carried by companies engaged in similar businesses, in similar locations and owning similar properties. 51 14.21 Notice of Defaults and Litigation CME Ltd. will give the Facility Agent prompt written notice of: (i) the occurrence of any Event of Default, Review Event or Potential Event; (ii) the filing or commencement of any action, suit or proceeding which either (a) would reasonably be expected to result in a judgment of an amount of $5,000,000 or more against any Relevant Member of the Group or (b) relates to the Nova TV Licence or the Service Agreement; (iii) any change in the rate of withholding tax on dividend distributions or in the laws, rules or regulations relating to exchange controls in the Czech Republic of which any Relevant Member of the Group is aware; (iv) any default under the Nova TV Licence or the Service Agreement or an amendment thereof or waiver of any provision thereof; and (v) the receipt of any notice by CET 21 (in relation to the Nova TV Licence) from any government, court, any regulatory authority in relation to any default thereunder or any amendment or waiver of any provision thereof enclosing a copy of such notice, and, upon receipt of a written request to that effect from the Facility Agent, confirm to the Facility Agent that, save as previously notified to the Facility Agent or as notified in such confirmation, no Event of Default, Review Event or Potential Event, filing or commencement or change in such rate of withholding tax or laws, rules or regulations or default, amendment, waiver or giving of any such notice under or in relation to the Nova TV Licence or the Service Agreement has occurred. 14.22 Compliance Generally CME Ltd. shall ensure that each Relevant Member of the Group will obtain, maintain and comply in all material respects with the terms of (and if requested by the Facility Agent, supply certified copies to the Facility Agent of) any material consent, licence, approval or authorisation required for the conduct of its business or in connection with the entering into and performance of its obligations under the Facility Documents to which it is a party and the Service Agreement. 14.23 Payment Instruction The Borrower will give an irrevocable payment instruction to Nova TV to transfer all Relevant Payments to be paid by Nova TV to the Borrower: (i) in dollars to the Dollar Collection Account; or (ii) in any other currency to the Local Currency Collection Account. 14.24 Further Assurances The Borrower and CME Ltd. shall, and CME Ltd. shall ensure that each other Relevant Member of the Group shall, without prejudice to any provision of any Security Document, execute and file all such further documents and instruments, and perform such other acts, as the Facility Agent may reasonably determine are necessary or advisable (on the basis of advice received from reputable independent legal counsel) to maintain the security interests granted to the Security 52 Agent and/or the Banks in the Security Documents and to maintain the priority of such security interests purported to be granted pursuant to the Security Documents or, in the case of the security interests created by CME Ltd., to ensure that the claims of the Arranger, the Agents and the Banks under the Facility Documents against CME Ltd. rank in priority to the claims of the holders of the Notes. 14.25 Ensuring Compliance Each Relevant Member of the Group shall vote its ownership interests in Nova TV and/or enter into management agreements, network access agreements and/or programming services agreements with Nova TV so that (to the extent available) sufficient dividend, management fee, network access fee and programming fee income is paid to the Borrower by Nova TV to ensure that the Borrower is able to comply with its covenants and obligations hereunder. 14.26 Notification of Acquisitions If Nova TV acquires any equity interest in any person or (without prejudice to any limitation on disposals contained herein) disposes of any equity interest in any person, CME Ltd shall forthwith notify the Facility Agent of such acquisition or disposal together with the percentage equity interest in such person acquired or disposed of by Nova TV. 14.27 Amendment, Redemption and Defeasance of the Notes CME Ltd. shall not at any time: (i) redeem the Notes in whole or in part (other than with the net cash proceeds of the issue of common stock by CME Ltd.); (ii) make any modification or amendment of any of the terms and conditions of the Notes which would result in: (a) the principal amount of any Note becoming payable prior to its stated maturity; or (b) an increase in the amount of interest payable on any Note; or (c) the bringing forward of the timing of the payment of such interest, or make any other amendment which would result in any Relevant Member of the Group being unable to comply with all or any of its obligations under any Facility Document or Intercompany Loan Agreement or restrict or prevent Nova TV from making any Restricted Payment without the prior written consent of the Facility Agent or as otherwise permitted hereunder. 14.28 Further Security CME Ltd. shall procure that each member of the Group shall notify the Facility Agent in respect of any agreement replacing the Management Support Agreement, the Network Access Agreement and the Programming Services Agreement relating to Nova TV or any other agreements relating to the provision of management services, network access or programming services by any member of the Group to Nova TV or relating to the distribution of income or profits to any member of the Group by Nova TV and execute such security documentation as the Facility Agent may reasonably request to enable the Security Agent and the Banks to obtain a fully perfected first ranking security interest over the benefit of such agreements. 14.29 CME Ltd.'s Bank Accounts CME Ltd. shall ensure that no more than 53 $5,000,000 in aggregate is standing to the credit of CME Ltd.'s Bank Accounts at any time unless the aggregate balance standing to the credit of CME Ltd.'s Bank Accounts which exceeds $5,000,000 at such time is derived from the issue by CME Ltd. of any share capital or the incurrence of any financial indebtedness (other than any financial indebtedness incurred for the purpose of refinancing any existing financial indebtedness of CME Ltd.) provided that such aggregate balance is reduced to below $5,000,000 within 30 days from the date on which such proceeds were credited to such account. 14.30 Year 2000 Requirements CME Ltd. shall ensure that all Computer Systems of each Relevant Member of the Group shall be, by no later than 31 December 1999, Year 2000 Compliant (save to the extent that any non-compliance would not result in a Material Adverse Change). 14.31 Taking Security Interest in Nova TV CME Ltd. shall ensure that, if and when a valid and enforceable security interest in the Borrower's economic or other interest(s) in Nova TV may or can be vested in the Security Agent on behalf of the Arranger, the Agents and the Banks, the Borrower shall, at the request of the Security Agent, grant such security interest provided that the granting of such security interest does not have a material adverse effect on the business of Nova TV as a result of regulatory, political or public sensitivities. 14.32 Amendment of the Partnership Agreement CME Ltd. shall ensure that the Borrower shall: (i) as soon as reasonably practicable after the date hereof and in any event by no later than 30 September 1999 convene a general meeting of Nova TV and pass a resolution which has the effect of deleting Clause 14.3 of the Partnership Agreement; and (ii) shall not at any time exercise its voting rights in Nova TV or otherwise take any action to wind-up or dissolve Nova TV. 15. Events of Default Each of Clause 15.1 (Failure to Pay) to Clause 15.21 (Discontinuation of Broadcasting) describes circumstances which constitute an Event of Default for the purposes of this Agreement. Clause 15.22 (Acceleration and Cancellation), Clause 15.23 (Advances due on Demand) and Clause 15.24 (Length of Terms) deal with the rights of the Agents and the Banks after the occurrence of an Event of Default. 15.1 Failure to Pay The Borrower or any of the Guarantors fails to pay any sum due from it under any Facility Document at the time (or in the case of any sum other than principal, within five business days of the time), in the currency and in the manner specified herein. 15.2 Misrepresentation Any representation or written statement made or deemed to be made by any Relevant Member of the Group in any Facility Document or in any notice or certificate delivered by it pursuant thereto is or proves to have been incorrect or misleading in any material respect when made or deemed to be made. 15.3 Specific Covenants The Borrower or any Relevant Member of the Group fails 54 duly to perform or comply with any of the obligations expressed to be assumed by it in Clause 12 (Financial Information) or Clause 14 (Covenants) and such failure, if capable of remedy, is not remedied within 15 days after the Borrower or any Relevant Member of the Group becomes aware of such failure Provided that such 15 day period shall not apply to a breach of Clause 14.4 in relation to CME N.V. (Changes in Business). 15.4 Other Obligations Any Relevant Member of the Group or CET 21 fails duly to perform or comply with any other obligation expressed to be assumed by it in any Facility Document or the Service Agreement and such failure, if capable of remedy, is not remedied within 30 days after the Facility Agent has given written notice thereof to the Borrower. 15.5 Financial Condition At any time any of the requirements of Clause 13.1 (Financial Condition of the Group) (other than Clause 13.1(v) (Financial Condition of the Group)) is not satisfied or there is a breach of Clause 13.1(v) (Financial Condition of the Group) which is not remedied for 10 business days. 15.6 Cross Default Any financial indebtedness of any Relevant Member of the Group in respect of any amount at the time outstanding which, when aggregated with all other amounts then outstanding to which this Clause 15.6 (Cross Default) applies, exceeds $1,000,000 ("relevant indebtedness") is not paid when due (or within any originally applicable grace period), any relevant indebtedness of any Relevant Member of the Group is declared to be or otherwise becomes due and payable prior to its specified maturity or any creditor or creditors of any Relevant Member of the Group become entitled to declare any relevant indebtedness of any Relevant Member of the Group due and payable prior to its specified maturity. 15.7 Insolvency and Rescheduling Any Relevant Member of the Group or CET 21 is unable to pay any relevant indebtedness as it falls due, commences negotiations in contemplation of actual or potential default with any one or more of its creditors with a view to the general readjustment or rescheduling of any relevant indebtedness or makes a general assignment for the benefit of or a composition with its creditors. 15.8 Winding-up Any Relevant Member of the Group or CET 21 takes any corporate action or other steps are taken or legal proceedings (other than frivolous or vexatious steps or proceedings as determined by an independent reputable law firm) are started for its winding-up, dissolution, administration or re-organisation or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of it or of any or all of its revenues and assets and (if such steps or proceedings are being contested in good faith on the basis of legal advice from a reputable law firm and sufficient reserves have been made in accordance with GAAP to discharge the relevant claim) such steps or proceedings are not discharged within 30 days. 15.9 Judgments, Execution or Distress Any judgement in excess of $5,000,000 (or equivalent in any other currency) or any execution or distress is levied against, or an encumbrancer takes possession of, the whole or any part of, the property, undertaking or assets of any Relevant Member of the Group having a book value which, when aggregated with the book value of all other property, undertaking or assets to which this Clause 15.9 (Judgments, Execution or Distress) applies, exceeds $5,000,000 and (if such judgement or execution is being contested in good faith on the basis of legal advice 55 from a reputable law firm and sufficient reserves have been made in accordance with GAAP to discharge the relevant claim) such judgement or execution is not discharged within 45 days. 15.10 Analogous Events Any event occurs which under the laws of any jurisdiction has a similar or analogous effect to any of those events mentioned in Clause 15.7 (Insolvency and Rescheduling), Clause 15.8 (Winding-up) or Clause 15.9 (Judgments, Execution or Distress). 15.11 Exclusivity CET 21 is not the exclusive holder of the Nova TV Licence and/or Nova TV is not, together with CET 21, exclusively entitled to benefit therefrom. 15.12 Loss of Nova TV Licence The Nova TV Licence is lost, revoked, cancelled or withdrawn, or lapses or CET 21 or any Relevant Member of the Group is served with a notice of default in respect of the Nova TV Licence and the same is not renewed or such notice of default is not revoked within 30 days on terms not materially prejudicial to the operation of the business of any Relevant Member of the Group unless the Facility Agent has received a legal opinion within such 30 day period from a reputable law firm confirming that such revocation, cancellation or withdrawal or notice of default has no foundation in law and CET 21 or the Relevant Member of the Group shall be entitled to have such revocation, cancellation or withdrawal or notice of default reversed or discharged and CET 21 or the Relevant Member of the Group is taking all steps open to it diligently to have such revocation, cancellation or withdrawal or notice of default reversed or discharged. 15.13 Governmental Intervention By or under the authority of any government, (a) the management of any Relevant Member of the Group is wholly or partially displaced or the authority of any Relevant Member of the Group in the conduct of a material part of its business is wholly or partially curtailed or (b) all or any of the issued shares or equity interests of any Relevant Member of the Group or the whole or any material part of their material revenues or assets is seized, nationalised, expropriated or compulsorily acquired. 15.14 Repudiation Any Relevant Member of the Group or CET 21 repudiates any Facility Document, the Partnership Agreement, the Service Agreement or any Intercompany Loan Agreement to which it is expressed to be a party or does or causes to be done any act or thing which has the effect of repudiating any Facility Document, the Partnership Agreement, the Service Agreement or any Intercompany Loan Agreement to which it is expressed to be a party or _eska Spo_itelna a.s. repudiates the Limited Recourse Agreement. 15.15 Ownership of CME Ltd. Any person or group of persons acting in concert (which does not have control at the date hereof) acquires control of CME Ltd., whether directly or indirectly (and for this purpose "control" of CME Ltd. includes the holding of more than 50% of the voting rights attaching to the issued shares of CME Ltd., the power to appoint and/or remove all or a majority of the members of the board of directors of CME Ltd. or otherwise directly or indirectly to control or have the power to control the affairs and policies of CME Ltd.). 15.16 Ownership of CME B.V. and CME N.V. Either CME N.V. or CME B.V. ceases to be a wholly owned (directly or indirectly) subsidiary of CME Ltd.. 56 15.17 Ownership of Borrower The Borrower ceases to be a wholly owned (directly or indirectly) subsidiary of CME B.V.. 15.18 Partnerships Interests The Borrower ceases to own a direct equity interest equal to at least 79% of the voting rights and economic interest of Nova TV or such interest is not or ceases to be freely transferable; or any member of the Group shall agree to any change in Clauses 10.6 - 10.8 of the Partnership Agreement or any other provision of the Partnership Agreement that would in the reasonable opinion of the Facility Agent: (i) cause a material adverse change in the profit distribution of Nova TV; (ii) cause the Borrower to incur any further liability under the Partnership Agreement; or (iii) amend any provision which allows any decision to be taken by members holding 79% of the voting rights in Nova TV; or (iv) impair the free transferability of any voting or economic rights or interests in Nova TV. 15.19 Material Adverse Change Any event or series of events occurs and continues which could reasonably be expected to result in a Material Adverse Change. 15.20 Security Any of the Security Documents does not or ceases to constitute perfected first ranking security in respect of the assets intended to be secured thereby or such security is not or ceases to be enforceable in accordance with its terms (subject to any limitations arising from administration, bankruptcy, insolvency, liquidation, reorganisation and similar laws generally affecting the rights of creditors) or the shares in the Borrower are not or cease to be freely transferable upon any enforcement of the Borrower Pledge of Shares or are freely transferable but not, as a result of any event or circumstance occurring or arising after the date hereof, without the occurrence upon such transfer of any adverse effect on the validity or continuance of the Nova TV Licence or on the ownership by the Borrower of 79% of the voting and economic interest in Nova TV and (in case of any of the foregoing) the same, if capable of remedy, is not so remedied within 30 days of written notice thereof from the Facility Agent to CME Ltd. 15.21 Discontinuation of Broadcasting The television station which at the date hereof is operating under the name "Nova TV" voluntarily ceases to be broadcast in the whole or any part of the Czech Republic or such television station ceases involuntarily to be broadcast in the whole or any part of the Czech Republic and, if such involuntary cessation is capable of remedy, the same is not so remedied within 15 days of commencement of such cessation. 