CENTRAL EUROPEAN MEDIA ENTERPRISES LTD, S-3, 1997-04-02

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD
S-3, 1997-04-02
TELEVISION BROADCASTING STATIONS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1997

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

------------------------

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
BERMUDA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

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CLARENDON HOUSE
CHURCH STREET
HAMILTON HM/CX
BERMUDA
(441) 296-1431
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

------------------------

LEONARD M. FERTIG
CHIEF EXECUTIVE OFFICER
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
C/O CME DEVELOPMENT CORPORATION
18 D'ARBLAY STREET
LONDON W1V 3FP ENGLAND
44-171-292-7900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

------------------------

Copies to:

<TABLE>
<S> <C>
ROBERT L. KOHL, ESQ. ALAN SIEGEL, ESQ.
ROSENMAN & COLIN LLP AKIN, GUMP, STRAUSS,
575 MADISON AVENUE HAUER & FELD, L.L.P.
NEW YORK, NY 10022 590 MADISON AVENUE
(212) 940-8800 NEW YORK, NY 10022
(212) 872-1000
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /_____________________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ______________________________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES BEING REGISTERED REGISTERED OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C>
[ ]% Convertible Subordinated Notes Due 2004 $143,750,000 $143,750,000 $43,561
Common Stock, par value $.01 per share, underlying the Notes.... (1) -- --
</TABLE>

(1) Such indeterminate number of shares of Common Stock as may from time to time

be issued, at indeterminate prices, upon conversion of the Notes.

---------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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- --------------------------------------------------------------------------------

<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED APRIL 2, 1997
$125,000,000

[LOGO]

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

% CONVERTIBLE SUBORDINATED NOTES DUE 2004
INTEREST PAYABLE ON AND

The Notes offered hereby are convertible into shares of Class A Common
Stock, par value $.01 per share, of Central European Media Enterprises Ltd.
('CME,' and together with its Subsidiaries, the 'Company') at any time after 60
days following the date of original issuance through maturity, unless previously
redeemed, at a conversion price of $ per share, subject to adjustment in
certain events. CME's authorized capital stock includes Class A Common Stock and
Class B Common Stock. The rights of each class of Common Stock are identical,
except with respect to voting. The Class A Common Stock is traded on the Nasdaq
National Market under the symbol 'CETV.' On March 31, 1997, the last reported
sale price of the Class A Common Stock on the Nasdaq National Market was $33.25
per share. See 'Price Range of Common Stock' and 'Description of Common Stock.'

The Notes will mature on , 2004. The Notes are redeemable,
in whole or in part, at the option of CME at any time on or after
, 2000, at the redemption prices set forth herein, plus accrued
and unpaid interest. Upon a Change in Control (as defined), each holder of Notes
will have the right, subject to certain conditions and restrictions, to require
CME to repurchase any or all outstanding Notes owned by such holder at 100% of
the principal amount thereof, plus accrued and unpaid interest. CME intends to
file an application to include the Notes in the Nasdaq SmallCap Market under the
proposed symbol 'CETVG.'

The Notes will be unsecured and subordinated to all present and future
Senior Indebtedness (as defined) of the Company. At December 31, 1996, after
giving effect to this Offering and the application of the net proceeds therefrom
(based on the assumptions set forth under 'Use of Proceeds'), Senior
Indebtedness would have been approximately $55,096,000. At December 31, 1996,
liabilities (including trade payables but excluding inter-company liabilities)
of CME's consolidated subsidiaries, to which the Notes are effectively also
subordinated, were approximately $105,052,000. See 'Description of the Notes.'

FOR INFORMATION CONCERNING CERTAIN FACTORS RELATING TO THIS OFFERING, SEE

'RISK FACTORS' ON PAGE 10.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
<S> <C> <C> <C>
Per Note.............................. % % %
Total(4).............................. $ $ $
</TABLE>

(1) Plus accrued interest, if any, from , 1997.
(2) See 'Underwriting' for indemnification arrangements.
(3) Before deducting estimated expenses of $850,000 payable by the Company.
(4) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional $18,750,000 principal amount of Notes solely to cover
over-allotments. If this option is exercised in full, total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ ,
respectively. See 'Underwriting.'

The Notes offered hereby are being offered by the Underwriters, subject to
prior sale and acceptance by the Underwriters and subject to their right to
reject any order in whole or in part. It is expected that the Notes, in
temporary or definitive registered form, will be available for delivery on or
about , 1997 at the offices of Schroder Wertheim & Co. Incorporated,
New York, New York. If temporary Notes are delivered, definitive Notes will be
available for exchange as soon as practicable after that date.

SCHRODER WERTHEIM & CO.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.

, 1997

<PAGE>

[MAP OF CENTRAL AND EASTERN EUROPE WITH COMPANY'S AREAS OF OPERATIONS
HIGHLIGHTED]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES AND OF THE
UNDERLYING COMMON STOCK, INCLUDING STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE 'UNDERWRITING.'

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, (i) all references to
the 'Company' include Central European Media Enterprises Ltd. ('CME'), its
predecessors and its direct and indirect Subsidiaries and (ii) all references to
'Subsidiaries' include each corporation or partnership in which Central European
Media Enterprises Ltd. has a direct or indirect equity or voting interest.
Except as otherwise noted, (i) the information in this Prospectus assumes that
the Underwriters' over-allotment option will not be exercised, and (ii) all
statistical and financial information presented in this Prospectus has been
converted into United States dollars using exchange rates as of December 31,
1996 (Kc27.33 = $1.00; DM1.55 = $1.00; ROL4,035 = $1.00; SIT141.48 = $1.00;
Sk31.90 = $1.00; Zl2.88 = $1.00; Hrn1.89 = $1.00; HUF162 = $1.00) with the
exception of such information contained in or derived from the Company's
financial statements. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Foreign Currency.' All references to '$' or
'dollars' are to United States dollars, all references to 'Kc' are to Czech
korunas, all references to 'DM' are to German marks, all references to 'ROL' are
to Romanian lei, all references to 'SIT' are to Slovenian tolar, all references
to 'Sk' are to Slovak korunas, all references to 'Zl' are to Polish zloty, all
references to 'Hrn' are to Ukrainian hryvna and all references to 'HUF' are to
Hungarian forints.

THE COMPANY

The Company is the leading television broadcaster in Central and Eastern
Europe, broadcasting to an aggregate of 84.9 million people in six countries in
the region and an additional 9.0 million people in Germany. The Company operates
the leading national television station in the Czech Republic and the Company's
television operations in Romania, Slovenia and the Slovak Republic command the
leading audience share within their respective areas of broadcast reach. The
Company recently commenced television broadcast operations in Ukraine and
southern Poland and has television broadcast operations under development in
other areas of Poland and in Hungary which, in the aggregate, potentially could
reach an additional 32 million people. The Company's strategy is to continue
capitalizing on the substantial market opportunities created by the emergence of
private commercial television and the corresponding significant growth of
television advertising expenditures in these markets.

The Company's television broadcast operations consist of the following:

<TABLE>
<CAPTION>
TELEVISION BROADCAST OPERATIONS TERRITORY BROADCAST REACH(1) ECONOMIC INTEREST
- ------------------------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C>
Nova TV Czech Republic 10.2 93.2%(2)
PRO TV Romania 12.5 77.5%(3)
POP TV Slovenia 1.6 85.3%(4)
Markiza TV Slovak Republic 4.3 80.0%

Studio 1+1 Group Ukraine 48.5 50.0%
TV Wisla Poland 7.8 16.2%
PULS Berlin-Brandenburg 6.0 58.0%
Nuremberg Station Nuremberg 1.2 37.4%
Leipzig Station Saxony 0.7 16.7%
Dresden Station Saxony 1.1 16.7%
-----
Total 93.9
-----
-----
</TABLE>

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(1) 'Broadcast Reach' measures the number of people in millions the Company's or
the Company's local partners' broadcast signal can reach.

(2) The Company has recently obtained additional interests in Nova TV, raising
the Company's economic interest in Nova TV from 66.0% to 93.2%. The Company
is in the process of registering these additional interests pursuant to
Czech law.

(3) The Company's partners in Romania hold options to purchase equity in Media
Pro International from the Company which, if exercised, could reduce the
Company's equity interest to not less than 66.0%.

(4) The Company has recently obtained additional interests in POP TV, raising
its economic interest in POP TV from 72.0% to 85.3%.

<PAGE>

Nova TV, the Company's television station in the Czech Republic, has
consistently achieved a 65% to 70% audience share. Nova TV continues to benefit
from the growing television advertising market in the Czech Republic. Television
advertising expenditures in the Czech Republic grew from approximately $67
million in 1993 to $96 million in 1994 (Nova TV's first year of operations) to
approximately $165 million in 1996, as estimated by the Company. During 1996,
Nova TV recorded $109.2 million in net revenues and $53.1 million in broadcast
cash flow, resulting in a 48.6% broadcast cash flow margin and an increase of
18.6% in 'same station' broadcast cash flow over 1995. Nova TV has achieved its
success in 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.

The Company is applying its experience with Nova TV to its broadcast
operations in Romania, Slovenia, the Slovak Republic, Ukraine and Poland and
intends to apply this operating strategy in new markets under development. In
Romania, Slovenia and the Slovak Republic, the Company's broadcast operations,
PRO TV, POP TV and Markiza TV have achieved the leading audience share in their
areas of broadcast. PRO TV, POP TV and Markiza TV reach approximately 55%, 80%
and 79% of their national markets, respectively. In Ukraine, the Company has
acquired a 50.0% economic interest in the Studio 1+1 group of companies (the

'Studio 1+1 Group') which has a ten year license to provide programming and sell
advertising for 63 hours of broadcasting per week on a Ukrainian public
television station, UT-2, which reaches approximately 93% of Ukraine's
population of 52.1 million. In Poland, the Company has a 33.0% interest in TVN
which, in turn, has a 49.0% interest in TV Wisla. TV Wisla broadcasts to
approximately 7.8 million people in southern Poland. TVN has an option to
acquire an additional 27.2% interest in TV Wisla. In each of these markets,
television advertising spending is growing rapidly. The Company seeks to further
expand its reach in these markets through investing in additional regional
licenses, affiliating with other broadcasters and reaching agreements with local
cable operators.

The Company continues to develop other broadcast opportunities. In February
1997, the Polish National Radio and Television Council awarded to TVN television
broadcast licenses for northern Poland and the cities of Warsaw and Lodz. The
Company estimates that these television broadcast licenses have a potential
broadcast reach of approximately 11 million people. The Company and ITI, its
partner in TVN, intend to develop a national television broadcast network in
Poland which will broadcast programming and sell advertising through affiliate
stations, including TV Wisla and those broadcasting under the television
broadcast licenses awarded to TVN in northern Poland and the cities of Warsaw
and Lodz. The Company anticipates owning a 50.0% interest in this television
broadcast network, which the Company anticipates to launch in the fourth quarter
of 1997. In Hungary, the Company intends to apply for a national broadcast
license with strategic partners in accordance with tender procedures which
recently were announced. The Company also owns a dubbing and production studio
in Hungary. The Company believes that its broadcast experience in the region,
its proven programming strategy, its extensive knowledge of the political and
economic climates in Central and Eastern Europe, and its proven ability to
attract local strategic partners, position it to capitalize on these and other
development opportunities.

The Company owns interests in four private regional television stations
operating in Germany, including PULS, which broadcasts to six million people in
the Berlin-Brandenburg area. These stations provide 'total local' programming,
which involves delivering in-depth coverage of local and regional news and
events, thereby distinguishing these stations from the national networks by
being uniquely responsive to the distinct regional tastes of the respective
local viewers. PULS, which has generated losses since its operations commenced
in late 1993, is seeking investment from a strategic partner which could bring
additional broadcasting expertise, programming and capital to the station. The
partners of PULS have retained a financial advisor and are currently in
discussions with potential investors in PULS. Such an investment would be
anticipated to significantly dilute the Company's equity interest in PULS and to
decrease the Company's future funding obligations to PULS. Such investment also
could result in a reduction of the carrying value and a corresponding charge
against earnings related to the Company's equity investment in PULS and its
other German operations.

<PAGE>

BUSINESS STRATEGY

The Company's strategic objective is to strengthen its position as the
leading broadcaster in Central and Eastern Europe by applying its broadcasting,
financial and political expertise to achieve profitability in all of its
existing broadcast operations and to develop and operate additional television
broadcast operations. Key elements of the Company's strategy include:

o Being an early market entrant and establishing national and regional
television broadcast operations in the emerging markets of Central
and Eastern Europe. These markets present opportunities for the
Company to compete where advertising expenditures have been
experiencing high rates of growth. The Company believes there are
significant advantages to being an early entrant into these markets,
as there are limited frequencies available to broadcasters, thus
limiting competition. The Company also believes early entrants have
the opportunity to establish good relationships with advertisers and
build viewer loyalty and station identity before other entrants
commence operations. In Central and Eastern Europe, early entrants
also have the opportunity to acquire exclusive rights to attractive
programming for their respective markets.

o Broadcasting programming attractive to a mass market audience in
Central and Eastern Europe. Programming is a critical element in
building audience share, which is an extremely important factor in
generating advertising revenues. The Company's strategy is to
broadcast a mix of locally and internationally produced movies,
series, talk shows, variety shows, sports and news. The Company
believes broadcasting a significant amount of locally produced
programming and developing a distinctive independent news program
give a strong local identity to its broadcast operations, cater to
local tastes and appeal to the desires of the local regulatory
authorities. The Company complements its local programming by
building and maintaining an extensive library of exclusive
programming rights to popular films and television series produced
by the world's leading studios, including Paramount Pictures, Sony
Pictures, Twentieth Century Fox and Warner Bros. The Company
utilizes 'western style' production techniques to provide high
quality local language programming to its television audiences. The
Company employs modern equipment and short, lively program formats
and purchases state of the art equipment for its studios in each
location where it conducts broadcast operations.

o Creating investment alliances with local strategic partners in each
location where it seeks to establish broadcast operations. This
approach is consistent with the objectives of local licensing
authorities, thereby enhancing the likelihood that the Company or
its local strategic partners will be awarded such licenses.
Additionally, creating local strategic alliances helps ensure that
the Company's broadcast operations will be responsive to local
tastes and interests.

o Maximizing broadcast reach within licensed territories to maximize
its potential audience share and therefore increase the
attractiveness of its programming to advertisers. In each area where

the Company's and its partners' stations do not reach the entire
population, the Company seeks to create a network for its
programming and seeks to distribute it through local broadcasters
and cable systems. The Company concentrates on urban areas where
advertising dollars are focused. The Company currently employs
satellite technology in Romania, which does not have a
well-developed terrestrial television distribution system, to
distribute programming to affiliate stations. In order to serve
Romania and other markets, the Company has obtained a 12 year lease
on a transponder on a Eutelsat HB3 Satellite (the 'Satellite
Transponder'), which is scheduled to be launched in the fourth
quarter of 1997. When the Satellite Transponder becomes operational,
the Company will have the capacity to distribute up to five distinct
channels simultaneously without the necessity of building a
potentially costly transmission infrastructure in those countries.

<PAGE>

o Leveraging critical mass among its operations. The Company currently
broadcasts to approximately 93.9 million people in seven countries
and is developing or exploring operations in several other
countries. The Company believes it has reached a critical mass which
has enabled it to begin to benefit from synergies among the
Company's operations. For example, the Company has begun to gain
greater leverage in its purchasing, programming, news gathering and
production abilities. In addition, the Company intends to develop
related businesses which serve broadcasters both affiliated and not
affiliated with the Company, and intends to market certain lower
cost production services to producers and broadcasters in the higher
cost countries of Western Europe and the United States.

o Employing a dedicated team of experienced professionals who will
continue to lead the Company through the complex licensing
processes, and seek broadcast rights, in markets of Central and
Eastern Europe. Leonard M. Fertig, President and Chief Executive
Officer of the Company, has been active in obtaining broadcast
licenses for the Company and its strategic partners in Central and
Eastern Europe since 1991. Ronald S. Lauder, Chairman of the Company
and former U.S. Ambassador to Austria, has been involved actively in
the region and plays an important role in the Company's licensing
activities. The Company believes its management and dedicated
licensing team provide a competitive advantage in obtaining
broadcast rights. The Company's success in obtaining broadcast
rights generally has been achieved after lengthy competition
involving numerous other parties, including major international
media companies. The Company also employs experienced operating and
financial managers and accesses international technology,
programming and funding to promote the successful development and
management of its broadcast operations.

<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Securities Offered.................................... $125,000,000 aggregate principal amount of %
Convertible Subordinated Notes Due 2004 (the 'Notes').

Interest Payment Dates................................ and , commencing , 1997.

Maturity Date......................................... , 2004.

Conversion............................................ The Notes will be convertible at the option of the
holder, in whole or in part, at any time after 60 days
following the date of original issuance through maturity,
unless previously redeemed, into Class A Common Stock at
$ per share, subject to adjustment under certain
conditions.

Optional Redemption................................... The Notes will be redeemable, in whole or in part, at the
option of the Company, at any time on or after ,
2000, at the redemption prices set forth herein, plus
accrued and unpaid interest.

Change in Control..................................... Upon a Change in Control (as defined), each holder of the
Notes will have the right, subject to certain conditions
and restrictions, to require the Company to repurchase
any or all outstanding Notes submitted by such holder at
100% of the principal amount, plus accrued and unpaid
interest.

Subordination......................................... The Notes will be subordinated to all present and future
Senior Indebtedness (as defined) of the Company and its
Subsidiaries and effectively subordinated to liabilities
(including trade payables but excluding intercompany
liabilities) of the Company's Subsidiaries.

Use of Proceeds....................................... Estimated net proceeds of approximately $120 million plus
cash balances of approximately $61.9 million will be used
to fund broadcast operations in Poland, Ukraine, Romania
and Slovenia; to continue to fund operations in Germany;
to fund the Company's commitments with respect to its
interest in MobilRom; to purchase long-term programming
rights; to invest in long-term broadcast development
opportunities; and for general corporate purposes.

Proposed Nasdaq SmallCap Market Symbol................ CETVG

Additional Amounts.................................... Payments in respect of the Notes will be made without
withholding or deduction for or on account of any taxes,
duties, levies or other governmental charges of whatever
nature imposed by or on behalf of Bermuda. The Company
will, subject to certain exceptions, pay such additional

amounts ('Additional Amounts') so that Holder will
receive the full amount of the principal of, premium, if
any, on and interest on the Notes.
</TABLE>

<PAGE>

<TABLE>
<S> <C>
Tax Redemption........................................ The Notes are redeemable at the Company's option, in
whole but not in part, at a redemption price equal to
100% of the principal amount thereof plus accrued and
unpaid interest (including Additional Amounts, if any) to
the date of redemption, in the event that the Company
becomes obligated to pay any Additional Amounts as a
result of changes in applicable tax laws or regulations
or in the application or official interpretation thereof.
</TABLE>

<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The following data should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Consolidated Financial Statements and the Notes thereto included herein.
Data are derived from the Company's audited financial statements and the
footnotes thereto included herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
OPERATING DATA:
Net revenues............................................................... $ 53,566 $ 98,919 $ 135,985
Operating income........................................................... 957 22,308 9,996
Equity in loss of unconsolidated affiliates................................ (13,677) (14,816) (17,867)
Net loss................................................................... (20,505) (18,736) (30,003)
Net loss per common share.................................................. -- (1.28) (1.55)
Ratio of earnings to fixed charges(1)...................................... -- 4.8:1 2.1:1
OTHER DATA:
Broadcast cash flow(2)
Nova TV.................................................................. $ 12,233 $ 44,789 $ 53,128
PRO TV................................................................... -- (2,483) (5,290)
POP TV................................................................... -- (4,124) (6,394)
-------- -------- ---------
Consolidated broadcast cash flow........................................... 12,233 38,182 41,444
Markiza TV............................................................... -- -- (4,502)
-------- -------- ---------
Adjusted broadcast cash flow(3)............................................ $ 12,233 $ 38,182 $ 36,942
-------- -------- ---------
-------- -------- ---------
Net cash (used in) provided by operating activities........................ $ (1,532) $ 1,943 $ (6,619)
Number of television broadcast operations at the end of period............. 3 5 10
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets...................................................................... $146,159 $266,559
Total assets........................................................................ 365,130 490,130
Total debt.......................................................................... 55,096 180,096
Shareholders' equity................................................................ 249,320 249,320
</TABLE>

- ------------------
(1) For the ratio calculations, earnings available for fixed charges consist of
earnings (losses) before income taxes, plus fixed charges, losses of less
than 50% owned affiliates with debt not guaranteed by the Company, and
minority interest in earnings (losses) of consolidated subsidiaries. Fixed
charges consist of interest on debt. See 'Risk Factors--Effect of Leverage
on Ability to Repay Notes and Deficiency of Earnings to Fixed Charges.'