15.22 Acceleration and Cancellation Upon the occurrence of an Event of Default or at any time thereafter if the same is still continuing, the Facility Agent may (and, if so instructed by an Instructing Group, shall) by written notice to the Borrower: (a) declare the Advances to be immediately due and payable (whereupon the same 57 shall become so payable together with accrued interest thereon and any other sums then owed by the Borrower hereunder) or declare the Advances to be due and payable on demand of the Facility Agent; and/or (b) declare that the Facility shall be cancelled, whereupon the same shall be cancelled and the Commitment of each Bank shall be reduced to zero. 15.23 Advances Due on Demand If, pursuant to Clause 15.23 (Acceleration and Cancellation), the Facility Agent declares the Advances to be due and payable on demand of the Facility Agent, then, and at any time thereafter, the Facility Agent may (and, if so instructed by an Instructing Group, shall) by written notice to the Borrower require repayment of the Advances on such date as it may specify in such notice (whereupon the same shall become due and payable on such date together with accrued interest thereon and any other sums then owed by the Borrower hereunder) or withdraw its declaration with effect from such date as it may specify in such notice. 15.24 Length of Terms If, pursuant to Clause 15.23 (Acceleration and Cancellation), the Facility Agent declares the Advances to be due and payable on demand of the Facility Agent, the Term in respect of any such Advance shall, if the Facility Agent subsequently demands payment before the scheduled Repayment Date in respect of such Advance, be deemed (except for the purposes of Clause 17.4 (Broken Periods)) to be of such length that it ends on the date that such demand is made. 15.25 Review Events If at any time: (i) any act, condition or thing required to be done, fulfilled or performed in order: (a) to enable any Relevant Member of the Group or CET 21 lawfully to enter into, exercise its rights under and perform the obligations expressed to be assumed by it in any Facility Document, the Partnership Agreement, the Service Agreement or any Intercompany Loan Agreement to which it is expressed to be a party; (b) to make each Facility Document, the Partnership Agreement, the Service Agreement or any Intercompany Loan Agreement to which it is expressed to be a party admissible in evidence in the Relevant Jurisdiction of the Relevant Member(s) of the Group party to such agreement is not done, fulfilled or performed; or (ii) it is or has become unlawful for any Relevant Member of the Group or CET 21 to perform or comply with any or all of its obligations under any Facility Document, the Partnership Agreement, the Service Agreement or any Intercompany Loan Agreement to which it is expressed to be a party; 58 (iii) any of the obligations of any Relevant Member of the Group or CET 21 under any Facility Document, the Partnership Agreement, the Service Agreement or any Intercompany Loan Agreement to which it is expressed to be a party or of _eska Spo_itelna a.s. under the Limited Recourse Agreement are not or cease to be legal and valid and binding except where the same may be limited by applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally or by equitable principles; or (iv) the Partnership Agreement or the Service Agreement is terminated or CET 21 or Nova TV commits or fails to undertake any act or thing which could reasonably be expected to result in the termination of the Service Agreement; or (v) any amendment is made to the Service Agreement which has an adverse effect on Nova TV or on its rights and benefits thereunder without the prior written consent of the Banks; (vi) CME Ltd. terminates the appointment of Mr Michel Delloye or Mr John A. Schwallie unless a replacement person is found whom the Facility Agent reasonably considers to be appropriate within 45 days of such person's employment being terminated; or (vii) without prejudice to Clause 14.2 (Consolidations and Mergers), at any time prior to the Final Maturity Date CET 21 disposes of, or agrees to dispose of, to any person (other than Nova TV) the ownership or use of all or any rights in respect of the Nova TV Licence or all or any rights in relation to the Nova TV Licence which may have been contributed to Nova TV or the Borrower fails diligently to ensure (having regard to the interests of the Banks) that CET 21 complies with its obligations under Clause 10.6 - 10.8 of the Partnership Agreement then, and in any such case and at any time thereafter so long as such event is continuing, the Facility Agent shall, if so instructed by an Instructing Group, (and the Facility Agent may without the instruction of an Instructing Group if it considers such action to be advisable in order to protect the rights of the Agents, the Arranger, the Banks or any of them under any Facility Document) by written notice to the Borrower: (a) declare the Advances to be immediately due and payable (whereupon the same shall become so payable together with accrued interest thereon and any other sums then owed by the Borrower hereunder) or declare the Advances to be due and payable on demand of the Facility Agent; and/or (b) declare that the Facility shall be cancelled, whereupon the same shall be cancelled and the Commitment of each Bank shall be reduced to zero. 59 PART 7 GUARANTEE 16. Guarantee and Indemnity 16.1 Guarantee Each Guarantor jointly and severally irrevocably and unconditionally guarantees to the Agents, the Arranger and the Banks the due and punctual observance and performance of all the terms, conditions and covenants on the part of the Borrower contained in this Agreement and agrees to pay to the Facility Agent from time to time on demand any and every sum or sums of money which the Borrower is at any time liable to pay to the Agents, the Arranger and the Banks or any of them under or pursuant to this Agreement and which has become due and payable but has not been paid at the time such demand is made. 16.2 Indemnity The Guarantors jointly and severally irrevocably and unconditionally agree as a primary obligation to indemnify the Agents, the Arranger and the Banks from time to time on demand by the Facility Agent from and against any loss incurred by the Agents, the Arranger and the Banks or any of them as a result of any of the obligations of the Borrower under or pursuant to this Agreement being or becoming void, voidable, unenforceable or ineffective as against the Borrower for any reason whatsoever, whether or not known to the Agents, the Arranger and the Banks or any of them or any other person, the amount of such loss being the amount which the person or persons suffering it would otherwise have been entitled to recover from the Borrower. 16.3 Additional Security The obligations of the Guarantors contained in this Clause 16 (Guarantee and Indemnity) shall be in addition to and independent of every other security which the Agents, the Arranger and the Banks or any of them may at any time hold in respect of the Borrower's obligations hereunder. 16.4 Continuing Obligations The obligations of the Guarantors contained in this Clause 16 (Guarantee and Indemnity) shall constitute and be continuing obligations notwithstanding any settlement of account or other matter or thing whatsoever and shall not be considered satisfied by any intermediate payment or satisfaction of all or any of the obligations of the Borrower under this Agreement and shall continue in full force and effect until final payment in full of all amounts owing by the Borrower hereunder and total satisfaction of all the Borrower's actual and contingent obligations hereunder. 16.5 Obligations not Discharged Neither the obligations of the Guarantors contained in this Clause 16 (Guarantee and Indemnity) nor the rights, powers and remedies conferred in respect of the Guarantors upon the Agents, the Arranger and the Banks or any of them by this Agreement or by law shall be discharged, impaired or otherwise affected by: (a) the winding-up, dissolution, administration or re-organisation of the Borrower or any other Guarantor or any other person or any change in its status, function, control or ownership; (b) any of the obligations of the Borrower or any other Guarantor or any other person hereunder or under any other security taken in respect of any of its obligations hereunder being or becoming illegal, invalid, unenforceable or ineffective in any respect; 60 (c) time or other indulgence being granted or agreed to be granted to the Borrower or any other Guarantor in respect of its obligations hereunder or under any such other security; (d) any amendment to, or any variation, waiver or release of, any obligation of the Borrower or any other Guarantor hereunder or under any such other security; (e) any failure to take, or fully to take, any security contemplated hereby or otherwise agreed to be taken in respect of the Borrower's or any other Guarantor's obligations hereunder; (f) any failure to realise or fully to realise the value of, or any release, discharge, exchange or substitution of, any security taken in respect of the Borrower's or any other Guarantor's obligations hereunder; or (g) any other act, event or omission which, but for this Clause 16.5 (Obligations not Discharged), might operate to discharge, impair or otherwise affect any of the obligations of the Guarantors herein contained or any of the rights, powers or remedies conferred upon the Agents, the Arranger and the Banks or any of them by this Agreement or by law. 16.6 Settlement Conditional Any settlement or discharge between the Guarantors and the Agents, the Arranger and the Banks or any of them shall be conditional upon no security or payment to the Agents, the Arranger and the Banks or any of them by the Borrower or any other person on behalf of the Borrower being avoided or reduced by virtue of any provisions or enactments relating to bankruptcy, insolvency, liquidation or similar laws of general application for the time being in force and, if any such security or payment is so avoided or reduced, the Agents, the Arranger and the Banks shall each be entitled to recover the value or amount of such security or payment from the Guarantors subsequently as if such settlement or discharge had not occurred. 16.7 Exercise of Rights Neither the Agents, the Arranger and the Banks nor any of them shall be obliged before exercising any of the rights, powers or remedies conferred upon them in respect of the Guarantors by this Agreement or by law: (a) to make any demand of the Borrower or any Guarantor; (b) to take any action or obtain judgment in any court against the Borrower or any Guarantor; (c) to make or file any claim or proof in a winding-up or dissolution of the Borrower or any Guarantor; or (d) to enforce or seek to enforce any other security taken in respect of any of the obligations of the Borrower hereunder. 16.8 Deferral of Guarantor's Rights Each Guarantor agrees that, so long as any amounts are or may be owed by the Borrower hereunder or the Borrower is under any actual or contingent obligations hereunder such Guarantor shall not exercise, any rights 61 which it may at any time have by reason of performance by it of its obligations hereunder: (i) to be indemnified by the Borrower; and/or (ii) to claim any contribution from any other guarantor of the Borrower's obligations hereunder; and/or (iii) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Agents, the Arranger and the Banks hereunder or of any other security taken pursuant to, or in connection with, this Agreement or the benefit of any monies held, received or receivable by all or any of the Agents, the Arranger and the Banks. 16.9 Suspense Accounts All moneys received, recovered or realised by a Bank by virtue of Clause 16.1 (Guarantee) or Clause 16.2 (Indemnity) may, in that Bank's discretion, be credited to a suspense account (bearing a competitive interest rate) and may be held in such account for so long as such Bank thinks fit pending the application from time to time (as such Bank may think fit) of such moneys in or towards the payment and discharge of any amounts owing by the Borrower to such Bank hereunder provided that such Bank will apply such moneys in payment and discharge of amounts owing by the Borrower to such Bank forthwith in the event that such moneys are of an amount equal to or greater than all the amounts owing by the Borrower, the Guarantors and each of them under each of the Facility Documents. 62 PART 8 DEFAULT INTEREST AND INDEMNITY 17. Default Interest and Indemnity 17.1 Default Interest Periods If any sum due and payable by the Borrower or a Guarantor under any Facility Document is not paid on the due date therefor in accordance with the provisions of Clause 19 (Payments) or if any sum due and payable by the Borrower or a Guarantor under any judgment of any court in connection therewith is not paid on the date of such judgment, the period beginning on such due date or, as the case may be, the date of such judgment and ending on the date upon which the obligation of the Borrower or such Guarantor to pay such sum (the balance thereof for the time being unpaid being herein referred to as an "unpaid sum") is discharged shall be divided into successive periods, each of which (other than the first) shall start on the last day of the preceding such period and the duration of each of which shall (except as otherwise provided in this Clause 17) be selected by the Facility Agent. 17.2 Default Interest During each such period relating thereto as is mentioned in Clause 17.1 (Default Interest Periods) an unpaid sum shall bear interest at the rate per annum which is the sum from time to time of two per cent., the Applicable Margin at such time and LIBOR on the Quotation Date therefor Provided that: (a) if, for any such period, LIBOR cannot be determined, the rate of interest applicable to such unpaid sum shall be the rate per annum which is the sum of two per cent., the Applicable Margin at such time and the rate per annum determined by the Facility Agent to be equal to the arithmetic mean (rounded upwards, if not already such a multiple, to the nearest whole multiple of one-sixteenth of one per cent.) of the rates notified by each of the Reference Banks to the Facility Agent before the last day of such period to be those which express as a percentage rate per annum the cost to it of funding from whatever sources it may select its portion of such unpaid sum for such period; and (b) if such unpaid sum is all or part of an Advance which becomes due and payable on a day other than the last day of the Term thereof, the first such period applicable thereto shall be of a duration equal to the unexpired portion of that Term and the rate of interest applicable thereto from time to time during such period shall be that which exceeds by two per cent. the rate which would have been applicable to it had it not so fallen due. 17.3 Payment of Default Interest Any interest which shall have accrued under Clause 17.2 (Default Interest) in respect of an unpaid sum shall be due and payable and shall be paid by the Borrower at the end of the period by reference to which it is calculated. 17.4 Broken Periods If any Bank or the Facility Agent on its behalf receives or recovers all or any part of such Bank's share of an Advance otherwise than on the last day of the Term thereof, the Borrower shall pay to the Facility Agent on demand for 63 account of such Bank an amount equal to the amount of any resulting loss or expense incurred by such Bank including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties (but excluding any loss of margin) Provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense and setting forth in reasonable detail the calculation thereof. 17.5 Borrowers' Indemnity The Borrower undertakes to indemnify: (a) each of the Agents, the Arranger and the Banks against any cost, claim, loss, expense (including legal fees) or liability together with any VAT thereon, which any of them may sustain or incur as a consequence of the occurrence of any Event of Default or Review Event or any default by any Obligor in the performance of any of the obligations expressed to be assumed by it in any Facility Document; and (b) each Bank against any loss it may suffer or incur as a result of its funding or making arrangements to fund its portion of an Advance requested by the Borrower hereunder but not made by reason of the operation of any one or more of the provisions hereof (other than default by, or gross negligence of, a Bank or an Agent). 