(2) 'Broadcast cash flow,' which is commonly used as a measure of performance
for broadcast companies, as used herein, is defined as net broadcast
revenues, less broadcast operating expenses excluding depreciation and
amortization, broadcast selling, general and administrative expenses, and
cash program rights costs. Cash program rights costs represent cash payments
for current programs payable and such payments do not necessarily correspond
to program use. Broadcast cash flow should not be considered as a substitute
measure of operating performance or liquidity prepared in accordance with
generally accepted accounting principles. Broadcast cash flow is only
presented for the periods in which broadcasting took place. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'

(3) Consolidated broadcast cash flow plus broadcast cash flow of Markiza TV. The
Company has an 80% economic interest in Markiza TV but because it has a 49%
voting interest it does not consolidate Markiza TV, but accounts for Markiza
TV using the equity method.

(4) As adjusted to reflect the issuance and sale of the Notes by the Company in
the Offering and the estimated net proceeds therefrom. See 'Use of Proceeds'
and 'Capitalization.'

<PAGE>

RISK FACTORS

Investors in the Notes offered hereby should consider carefully the
following significant risk factors, in addition to all of the other information
appearing in this Prospectus, in connection with an investment in the Notes.

HISTORY OF LOSSES. The Company, incorporated in Bermuda in June 1994, is
the successor to the television license acquisition and station development
activities conducted by its affiliates since 1991, and began generating revenues
in 1994. The Company's commercial television activities, begun at Nova TV in
February 1994, at PRO TV in December 1995, at POP TV in December 1995, at
Markiza TV in August 1996, in Ukraine in October 1996, in Poland in September,
1996, at PULS in November 1993, at the Nuremberg Station in April 1994 and at
the Leipzig Station and the Dresden Station in May 1996, represent new types of
ventures in the Company's markets, and, while Nova TV has generated net income,
there can be no assurance that the Company will be successful in achieving net
profits in its other broadcast operations. As anticipated, the Company has
incurred net losses since inception, and may incur additional net losses for the
next several years, particularly in light of its growth strategy. For the years

ended December 31, 1996, 1995 and 1994, the Company incurred net losses of $30.0
million, $18.7 million and $20.5 million, respectively. As of December 31, 1996,
the Company had an accumulated deficit of $78.0 million. See 'The Company.'

HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW AND POSSIBLE
INABILITY TO SERVICE DEBT. CME conducts all of its operations through
Subsidiaries. Accordingly, the primary internal source of CME's cash and its
ability to service debt, including the Notes, and its ability to distribute
dividends to its holders of Common Stock, are dependent upon the earnings of its
Subsidiaries and the distribution of those earnings to, or upon loans or other
payments of funds by those Subsidiaries to, CME. CME may not be able to compel
its Subsidiaries to make distributions to service the Notes. Because CME is an
equity holder or partner of each of its Subsidiaries, CME's claims as such will
generally rank junior to all other creditors of and claimants against its
Subsidiaries. In the event of a Subsidiary's liquidation, there may not be
assets sufficient for CME to recoup its investment therein. Each of the
Subsidiaries was formed under the laws of, and has its operations in, a country
other than Bermuda, the jurisdiction of CME's organization. In addition, each of
CME's operating Subsidiaries receives its revenues in the local currency of the
jurisdiction in which it is situated. As a consequence, CME'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. See
'Devaluation; Currency Risk.' The Subsidiaries' ability to make distributions to
CME are also subject to their having sufficient funds from their operations
legally available for the payment thereof which are not needed to fund their
operations, obligations or other business plans and, in some cases, the approval
of the other partners, stockholders or creditors of these entities. The laws
under which CME's currently 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. If CME's Subsidiaries are
unable or unwilling to make distributions to CME, and CME is unable to obtain
additional debt or equity financing, CME may be unable to service the Notes and
its growth may be inhibited.

LACK OF AVAILABLE CURRENT EARNINGS FROM SUBSIDIARIES OTHER THAN NOVA
TV. Currently, Nova TV is the only Subsidiary which has sufficient earnings to
make distributions to CME. There is no assurance that Nova TV will continue to
generate sufficient earnings or liquidity, or that any other Subsidiary will
generate sufficient earnings or liquidity, or that distributions from
Subsidiaries in U.S. dollars will be made to CME in amounts sufficient to make
the required principal and interest payments on the Notes. See 'Holding Company
Structure; Limitations on Access to Cash Flow and Possible Inability to Service
Debt.'

SUBORDINATION. The Notes will be general unsecured obligations of CME,
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of CME and its Subsidiaries. See 'Description of Notes.' As of
December 31, 1996, on a pro forma basis, after giving effect to the

<PAGE>

Offering, the outstanding Senior Indebtedness of the Company and its
consolidated subsidiaries would have been approximately $55,096,000. There are
no restrictions in the Indenture on the creation of additional Senior
Indebtedness including any indebtedness ranking senior to the Notes. At December
31, 1996, on a pro forma basis, after giving effect to the Offering, liabilities
(including trade payables but excluding inter-company liabilities) of the
Company's consolidated subsidiaries, to which the Notes are effectively also
subordinated, were approximately $105,052,000.

EFFECT OF LEVERAGE ON ABILITY TO REPAY NOTES AND DEFICIENCY OF EARNINGS TO
FIXED CHARGES. As of December 31, 1996, on a pro forma basis, after giving
effect to the Offering and the use of proceeds therefrom, CME and its
consolidated subsidiaries would have had approximately $180,096,000 of total
debt. Assuming the Company issued and sold the Notes as of January 1, 1995, the
Company would have had a ratio of earnings to fixed charges of :1 for the
year ended December 31, 1995 and a deficiency of earnings to fixed charges of
$ for the year ended December 31, 1996. The degree to which the
Company is leveraged could have important consequences to purchasers of the
Notes including (i) increasing the Company's vulnerability to adverse general
economic and industry conditions, (ii) limiting the Company's ability to obtain
additional financing in the future, (iii) reducing the Company's flexibility to
respond to changing business, technological and economic conditions, (iv)
impeding the Company's ability to obtain financing or refinancing for general
working capital expenditures or for other general corporate purposes, and (v)
requiring the dedication of a substantial portion of the cash flow from those
Subsidiaries of the Company that the Company is able to access to pay the
principal and interest on indebtedness, thereby reducing the availability of
such cash flow to fund working capital, capital expenditures and other general
corporate purposes.

LIMITATIONS ON REPURCHASE OF NOTES AND ABSENCE OF FINANCIAL
COVENANTS. Upon a Change of Control or a Termination of Trading, each holder of
the Notes will have certain rights to require the Company to repurchase all or a
portion of such holder's Notes. See 'Description of the Notes-- Repurchase at
the Option of Holders Upon a Change of Control--Right to Require Repurchase of
Notes Upon a Termination of Trading.' If a Change of Control or a Termination of
Trading were to occur, there can be no assurance that the Company would have, or
would be able to arrange for, sufficient funds to pay the repurchase price for
the Notes tendered by the holders thereof. In addition, these repurchase
features of the Notes may make it more difficult to effect or may discourage a
change in control of the Company. These provisions resulted from negotiations
between the Company and the Underwriters and are not the result of the Company's
knowledge of any specific effort to obtain control of the Company by means of
accumulating shares of common stock of the Company or by means of a merger,
tender offer, solicitation or otherwise, or part of a plan by the Company to
adopt a series of anti-takeover provisions. The Indenture does not contain any
financial performance covenants. Consequently, the Company is not required under
the Indenture to meet any financial tests such as those that would measure the
Company's working capital, amount of additional indebtedness, interest coverage,
fixed charge coverage, net worth, or other tests in order to maintain compliance
with the terms of the Indenture. See 'Description of Notes.'

DEPENDENCE ON ADDITIONAL CAPITAL. The ownership, development and operation

of television broadcast operations requires substantial capital investment. The
net proceeds of the Offering together with the Company's current cash balances,
distributions from Nova TV and local financing of broadcast operations and
broadcast operations under development should be adequate to satisfy the
Company's operating and capital requirements for approximately 12 to 18 months.
There can be no assurance that the Company will be able to obtain additional
local financing of broadcast operations or broadcast operations under
development on terms acceptable to the Company. Thereafter, the Company
anticipates it will require additional capital as it continues to pursue its
growth strategy. See 'Use of Proceeds.' Sources of additional capital may
include debt and equity financing at the Subsidiary level and additional debt
and equity financing by the Company. Any additional equity financing by the
Company may be dilutive to shareholders. The Company's ability to obtain
additional debt financing at other than the operating Subsidiary level may be
limited because it does not conduct operations directly and may have no
significant source of cash flow available for debt service. If such financing is

<PAGE>

unavailable, the number of television broadcast operations which the Company can
develop in the future may be limited. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'

COMPETITIVE INDUSTRY. The Company encounters, and expects to continue to
encounter, intense competition in the television broadcasting industry. The
Company's television stations compete, and the Company's broadcast operations
under development will compete, for revenues, viewers and programming with other
private television stations, with government-owned and operated television
stations and with cable and direct broadcast satellite television systems in
their respective markets. The Company also competes for revenues with other
advertising media, such as newspapers, radio, magazines and outdoor advertising.
In addition, the Company is faced with numerous competitors, both strategic and
financial, in attempting to obtain television broadcast rights and programming
in Central and Eastern Europe. Many actual and potential competitors are part of
larger companies with substantially greater financial, marketing and other
resources than the Company, and there can be no assurance that the Company will
be able to compete effectively against its existing or future competitors. In
each of the markets in which the Company competes, additional licenses may be
granted by regulatory authorities. See 'Business--Operations in the Czech
Republic: Nova TV-- Competition,' 'Business--Operations in Romania: PRO
TV--Competition,' 'Business--Operations in Slovenia: POP TV--Competition,'
'Business--Operations in the Slovak Republic: Markiza TV-- Competition,'
'Business--Operations in Ukraine: Studio 1+1 Group--Competition,' 'Business--
Operations in Poland--Competition,' 'Business--Operations in Germany: the German
Stations-- Competition,' and 'Business--Broadcast Operations Under Development.'

RISKS OF TELEVISION BROADCAST OPERATIONS. The Company's operating results
are dependent upon the sale of commercial advertising time and the ability to
control operating expenses. The sale of commercial advertising time is dependent
on the general economic conditions in the country and market where each
television broadcast operation is located, the relative popularity of the

programming of the Company's broadcast operations, the demographic
characteristics of the audiences of the Company's broadcast operations, the
activities of competitors and other factors which may be outside of the
Company's control. The cost of programming to the Company may increase as the
Company broadcasts a greater number of locally produced programs and as the
commercial television markets in which the Company operates continue to develop.
The Company intends to pursue aggressively license, investment and development
opportunities in additional broadcast operations in Central and Eastern Europe.
This growth strategy entails the risks inherent in assessing the value,
strengths and weaknesses of development opportunities, in evaluating the costs
and uncertain returns of building and expanding the facilities for operating
stations and in integrating and managing the operations of additional television
stations. In addition, the Company is in varying degrees dependent, in the
countries in which it operates, upon the availability and accessibility of
government-owned broadcast and transmission facilities for distribution of its
signal throughout its license areas.

FINANCIAL CONDITION OF PULS. PULS, in which the Company has a substantial
equity investment, continues to require additional cash funding to meet ongoing
operating deficits. The Company estimates total cash funding required for PULS
to be approximately $5.5 million through June 1997. See 'Use of Proceeds' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.' None of the investors in PULS,
including the Company, have further contractual obligations to invest additional
capital in this station. The partners of PULS have retained a financial advisor
and are currently in discussions with potential investors in PULS. Any such
investor would be expected to acquire a significant equity interest in PULS and
assume responsibility for PULS' operations. Such an investment would be
anticipated to significantly dilute the Company's equity interest in PULS and to
decrease the Company's future funding obligations to PULS. Such an investment
also could result in a material reduction of the carrying value of the Company's
equity investment in PULS and a corresponding charge against the Company's
earnings. If such an investment is not obtained or if a determination is made
not to further fund the operations of PULS, insolvency of PULS may occur,
requiring a sale or cessation of its operations. Such action could result in the
loss by the Company of a part, or all, of its equity in PULS. As of December 31,
1996, the carrying

<PAGE>

value of the Company's investment in PULS was approximately $12.6 million. In
addition, a reduction of the carrying value of PULS, or other factors, might
cause the Company to reduce all or part of the carrying value of the Company's
investments in FFF (the parent company of the Nuremberg Station) and SFF
(through which the Company owns its interests in the Leipzig Station and the
Dresden Station) which were $6.1 million and $1.6 million, respectively, as of
December 31, 1996. See 'The Company' and 'Business--Operations in Germany: the
German Stations--Recent Developments.'

POSSIBLE INABILITY TO CONTROL SUBSIDIARIES. The Company has invested in
its operating Subsidiaries with strategic and financial partners. Although the
Company is involved to varying degrees in the management of its Subsidiaries and

intends to invest in the future only in broadcast operations in which it will be
involved in management, the degree of its voting power in Subsidiaries in which
the Company owns less than a majority of the voting power, and the voting power
and veto rights of its strategic and financial partners in Subsidiaries in which
the Company owns a majority of the voting power, may preclude it from
controlling the operations, strategies and financial decisions of its
Subsidiaries or other entities in which it may acquire interests. The Company
may be unable, without the consent of the relevant partners, to cause its
Subsidiaries, whether or not majority owned, to make distributions, to implement
strategies or to make programming decisions that the Company may favor.
Moreover, the ability of the Company to sell equity interests in its
Subsidiaries is subject to equity holder or similar agreements and, in certain
cases, regulatory approvals that limit the ability of the parties (including the
Company) to transfer their equity interests. Therefore, there can be no
assurance of the Company's ability to realize economic benefits through the sale
of its assets. See 'The Company.'

EXPANSION INTO EARLY STAGE MARKETS. The Company is developing broadcast
operations, and is pursuing opportunities to expand broadcast operations, in
several Central and Eastern European markets where market economies only
recently have begun to develop. The Company's primary assets, its interests in
over-the-air television licenses, are government granted. Although the general
trend in the markets in which the Company operates and intends to operate has
been toward more open markets and trade policies and the fostering of private
economic activity, no assurance can be given that the governments in the region
will continue to pursue such policies or that such policies may not be altered
significantly, especially in the event of a change in leadership, social or
political disruption or unforeseen circumstances affecting economic, political
or social life. Accordingly, social unrest, political instability, economic
distress or other factors beyond the Company's control in any such Central or
Eastern European country could have a material adverse effect on the Company's
business. Moreover, to the extent that the Company expands its reach by
utilizing satellite facilities to transmit its signal to affiliates in a
particular country, it may become subject to governmental regulation restricting
such transmission. Furthermore, there can be no assurance that the Company will
be successful in developing and expanding broadcast operations in its
prospective new markets or that such operations can be operated profitably. See
'Business--Operations in Ukraine: Studio 1+1 Group;' 'Business--Operations in
Poland;' 'Business--Broadcast Operations Under Development.'

RISKS INHERENT IN FOREIGN INVESTMENT. The Company has invested all of its
resources in operations outside of the United States and plans to make
additional international investments in the future. Risks inherent in foreign
operations include loss of revenues, property and equipment from expropriation,
nationalization, war, insurrection and other political risks, risks of increases
in taxes and governmental royalties and fees and involuntary renegotiation of
contracts with or licenses from foreign governments. The Company is also exposed
to the risk of changes in foreign and domestic laws and policies that govern
operations of overseas-based companies.

DEVALUATION; CURRENCY RISK. Although the Company's Subsidiaries have
attempted, and will continue to attempt, to match revenues and expenses and
borrowings and repayments in terms of their respective local currencies, the
Company and its Subsidiaries currently generate most of their revenues in Czech

korunas, Romanian lei, Slovenian tolar, Slovak korunas, Ukrainian hryvna, Polish
zloty, Hungarian forints and German marks and incur expenses in those currencies
as well as in British pounds and United States dollars. Certain expenses,
primarily for programming, are incurred in United States dollars and other
foreign currencies. Fluctuations in the value of foreign currencies may cause
United States dollar translated amounts to change in comparison with previous
periods. Each of the

<PAGE>

Slovenian, Romanian, Slovak, Ukrainian and Polish currencies is a managed
currency with limited convertibility. In addition, the Company in the future may
acquire interests in entities that operate in other countries where the removal
or conversion of currency is restricted. The Company currently does not hedge
against foreign currency exchange translation risks with respect to its
dollar-denominated financial statements but may hedge against specific foreign
currency transaction risks. Because of 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 quantify the effect of exchange rate fluctuations on its future
financial condition or results of operations. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Foreign Currency.'

GOVERNMENT REGULATORY RESTRICTIONS. Broadcast operations of the Company
are subject to extensive government regulation as to 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. In many countries the regulatory systems as they apply to private
(and especially foreign) investors in broadcasting stations are relatively new
and untested. In certain countries the Company is restricted in the amount of
direct interests it may hold in television stations; in such cases station
licenses may be held by the Company's local partners, and the Company has
arrangements to provide programming, advertising and other services (including
management services) to the station. No assurance can be given that any
necessary regulatory approvals for these arrangements will be obtained or that
such arrangements will not be subject to regulatory review in the future which
may limit the influence the Company may have with respect to its local broadcast
partners. There are also regulations requiring that certain percentages of
programming be produced or originated in local markets. The cost of programming
could also increase as a result of political initiatives taken by the European
Union to increase the amount of European-produced programming broadcast. In
addition, broadcast regulations and license conditions in the Company's markets
impose operating conditions relating, for example, to required amounts of
broadcasting, use of locally produced programming and the content and quantity
of advertising which may be broadcast. While the Company believes that it and
its Subsidiaries are in compliance in all material respects with applicable
laws, rules, regulations, and licenses, there can be no assurance that more
restrictive laws, rules, regulations or enforcement policies will not be adopted
in the future which could make compliance more difficult or expensive or
otherwise adversely affect the Company's business or prospects. See
'Business--Operations in the Czech Republic: Nova TV--Regulation,'
'Business--Operations in Romania: PRO TV--Regulation,' 'Business--Operations in

Slovenia: POP TV--Regulation,' 'Business--Operations in the Slovak Republic:
Markiza TV--Regulation,' 'Business--Operations in Ukraine: Studio 1+1 Group--
Regulation,' 'Business--Operations in Poland--Regulation,' 'Business--Operations
in Germany: the German Stations--Regulation' and 'Business--Broadcast Operations
Under Development.'

UNCERTAINTY OF LICENSE RENEWALS. The licenses to operate the Company's
broadcast operations are effective for the following periods: (i) the license to
operate Nova TV expires in 2005; (ii) the six licenses of PRO TV's affiliate
stations in Romania expire from 2001 to 2002; (iii) the licenses of the
Company's two partners in Slovenia expire in 2002; (iv) the license of the
Company's partner in the Slovak Republic expires in 2007; (v) the license to
provide programming and sell advertising to UT-2 in Ukraine expires in 2006;
(vi) the license to operate TV Wisla expires in 2004; (vii) the licenses to
operate PULS and the Nuremberg Station expire in 2000 and 2001, respectively;
and (viii) the licenses to operate the Leipzig Station and the Dresden Station
expire in 2003. All of the licenses pursuant to which the Company's or its local
partners' television stations operate are by their terms renewable. The Company
has no reason to believe that these licenses will not be renewed. However, no
statutory or regulatory presumption exists for the current license holder, and
there can be no assurance that these licenses will be renewed by the local media
authorities upon expiration of their initial terms. The failure of any such
licenses to be renewed may have a material adverse effect on the Company.

RISKS INVOLVED IN USING SATELLITE TRANSPONDER. The Company is using
satellite technology to assist it in maximizing broadcast reach in certain of
its broadcast operations. The Company currently uses satellite technology
pursuant to a short-term lease in anticipation of the launch of the satellite

<PAGE>

containing the Satellite Transponder. There is a risk (i) that the satellite on
which the Company leases the Satellite Transponder will not be launched in the
fourth quarter of 1997 as scheduled, (ii) that this satellite or the Satellite
Transponder will not function as expected and (iii) that this satellite will
have a shorter useful life than expected. The occurrence of any of these events
could impair the Company's ability to extend its broadcast reach in certain
countries. Although the Company intends to arrange suitable backup plans, there
can be no assurance that the occurrence of any of these events would not have a
material adverse effect on the Company's business and the results of its
operations.

DEPENDENCE ON KEY PERSONNEL. The success of the Company is particularly
dependent upon the active involvement of Leonard M. Fertig, President and Chief
Executive Officer, and Ronald S. Lauder, Chairman. The loss of the services of
either of these individuals could have a material adverse effect on the Company.
The degree of Mr. Lauder's involvement in the activities of the Company varies
from time to time based on the then current needs of the Company. Mr. Lauder's
involvement has been greatest in connection with the acquisition of broadcast
rights and in locating local strategic partners. Mr. Lauder is not an employee
of the Company. The Company has an employment agreement with Mr. Fertig, which
expires on August 9, 1998. The employment agreement with Mr. Fertig contains a

non-compete covenant, with a term of two years after the termination of
employment. Because of the specialized nature of the Company's business, the
Company believes that its future success will depend in large part upon its
ability to attract and retain highly-skilled managerial, technical and marketing
personnel as well as experienced local managers. Although the Company has been
successful in attracting such personnel in the past, competition for such
personnel is intense, and there can be no assurance that the Company will
continue to be successful in attracting and retaining the personnel it requires
to grow. See 'Management.'