17.6 Unpaid Sums as Advances Any unpaid sum shall (for the purposes of this Clause 17 (Default Interest and Indemnity) and Clause 10.1 (Increased Costs)) be treated as an advance and accordingly in this Clause 17 (Default Interest and Indemnity) and Clause 10.1 (Increased Costs) the term "Advance" includes any unpaid sum and "Term", in relation to an unpaid sum, includes each such period relating thereto as is mentioned in Clause 17.1 (Default Interest Periods). 64 PART 9 PAYMENTS 18. Currency of Account and Payment 18.1 Currency of Account The dollar is the currency of account and payment for each and every sum at any time due from the Borrower or any Guarantor under the Facility Documents Provided that: (a) each payment in respect of costs and expenses shall be made in the currency in which the same were incurred; and (b) each payment pursuant to Clause 8.2 (Tax Indemnity) or Clause 10.1 (Increased Costs) shall be made in the currency specified by the party claiming thereunder. 18.2 Currency Indemnity If any sum due from the Borrower or a Guarantor under any Facility Document or any order or judgment given or made in relation hereto has to be converted from the currency (the "first currency") in which the same is payable thereunder or under such order or judgment into another currency (the "second currency") for the purpose of (a) making or filing a claim or proof against the Borrower or such Guarantor, (b) obtaining an order or judgment in any court or other tribunal or (c) enforcing any order or judgment given or made in relation hereto, the Borrower or such Guarantor shall indemnify and hold harmless each of the persons to whom such sum is due from and against any loss suffered or incurred as a result of any discrepancy between (i) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (ii) the rate or rates of exchange at which such person may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof Provided that if such conversion from the first currency into the second currency results in a windfall for any person indemnified by the Borrower or a Guarantor by this Clause 18.2 (Currency Indemnity), such person shall pay such windfall to the Borrower or such Guarantor. 19. Payments 19.1 Payments to the Facility Agent On each date on which this Agreement requires an amount denominated in dollars to be paid by the Borrower or a Guarantor or any of the Banks hereunder, the Borrower or such Guarantor, or, as the case may be, such Bank shall make the same available to the Facility Agent by payment in dollars and in same day funds (or in such other funds as may for the time being be customary in New York City for the settlement in New York City of international banking transactions in dollars) to the Facility Agent's account number 001.1.643.293 SWIFT number: CHAS US33, reference CBSA/HE.03.06/CME with Chase Manhattan Bank, New York, N.Y. (or such other account or bank as the Facility Agent may have specified for this purpose). 19.2 Alternative Payment Arrangements If, at any time, it shall become impracticable (by reason of any action of any governmental authority or any change in 65 law, exchange control regulations or any similar event) for the Borrower or a Guarantor to make any payment hereunder in the manner specified in Clause 19.1 (Payments to the Facility Agent), then the Borrower or such Guarantor may agree with each or any of the Banks alternative arrangements for the payment direct to such Bank of amounts due to such Bank hereunder Provided that, in the absence of any such agreement with any Bank, the Borrower or such Guarantor shall be obliged to make all payments due to such Bank in the manner specified herein. Upon reaching such agreement the Borrower or such Guarantor and such Bank shall immediately notify the Facility Agent thereof and shall thereafter promptly notify the Facility Agent of all payments made direct to such Bank. 19.3 Payments by the Facility Agent Save as otherwise provided herein, each payment received by the Facility Agent for the account of another person pursuant to Clause 19.1 (Payments to the Facility Agent) shall: (a) in the case of a payment received for the account of the Borrower, be made available by the Facility Agent to the Borrower by application: (i) first, in or towards payment the same day of any amount then due from the Borrower hereunder to the person from whom the amount was so received; and (ii) secondly, in or towards payment the same day to such account of CME B.V. with such bank in New York City as CME B.V. shall have previously notified to the Facility Agent for this purpose; and (b) in the case of any other payment, be made available by the Facility Agent to the person for whose account such payment was received (in the case of a Bank, for the account of the Facility Office) for value the same day by transfer to such account of such person with such bank in New York City as such person shall have previously notified to the Facility Agent. 19.4 No Set-off All payments required to be made by the Borrower or a Guarantor hereunder shall be calculated without reference to any set-off or counterclaim and shall be made free and clear of and without any deduction for or on account of any set-off or counterclaim. 19.5 Clawback Where a sum is to be paid hereunder to the Facility Agent for account of another person, the Facility Agent shall not be obliged to make the same available to that other person until it has been able to establish to its satisfaction that it has actually received such sum, but if it does so and it proves to be the case that it had not actually received such sum, then the person to whom such sum was so made available shall on request refund the same to the Facility Agent together with an amount sufficient to indemnify the Facility Agent against any cost or loss it may have suffered or incurred by reason of its having paid out such sum prior to its having received such sum. 66 20. Set-Off 20.1 Contractual Set-off On or after the occurrence of an Event of Default or Review Event which is continuing, the Borrower and each Guarantor authorises each Bank to apply any credit balance to which the Borrower or such Guarantor is entitled on any account of the Borrower or such Guarantor with that Bank in satisfaction of any sum due and payable from the Borrower or such Guarantor to such Bank under any Facility Document but unpaid; for this purpose, each Bank is authorised to purchase with the moneys standing to the credit of any such account such other currencies as may be necessary to effect such application. 20.2 Set-off not Mandatory No Bank shall be obliged to exercise any right given to it by Clause 20.1 (Contractual Set-off). 21. Sharing 21.1 Redistribution of Payments If, at any time, the proportion which any Bank (a "Recovering Bank") has received or recovered (whether by payment, the exercise of a right of set-off or combination of accounts or otherwise) in respect of its portion of any payment (a "relevant payment") to be made under this Agreement by the Borrower for account of such Recovering Bank and one or more other Banks is greater (the portion of such receipt or recovery giving rise to such excess proportion being herein called an "excess amount") than the proportion thereof so received or recovered by the Bank or Banks so receiving or recovering the smallest proportion thereof, then: (a) such Recovering Bank shall inform the Facility Agent of such receipt or recovery and pay to the Facility Agent an amount equal to such excess amount; (b) there shall thereupon fall due from the Borrower to such Recovering Bank an amount equal to the amount paid out by such Recovering Bank pursuant to paragraph (a) above, the amount so due being, for the purposes hereof, treated as if it were an unpaid part of such Recovering Bank's portion of such relevant payment; and (c) the Facility Agent shall treat the amount received by it from such Recovering Bank pursuant to paragraph (a) above as if such amount had been received by it from the Borrower in respect of such relevant payment and shall pay the same to the persons entitled thereto (including such Recovering Bank) pro rata to their respective entitlements thereto, Provided that to the extent that any excess amount is attributable to a payment to a Bank pursuant to paragraph (a)(i) of Clause 19.3 (Payments by the Facility Agent) such portion of such excess amount as is so attributable shall not be required to be shared pursuant hereto. 21.2 Repayable Recoveries If any sum (a "relevant sum") received or recovered by a Recovering Bank in respect of any amount owing to it by the Borrower under the Facility Agreement becomes repayable and is repaid by such Recovering Bank, then: 67 (a) each Bank which has received a share of such relevant sum by reason of the implementation of Clause 21.1 (Redistribution of Payments) shall, upon request of the Facility Agent, pay to the Facility Agent for account of such Recovering Bank an amount equal to its share of such relevant sum; and (b) there shall thereupon fall due from the Borrower to each such Bank an amount equal to the amount paid out by it pursuant to paragraph (a) above, the amount so due being, for the purposes hereof, treated as if it were the sum payable to such Bank against which such Bank's share of such relevant sum was applied. 68 PART 10 FEES, COSTS AND EXPENSES 22. Commitment Commission and Fees 22.1 Commitment Commission The Borrower shall pay to the Facility Agent for account of each Bank a commitment commission on the amount of such Bank's Available Commitment from day to day during the period beginning on the date hereof and ending on the day one month before the Final Maturity Date, such commitment commission to be calculated at the rate of 0.75 per cent. per annum and payable in arrear on the last day of each successive period of three months which ends during such period, on the date on which any prepayment of all of a Bank's share of the Loan is made hereunder (but only to the extent of such Bank's share of such commitment commission) and on the Final Maturity Date. 22.2 Fees The Borrower shall pay to the Arranger the fees specified in the letter dated on or at about the date hereof from the Arranger to the Borrower at the times, and in the amounts, specified in such letter. 22.3 Agency Fee The Borrower shall pay to the Facility Agent for its own account the agency fees specified in the letter dated on or at about the date hereof from the Facility Agent to the Borrower at the times, and in the amounts, specified in such letter. 23. Costs and Expenses 23.1 Transaction Expenses The Borrower shall, from time to time on demand of the Facility Agent, reimburse the Agents and Arranger for all its reasonable out-of-pocket costs and expenses (including legal fees and fees and costs of any consultant (technical or otherwise)) together with any VAT thereon incurred by it in connection with any due diligence required in connection with this Facility (whether before or after execution thereof), the negotiation, preparation and execution of each of the Facility Documents and the completion of the transactions therein contemplated Provided that the Arranger and Agents shall consult with the Borrower before incurring costs and expenses which in aggregate exceed $30,000. 23.2 Preservation and Enforcement of Rights The Borrower shall, from time to time on demand of the Facility Agent, reimburse the Agents and Arranger and the Banks for all costs and expenses (including legal fees and the fees and costs of any consultant (technical or otherwise)) together with any VAT thereon incurred in or in connection with the preservation and/or enforcement of any of the rights of the Agents, the Arranger and the Banks under any of the Facility Documents. Each of the Agents and the Banks shall, unless an Event of Default or Review Event has occurred and is continuing, consult with CME Ltd. before incurring costs under this Clause 23.2 (Preservation and Enforcement of Rights) which would, when aggregated with all other such costs incurred by such Agent or such Bank in any calender year, exceed $10,000. 23.3 Stamp Taxes The Borrower shall pay all stamp, registration and other taxes to which any of the Facility Documents or any judgment given in connection therewith is or at any time may be subject and shall, from time to time on demand of the Facility 69 Agent, indemnify the Agents, the Arranger and the Banks against any liabilities, costs, claims and expenses resulting from any failure to pay or any delay in paying any such tax. 23.4 Banks' Liabilities for Costs If the Borrower fails to perform any of its obligations under this Clause 23 (Costs and Expenses), each Bank shall, in its Proportion, indemnify the Agents and Arranger against any loss incurred by any of them as a result of such failure and the Borrower shall forthwith reimburse each Bank for any payment made by them pursuant to this Clause 23.5 (Banks' Liabilities for Costs). 70 PART 11 AGENCY PROVISIONS 24. The Agents, the Arranger and the Banks 24.1 Appointment of the Facility Agent The Arranger and each Bank hereby appoints each of the Agents to act as its agent in connection with the Facility Documents and authorises such Agent to exercise such rights, powers, authorities and discretions as are specifically delegated to such Agent by the terms of the Facility Documents together with all such rights, powers, authorities and discretions as are reasonably incidental thereto. 24.2 Agents' Discretions Each of the Agents may: (a) assume, unless it has, in its capacity as agent for the Banks, received notice to the contrary from any other party hereto, that (i) any representation made by the Borrower or any Guarantor in connection with the Facility Documents is true, (ii) no Event of Default, Review Event or Potential Event has occurred, (iii) none of the Obligors is in breach of or default under its obligations under any Facility Document and (iv) any right, power, authority or discretion vested under the Facility Documents upon an Instructing Group, the Banks or any other person or group of persons has not been exercised; (b) assume that the Facility Office of each Bank is that identified with its signature below (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) until it has received from such Bank a notice designating some other office of such Bank to replace its Facility Office and act upon any such notice until the same is superseded by a further such notice; (c) engage and pay for the advice or services of any lawyers, accountants, surveyors or other experts whose advice or services may to it seem necessary, expedient or desirable and rely upon any advice so obtained; (d) rely as to any matters of fact which might reasonably be expected to be within the knowledge of any Obligor upon a certificate signed by or on behalf of such Obligor; (e) rely upon any communication or document believed by it to be genuine; (f) refrain from exercising any right, power or discretion vested in it as agent under the Facility Documents unless and until instructed by an Instructing Group as to whether or not such right, power or discretion is to be exercised and, if it is to be exercised, as to the manner in which it should be exercised; (g) refrain from acting in accordance with any instructions of an Instructing Group to begin any legal action or proceeding arising out of or in connection with any Facility Document until it shall have received such security as it may require (whether by way of payment in advance or otherwise) 71 for all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which it will or may expend or incur in complying with such instructions; and (h) refrain from doing anything which would or might in its opinion be contrary to any relevant law of any jurisdiction or any relevant directive or regulation of any agency or of any state or which would or might otherwise render it liable to any person, and may do anything which is, in its opinion, necessary to comply with any such law, directive or regulation. 24.3 Agents' Obligations Each of the Agents shall: (a) promptly inform each Bank of the contents of any notice or document received by it in its capacity as Agent from an Obligor under any Facility Document; (b) promptly notify each Bank of the occurrence of any Event of Default or Review Event or any default by an Obligor in the due performance of or compliance with its obligations under any Facility Document of which the Facility Agent has notice from any other party hereto; (c) save as otherwise provided herein, act as agent under the Facility Documents in accordance with any instructions given to it by an Instructing Group, which instructions shall be binding on the other Agent, the Arranger and the Banks; and (d) if so instructed by an Instructing Group, refrain from exercising any right, power or discretion vested in it as agent under the Facility Documents. 24.4 Agents' Excluded Obligations Notwithstanding anything to the contrary expressed or implied herein, none of the Agents and the Arranger shall: (a) be bound to enquire as to (i) whether or not any representation made by an Obligor in connection with any Facility Document is true, (ii) the occurrence or otherwise of any Event of Default, Review Event or Potential Event, (iii) the performance by an Obligor of its obligations under any Facility Document or (iv) any breach of or default by an Obligor of or under its obligations under any Facility Document; (b) be bound to account to any Bank for any sum or the profit element of any sum received by it for its own account; (c) be bound to disclose to any other person any information relating to any member of the Group if such disclosure would or might in its opinion constitute a breach of any law or regulation or be otherwise actionable at the suit of any person; or (d) be under any obligations other than those for which express provision is made herein. 