CONTINUING CONCENTRATION OF SHARE OWNERSHIP AND VOTING CONTROL;
ANTI-TAKEOVER PROVISIONS. The Company's officers and directors, and certain of
their affiliates and employees, collectively own beneficially approximately
26.2% of the outstanding capital stock and 67.5% of the voting power of the
Company. Ronald S. Lauder owns beneficially approximately 21.9% of the
outstanding capital stock and 56.3% of the voting power of the Company, except
where a separate class vote is required by Bermuda law. Mr. Lauder has the
ability to control the election of the Board of Directors of the Company and
thus the direction and future operations of the Company without the supporting
vote of any other shareholder of the Company, including decisions regarding
acquisitions and other business opportunities (except with respect to a 'going
private' transaction between the Company and Mr. Lauder), the declaration of
dividends and the issuance of additional shares of Class A Common Stock and
other securities. Such concentration of ownership may have the effect of
delaying, deferring or preventing a change of control of the Company, a
transaction which might otherwise be beneficial to shareholders. In addition,
the Company's Memorandum of Association and bye-laws contain provisions that
could delay, defer or prevent a change in control without the approval of the
incumbent Board of Directors. These provisions, among other things, create a
class of common stock with super voting rights and authorize the Board of
Directors to issue preferred stock in one or more classes or series without any
action on the part of the shareholders. Such provisions could limit the price
that investors might be willing to pay in the future for shares of Class A
Common Stock and impede the ability of the shareholders to replace management
even if factors warrant such a change. Moreover, certain provisions of the Notes
make it more difficult to effect or may discourage a change in control of the
Company. See 'Risk Factors--Limitations on Repurchase of Notes and Absence of
Financial Covenants.' A change of control of the Company may result in a loss of
the Company's rights to certain television broadcast licenses which could have a
material adverse effect on the Company, and which, therefore, may impede a third
party from attempting to obtain control of the Company. See 'Description of
Capital Stock.'

ABSENCE OF PUBLIC MARKET FOR THE NOTES. Prior to the Offering there has
been no public market for the Notes and there can be no assurances that an
active trading market will develop or be sustained. The trading price of the
Notes or the shares of Class A Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results,
regulatory factors, competitive conditions, market and economic conditions and
general trends in the broadcasting industry.

<PAGE>

ENFORCEMENT OF CIVIL LIABILITIES AND JUDGMENTS. The Company is a Bermuda
company, and substantially all of its assets and all of its operations are
located, and all of its revenues are derived, outside the United States. The
Company has appointed Corporation Service Company as its agent to receive
service of process with respect to any action brought against it in the United
States District Court for the Southern District of New York or any New York
State court under the securities laws of the United States or any state thereof.
However, it may not be possible for investors to enforce outside the United
States judgments against the Company obtained in the United States in any civil
actions, including actions predicated upon the civil liability provisions of the
United States federal securities laws. In addition, certain of the directors and
officers of the Company are non-residents of the United States, and all or a
substantial portion of the assets of such persons are or may be located outside
the United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons, or to enforce
against them judgments obtained in the United States courts, including judgments
predicated upon the civil liability provisions of the United States federal
securities laws. There is uncertainty as to whether the courts of the countries
in which the Company operates or plans to operate would enforce (i) judgments of
United States courts obtained against the Company or such persons predicated
upon the civil liability provisions of the United States federal and state
securities laws or (ii) in original actions brought in such countries, as
applicable, liabilities against the Company or such persons predicated upon the
United States federal and state securities laws. A final and conclusive judgment
in Federal or State courts of the United States under which a sum of money is
payable (not being a sum payable in respect of taxes or other charges of a like
nature or in respect of a fine or other penalty or multiple damages) may be
subject to enforcement proceedings as a debt in the Supreme Court of Bermuda
under the common law doctrine of obligation. Among other things, it is necessary
to demonstrate that the court which gave the judgment was competent to hear the
action in accordance with private international law principles as applied in
Bermuda and that the judgment is not contrary to public policy in Bermuda, has
not been obtained by fraud or in proceedings contrary to natural justice and was
not based on error in Bermuda law.

BERMUDA CORPORATE LAW. The Company is a Bermuda company and, accordingly,
is governed by The Companies Act 1981 of Bermuda. The Companies Act 1981 of
Bermuda differs in certain respects from laws generally applicable to United
States corporations and shareholders, including the provisions relating to
interested directors, mergers and similar arrangements, takeovers, shareholder's
suits, indemnification of directors and inspection of corporate records. See
'Description of Capital Stock--Differences in Corporate Law.'

FOREIGN PERSONAL HOLDING COMPANY AND PASSIVE FOREIGN INVESTMENT COMPANY
RULES. The Company seeks to manage its affairs and the affairs of its
Subsidiaries so that neither the Company nor any of its foreign corporate
Subsidiaries would be classified as a foreign personal holding company ('FPHC')
or a passive foreign investment company ('PFIC') under the United States
Internal Revenue Code of 1986, as amended. If the Company or any such
Subsidiaries were an FPHC, the undistributed foreign personal holding company
income (generally, the taxable income, with certain adjustments), if any, of the
Company or of its foreign corporate Subsidiaries would be included in the income
of the United States shareholders of the Company as a dividend, on a pro rata

basis. If the Company were a PFIC, then each United States shareholder of the
Company generally would, upon certain distributions by the Company or upon
disposition of the Class A Common Stock at a gain, be liable to pay tax at the
then prevailing rates on ordinary income plus an interest charge, as if the
distribution or gain had been recognized ratably over the United States
shareholder's holding period for the Class A Common Stock, or if a 'qualified
electing fund' election were made by the United States shareholder, a pro rata
share of the Company's ordinary income and net capital gain would be required to
be included in the United States shareholder's income each year. While the
Company intends to manage its affairs and the affairs of its Subsidiaries so as
to avoid FPHC and PFIC status, there can be no assurance that the Company will
be successful in this endeavor. See 'Certain Tax Considerations--United States
Federal Income Taxation--Foreign Personal Holding Companies' and 'Certain Tax
Considerations--United States Federal Income Taxation--Passive Foreign
Investment Companies.'

<PAGE>

FORWARD-LOOKING STATEMENTS. This Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts, included in this
Prospectus that address activities, events or developments that the Company
expects, believes, intends or anticipates will or may occur in the future,
including such matters as future investments in existing television broadcast
operations and the development of new television broadcast operations (including
the amount and nature thereof), the use of proceeds of this Offering, business
strategies 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 set forth in or contemplated by
the forward-looking statements herein. Important factors that could contribute
to such differences are set forth herein under 'Risk Factors,' including, but
not limited to, 'History of Losses,' 'Holding Company Structure; Limitations on
Access to Cash Flow and Possible Inability to Service Debt,' 'Lack of Available
Current Earnings from Subsidiaries Other than Nova TV,' 'Effect of Leverage on
Ability to Repay Notes and Deficiency of Earnings to Fixed Charges,'
'Limitations on Repurchase of Notes and Absence of Financial Covenants,'
'Dependence on Additional Capital,' 'Competitive Industry,' 'Risks of Television
Broadcast Operations,' 'Financial Condition of PULS,' 'Possible Inability to
Control Subsidiaries,' 'Expansion into Early Stage Markets,' 'Risks Inherent in
Foreign Investment,' 'Devaluation; Currency Risk,' 'Government Regulatory
Restrictions,' 'Uncertainty of License Renewals,' and 'Risks Involved in Using
Satellite Transponder.'

<PAGE>

THE COMPANY

The Company is the leading television broadcaster in Central and Eastern
Europe, broadcasting to an aggregate of 84.9 million people in six countries in
the region and an additional 9.0 million people in Germany. The Company operates
the leading national television station in the Czech Republic and the Company's
television operations in Romania, Slovenia and the Slovak Republic command the
leading audience share within their respective areas of broadcast reach. The
Company recently commenced television broadcast operations in Ukraine and
southern Poland, and has television broadcast operations under development in
other areas of Poland and in Hungary which, in the aggregate, potentially could
reach an additional 32 million people. The Company's strategy is to continue
capitalizing on the substantial market opportunities created by the emergence of
private commercial television and the corresponding significant growth of
television advertising expenditures in these markets.

Central European Media Enterprises Ltd. was incorporated in June 1994 under
the laws of Bermuda. The chart on the following page sets forth the functional
corporate structure of the Company.

The Company's ownership interest in Ceska Nezavisla Televizni Spolecnost
s.r.o. ('Nova TV') is governed by the terms of a Memorandum of Association and
Investment Agreement dated as of May 4, 1993 to which Ceska Sporitelna Bank
('CS') and CET 21 s.r.o. ('CET 21'), are also parties. In August 1996, the
Company purchased CS's 22.0% economic interest in Nova TV and virtually all of
CS's voting power in Nova TV (the 'Additional Nova TV Purchase'). In March 1997,
the Company acquired an additional 5.2% interest in Nova TV through the
retirement of a $5.2 million loan in exchange for such interest (the '1997 Nova
TV Purchase'). The Company is in the process of registering the Additional Nova
TV Purchase and the 1997 Nova TV Purchase pursuant to Czech law. On an ongoing
basis, after giving effect to the Additional Nova TV Purchase and the 1997 Nova
TV Purchase, the Company is entitled to 93.2% of the total profits of Nova TV
and has 91.2% of the voting power in Nova TV. CET 21 and certain of its partners
will own the remaining 6.8% of Nova TV, subject to the registration procedures.
CET 21 has given Nova TV the exclusive access to the use of the broadcast
license. The Company has the right to appoint five of the seven members of Nova
TV's Committee of Representatives, which directs the affairs of Nova TV. With
respect to certain fundamental corporate decisions, including the declaration of
dividends, a 67.0% vote of the voting interest is required. A representative of
CET 21 has certain delay and veto rights on non-economic programming matters
related directly to the broadcast license. See 'Business--Litigation.'

The Company's interest in PRO TV is governed by a Cooperation Agreement
(the 'Romanian Agreement') among CME Media Enterprises B.V. ('CME BV'), Adrian
Sarbu ('Sarbu') and Ion Tiriac ('Tiriac'), forming Media Pro International S.A.
('Media Pro International'). Pursuant to the Romanian Agreement, the Company
owns 77.5% of the equity of Media Pro International. Interests in profits of
Media Pro International are equal to the partners' equity interests. Sarbu and
Tiriac hold options (exercisable until August 1997 at a cost per unit equal to
the cost per unit of the Company's original investment in Media Pro
International) on a portion of the Company's equity which, if exercised, could
reduce the Company's equity interest to not less than 66.0%. The Company has the
right to appoint three of the five members of the Council of Administration
which directs the affairs of Media Pro International. Although the Company has

majority voting power in Media Pro International, with respect to certain
financial and fundamental corporate matters the affirmative vote of either Sarbu
or Tiriac is required. The Company recently exercised an option to purchase
49.0% of the equity of PRO TV, SRL, an affiliate station of Media Pro
International. Messrs. Sarbu and Tiriac own substantially all of the remainder
of PRO TV, SRL. PRO TV, SRL holds many of the licenses for the stations which
comprise the PRO TV network. The Company also owns a 95.0% equity interest in
Unimedia SRL ('Unimedia'), which owns a 10.0% equity interest in a consortium,
MobilRom ('MobilRom'). In December 1996, MobilRom was awarded a license to
operate a GSM cellular telephone network in Romania. Mr. Sarbu owns the
remaining 5.0% of Unimedia.