72 24.5 Indemnification Each Bank shall, in its Proportion, from time to time on demand by either Agent indemnify such Agent against any and all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which such Agent may incur, otherwise than by reason of its own gross negligence or wilful misconduct, in acting in its capacity as agent under the Facility Documents. 24.6 Exclusion of Liabilities Neither the Agents and the Arranger nor any of them accepts any responsibility for the accuracy and/or completeness of the Information Memorandum or any other information supplied by any member of the Group in connection herewith or for the legality, validity, effectiveness, adequacy or enforceability of any Facility Document and neither the Agents and the Arranger nor any of them shall be under any liability as a result of taking or omitting to take any action in relation to any Facility Document, save in the case of gross negligence or wilful misconduct. 24.7 No Actions Each of the Banks agrees that it will not assert or seek to assert against any director, officer or employee of either of the Agents or any Arranger any claim it might have against any of them in respect of the matters referred to in Clause 24.6 (Exclusion of Liabilities). 24.8 Business with the Group The Agents, the Arranger and each of their respective Affiliates falling within paragraph (a) of the definition thereof may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group. 24.9 Resignation Each of the Agents may resign its appointment hereunder at any time without assigning any reason therefor by giving not less than thirty days' prior written notice of such resignation and its resignation under the Security Agency Agreement to each of the other parties hereto and to the Security Agency Agreement Provided that no such resignation shall be effective until a successor for such Agent is appointed hereunder and under the Security Agency Agreement in accordance with the succeeding provisions of this Clause 24 (The Agents, the Arranger and the Banks). 24.10 Successor Agent If either of the Agents gives notice of its resignation hereunder pursuant to Clause 24.9 (Resignation), then any reputable and experienced bank or other financial institution may be appointed as a successor to such Agent both hereunder and under the Security Agency Agreement by an Instructing Group (with the prior written consent of CME Ltd., such consent not to be unreasonably withheld or delayed) during the period of such notice but, if no such successor is so appointed, such Agent may appoint such a successor itself. Such appointment shall take effect upon: (a) (in the case of the Security Agent) all of the Security and title to the Security and all of the Security Agent's rights, benefits and obligations under the Facility Documents having been validly transferred to such successor; and (b) such successor having confirmed its agreement to be bound by the provisions of this Agreement, the Security Agency Agreement and all other related agreements to which the such Agent is a party and having executed and delivered to the Security Agent or outgoing Security Agent (and such Security Agent having countersigned) an Accession Undertaking 73 substantially in the form set out in the Schedule to the Security Agency Agreement. 24.11 Rights and Obligations If a successor to either of the Agents is appointed under the provisions of Clause 24.10 (Successor Agent), then (a) the retiring Agent shall be discharged from any further obligation hereunder but shall remain entitled to the benefit of the provisions of this Clause 24 (The Facility Agent, the Arranger and the Banks) and (b) its successor and each of the other parties to the Facility Documents shall have the same rights and obligations amongst themselves as they would have had if such successor had been a party hereto. 24.12 Own Responsibility It is understood and agreed by each Bank that it has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, condition, affairs, status and nature of each member of the Group and, accordingly, each Bank warrants to each of the Agents and the Arranger that it has not relied on and will not hereafter rely on the Agents and the Arranger or any of them: (a) to check or enquire on its behalf into the adequacy, accuracy or completeness of any information provided by any member of the Group in connection with the Facility Documents or the transactions therein contemplated (whether or not such information has been or is hereafter circulated to such Bank by the Agents and the Arranger or any of them); or (b) to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of any member of the Group. 24.13 Agency Division Separate In acting as agent hereunder for the Banks, each of the Agents shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments and, notwithstanding the foregoing provisions of this Clause 24 (The Facility Agent, the Arranger and the Banks), any information received by some other division or department of such Agent may be treated as confidential and shall not be regarded as having been given to such Agent's agency division. 24.14 Confidential Information Notwithstanding anything to the contrary expressed or implied herein and without prejudice to the provisions of Clause 24.13 (Agency Division Separate), each of the Agents shall not as between itself and the Banks be bound to disclose to any Bank or other person any information which is supplied by any member of the Group to such Agent in its capacity as agent hereunder for the Banks and which is identified by such member of the Group at the time it is so supplied as being confidential information Provided that the consent of the relevant member of the Group to such disclosure shall not be required in relation to any information which in the opinion of such Agent relates to an Event of Default, Review Event or Potential Event or in respect of which the Banks have given a confidentiality undertaking in a form satisfactory to such Agent and the relevant member of the Group. 74 PART 12 ASSIGNMENTS AND TRANSFERS 25. Assignments and Transfers 25.1 Binding Agreement This Agreement shall be binding upon and enure to the benefit of each party hereto and its or any subsequent successors, Transferees and assigns. 25.2 No Assignments and Transfers by the Borrower or Guarantors None of the Borrower and the Guarantors shall be entitled to assign or transfer all or any of its rights, benefits and obligations hereunder. 25.3 Assignments and Transfers by Banks Any Bank may, at any time (a) assign or transfer (in accordance with Clause 25.5 (Transfers by Banks) in the case of a transfer) all or any of its rights, benefits and obligations hereunder to any holding company of it or to any subsidiary of any holding company of it or (b) with the prior consent of CME Ltd., such consent not to be unreasonably withheld or delayed, assign to any other financial institution all or any of its rights and benefits hereunder or transfer in accordance with Clause 25.5 (Transfers by Banks) to any other bank all or any of its rights, benefits and obligations hereunder Provided that no such assignment or transfer shall be permitted under (a) or (b) above if such assignment or transfer (i) shall be in relation to an aggregate principal amount of less than $1,000,000 or (ii) would require, in the reasonable opinion of CME Ltd., CME Ltd. to file a registration statement with the Securities and Exchange Commission. 25.4 Assignments by Banks If any Bank assigns all or any of its rights and benefits hereunder in accordance with Clause 25.3 (Assignments and Transfers by Banks), then, unless and until the assignee has agreed with the Agents, the Arranger, the Borrower and the other Banks that it shall be under the same obligations towards each of them as it would have been under if it had been an original party hereto as a Bank and has become a party to the Security Agency Agreement as a Bank (whereupon such assignee shall become a party hereto as a "Bank"), the Agents, the Arranger, the Borrower and the other Banks shall not be obliged to recognise such assignee as having the rights against each of them which it would have had if it had been such a party hereto. 25.5 Transfers by Banks If any Bank wishes to transfer all or any of its rights, benefits and/or obligations hereunder as contemplated in Clause 25.3 (Assignments and Transfers by Banks), then such transfer may be effected by the delivery to the Facility Agent of a duly completed and duly executed Transfer Certificate in which event, on the later of the Transfer Date specified in such Transfer Certificate and the fifth business day after (or such earlier business day endorsed by the Facility Agent on such Transfer Certificate falling on or after) the date of delivery to the Facility Agent of such Transfer Certificate and an Accession Undertaking substantially in the form set out in the Schedule to the Security Agency Agreement duly completed and duly executed by the relevant transferor and transferee and countersigned by the Security Agent: (a) to the extent that in such Transfer Certificate the Bank party thereto seeks to transfer its rights, benefits and obligations hereunder, the Borrower, the Guarantors and such Bank shall be released from further obligations 75 towards one another hereunder and their respective rights against one another shall be cancelled (such rights and obligations being referred to in this Clause 25.5 (Transfers by Banks) as "discharged rights and obligations"); (b) the Borrower, the Guarantors and the Transferee party thereto shall assume obligations towards one another and/or acquire rights against one another which differ from such discharged rights and obligations only insofar as the Borrower, the Guarantors and such Transferee have assumed and/or acquired the same in place of the Borrower, the Guarantors and such Bank; (c) the Agents, the Arranger, such Transferee and the other Banks shall acquire the same rights and benefits and assume the same obligations between themselves as they would have acquired and assumed had such Transferee been an original party hereto as a Bank with the rights, benefits and/or obligations acquired or assumed by it as a result of such transfer; and (d) such Transferee shall become a party hereto as a "Bank". 25.6 Transfer Fees On the date upon which a transfer takes effect pursuant to Clause 25.5 (Transfers by Banks) the Transferee in respect of such transfer shall pay to the Facility Agent for its own account a transfer fee of $1000. 25.7 Disclosure of Information Subject to the signature of a Confidentiality Agreement, any Bank may disclose to any actual or potential assignee or Transferee or to any person who may otherwise enter into contractual relations with such Bank in relation to this Agreement such information about the Borrower and the Group as such Bank shall consider appropriate. 25.8 Increased Costs, etc. If, at any time, any Bank assigns or transfers any of its rights, benefits and obligations hereunder or changes its Facility Office and, at the time of such assignment, transfer or change (as the case may be) there arises an obligation on the part of the Borrower under Clause 8 (Taxes) or Clause 10 (Changes in Circumstances) to pay to such Bank or its assignee or transferee or to any fiscal authority or other person any amount in excess of the amount it would have then been obliged to pay but for such assignment, transfer or change (as the case may be), then the Borrower shall not be obliged to pay the amount of such excess Provided that this Clause 25.8 (Increased Costs, etc.) shall not apply in the case of any assignment, transfer or change (as the case may be) made at the request of the Borrower. 76 PART 13 MISCELLANEOUS 26. Calculations and Evidence of Debt 26.1 Basis of Accrual Interest and commitment commission shall accrue from day to day and shall be calculated on the basis of a year of 360 days (or, in any case where market practice differs, in accordance with market practice) and the actual number of days elapsed. 26.2 Quotations If on any occasion a Reference Bank or Bank fails to supply the Facility Agent with a quotation required of it under the foregoing provisions of this Agreement, the rate for which such quotation was required shall be determined from those quotations which are supplied to the Facility Agent. 26.3 Evidence of Debt Each Bank shall maintain in accordance with its usual practice accounts evidencing the amounts from time to time lent by and owing to it hereunder. 26.4 Control Accounts The Facility Agent shall maintain on its books a control account or accounts in which shall be recorded (a) the amount of any Advance made or arising hereunder and each Bank's share therein, (b) the amount of all principal, interest and other sums due or to become due from the Borrower to any of the Banks hereunder and each Bank's share therein and (c) the amount of any sum received or recovered by the Facility Agent hereunder and each Bank's share therein. 26.5 Prima Facie Evidence In any legal action or proceeding arising out of or in connection with this Agreement, the entries made in the accounts maintained pursuant to Clause 26.3 (Evidence of Debt) and Clause 26.4 (Control Accounts) shall be prima facie evidence of the existence and amounts of the specified obligations of the Borrower. 26.6 Certificates of Banks A certificate of a Bank as to (a) the amount by which a sum payable to it hereunder is to be increased under Clause 8.1 (Tax Gross-up) or (b) the amount for the time being required to indemnify it against any such cost, payment or liability as is mentioned in Clause 8.2 (Tax Indemnity), Clause 10.1 (Increased Costs) or Clause 17.4 (Broken Periods) shall, in the absence of manifest error, be prima facie evidence of the existence and amounts of the specified obligations of the Borrower. 27. Remedies and Waivers, Partial Invalidity 27.1 Remedies and Waivers No failure to exercise, nor any delay in exercising, on the part of the Agents, the Arranger and the Banks or any of them, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 77 27.2 Partial Invalidity If, at any time, any provision hereof is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions hereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. 28. Notices 28.1 Communications in Writing Each communication to be made hereunder shall be made in writing and, unless otherwise stated, shall be made by telex, letter or fax. 28.2 Delivery Any communication or document to be made or delivered by one person to another pursuant to this Agreement shall (unless that other person has by fifteen days' written notice to the Facility Agent specified another address) be made or delivered to that other person at the address identified with its signature below (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) and shall be deemed to have been made or delivered when despatched (in the case of any communication made by fax or telex) or (in the case of any communication made by letter) when left at that address or (as the case may be) ten days after being deposited in the post postage prepaid in an envelope addressed to it at that address Provided that any communication or document to be made or delivered to an Agent shall be effective only when received by such Agent and then only if the same is expressly marked for the attention of the department or officer identified with such Agent's signature below (or such other department or officer as such Agent shall from time to time specify for this purpose). 28.3 English Language Each communication and document made or delivered by one party to another pursuant to this Agreement shall be in the English language or accompanied by a translation thereof into English certified (by an officer of the person making or delivering the same) as being a true and accurate translation thereof. 29. Amendments 29.1 Amendment Procedures The Facility Agent shall, if it has the prior written consent of an Instructing Group and the Borrower, from time to time agree in writing to amend this Agreement or to waive, prospectively or retrospectively, any of the requirements of this Agreement and any amendments or waivers so agreed shall be binding on all the Banks, the Arranger, the Borrower and the Guarantors Provided that: (a) no such waiver or amendment shall subject any party hereto to any new or additional obligations without the consent of such party; (b) without the prior written consent of all the Banks, no such amendment or waiver shall: (i) amend or waive any provision of Clause 21 (Sharing) or this Clause 29 (Amendments); (ii) reduce the proportion of any amount received or recovered (whether by 78 way of set-off, combination of accounts or otherwise) in respect of any amount due from the Borrower hereunder to which any Bank is entitled; (iii) change the principal amount of or currency of any Advance, or defer the term of the Facility or the Term of any Advance; (iv) change the Applicable Margin, change the amount or currency or defer the date for any payment of interest, fees or any other amount payable hereunder to all or any of the Agents, the Arranger and the Banks; (v) amend the definition of Instructing Group; or (vi) amend any provision which contemplates the need for the consent or approval of all the Banks; and (c) notwithstanding any other provisions hereof, the Facility Agent shall not be obliged to agree to any such amendment or waiver if the same would: (i) amend or waive any provision of this Clause 29 (Amendments), Clause 23 (Costs and Expenses) or Part 10 (Agency Provisions); or (ii) otherwise amend or waive any of the Agents' rights hereunder or subject either Agent or the Arranger to any additional obligations hereunder. 