<PAGE>

[chart reflecting organizational structure of Company]

<PAGE>

The Company's interest in POP TV is governed by a Partnership Agreement
(the 'Slovenian Partnership Agreement') among CME BV, MMTV 1 d.o.o. Ljubljana
('MMTV') and Tele 59 d.o.o. Maribor ('Tele 59'), forming Produkcija Plus d.o.o.
('Pro Plus'). In March 1997, the Company purchased a substantial portion of
MMTV's interest in Pro Plus for an aggregate price of approximately $5.0 million
(the 'Additional Pro Plus Purchase'). After giving effect to the Additional Pro
Plus Purchase, the Company currently owns 78.0% of the equity in Pro Plus, but
has an effective economic interest of 85.3% as a result of its right to 33.0% of
the profits of MMTV and 33.0% of the profits of Tele 59. Tele 59 currently owns
a 21.0% equity interest in Pro Plus, and MMTV currently owns a 1.0% equity
interest in Pro Plus. The Company, which owns 10.0% of the equity of each of
Tele 59 and MMTV, has acquired an option to increase its equity interest in MMTV
in conjunction with the Additional Pro Plus Purchase. 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 70.0% affirmative vote. Certain financial and fundamental
corporate matters require an 85.0% affirmative vote of the partners. In July
1996, the Company, together with MMTV and Tele 59, entered into an agreement to
purchase a 66.0% equity interest in Kanal A, a privately owned television
station in Slovenia, which competes with POP TV (the 'Kanal A Agreement'), which
would increase POP TV's broadcast reach to approximately 85% of the Slovenian
population. There is currently an injunction in effect preventing the completion
of the Kanal A Agreement. See 'Business--Litigation.'

The Company's interest in Markiza TV is governed by a Participants
Agreement dated September 28, 1995 (the 'Slovak Agreement') between CME BV 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 49.0% voting interest and
an 80.0% 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 80.0% of the profits of STS, except
that until the Company is repaid its capital contributions plus a priority
return at the rate of 6.0% per annum on such capital contributions, 50.0% of the
profits will be paid to the Company and the remaining 50.0% of the profits will
be paid pro rata to the partners based on their economic interests. A Board of
Representatives directs the affairs of STS, the composition of which includes
two designees of the Company and three designees of Markiza, however, all
significant financial and operational decisions of the Board of Representatives
require a vote of 80.0% of its members. In addition, certain fundamental
corporate matters are reserved for decision by a general meeting of partners and
require a 67.0% affirmative vote of the partners.

In Ukraine, the Studio 1+1 Group consists of several entities in which the
Company holds direct or indirect interests. CME BV, through a wholly-owned
subsidiary, holds a 50.0% equity interest in each of Innova Film GmbH ('Innova')
and International Media Services ('IMS'). In addition, this wholly-owned
subsidiary anticipates that it will acquire an indirect 25.0% equity interest in
Prioritet, a Ukrainian based company ('Prioritet'). Innova holds an indirect
30.0% equity interest in a separate Ukrainian based company which holds the
license to broadcast programming and sell advertising on UT-2 (the 'UT-2
License'). This Ukrainian based company has, in turn, assigned its right to sell
advertising on UT-2 to Innova. In addition, Innova, IMS and Prioritet have
entered into arrangements regarding advertising revenues generated on UT-2.
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 based
company which holds the UT-2 broadcast license, which require a 75.0% vote).
Certain fundamental corporate matters of these entities require unanimous
shareholder approval.

The Company together with the Polish media group ITI, are partners in TVN
Sp. z.o.o. ('TVN') in Poland. ITI holds 67.0% of the equity in TVN and the
Company holds the remaining 33.0%. The governance provisions for TVN are set
forth in a Shareholders Agreement dated as of May 25, 1995 between CME BV and
ITI (the 'TVN Agreement'). Pursuant to the TVN Agreement, the economic interests
of the Company and ITI are equivalent to their equity interests. A Supervisory
Board directs the

<PAGE>

affairs of TVN, and is comprised of five designees of ITI and four designees of
the Company. The affirmative vote of at least two ITI designees and two Company
designees is required to approve certain significant financial and operational
decisions. Certain fundamental corporate matters including the declaration of
dividends and the termination or liquidation of TVN are reserved for decision by
the shareholders of TVN, and require the affirmative vote of holders of at least
75% of the outstanding equity.

In Hungary, the Company intends to apply for a national broadcast license
with strategic partners in accordance with tender procedures which were recently

announced. The Company currently owns 95.0% of the equity of 2002 Tanacsado es
Szolgaltato Korlatolt Felelosegu Tarsasag ('2002 Kft'), however, as a condition
to bidding on a national broadcast license, the Company will be required to
reduce its interest in 2002 Kft to below 25.0%. In December 1996, CME BV
acquired 2002 Kft's 97.4% equity interest in Videovox Studio Limited Liability
Company, a Hungarian dubbing and production company ('Videovox').

The Company's present 58.0% non-controlling ownership interest in the
German limited partnership that operates PULS is held through wholly-owned
intermediate entities and limited partnerships (the 'CME Partnerships'). The
Company's interest in PULS is governed by a partnership agreement among the CME
Partnerships and their partners (the 'PULS Partnership Agreement'). Currently,
calls for capital contributions may be made by a 75.0% vote of the voting power
of the partners in PULS, but this capital call would be binding only upon
partners who voted in favor. A partner which does not make a contribution upon
such a capital call will have its equity interest diluted. Since September 1995,
the partners have approved capital calls aggregating DM44,075,000 ($28,435,000)
and the Company, on its own, has agreed to fund virtually the full amount of
these capital calls.

The PULS Partnership Agreement provides that profits and losses of PULS are
shared as follows: net losses are allocated to the partners in proportion of
their capital contributions; cumulative net profits are allocated in the same
proportion until such losses are recovered. Thereafter, once certain priority
returns have been paid, the Company will be entitled to 58.0% of the profits of
PULS. Pursuant to the PULS Partnership Agreement, the Company currently has
effectively 50.4% of the voting power of PULS. In general, a 75% vote of the
voting power of the partners of PULS is required with respect to certain
financial matters and certain partnership matters, including, among other
things, amendments to the partnership agreement, mergers, reorganizations and a
transfer of all of PULS's assets and approval of the annual budget and financial
plans. The Company has the right to appoint two of the nine members of the
Supervisory Board of PULS.

The partners of PULS have retained a financial advisor and are currently in
discussions with potential investors in PULS. Any such investor would be
expected to acquire a significant equity interest in PULS and assume
responsibility for PULS' operations. Such an investment would be anticipated to
significantly dilute the Company's equity investment in PULS and to decrease the
Company's future funding obligations to PULS. Such an investment also could
result in a material reduction of the carrying value of the Company's equity
investment in PULS, which was $12.6 million as of December 31, 1996, and a
corresponding charge against the Company's earnings in the period incurred.
Regardless of whether a transaction with an investor is consummated, there is no
assurance that the Company may not have to take a reduction of all or a portion
of the carrying value of PULS. See 'Business--Operations in Germany: the German
Stations--Recent Developments.'

The Company's 37.4% equity interest in the Nuremberg Station was obtained
by acquiring a 50.0% non-voting equity interest in Franken Funk & Fernsehen GmbH
('FFF'), which owns 74.8% of the equity in NMF Neue Medien Franken GmbH & Co.
('NMF'), which directly owns the Nuremberg Station. The remaining 25.2% of NMF
is owned by an unaffiliated individual. The Company's interest in the Nuremberg
Station is governed by a so-called 'Silent Partner Agreement' under German law

between the Company, Dr. Dietmar Straube (a managing director of the Company's
German operations and the owner of the remaining 50.0% equity interest and 100%
voting interest in FFF), and FFF. A Silent Partner Agreement gives the silent
partner (the Company in this case) the economic benefits of an equity interest
without a voting interest and without a physical instrument evidencing the
interest.

<PAGE>

While the Company does not own shares of stock of FFF or have the right to elect
any of its directors, the prior approval of the Company is required for certain
significant transactions. The Company is entitled to 50.0% of FFF's profits and
losses and 50.0% of the proceeds upon liquidation of its assets. However, Dr.
Straube is entitled to a one-time preferred distribution of DM1,860,000
($1,200,000) out of the cumulative profits.

The Company has a 49.0% equity and voting interest in Sachsen Funk &
Fernsehen ('SFF') and the Company is entitled to distributions of 50.0% of the
profits of SFF. Dr. Straube owns the remaining equity of SFF. SFF owns a 33.3%
interest in Leipzig Fernsehen and Dresden Fernsehen which operate regional
television stations in Leipzig (the 'Leipzig Station') and Dresden (the 'Dresden
Station'), respectively.

A reduction of the carrying value of PULS, or other factors, might cause
the Company to reduce all or part of the carrying value of the Company's
investments in FFF and SFF, which were $6.1 million and $1.6 million,
respectively, as of December 31, 1996.

CME Development Corporation, a wholly-owned subsidiary of the Company,
provides development services to the Company. CME Programming Services, Inc.
('CMEPS'), a wholly-owned subsidiary of the Company, provides programming and
production services to the Company's television broadcast operations in Central
and Eastern Europe. CMEPS will also provide satellite transmission services to
the Company's television stations in Central and Eastern Europe. See
'Business--Programming Services.'

The Company's registered offices are located at Clarendon House, Church
Street, Hamilton HM CX Bermuda and its telephone number is 441-296-1431. The
Central European Media Enterprises group of companies also maintains offices at
18 D'Arblay Street, London W1V 3FP England, telephone number 44-171-292-7900.

<PAGE>

USE OF PROCEEDS

The estimated net proceeds for the Offering are expected to be
approximately $120 million after deducting underwriting discounts and
commissions and estimated offering expenses. The Company intends to use the net
proceeds, plus cash balances of approximately $61.9 million as of March 21, 1997
to (i) fund television broadcast operations in Poland, Ukraine, Romania,

Slovenia (approximately $50 million to $55 million); (ii) fund existing
television operations in Germany (approximately $5 million to $8 million); and
(iii) fund the Company's obligation with respect to its interest in MobilRom
(approximately $8.4 million). In the event that the Company is successful in its
bid for a broadcast license in Hungary, the Company expects its funding
requirements to be approximately $30 million to $35 million. The balance of the
net proceeds from the Offering and cash balances may be used for investment in
long-term programming rights, additional broadcast development opportunities in
the region and for general corporate purposes. Pending their application, the
net proceeds from the Offering will be invested in investment grade tax-exempt
municipal securities, other government securities or short-term interest bearing
instruments. In the event that the Company is successful in developing
additional broadcast operations, additional debt or equity may be required to
fully finance these operations.