29.2 Amendment Costs If the Borrower or any Guarantor requests any amendment or waiver in accordance with Clause 29.1 (Amendment Procedures) then the Borrower shall, on demand of the Facility Agent, reimburse the Agents, the Arranger and the Banks for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by the Agents, the Arranger and the Banks and each of them in responding to or complying with such request. 79 PART 14 LAW AND JURISDICTION 30. Law and Jurisdiction 30.1 English Law This Agreement shall be governed by, and shall be construed in accordance with, English law. 30.2 English Courts Each of the parties hereto irrevocably agrees for the benefit of each of the Agents, the Arranger and the Banks that the courts of England shall have jurisdiction to hear and determine any suit, action or proceedings, and to settle any disputes, which may arise out of or in connection with this Agreement (respectively "Proceedings" and "Disputes") and, for such purposes, irrevocably submits to the jurisdiction of such courts. 30.3 New York Courts Each of the Borrower and the Guarantors irrevocably agrees that the courts of the State of New York and the courts of the United States of America, in each case sitting in the County of New York, shall have jurisdiction to hear and determine any Proceedings and to settle any Disputes and, for such purposes, irrevocably submits to the jurisdiction of such courts. 30.4 Appropriate Forum Each of the Borrower and the Guarantors irrevocably waives any objection which it might now or hereafter have to the courts referred to in Clause 30.2 (English Courts) and Clause 30.3 (Courts in New York) being nominated as the forum to hear and determine any Proceedings and to settle any Disputes and agree not to claim that any such court is not a convenient or appropriate forum. 30.5 Service of Process Each of the Borrower and the Guarantors agrees that the process by which any Proceedings are begun may be served on it by being delivered (a) in connection with any Proceedings in England, to CME Development Corporation at 18 D'Arblay Street, London W1V 3FP, London or other its registered office for the time being and (b) in connection with any Proceedings in New York, to CT Corporation Systems at 1633 Broadway, New York 10019, New York or other its principal place of business in New York for the time being. If the appointment of either of the persons mentioned in this Clause 30.5 (Service of Process) ceases to be effective the Borrower or such Guarantor shall immediately appoint a further person in England or, as the case may be, New York to accept service of process on its behalf in England or, as the case may be, New York and, failing such appointment within 15 days, the Facility Agent shall be entitled to appoint such a person by notice to the Borrower or such Guarantor. Nothing contained herein shall affect the right to serve process in any other manner permitted by law. 30.6 Non-exclusive Submissions The submission to the jurisdiction of the courts referred to in Clause 30.2 (English Courts) and Clause 30.3 (Courts in New York) shall not (and shall not be construed so as to) limit the right of the Agents, the Arranger and the Banks or any of them to take Proceedings against the Borrower or any Guarantor in any other court of competent jurisdiction nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted by applicable law. 80 30.7 Consent to Enforcement Each of the Borrower and the Guarantors hereby consents generally in respect of any Proceedings to the giving of any relief or the issue of any process in connection with such Proceedings including the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such Proceedings. 30.8 Waiver of Immunity To the extent that the Borrower or any Guarantor may in any jurisdiction claim for itself or its assets immunity from suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process and to the extent that in any such jurisdiction there may be attributed to themselves or their assets such immunity (whether or not claimed), each of the Borrower and Guarantors hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the full extent permitted by the laws of such jurisdiction and, in particular, to the intent that in any proceedings taken in New York the foregoing waiver of immunity shall have effect under and be construed in accordance with the United States Foreign Sovereign Immunities Act of 1976. AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written. 81 THE THIRD SCHEDULE Conditions Precedent 1. A copy, certified a true copy by a duly authorised officer of CME Ltd., of the constitutional documents (including but without limitation amended Articles of Association and the Partnership Agreement) of each Obligor. 2. A copy, certified a true copy by a duly authorised officer of CME Ltd., of corporate authorities of each Obligor approving the execution, delivery and performance of each Facility Document to which it is expressed to be a party and the terms and conditions thereof and authorising a named person or persons to sign such Facility Documents and any documents to be delivered by it pursuant thereto. 3. A certificate of a duly authorised officer of CME Ltd. setting out the names and signatures of the persons authorised to sign, on behalf of each Obligor each Facility Document to which it is expressed to be a party and any documents to be delivered by it pursuant thereto. 4. A copy, certified a true copy by or on behalf of CME Ltd., of each such law, decree, consent, licence, approval, registration or declaration as is, in the opinion of counsel to the Banks, necessary to render each of the Facility Documents legal, valid, binding and enforceable, to make this Agreement admissible in evidence in the jurisdiction of incorporation of each Obligor and to enable each Obligor to perform its obligations thereunder. 5. An original executed copy of each Facility Document and a copy, certified by a duly authorised officer of CME B.V., of the Limited Recourse Agreement, the CS Loan Agreement, the Nova TV Licence, the Management Support Agreement, the Network Access Agreement, the Programming Services Agreement and the Service Agreement 6. Evidence that all fees, costs and expenses due under the Agreement on or prior to first drawdown have been paid. 7. An opinion of Clifford Chance, Prague, the Facility Agent's Czech counsel satisfactory in form and substance to the Facility Agent and in substantially the form distributed to the Banks prior to the signing of this Agreement. 8. A legal opinion of the Facility Agent's Delaware and Bermudian counsel satisfactory in form and substance to the Facility Agent and in substantially the form distributed to the Banks prior to the signing of this Agreement. 9. A legal opinion of the Facility Agent's Netherlands Antilles counsel satisfactory in form and substance to the Facility Agent and in substantially the form distributed to the Banks prior to the signing of this Agreement. 10. A legal opinion of Clifford Chance, Amsterdam, the Facility Agent's Dutch counsel satisfactory in form and substance to the Facility Agent and in substantially the form distributed to the Banks prior to the signing of this Agreement. 11. An opinion of Clifford Chance, solicitors to the Facility Agent, in substantially 82 the form distributed to the Banks prior to the signing of this Agreement. 12. A copy, certified a true copy by a duly authorised officer of CME Ltd., of the Original Financial Statements of each Relevant Member of the Group. 13. A compliance certificate in the form referred to in Clause 12.6 (Requirements as to financial statements) duly signed by a duly authorised officer of CME Ltd.. 14 Evidence of adoption by Czech Republic II, as sole shareholder of the Borrower of a shareholders' resolution to undertake to amend the articles of incorporation of the Borrower (i) in order to limit the operations of the Borrower in accordance herewith and (ii) in accordance with clause 3.7 of the Borrower Pledge of Shares in order to allow for a transfer of voting rights to the pledgee thereunder. 15. Confirmation that the irrevocable payment instruction referred to in Clause 14.23 (Payment Instruction) has been delivered and countersigned by Nova TV in accordance herewith. 16. Evidence of perfection of all security created pursuant to the Security Documents and evidence that all filings, registrations and recordings have been made and all fees payable in connection therewith have been paid. 17. Evidence that CME Development Corporation has agreed to act as the agent of the Borrower and the Guarantors for the service of process in England and that CT Corporation Systems has agreed to act as the agent of the Borrower and the Guarantors for the service of process in New York. 18. A Board Resolution of CME Ltd stating that the execution of the Facility Agreement would not restrict any payments of principal or interest under the Notes. 19. Proof of registration of the pledge of the shares in the Borrower in the Borrower's shareholders register, satisfactory in form and substance to the Facility Agent. 83 THE FIFTH SCHEDULE Applicable Margin Financial Tests For the purposes of determining the Applicable Margin at any time, each of the Leverage Ratio of CME Ltd. and the Consolidated Broadcast Cash Flow Ratio of Nova TV shall be determined by reference to the most recent set of quarterly or annual financial statements delivered by CME Ltd. pursuant to Clause 12 (Financial Information) as confirmed by a compliance certificate duly signed by two duly authorised officers of CME Ltd. The Applicable Margin will then be determined by reference to such ratios in accordance with the table below:
Leverage Ratio of CME Ltd. Consolidated Broadcast Cash Flow Ratio Nova TV greater than 1.5 1.25 less than 1.5 1.0 less than 1.25 less than 1.0 greater than 0.75 3.75% 3.75% 3.75% 3.75% 0.50 less than 0.75 3.75% 3.75% 3.25% 3.25% 0.25 less than 0.50 3.75% 3.25% 3.25% 2.75% less than 0.25 3.75% 3.25% 2.75% 2.50%
Any change in the Applicable Margin shall take effect on the date on which the relevant quarterly or annual financial statements to be delivered pursuant to Clause 12 (Financial Information) are actually delivered by CME Ltd. to the Facility Agent Provided that if the financial statements are not delivered within the time limits stipulated in Clause 12 (Financial Information) then the Applicable Margin from the date such financial statements should have been delivered shall be 3.75%. In case the figures for the Leverage Ratio of CME Ltd. or the Consolidated Broadcast Cash Flow Ratio of Nova TV fall within different ranges set out in the table above the highest range shall be taken as applicable. 84 The Borrower CME CZECH REPUBLIC B.V. By: Address: 18 D'Arblay Street London W1V 3FP United Kingdom Tel: + 44 171 292 7900 Fax: + 44 171 292 7948 Attn: John Diess/Erik Moe The Guarantors CME CZECH REPUBLIC II B.V. By: Address: 18 D'Arblay Street London W1V 3FP United Kingdom Tel: + 44 171 292 7900 Fax: + 44 171 292 7948 Attn: John Diess/Erik Moe CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. By: Address: 18 D'Arblay Street London W1V 3FP United Kingdom Tel: + 44 171 292 7900 Fax: + 44 171 292 7948 Attn: John Diess/Erik Moe CENTRAL EUROPEAN MEDIA ENTERPRISES N.V. By: Address: 18 D'Arblay Street London W1V 3FP United Kingdom Tel: + 44 171 292 7900 Fax: + 44 171 292 7948 Attn: John Diess/Erik Moe 85 CME MEDIA ENTERPRISES B.V. By: Address: 18 D'Arblay Street London W1V 3FP United Kingdom Tel: + 44 171 292 7900 Fax: + 44 171 292 7948 Attn: John Diess/Erik Moe The Facility Agent and the Security Agent ING BANK N.V. By: Address: CBSA, HE 03.06 P O Box 1800 1000 BV Amsterdam Tel: + 31 20 563 5305 Fax: + 31 20 563 5329 Attn: The Manager The Arranger and the Bank ING BANK N.V. By: Address: Bijlmerplein 888 1102 MG Amsterdam Zuidoost The Netherlands Tel: + 31 20 565 1114 Fax: + 31 20 563 5505 Attn: Manager, Media Finance Group 86 EX-10.50 9 CONTRACT ON COOPORATION Ceska nezavisla televizni spolecnost, spol. s r. o. with its registered office at Vladislavova 20, 113 13 Prague 1 IDN: 49616668 TAX-IDN: 001-49616668 bank: Ceska sporitelna a.s. bank account: 817754-018/0800 represented by Dr. Vladimir Zelezny the General Director and the Executive (hereinafter only as "CNTS") and CET 21, spol. s r. o. with its registered office at V jame 12, 110 00 Prague 1 IDN: 45800456 TAX-IDN: 001-45800456 bank. Komercni banka, a. s. bank account: 10006-71501021/0100 represented by prof. Josef Alan, the Executive and Mr. Vlastimil Venclik, the Executive (hereinafter only as "CET 21") have agreed, on the basis of Section 269, paragraph 2, of the Commercial Code, upon this CONTRACT on cooperation in ensuring service for television broadcasting Article 1 1) The contracting parties confirm that the holder of license no. 001/1993, and the television broadcasting operator, with a license as per Act No. 468/1991, Coll., as amended, is CET 21, and that the license, no. 001/1993, is nontransferrable. 2) The contracting parties are aware that the exclusive responsibility of CET 21 for programming as per Act No. 468/1991, Coll., as amended, is not affected by this contract. 3) The contracting parties are aware that CNTS is authorized, in accordance with legal regulations, to engage in business to the following extent: production and sale of blank media for audio or audio/visual recordings, and sale or rental of recorded audio and audio/ visual media agency activity in the cultural field production of audio/visual works purchase of merchandise with the purpose of its resale and sale to the extent specified by the business license for uncertified entrepreneurial activity advertising and promotional activity publishing and printing mediation in the cultural field mediation in business relations organizational and technical support of television broadcasting production of television and audio/visual programs advertising agency activity mediation activity in the fields of business, industry, and investment consulting activities in the media field Article 2 1) The contracting parties have agreed that there follow from the preceding arrangements the rights and obligations of CNTS to ensure, according to this contract, service for the television broadcasting that is conducted on the basis of the license issued to CET 21, and that CNTS is authorized to keep an agreed income from this activity. 2) The activity aforementioned in paragraph 1 will be carried out, on the basis of the authorization granted it, by CNTS, with the exception that follows from Article 6, at its own expense. 3) CNTS undertakes to carry out the activity aforementioned in paragraph 1 in accordance with generally binding legal regulations, as well as with the content of the license, the holder of which is CET 21. Article 3 CET 21 is obligated not to interfere with the business activities of CNTS, whereby the rights of CET 21, as a partner on the basis of the partnership contract, are not affected. Article 4 1) CNTS is the exclusive subject of the rights and obligations arising during its activity (Article 2, paragraph 1), regardless of whether the rights and obligations involved are based on the contract or the law. CNTS is authorized to enforce and legally exercise the thus arising rights in his own name; at the same time, CNTS is materially responsible for any breach of such obligations, and may be sued for any such breach. This also relates to possible disputes the subject of which is the protection of the person of an individual, a violation of economic competition, and the acquisition and ensuring of broadcasting of televised reports and programs. 2) In the event of damage arising from a breach of this contract, the legal relationship between CNTS and CET 21, with respect to compensation for damages, is governed by Section 373 and those that follow in the Commercial Code. If CET 21, as the license holder and operator of television broadcasting, suffers material losses as a consequence of having covered the costs of damages caused to a third party or having paid a fine stipulated by law for a breach of obligation caused by CNTS, CNTS undertakes to pay to CET 21 compensation for such material loss. Article 5 If obligations to which CET 21, as the license holder and operator of television broadcasting, is bound by law or license, are breached by broadcasting on TV NOVA, CET 21 is, in accord with license no. 001/1993, authorized to intervene in the programming through persons appointed by the general meeting of CET 21 and whose names will be announced by CET 21 to CNTS immediately after their appointment. Article 6 1) On behalf of CET 21, as the license holder and operator of television broadcasting, CNTS will be closing contracts with Czech Radio Communications on the providing of radio communication services, and will also be representing CET 21 in other matters with Czech Radio Communications, as well as covering all payments for radio communication services and bearing the related costs. 