PRICE RANGE OF COMMON STOCK

The Class A Common Stock began trading on the Nasdaq National Market on
October 13, 1994 under the trading symbol 'CETV.' On March 31, 1997, the last
reported sales price for the Class A Common Stock was $33.25. The following
table sets forth the high and low sale 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 1997, as reported by the Nasdaq National Market:

<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1995
First Quarter........................................................ $ 14.125 $ 7.750
Second Quarter....................................................... 16.000 9.875
Third Quarter........................................................ 27.250 13.750
Fourth Quarter....................................................... 25.750 17.750

1996
First Quarter........................................................ 24.500 19.750
Second Quarter....................................................... 30.000 22.000
Third Quarter........................................................ 32.000 20.750
Fourth Quarter....................................................... 31.750 25.375

1997
First Quarter........................................................ 37.250 30.750
</TABLE>

At March 31, 1997, there were 40 holders of record (including brokerage
firms and other nominees) of the Class A Common Stock and 15 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 of any

class of its Common Stock. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.' 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. See 'Risk
Factors--Holding Company Structure; Limitations on Access to Cash Flow and
Possible Inability to Service Debt.'

<PAGE>

CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth the short-term debt and capitalization of
the Company at December 31, 1996, as adjusted to reflect the Offering. This
table should be read in conjunction with the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
AS
ACTUAL ADJUSTED (1)
-------- -------------
<S> <C> <C>
Short-term debt:
Bank credit facilities.............................................................. $ 7,106 $ 7,106
Capital lease obligations........................................................... 1,794 1,794
Investments payable................................................................. 1,955 1,955
-------- -------------
Total short-term debt............................................................ $ 10,855 $ 10,855
-------- -------------
-------- -------------
Long-term debt:
Bank credit facilities.............................................................. $ 22,488 $ 22,488
Capital lease obligations........................................................... 7,120 7,120
Investments payable................................................................. 14,633 14,633
% Convertible Subordinated Notes Due 2004....................................... -- 125,000
-------- -------------
Total long-term debt............................................................. 44,241 169,241
-------- -------------
Shareholders' equity:
Preferred Stock, $.01 par value; authorized: 5,000,000 shares; issued and
outstanding: none................................................................ -- --
Class A Common Stock, $.01 par value; authorized: 30,000,000 shares; issued and
outstanding: 16,664,143 shares................................................... 167 167
Class B Common Stock, $.01 par value; authorized: 15,000,000 shares; issued and
outstanding: 7,191,475 shares.................................................... 72 72
Additional paid-in capital............................................................ 330,315 330,315
Accumulated deficit................................................................... (78,004) (78,004)
Cumulative currency translation adjustment............................................ (3,230) (3,230)
-------- -------------

Total shareholders' equity.......................................................... 249,320 249,320
-------- -------------
Total capitalization............................................................. $293,561 $ 418,561
-------- -------------
-------- -------------
</TABLE>

- ------------------
(1) As adjusted to reflect the issuance and sale of the Notes by the Company in
the Offering and the application of the estimated net proceeds therefrom.
See 'Use of Proceeds.'

<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected financial information presented below for the five years ended
December 31, 1996 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 as of December 31, 1994, 1995 and 1996, included elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues................................... $ -- $ -- $ 53,566 $ 98,919 $135,985
-------- -------- -------- -------- --------
Total station operating costs and expenses..... -- 1,802 36,083 52,542 85,101
Selling, general and administrative expenses... 20 811 6,009 7,725 21,357
Corporate operating and development expenses... 171 2,708 3,699 10,669 15,782
Amortization of goodwill and allowance for
development costs............................ -- -- 985 3,442 2,940
Non-cash stock compensation charge............. -- -- 5,833 858 --
Capital registration tax....................... -- -- -- 1,375 809
-------- -------- -------- -------- --------
Total operating expenses....................... 191 5,321 52,609 76,611 125,989
-------- -------- -------- -------- --------
Operating (loss) income........................ (191) (5,321) 957 22,308 9,996
Equity in loss of unconsolidated affiliates.... (141) (3,671) (13,677) (14,816) (17,867)
Interest and other income...................... -- 64 179 1,238 2,876
Interest expense............................... -- (140) (1,992) (4,959) (4,670)
Foreign currency exchange gains (losses)....... -- (176) (245) 324 (2,861)
-------- -------- -------- -------- --------
(Loss) income before provision for income
taxes........................................ (332) (9,244) (14,778) 4,095 (12,526)
Provision for income taxes -- -- (3,331) (16,340) (16,405)
-------- -------- -------- -------- --------
Loss before minority interest in consolidated
subsidiaries................................. (332) (9,244) (18,109) (12,245) (28,931)
Minority interest in loss (income) of
consolidated subsidiaries.................... 7 884 (2,396) (6,491) (1,072)
-------- -------- -------- -------- --------
Net loss....................................... $ (325) $ (8,360) $(20,505) $(18,736) $(30,003)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net loss per common share...................... $ (1.28) $ (1.55)
-------- --------
-------- --------
Weighted avg. shares outstanding (000s)........ 14,678 19,373
-------- --------

-------- --------
Cash dividends declared........................ $ -- $ -- $ -- $ -- $ --
Ratio of earnings to fixed charges(1).......... -- -- -- 4.8:1 2.1:1
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
OTHER DATA:
<S> <C> <C> <C> <C> <C>
Broadcast cash flow(2)......................... $ -- $ -- $ 12,233 $ 38,182 $ 41,444
Net cash (used in) provided by operating
activities................................... (14) (3,826) (1,532) 1,943 (6,619)
Number of television broadcast operations at
the end of period............................ -- 1 3 5 10

BALANCE SHEET DATA:
Current assets................................. $ -- $ 4,773 $ 71,447 $116,728 $146,159
Total assets................................... -- 17,824 115,332 222,027 365,130
Total debt..................................... -- 5,142 32,592 20,285 55,096
Shareholders' equity........................... -- 3,464 62,631 138,936 249,320
</TABLE>

- ------------------

(1) For the ratio calculations, earnings available for fixed charges consist of
earnings (losses) before income taxes plus fixed charges, losses of less
than 50% owned affiliates with debt not guaranteed by the Company, and
minority interest in earnings (losses) of consolidated subsidiaries. Fixed
charges consist of interest on debt. The deficiency of earnings available to
cover fixed charges was $5,573 in 1993 and $1,101 in 1994.

(2) 'Broadcast cash flow,' which is commonly used as a measure of performance
for broadcast companies, as used herein, is defined as net broadcast
revenues, less broadcast operating expenses excluding depreciation and
amortization, broadcast selling, general and administrative expenses, and
cash program rights costs. Cash program rights costs represent cash payments
for current programs payable and such payments do not necessarily correspond
to program use. Broadcast cash flow should not be considered as a substitute
measure of operating performance, or liquidity prepared in accordance with
generally accepted accounting principles. Broadcast cash flow is only
presented for the periods in which broadcasting took place and only for the
Company's consolidated broadcast Subsidiaries. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Company is the leading television broadcaster in Central and Eastern
Europe, broadcasting to an aggregate of 84.9 million people in six countries in
the region and an additional 9.0 million people in Germany. The Company operates
the leading national television station in the Czech Republic and the Company's
television operations in Romania, Slovenia and the Slovak Republic command the
leading audience share within their respective areas of broadcast reach. The
Company recently commenced television broadcast operations in Ukraine and
southern Poland and has television broadcast operations under development in
other areas of Poland and Hungary which, in the aggregate, potentially could
reach an additional 32 million people. The Company's strategy is to continue
capitalizing on the substantial market opportunities created by the emergence of
private commercial television and the corresponding significant growth of
television advertising expenditures in these markets.

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 also engages in certain barter transactions in which its
broadcast operations exchange unsold commercial advertising time for goods and
services. The Company experiences seasonality, with advertising sales tending to
be lowest during the third quarter of each calendar year, which includes the
summer holiday schedule (typically July and August), and highest during the
fourth quarter of each calendar year.

The primary expenses incurred in operating broadcast stations are
programming costs, employee salaries, broadcast transmission expenses and
selling, general and administrative expenses. Certain of the Company's
operations do not require the direct incurrence of broadcast transmission
expenses. License fees payable to governmental entities in connection with
securing television licenses from government authorities, if any, are usually
minimal. However, the Company incurs significant development expenses, including
funding and negotiating with local partners, researching and preparing license
applications, preparing business plans and conducting pre-operating activities
as well as restructuring existing affiliate entities which hold the licenses.

The Company conducts all of its operations through Subsidiaries.
Accordingly, the primary internal sources of the Company's cash are dividends
and other distributions from its 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 to the Company is also subject to
the legal availability of sufficient operating funds which are not needed for
operations, obligations or other business plans and, in some cases, the approval
of the other partners, stockholders or creditors of these entities. The laws
under which the Company's currently 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 FINANCIAL INFORMATION--BROADCAST CASH FLOW

The following table is not required by US generally accepted accounting
principles ('GAAP') or intended to replace the Consolidated Financial Statements
prepared in accordance with GAAP. This table sets forth certain combined
operating data for the years ended December 31, 1996, 1995 and 1994 for national
television broadcast stations or networks. The financial information included
below departs materially from GAAP because it aggregates the revenues and
operating income of certain entities not consolidated in the Consolidated
Financial Statements with those of the Company's consolidated operations. This
supplemental information is 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. Regional
television stations in Germany are not included in this analysis as these
operations are dissimilar from those of national television broadcast

<PAGE>

entities. The investments in the German operations are accounted for under the
equity method and operating data for these companies is set forth in Note 14 to
the Consolidated Financial Statements.

The Company accounts for its 80% economic interest in Markiza TV using the
equity method of accounting. Under this method of accounting, the Company's
interest in net earnings or losses of Markiza TV 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 following supplementary
unaudited combined information includes certain financial information of Markiza
TV on a line-by-line basis, similar to that of the Company's consolidated
entities, which include Nova TV, PRO TV and POP TV.

Management service charges are not included in the combined operating data
below as these are eliminated in the Consolidated Financial Statements.