2) On behalf of CET 21, as the license holder and operator of television broadcasting, CNTS will be closing contracts with protective organizations that represent authors and performing artists and will also be representing CET 21 in other matters with protective organizations, as well as covering all appropriate payments stipulated in these contracts and bearing the related costs. Article 7 1) CET 21 undertakes to take all steps necessary to retain, as well as extend, license no. 001/1993. 2) CNTS undertakes to cooperate in the manner necessary to fulfill the objectives stated in paragraph 1. Article 8 Pursuant to Article 5, both contractual parties have agreed that the editors-in-chief of TV NOVA will be appointed by CET 21, in accord with Act No. 81/1966 Coll., as amended. Article 9 If the conditions of license no. 001/1993 or a portion thereof are terminated, or if there are modifications of this license or amendments to laws that would require modification of the contents of this contract, the contractual parties undertake to include an agreed upon appendix to this contract, which will take into account the newly developed situation. Article 10 CNTS will submit a proposal on the inclusion of this contract into the collection on file at the court at which CNTS is registered in the Commercial Code. Article 11 1) This contract is effective until 30 January 2005, or as long as the license for operating television broadcasting, no. 001/1993 or another such license, held by CET 21, remains valid. 2) This contract will be automatically extended in the event that the effectiveness of the license is extended or a new license is granted to CET 21. 3) This contract becomes effective on the date of its signing by the contractual parties. 4) As soon as this contract becomes effective, the contract closed on 4 October 1996, as amended by amendments and supplements of later dates, becomes ineffective. 5) This contract is executed in four copies, of which each contractual party will receive two copies. In Prague, on 21 May 1997 - ------------------ ------------------ CNTS CET21 Ceska nezavisla televizni spolecnost, spol. s r. o. with its registered office at Vladislavova 20, 113 13 Prague 1 IDN: 49616668 TAX-IDN: 001-49616668 bank: Ceska sporitelna a.s. bank account: 817754-018/0800 represented by Dr. Vladimir Zelezny the General Director and the Executive (hereinafter only as "CNTS") and CET 21, spol. s r. o. with its registered office at V jame 12, 110 00 Prague 1 IDN: 45800456 TAX-IDN: 001-45800456 bank. Komercni banka, a. s. bank account: 10006-71501021/0100 represented by prof. Josef Alan, the Executive and Mr. Vlastimil Venclik, the Executive (hereinafter only as "CET 21") have agreed on this SUPPLEMENT to the contract closed on 21 May 1997 Article 1 1) For properly executed and performed activity, for which CNTS is authorized and obligated by the contract closed on 21 May 1997, as amended, CNTS is entitled remuneration in the amount of the revenues from the sale of advertising time, sponsorship of broadcast programs, and related activities connected with television broadcasting, lowered by the total costs and by 100,000 CZK monthly, not including VAT. 2) In the event that revenues from the sale of advertising time, sponsorship of broadcast programs, and similar activities are lower than the total costs expended for the activity that CNTS is authorized to provide, according to the contract from 21 May 1997, as amended, CNTS is authorized to deduct the difference from the revenues gained from advertising time, sponsorship of broadcast programs, and similar activities in upcoming periods, unless otherwise agreed upon by the contractual parties. 3) The total costs, as stated in this article, are understood mainly as costs for the organizational and technical ensuring of production and the expiditing of programs of TV NOVA, the production of programs, including the commission, delivered for the broadcasting of TV NOVA, and the administrative, management, and financial costs connected with the operation that are necessary for ensuring the problem-free operation of TV NOVA station. In the event that costs are incurred directly by CET 21, as the license holder (for example, charges for transmission of the signal by Czech Radio Communications Inc., fees due to broadcasting for TV NOVA and other protective organizations, costs for legal disputes), these costs will be transferred to CNTS by means of re-invoicing. Article 3 1) Apart from the aforementioned, the contents of the contract closed on 21 May 1997 remain unchanged. 2) This contract becomes effective and valid on the date of its signing by both contractual parties. In Prague, on 21 May 1997 - -------------------- --------------------- CNTS CET 21 EX-10.51 10 STOCK PURCHASE AGREEMENT ================================================================================ STOCK PURCHASE AGREEMENT between CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. and RSL CAPITAL LLC dated as of December 3, 1998 ================================================================================ STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of December 3, 1998, by and among, RSL Capital LLC, a New York limited liability company (the "Buyer"), and Central European Media Enterprises Ltd., a company organized under the laws of Bermuda (the "Company"). RECITALS: WHEREAS, Ronald S. Lauder, the non-executive Chairman of the Company, owns all the capital stock of and is the Chairman of the Buyer; WHEREAS, the Company has requested to the Buyer to commit to subscribe for 1,515,000 newly issued shares of the Company's Class B Common Stock, $.01 par value per share ("Class B Shares"), at a price of $15 per share (subject to adjustment as provided herein), and the Buyer has agreed to make such a commitment on the terms and subject to the conditions set forth in this Agreement; and WHEREAS, all capitalized terms used herein without definition are used as defined in Section 8; NOW THEREFORE, and in consideration of the foregoing and the covenants and conditions hereof, the Company and the Buyer (the "Parties") agree as follows: AGREEMENT: SECTION 1 SUBSCRIPTION AND ISSUANCE OF CLASS B SHARES 1.1 Commitment. Subject to the terms and conditions of this Agreement, upon written notice by the Company given on or prior to December 31, 1998 (the "Expiration Date"), the Buyer agrees to subscribe for 1,515,000 Class B Shares, for a subscription price per share of $15.00 (the "Per Share Price"), subject to adjustment as set forth in Section 1.4, and an aggregate subscription price of $22,725,000 (the "Subscription Price"). 1.2 Commitment Fee. In consideration of the Buyer's willingness to agree to subscribe for the Class B Shares, the Company shall pay the Buyer a sum of $227,250 (the "Commitment Fee"), payable in cash on the earlier of the Closing Date and January 4, 1999. 1.3 Exercise of Commitment; Issuance and Sale of Shares. (a) The Company may exercise the commitment set forth in Section 1.1 by delivering to the Buyer a written notice in the form set forth in Exhibit A hereto (an "Exercise Notice") to such effect on or prior to the Expiration Date. (b) The closing of the subscription and purchase of the Class B Shares (the "Closing") shall take place on the tenth Business Day following the receipt by Buyer of the Exercise Notice (the "Closing Date") at 10:00 a.m. at the offices of Debevoise & Plimpton, 875 Third Avenue, New York, New York, or at such other time and place as the Parties shall agree. (c) At the Closing, subject to the satisfaction of the conditions set forth in Section 2, (i) the Buyer shall pay or cause to be paid the Subscription Price to the Company by wire transfer of immediately available funds to the account of the Company designated at least two Business Days prior to the Closing Date and (ii) concurrently therewith the Company shall issue and deliver to the Buyer (or to an Affiliate of the Buyer designated by the Buyer no less than two Business Days prior to the Closing Date) one or more certificates (as shall be designated by the Buyer) representing 1,515,000 Class B Shares, and shall take all such other actions as may be required to vest legal title to the Class B Shares in the Buyer (or such Affiliate), free and clear of all Liens, restrictions on sales or pre-emptive rights. 1.4 Post-Closing Adjustment. (a) Subject to paragraphs (b) and (c) below, on November 19, 1999 (the "Adjustment Date"), the Company will issue to the Buyer (or to an Affiliate of the Buyer designated in writing by the Buyer no less than two Business Days prior to the Adjustment Date), for no additional consideration, such number of additional Class B Shares that, when added to the 1,515,000 Class B Shares issued to the Buyer on the Closing Date, will result in the average Per Share Price for all Class B Shares issued to the Buyer (and any Affiliate of the Buyer) pursuant to this Agreement being equal to the average of the last reported trading price of the Company's Class A Common Stock, $.01 par value per share, (the "Class A Shares") on NASDAQ (the "Final Trading Price") for each NASDAQ trading day during the period from and including November 13, 1998 to and including November 12, 1999 (the "Measurement Period"). (b) If the last reported trading price of the Class A Shares on NASDAQ equals or exceeds $15.00 for twenty or more consecutive NASDAQ trading days during the Measurement Period, then there will be no adjustment to the Per Share Price and no additional Class B Shares will be issued pursuant to paragraph (a) of this Section 1.4. 2 (c) The maximum number of additional Class B Shares issuable to the Buyer (or an Affiliate of the Buyer) pursuant to this Section 1.4 shall be 757,500 (corresponding to a Per Share Price of $10.00). (d) In the event that any additional Class B Shares are issued to the Buyer (or an Affiliate of the Buyer) pursuant to this Section 1.4, the Company will deliver to the Buyer (or its Affiliate), on the Adjustment Date, one or more certificates (as instructed by the Buyer) representing additional Class B Shares and take all such other actions as may be required to vest legal title to such additional Class B Shares in the Buyer (or its Affiliate), free and clear of all Liens, restrictions on sales or pre-emptive rights. 1.5 Legend. (a) Except as provided in Section 1.5(b), each certificate for Class B Shares issued to the Buyer shall be stamped or otherwise imprinted with a legend in substantially the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE RULES AND REGULATIONS THEREUNDER. (b) The legend requirements of Section 1.5(a) shall terminate (i) when and so long as the Class B Shares in question shall have been effectively registered under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Securities Act") and disposed of pursuant thereto or (ii) when the Company shall have received an opinion of counsel reasonably satisfactory to it that such legend is not required in order to ensure compliance with the Securities Act. SECTION 2 CONDITIONS The obligations of the Buyer to consummate the transactions contemplated hereby and to pay the Subscription Price to the Company shall be subject to the fulfillment on or prior to the Closing Date of the following additional conditions, which the Company agrees to use reasonable efforts to cause to be fulfilled: 2.1 Representations, Performance. (a) The representations and warranties of the Company contained in Section 3 shall be true and correct in all material respects at 3 and as of the date hereof, and shall be repeated and shall be true and correct in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date. (b) The Company shall have in all material respects duly performed and complied with all agreements, covenants and conditions required by this Agreement to be performed or complied with by the Company prior to or on the Closing Date. (c) The Company shall have delivered to the Buyer a certificate in the form set forth in Exhibit B hereto, dated the Closing Date and signed by a duly authorized officer of the Company. 2.2 Delivery of Shares. At the Closing, the Company shall have delivered all of the certificates for the Class B Shares as provided in Section 1.3 hereof. 2.3 Consents. All Consents of any Governmental Authority required to be made or obtained by the Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby shall have been made or obtained. 2.4 Injunction, etc. The consummation of the transactions contemplated hereby shall not have been restrained, enjoined or otherwise prohibited or made illegal by any applicable Law, including any order, injunction, decree or judgment of any court or other Governmental Authority; and no such Law that would have such an effect shall have been promulgated, entered, issued or determined by any court or other Governmental Authority to be applicable to this Agreement. No action or proceeding shall be pending or threatened by any Governmental Authority or other Person on the Closing Date before any court or other Governmental Authority to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated hereby, or to recover any material damages or obtain other material relief as a result of such transactions, or that otherwise relates to the application of any such Law. 2.5 No Material Adverse Effect. No event, occurrence, fact, condition, change, development or effect shall exist or have occurred or come to exist or been threatened since September 30, 1998 that, individually or in the aggregate, has had or resulted in, or could reasonably be expected to become or result in, a Material Adverse Effect. 2.6 Opinion of Counsel. The Buyer shall have received an opinion, addressed to it and dated the Closing Date, from counsel to the Company, in the form set forth in Exhibit C hereto. 4 2.7 Corporate and Other Proceedings. All corporate proceedings of the Company in connection with the transactions contemplated by this Agreement, and all documents and instruments incident thereto, shall be satisfactory in form and substance to the Buyer and its counsel, and the Buyer and its counsel shall have received all such docu ments and instruments, or copies thereof, certified if requested, as may be reasonably requested. 2.8 Change of Control. No Change of Control of the Company shall have occurred. 2.9 Buyer Expenses. The Company shall have reimbursed the Buyer for its reasonable out-of-pocket expenses referred to in Section 9.4 hereof. 2.10 Commitment Fee. The Company shall have paid the Commitment Fee as provided in Section 1.2 hereof. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Buyer, as of the date hereof and as of the Closing Date, as follows: 3.1 Corporate Existence and Power. The Company is a company duly organized, validly existing and in good standing under the laws of Bermuda and has all corporate, partnership or other applicable powers and all material governmental licenses, authorizations, consents, and approvals required to carry on its business as now conducted. 3.2 Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Company of this Agreement is within the Company's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the organizational documents of the Company or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. 3.3 Title to Shares, Capitalization, etc. (a) Upon delivery of the Class B Shares as provided for in Section 1.3 and Section 1.4, (i) such Class B Shares will be duly authorized and validly issued, (ii) the Buyer (or its Affiliate, as the case may be) will 5 acquire good and valid title to all such Class B Shares, free and clear of any Lien other than any Lien created by the Buyer (or such Affiliate), and (iii) such Class B Shares shall be fully paid and nonassessable. (b) The authorized capital of the Company consists of (i) 100,000,000 Class A Shares, of which 18,070,789 are issued and outstanding, and (ii) 15,000,000 Class B Shares, 6,062,329 of which are issued and outstanding prior to the issuance contemplated by Section 1.3 hereof and 7,577,329 of which will be issued and outstanding upon the consummation of such issuance. All of the issued and outstanding Class A Shares and Class B Shares have been duly authorized and validly issued, are fully paid and nonassessable. (c) There are no preemptive or similar rights on the part of any holders of any class of securities of the Company. Except for (i) this Agreement, (ii) the options and warrants previously granted to the Buyer, (iii) the options to purchase Class A Shares granted under the 1994 Amended and Restated Stock Option Plan, (iv) the options to purchase Class A Shares granted under the 1995 Amended and Restated Stock Option Plan, (v) the options to purchase 32,500 Class A Shares granted to Herbert S. Schlosser, and (vi) the warrants to purchase 100,000 Class A Shares granted to each of MAWA Holding N.V., Lavender Foundation and Staffordshire Corporation N.V., there are no subscription, option, warrant, conversion or other rights, agreements, commitments, arrangements or understandings of any kind obligating the Company or any Subsidiary or any other Person, contingently or otherwise, to issue or sell, or cause to be issued or sold, any Class A Shares or any securities convertible into or exchangeable for any Class A Shares, and no authorization therefor has been given. There are no outstanding contractual or other rights or obligations to or of the Company or any Subsidiary or any other Person to repurchase, redeem or otherwise acquire any outstanding shares or other equity interests of the Company or any Subsidiary. 3.4 Binding Effect. This Agreement has been duly and validly executed and delivered by the Company, and assuming the due authorization, execution and delivery by the Buyer, constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally and by general principles of equity. 3.5 SEC Reports and Financial Statements. (a) The Company has filed all required forms, reports and documents with the Securities Exchange Commission (hereinafter collectively referred to as the "Company Reports") required to be filed by it pursuant to the Securities Act and the Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"), all of which have 6 complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act. (b) None of the Company Reports, including, without limitation, any financial statements or schedules included therein, at the time filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) The consolidated balance sheets and the related consolidated statements of income, cash flow and shareholders' equity (including without limitation the related notes thereto) of the Company and its consolidated Subsidiaries included in the financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the "Company 10-K") and in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998 (the "Company 10-Qs"), present fairly the consolidated financial position of the Company and its consolidated Subsidiaries as of their respective dates, and the results of consolidated operations and cash flows for the periods then ended, all in conformity with United States generally accepted accounting principles applied on a consistent basis, except as otherwise noted therein and in the case of unaudited financial statements subject to normal year-end audit adjustments, and except for certain footnote disclosures required by United States generally accepted accounting principles. 3.6 Absence of Undisclosed Liabilities. Except for liabilities reflected or reserved against in the consolidated balance sheet of the Company and its Subsidiaries as of September 30, 1998 or reflected in the notes thereto, or as has been disclosed in the Company Reports, none of the Company and its Subsidiaries has any liabilities or obligations (absolute or accrued or contingent, whether accrued or unaccrued and whether due or to become due) other than liabilities and obligations incurred in the ordinary course of business since September 30, 1998 or liabilities or obligations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. 3.7 Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Company threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable probability of an adverse decision that would have a Material Adverse Effect or which in any manner draws into question the validity or enforceability of this Agreement. 3.8 Taxes. Each of the Company and its Subsidiaries has filed or caused to be filed all income tax returns and all other material tax returns which are required to 7 be filed and has paid (i) all taxes shown to be due and payable on such returns and (ii) all taxes shown to be due and payable on any assessments of which it has received notice made against it or any of its property and all other taxes, fees or other governmental charges imposed on it or any of its property and no tax Lien has been filed, and no claim is being asserted, with respect to any such tax, fee or other charge (other than any (x) taxes, fees or other charges with respect to which the failure to pay, in the aggregate, would not have a Material Adverse Effect or (y) taxes, fees or other charges the amount or validity of which are currently being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves in accordance with United Stated generally accepted accounting principles have been maintained). SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE BUYER 4.1 Organization and Authorization. The Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of New York and the execution, delivery and performance by the Buyer of this Agreement are within the Buyer's limited liability company powers and have been duly authorized by all necessary limited liability company action. 4.2 Binding Effect. This Agreement has been duly and validly executed and delivered by the Buyer and, assuming the due authorization, execution and delivery by the Company, constitutes the valid and binding obligation of the Buyer enforceable against the Buyer in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally and by general principles of equity. 4.3 Purchase for Investment. The Buyer is purchasing the Class B Shares solely for investment, with no present intention to resell such Class B Shares. The Buyer hereby acknowledges that the Class B Shares have not been registered pursuant to the Securities Act and may not be transferred in the absence of such registration or an exemption therefrom under such Act. SECTION 5 COVENANTS OF THE COMPANY On and after the date hereof to the Closing Date (and in case of Section 5.5, to the Adjustment Date), except as expressly permitted or required by this Agreement: 8 5.1 Conduct of Business. The Company will, and will cause each Subsidiary to: (a) carry on its business in, and only in, the ordinary course of business consistent with its past practice; (b) not increase any obligations of the Company or any Subsidiary with respect to Indebtedness, prepay any accounts payable, delay payment of any trade payables other than in the ordinary course of business, or make any other cash payments other than in the ordinary course of business consistent with its past practice; (c) comply in all material respects with all Laws applicable to it or any of its properties, assets or business; (d) not merge or consolidate with, or agree to merge or consolidate with, or purchase substantially all of the assets of, or otherwise acquire, any business, business organization or division thereof, or any other Person; (e) promptly advise the Buyer in writing of any event, occurrence, fact, condition, change, development or effect that, individually or in the aggregate, could have or result in a Material Adverse Effect or a breach of this Section 5.1; and (f) not agree or otherwise commit to take any of the actions described in the foregoing paragraphs (a) through (e). 5.2 Access and Information. The Company will give the Buyer and its Representatives full access during reasonable business hours to all of the Company's and its Subsidiaries' respective properties, assets, books, contracts, commitments, reports and records, and furnish to them all such documents, records and information and copies of any work papers relating thereto as the Buyer shall from time to time reasonably request. The Company will keep the Buyer generally informed as to the affairs of the Business. 5.3 Financial Statements and Reports. The Company will deliver to Buyer: (a) From the date hereof to and including the Closing Date, monthly management reports in scope and detail consistent with those management reports that have historically been distributed to the Company's senior management and have previously been delivered to the Buyer, and timely prepare, and promptly deliver to the Buyer, monthly financial statements, to be in scope and detail con- 9 sistent with such monthly financial statements as historically distributed to the Company's senior management and as previously delivered to the Buyer. Each such financial statement shall present fairly the financial position, assets and lia bilities of the Company as at the date thereof and the results of its operations and its cash flows for the period then ended, in accordance with accounting policies and procedures consistent with those historically used by the Company in the preparation of such monthly financial statements; (b) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; and (c) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission. 5.4 Public Announcements. Except as required by applicable Law, the Company shall not, and shall not permit any Subsidiary to, make any public announcement in respect of this Agreement or the transactions contemplated hereby without the prior written consent of the Buyer. 5.5 Price Per Share Calculation; Additional Class B Shares. (a) Not later than one day prior to the Adjustment Date, the Company shall deliver to Buyer its determination of the Final Trading Price for each day during the Measurement Period, the average of all such Final Trading Prices, and the number of additional Class B Shares, if any, to be issued to the Buyer on the Adjustment Date pursuant to Section 1.4. (b) The Company shall cause to be reserved 757,500 of Class B Shares for issuance and delivery to the Buyer on the Adjustment Date in accordance with Section 1.4 hereof. All such Class B shares shall be duly authorized and, when issued upon the Per Share Price adjustment, shall be validly issued, fully paid and nonassessable, free and clear of all Liens, restrictions on sale and preemptive rights. 5.6 Further Actions. (a) The Company shall use all reasonable efforts to take or cause to be taken all actions, and to do or cause to be done all other things, necessary, proper or advisable in order for the Company to fulfill and perform its ob ligations in respect of this Agreement, or otherwise to consummate and make effective the transactions contemplated hereby. (b) The Company shall, as promptly as practicable, (i) make, or cause to be made, all filings and submissions required under any Law, and give such reasonable 10 undertakings as may be required in connection therewith, and (ii) use all reasonable efforts to obtain or make, or cause to be obtained or made, all Consents of any Governmental Authority necessary to be obtained or made by it, in each case in connection with this Agreement, the sale and transfer of the Class B Shares pursuant hereto, or the consummation of the other transactions contemplated hereby. (c) The Company shall coordinate and cooperate with the Buyer in exchanging such information and supplying such reasonable assistance as may be reasonably requested by the Buyer. (d) At all times prior to the Closing Date, the Company shall promptly notify the Buyer in writing of any fact, condition, event or occurrence that could result in the failure of any of the conditions contained in Section 2 to be satisfied, promptly upon becoming aware of the same. SECTION 6 INDEMNIFICATION In the event that the Buyer or any of its officers, directors or controlling Persons (each, an "Indemnified Party") becomes involved in any capacity in any action, proceeding or investigation brought by or against any Person, including, without limitation, the Company or any equity holders or creditors of the Company, in connection with or as a result of any matter referred to in this Agreement, including but not limited to the purchase by the Buyer of Class B Shares, the Company periodically will reimburse such Indemnified Party for all of its out-of-pocket legal, expert and other expenses (including the out-of-pocket cost of any investigation and preparation) incurred in connection therewith. The Company also will indemnify and hold each Indemnified Party harmless against any and all losses, claims, damages, expenses, actions, demands, assessments, costs, judgments, awards, fines, sanctions, penalties, amounts paid in settlement, or liabilities ("Damages") to any such Person in connection with or as a result of any matter referred to in this Agreement and without regard to the exclusive or contributory negligence of any of the Indemnified Parties, except to the extent that any such Damages is finally judicially determined to have resulted from the gross negligence, willful misconduct or bad faith of such Indemnified Party in connection with the subject matter of this Agreement (and in the event of such a determination, the Indemnified Party will reimburse the Company for any expenses advanced to such Indemnified Party by the Company pursuant to the immediately preceding sentence). If for any reason the foregoing indemnification is unavailable to any Indemnified Party or insufficient to hold it harmless, then the Company shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages in such proportion as is appropriate to reflect the relative economic interests of the Company and its equity holders, on the one hand, and such Indemnified Party, on the other hand, in the matters contemplated by this 11 Agreement as well as the relative fault of the Company, on the one hand, and such Indemnified Party, on the other hand, with respect to such loss, claim, damage or liability and any other relevant equitable considerations. The reimbursement, indemnity and contribution obligations of the Company under this Section 7 will be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliate of any Indemnified Party and the directors, agents, advisors, employees and controlling Persons of such Indemnified Party and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and Personal representatives of the Company, such Indemnified Party, any such Affiliate and any such Person. The Company will not be responsible, in connection with any one action or proceeding (or separate but substantially similar proceedings arising out of the same general allegations), for the fees and expenses of more than one firm of attorneys at any time for all Indemnified Parties, except to the extent local counsel, in addition to its regular counsel, is required to effectively defend against such action, provided if counsel to the Indemnified Parties reasonably determines that there is a conflict of interest among the Indemnified Parties, then the Indemnified Party with respect to which such conflict of interest relates may employ separate counsel at the cost and expense of the Company. The Company also agrees that neither any Indemnified Party nor any of such Affiliates, directors, agents, advisors, employees or controlling Persons will have any liability based on its or their exclusive or contributory negligence or otherwise to the Company, any Person asserting claims on behalf or in the right of the Company, or any other Person in connection with or as a result of any matter referred to in this Agreement except to the extent that any Damages incurred by the Company result from the gross negligence, willful misconduct or bad faith of such Indemnified Party in connection with the subject matter of this Agreement. Prior to entering into any agreement or arrangement with respect to, or effecting, any merger, statutory exchange or other business combination or proposed sale, exchange, dividend or other distribution or liquidation of all or a significant portion of its assets in one or a series of transactions or any significant recapitalization, or reclassification of its outstanding securities, the Company shall notify the Indemnified Parties in writing thereof (if not previously so notified) and, if requested by the Indemnified Parties, shall arrange in connection therewith alternative means of providing for the obligations of the Company set forth in this Section 7 including the assumption of such obligations by another party, insurance, surety bonds or the creation of an escrow, in each case in an amount and upon terms and conditions satisfactory to the Indemnified Parties. SECTION 7 TERMINATION This Agreement shall terminate on January 1, 1999 if no Exercise Notice is given on or prior to December 31, 1998. In addition, this Agreement may be terminated at any time prior to the Closing: 12 (a) by the written agreement of the Company and the Buyer; (b) upon notice given by the Buyer if the Company breaches any material covenant or agreement in this Agreement or any other document or agreement delivered pursuant to this Agreement or in furtherance of the transactions con templated herein (collectively, the "Transaction Documents") or if any representation or warranty made by the Company in or pursuant to any Transaction Document is false in any material respect when made; or (c) upon notice given by either the Company or the Buyer if consummation of the transactions contemplated hereby would violate, in whole or in part, any nonappealable final order, decree or judgment of any court or governmental body having competent jurisdiction. If this Agreement is terminated as provided in this Section 7, this Agreement shall become null and void and of no further force or effect, except for Section 1.2 relating to the payment of the Commitment Fee, Section 5.4 relating to publicity, Section 6 relating to indemnification and Section 9.4 relating to certain expenses. Nothing in this Section 7 shall be deemed to release either Party from any liability for any breach by such Party of the terms and provisions of this Agreement or to impair the right of either Party to compel specific performance by the other Party of its obligations under this Agreement. SECTION 8 DEFINITIONS In this Agreement, the following terms shall have the following respective meanings: "Adjustment Date" shall have the meaning assigned to it in Section 1.4(a). "Affiliate" means, with regard to any person, any other person who, individually or as a part of a "group" for purposes of Section 13(d) of the Securities Exchange Act, controls, is controlled by or is under common control with, such person. "Agreement" means this Stock Purchase Agreement, including any exhibits and schedules hereto, as it may be supplemented or amended from time to time in accordance with its terms. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. 13 "Buyer" shall have the meaning assigned to it in the preamble. "Change of Control of the Company" means the occurrence of any of the following events: (a) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire within one year), directly or indirectly, of more than eighteen percent (18%) of the total voting power of the equity securities of the Company and obtains the contractual right to elect or designate for election a majority of the Board of Directors of the Company; or (b) Permitted Holders cease to beneficially own, directly or indirectly, such amount of the equity securities of the Company that gives them over 50% of the total voting power of such securities. "Class A Shares" shall have the meaning assigned to it in Section 1.4(a). "Class B Shares" shall have the meaning assigned to it in the recitals. "Closing" shall have the meaning assigned to it in Section 1.3(b). "Closing Date" shall have the meaning assigned to it in Section 1.3(b). "Commitment Fee" shall have the meaning assigned to it in Section 1.2. "Commitment Letter" means the letter, dated November 12, 1998, from the Buyer to the Company relating to the subject matter of this Agreement. "Company" shall have the meaning assigned to it in the preamble. "Company 10-K" shall have the meaning assigned to it in Section 3.5(c). "Company 10-Qs" shall have the meaning assigned to it in Section 3.5(c). "Consent" means any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, certificate, exemption, order, registration, declaration, filing, report or notice of, with or to any Person. 14 "Damages" shall have the meaning assigned to it in Section 7. "Exchange Act" shall have the meaning assigned to it in Section 3.5(a). "Exercise Notice" shall have the meaning assigned to it in Section 1.3(a). "Expiration Date" shall have the meaning assigned to it in Section 1.1. "Final Trading Price" shall have the meaning assigned to it in Section 1.4(a). "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government including, without limitation, the European Union. "Indebtedness", as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money, (ii) all obligations evidenced by a note, bond, debenture, letter of credit, draft or similar instrument, (iii) that portion of obli gations with respect to capital leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iv) notes payable and drafts accepted representing extensions of credit, (v) any obligation owed for all or any part of the deferred purchase price of property or services, which purchase price is due more than six months from the date of incurrence of the obligation in respect thereof, and (vi) all indebtedness and obligations of the types described in the foregoing clauses (i) through (vi) to the extent secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. "Indemnified Party" shall have the meaning assigned to it in Section 7. "Law" means all applicable provisions of all (i) constitutions, treaties, statutes, laws (including the common law), codes, rules, regulations, ordinances or orders of any Governmental Authority and (ii) orders, decisions, injunctions, judg ments, awards, Consents and decrees of or agreements with any Governmental Authority. "Lien" means any lien, mortgage, pledge, charge, security interest or encumbrance of any kind. 15 "Material Adverse Effect" means a material adverse effect on the financial condition, business, operations, assets (taken as a whole), liabilities (taken as a whole) or prospects of the Company and its Subsidiaries, taken as a whole, or on the ability of the Company to perform its obligations hereunder, provided that the results of Company's investments and operations in Poland shall be excluded from the determination of a Material Adverse Effect. "Measurement Period" shall have the meaning assigned to it in Section 1.4(a). "NASDAQ" means The Nasdaq National Market of The Nasdaq Stock Market operated by The Nasdaq Stock Market, Inc., a wholly-owned subsidiary of the National Association of Security Dealers, Inc. "Party" shall have the meaning assigned to it in the recitals. "Per Share Price" shall have the meaning assigned to it in Section 1.1. "Permitted Holders" means Ronald S. Lauder and Persons with respect to whom Ronald S. Lauder possesses the power to direct such Person's management and policies, whether through the ownership of voting securities, by contract or otherwise (which power shall be deemed to exist upon the ownership of more than 50% of any class of voting securities or equity interest in any such Person). "Person" means, an individual, corporation, partnership, association, trust or other entity or organization, including a government or political subdivision or any agency or instrumentality thereof. "Representatives" as to any Person, means its accountants, counsel, consultants (including actuarial, environmental and industry consultants), officers, directors, employees, agents and other advisors and representatives. "Securities Act" shall have the meaning assigned to it in Section 1.5(b). "Subscription Price" shall have the meaning assigned to it in Section 1.1. "Subsidiary" means, as to any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of capital stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or 16 controlled, directly or indirectly, by (i) such Person or (ii) one or more Subsidiaries of such Person. "Transaction Documents" shall have the meaning assigned to it in Section 7(b). SECTION 9 MISCELLANEOUS 9.1 Amendments and Waivers. This Agreement cannot be altered or otherwise amended except prior to the Closing pursuant to an instrument in writing signed by Buyer and the Company. Any of the terms and conditions of this Agreement may be waived in writing at any time on or prior to the Closing by the Party entitled to the benefits thereof. 9.2 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and the Buyer and their respective heirs, personal representatives, successors and assigns, provided that any assignment, by operation of law or otherwise, by the Company shall require the prior written consent of the Buyer and any purported assignment or other transfer without such consent shall be void and unenforceable. 9.3 Notices. All notices, requests and other communications to any Party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mail with first class postage prepaid, or (ii) if given by any other means, when delivered at the address specified below in this Section 9.3. The Company: Central European Media Enterprises Ltd. c/o CME Development Corporation 18 D'Arblay Street London W1V 3FP United Kingdom Attention: Legal Department telecopy number: 011-44-171-292-7948 17 with a copy to: Rosenman & Colin 575 Madison Avenue New York, New York 10022 Attention: Robert Kohl, Esq. telecopy number: 212-940-8776 The Buyer: RSL Capital LLC 767 Fifth Avenue, Suite 4200 New York, N.Y. 10153 Attention: Ronald S. Lauder telecopy number: 212-572-6758 with a copy to: Debevoise & Plimpton 875 Third Avenue New York, NY 10022 Attention: Louis Begley telecopy number: 212-909-6836 9.4 Expenses. The Company shall reimburse the Buyer for its reasonable out-of-pocket expenses (including fees and disbursements of Debevoise & Plimpton, counsel for the Buyer) incurred in connection with the preparation of the Transaction Documents. The Company shall indemnify the Buyer against any transfer taxes, docu mentary taxes, assessments or charges made by any Governmental Authority by reason of the execution, delivery, amendment or enforcement of any of the Transaction Documents. 9.5 Survival of Representations and Warranties. The representations and warranties made by the Company and Buyer hereunder or in connection herewith shall survive until the second anniversary of the Closing, provided that the representations and warranties of the Company contained in Sections 3.1, 3.2, 3.3 and 3.8 shall survive with out limitation (subject, in the case of Section 3.8, to any statutes of limitations applicable to the particular tax at issue). 9.6 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without, to the extent permitted by law, invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not, to the extent permitted by law, invalidate or render unenforceable such provision in any other jurisdiction. 18 9.7 Integration. This Agreement represent the entire agreement of the Company and the Buyer with respect to the subject matter hereof, and supersede any and all prior arrangements and understandings, oral or written, relating to the subject matter hereof; provided that Section 2 of the Commitment Letter (concerning payment of certain fees) and Exhibit B thereto (concerning indemnification and other maters set forth therein) shall continue in full force and effect. 9.8 No Third Party Beneficiaries. Except as provided in Section 6, nothing in this Agreement shall confer any rights upon any Person or entity which is not a Party or a successor or permitted assignee of a Party to this Agreement. 9.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be considered an original but all of which together shall constitute one and the same instrument. 9.10 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR RULES OF CONFLICT OF LAWS TO THE EXTENT SUCH PRINCIPLES OR RULES WOULD REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. (b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RELATING THERETO, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. 9.11 Trial Without Jury. EACH OF THE COMPANY AND THE BUYER AGREES THAT ANY LITIGATION GROWING OUT OF ANY 19 CONTROVERSY WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY NOTE OR ANY OTHER LOAN DOCUMENT WILL BE TRIED BY A JUDGE SITTING WITHOUT A JURY AND HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first above written: CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. By: ------------------------------------- Name: Michel Delloye Title: President and Chief Executive Officer RSL CAPITAL LLC By: ------------------------------------- Name: Ronald S. Lauder Title: Chairman 20 Exhibit A EXERCISE NOTICE Pursuant to Section 1.3 of the Stock Purchase Agreement, dated as of December __, 1998, by and among, RSL Capital LLC, a New York limited liability company (the "Buyer"), and Central European Media Enterprises Ltd., a company organized under the laws of Bermuda (the "Company"), the Company hereby notifies the Buyer that it wishes to exercise the commitment set forth in Section 1.1 of such Agreement and issue and sell to Buyer 1,515,000 Class B Shares for the consideration set forth in such Agreement. This notice is the Exercise Notice referred to in Section 1.3 of such Agreement. WITNESS the signature of the undersigned this __ day of ________ 199_. CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. By: ------------------------------------- Name: Title: Exhibit B OFFICER'S CERTIFICATE The undersigned ________________, hereby certifies that he is the _______________ of Central European Media Enterprises Ltd., a company organized under the laws of Bermuda (the "Company"), and that, as such, he is authorized to execute and deliver this Certificate on behalf of the Company and, with reference to the Stock Purchase Agreement, dated as of December __, 1998, by and among, RSL Capital LLC, a New York limited liability company (the "Buyer") and the Company (the "Stock Purchase Agreement"), further certifies, represents and warrants on behalf of the Company as follows (each capitalized term used herein without definition having the meaning specified in the Stock Purchase Agreement): 1. As of the date hereof, the representations and warranties of the Company set forth in Section 2 of the Stock Purchase Agreement are true and correct in all material respects. 2. All of the agreements, covenants and conditions required by the Stock Purchase Agreement to be performed or complied with by the Company on or prior to the Closing Date have been duly performed and complied with in all material respects. WITNESS the signature of the undersigned this __ day of ________ 199_ [insert Closing Date]. CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. By: -------------------------------------- Name: Title: Exhibit C OPINION OF COUNSEL A. OPINION OF A BERMUDA COUNSEL 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of Bermuda, and has full corporate power and authority to own its properties and conduct its business. 2. The Stock Purchase Agreement has been duly authorized, executed and delivered by the Company, and is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium and similar laws affecting the rights of creditors generally and by general equitable principles. 3. The Class B Shares have been duly and validly authorized by the Company and, when such Class B Shares are issued and delivered on the Closing Date, all such Class B Shares will be duly and validly issued, fully paid and non-assessable and the issuance of such Class B Shares is not subject to any presently existing preemptive or other similar rights. [Need to expand to cover Class B Shares to be issued following the price adjustment] 4. The execution and delivery by the Company of the Stock Purchase Agreement, and the performance by the Company of its obligations thereunder, will not contravene or conflict with the Bermuda Companies Act of 1981, any other Bermuda law or regulation, any judgment, order, decree, rule or regulation of any Bermuda court or arbitrator or governmental agency or body having jurisdiction over the Company or any of its respective properties or assets, or the memorandum of association or by-laws of the Company. B. OPINION OF A NEW YORK COUNSEL 1. Assuming that the Stock Purchase Agreement has been duly authorized, executed and delivered by the Company, the Stock Purchase Agreement is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium and similar laws affecting the rights of creditors generally and by general equitable principles. 2. The execution and delivery by the Company of the Stock Purchase Agreement, and the performance by the Company of its obligations thereunder, will not contravene or conflict with any United States Federal or New York statute or regulation, any judgment, order, decree, rule or regulation of any United States Federal or New York court or arbitrator or governmental agency or body having jurisdiction over the Company or any of its respective properties or assets. 24 EX-21.01 11 SUBSIDIARIES LIST Subsidiaries as at March 22, 1999 Company Name Jurisdiction of Organization Media Pro International S.A. Romania Media Vision S.R.L. Romania Video Vision International S.R.L. Romania Pro TV S.R.L. Romania International Media Services Ltd. Bermuda Innova Film GmbH Germany Enterprise "Intermedia" Ukraine Limited Liability Company "Prioritet" Ukraine Broadcasting Company "Studio 1+1" Ukraine Ukraine Advertising Holding B.V. Netherlands Ceska Nezavisla Televizni Spolecnost, spol. s.r.o. Czech Republic Nova Consulting a.s. Czech Republic Nova Holding a.s. Czech Republic CET 21 spol. s.r.o. Czech Republic Slovenska Televizna Spolocnost, spol. s.r.o. Slovakia MKTV Rt (Iris TV) Hungary BK Rt (TV3) Hungary Videovox Kft Hungary GammaSat Media Investment Holding Kft Hungary Magyarhang Kft Hungary MM TV 1, d.o.o. Slovenia Tele 59, d.o.o. Slovenia Meglic Telecom, d.o.o. Slovenia Produkcija Plus, d.o.o. Slovenia Idea d.o.o. Slovenia CME Media Enterprises B.V. Netherlands CME Czech Republic B.V. Netherlands CME Czech Republic II B.V. Netherlands CME Germany B.V. Netherlands CME Hungary B.V. Netherlands CME Poland B.V. Netherlands CME Romania B.V. Netherlands CME Slovakia B.V. Netherlands CME Slovenia B.V. Netherlands CME Ukraine B.V. Netherlands Company Name Jurisdiction of Organization CME Media Enterprises UK UK CME Ukraine Holding GmbH Austria CME Development Corporation USA CME Programming Services Inc. USA CME Programming Services B.V. Netherlands Central European Media Enterprises N.V. Netherlands Antilles EX-23.01 12 CONSENT OF ARTHUR ANDERSEN & CO. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements File Nos. 333-1560 and 333-60295. ARTHUR ANDERSEN & CO. Hamilton, Bermuda March 29, 1999 EX-24.01 13 POWER OF ATTORNEY POWER OF ATTORNEY ----------------- Each person whose signature appears below, constitutes and appoints Michel Delloye, Frederic T. Klinkhammer and John A. Schwallie, and each of them, with full power to act without the other, such person's true and lawful attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year 1998 of Central European Media Enterprises Ltd., a Bermuda corporation, and any and all amendments to such Annual Report on Form 10-K and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorneys-in-fact, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. March 8, 1999 /s/ Ronald S. Lauder /s/ Michel Delloye -------------------- ------------------ Ronald S. Lauder Michel Delloye /s/ Robert R. Grusky /s/ Herbert S. Schlosser -------------------- ------------------------ Robert R. Grusky Herbert S. Schlosser /s/ Peter R. Goldscheider /s/ Nicolas G. Trollope ------------------------- ----------------------- Peter R. Goldscheider Nicolas G. Trollope /s/ John A. Schwallie ----------------------- --------------------- Frederic T. Klinkhammer John A. Schwallie EX-27.01 14 FINANCIAL DATA SCHEDULE
5 1000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 44,373 71 44,507 (3,270) 0 155,108 116,759 (50,477) 385,466 107,193 183,604 0 0 257 65,450 385,466 182,367 182,367 0 217,112 (3,398) 0 (3,398) (65,146) (15,856) (81,158) (44,094) 0 0 (125,252) (5.19) (5.19)
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