POP TV and PRO TV began operations in December 1995 and Markiza TV began
operations in August 1996. The Company believes that this unaudited combined and
combining operating data provides useful disclosure.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
$000S 1994 1995 1996(1)
- --------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Combined Operating Data:
Net revenues................................. $ 53,566 $ 98,919 $ 141,587
Total station operating costs and expenses... (36,083) (52,542) (93,409)
Selling, general and administrative
expenses................................... (6,009) (7,725) (21,192)
-------- -------- ---------

Station operating income..................... 11,474 38,652 26,986

Depreciation of assets....................... 3,773 7,251 14,691
Amortization of programming rights........... 10,403 16,319 24,000
Cash program rights costs.................... (13,417) (24,040) (28,735)
-------- -------- ---------
Broadcast cash flow.......................... $ 12,233 $ 38,182 $ 36,942
-------- -------- ---------
-------- -------- ---------
Broadcast cash flow margin................... 22.8% 38.6% 26.1%
Broadcast cash flow attributable to the
Company.................................... $ 8,074 $ 24,667 $ 34,447(2)

NOVA TV
----------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
$000S 1994 1995 1996
- --------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Operating Data:
Net revenues................................. $ 53,566 $ 98,305 $ 109,242
Total station operating costs and expenses... (36,083) (49,894) (54,578)
Selling, general and administrative
expenses................................... (6,009) (5,533) (9,247)
-------- -------- ---------
Station operating income..................... 11,474 42,878 45,417

Depreciation of assets....................... 3,773 6,904 8,024
Amortization of programming rights........... 10,403 16,077 16,207
Cash program rights costs.................... (13,417) (21,070) (16,520)
-------- -------- ---------
Broadcast cash flow.......................... $ 12,233 $ 44,789 $ 53,128
-------- -------- ---------
-------- -------- ---------
Broadcast cash flow margin................... 22.8% 45.6% 48.6%
Broadcast cash flow attributable to the
Company.................................... $ 8,074 $ 29,561 $ 46,753(2)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------
TOTAL
$000S NOVA TV PRO TV POP TV SUBTOTAL(3) MARKIZA TV ADJUSTED(1)
- --------------------------------------------- -------- -------- -------- ----------- ---------- -----------

<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Net revenues................................. $109,242 $ 15,803 $ 9,080 $ 134,125 $ 7,462 $ 141,587
Station operating expense.................... (54,578) (16,497) (12,764) (83,839) (9,570) (93,409)
Selling, general and administrative
expenses................................... (9,247) (6,351) (3,989) (19,587) (1,605) (21,192)
-------- -------- -------- ----------- ---------- -----------
Station operating income..................... 45,417 (7,045) (7,673) 30,699 (3,713) 26,986

Depreciation of assets....................... 8,024 2,678 2,516 13,218 1,473 14,691
-------- -------- -------- ----------- ---------- -----------
EBITDA....................................... 53,441 (4,367) (5,157) 43,917 (2,240) 41,677
Amortization of programming rights........... 16,207 3,725 1,667 21,599 2,401 24,000
Cash program rights costs.................... (16,520) (4,648) (2,904) (24,072) (4,663) (28,735)
-------- -------- -------- ----------- ---------- -----------
Broadcast cash flow.......................... $ 53,128 $ (5,290) $ (6,394) $ 41,444 $ (4,502) $ 36,942
-------- -------- -------- ----------- ---------- -----------
-------- -------- -------- ----------- ---------- -----------

Broadcast cash flow margin................... 48.6% -- -- 30.9% -- 26.1%
Broadcast cash flow attributable to the
Company.................................... $ 46,753(2) $ (4,100) $ (4,604) $ 38,049 $ (3,602) $ 34,447
</TABLE>

- ------------------
(1) Represents combined operating data for national television broadcast
entities, including Markiza TV, on a line-by-line basis, which is accounted
for using the equity method of accounting in the accompanying consolidated
financial statements, and does not include regional television stations in
Germany because these operations are dissimilar from those of national
television broadcast entities.

(2) Reflects the Additional Nova TV Purchase on August 1, 1996 as if such
acquisition had been effective from January 1, 1996.

(3) Includes consolidated television broadcast entities only.

'Broadcast cash flow' is a broadcasting industry measure of performance and
defined as net broadcast revenues, less broadcast operating expenses excluding
depreciation and amortization, broadcast selling, general and administrative
expenses, and cash program rights costs. 'Broadcast cash flow margin' is
broadcast cash flow divided by net broadcast revenues. 'Broadcast cash flow
attributable to the Company' is broadcast cash flow which is attributable to the
Company based on the Company's effective economic interest in Nova TV, PRO TV,
POP TV and Markiza TV as of December 31, 1996 which was 88.0%, 77.5%, 72.0% and
80.0%, respectively. The Company acquired the additional 22% economic interest
in Nova TV on August 1, 1996 pursuant to the Additional Nova TV Purchase (which
is in the process of being registered under Czech law). Cash program rights
costs represent cash payments for current programs payable and such payments do
not necessarily correspond to program use. The Company has included broadcast
cash flow because it is commonly used in the broadcast industry as a measure of
performance. Broadcast cash flow should not be considered as a substitute
measure of operating performance or liquidity prepared in accordance with GAAP.

In 1996, broadcast cash flow for the Company's national television
broadcast entities (including Markiza TV) was $36,942,000. In 1996, Nova TV's
broadcast cash flow increased by 18.6% to $53,128,000 from $44,789,000 in 1995.
Nova TV's stronger broadcast cash flow was primarily the result of increased net
revenues and lower programming rights costs during the period. Lower program
rights costs in 1996 were in part the result of Nova TV's 1995 investment in
programming for future periods. Had the Additional Nova TV Purchase (See Note 1
to the Consolidated Financial Statements) been effective from January 1, 1996,
broadcast cash flow attributable to the Company from Nova TV would have
increased by 58%, or $17,192,000 to $46,753,000 compared to $29,561,000 in 1995.
As anticipated by the Company, for 1996, Nova TV's broadcast cash flow continued
to be partially offset by negative broadcast cash flow of PRO TV ($5,290,000),
POP TV ($6,394,000) and Markiza TV

<PAGE>

($4,502,000) as these broadcast operations continue to develop and invest in
programming for future periods.

APPLICATION OF ACCOUNTING PRINCIPLES

Although the Company conducts operations largely in foreign currencies, the
Company prepares its financial statements in United States dollars and in
accordance with GAAP. The Company's consolidated operating statements include
the results of Nova TV, PRO TV, POP TV, Videovox, Radio Alfa and 2002 Kft and
separately set forth the minority interest attributable to other owners of these
Subsidiaries. POP TV and PRO TV began operations in December 1995, Videovox was
acquired by the Company in May 1996, and Radio Alfa was acquired in December
1996. The results of other broadcast operations, PULS, FFF, SFF, Markiza TV and
TVN are accounted for using the equity method which reflects the Company's share
of the net income or losses in those operations. The Company's investment in
MobilRom is recorded at the lower of cost and market value. The Company's
investments in broadcast operations under development, including the Studio 1+1
Group and other broadcast development opportunities are reflected on the balance
sheet as development costs.

FOREIGN CURRENCY

The Company and its subsidiaries generate revenues primarily in Czech
korunas ('Kc'), Romanian lei ('ROL'), Slovenian tolar ('SIT'), Slovak korunas
('Sk'), Hungarian forints ('HUF'), Ukrainian hryvna ('Hrn'), Polish zloty ('ZI')
and German marks ('DM'), and incur substantial operating expenses in those
currencies. The Romanian lei, Slovenian tolar, Ukranian hryvna, Polish zloty and
Slovak koruna are managed currencies with limited convertibility. The Company
also incurs operating expenses of programming in United States dollars and other
foreign currencies. For entities operating in economies considered non-highly
inflationary, including Nova TV, POP TV, Markiza TV, Videovox, Radio Alfa, 2002
Kft, TVN and certain Studio 1+1 Group 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 Group
entities operate in economies qualifying as highly inflationary. Accordingly,
non-monetary assets are translated at historical exchange rates and monetary
assets are translated at current exchange rates. Translation adjustments are
included in the determination of 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 during, the periods indicated
were as follows:

<TABLE>
<CAPTION>
BALANCE SHEET INCOME STATEMENT
--------------------------- ----------------------------
YEAR ENDED
AT DECEMBER 31, DECEMBER 31,
--------------- ---------------
1996 1995 MOVEMENT 1996 1995 MOVEMENT
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Czech koruna equivalent of $1.00........ 27.33 26.60 2.7% 27.21 26.57 2.4%
German mark equivalent of $1.00......... 1.55 1.43 8.4% 1.50 1.44 4.2%
Hungarian forint equivalent of $1.00.... 162 n/a n/a 151 n/a n/a
Polish zloty equivalent of $1.00........ 2.88 n/a n/a 2.70 n/a n/a
Romanian lei equivalent of $1.00........ 4,035 2,578 56.5% 3,204 2,402(1) 33.4%
Slovak koruna equivalent of $1.00....... 31.90 n/a n/a 31.14 n/a n/a
Slovenian tolar equivalent of $1.00..... 141.48 125.99 12.3% 136.45 125.99(2) 8.3%
Ukrainian hryvna equivalent of $1.00.... 1.89 n/a n/a 1.83(3) n/a n/a
</TABLE>

(Footnotes on next page)

<PAGE>

(Footnotes from previous page)
- ------------------
(1) Average exchange rate from December 1, 1995 through December 31, 1995 only.

(2) Average exchange rate from December 15, 1995 through December 31, 1995 only.

(3) Hryvna became the currency of Ukraine in September 1996.

The Company's results of operations and financial position during 1996 were
impacted by changes in foreign currency exchange rates since 1995. In the highly
inflationary economy in Romania, PRO TV indexes sales contracts to the United
States dollar in order to minimize the effects of Romanian lei devaluation. As
shown above, all operating currencies have weakened against the United States
dollar in 1996.

The underlying Czech koruna and Slovenian tolar assets and liabilities of
Nova TV and POP TV, decreased by 2.7% and 12.3% in dollar terms during 1996,

respectively, due to foreign exchange movements. PRO TV's monetary assets and
liabilities decreased by up to 56.5% during 1996 depending on the time they
remained outstanding during the period.

Nova TV's operating income, together with interest costs and minority
interest in income, is approximately 2.4% lower than would be the case had the
weighted average exchange rate for 1996 remained the same as in 1995.

If the weighted average exchange rate for 1996 were the same as in 1995,
PRO TV's and POP TV's operating losses, including interest costs and minority
interest, would have decreased by 33.4% and 8.3% in dollar terms, respectively
(subject to certain adjustments to PRO TV's profit and loss items which are
derived from non-monetary assets and liabilities). Similarly, the Company's
equity in losses in unconsolidated affiliates in Germany (PULS, FFF and SFF),
would have decreased 4% in dollar terms.

Results of Operations

1996 compared to 1995

The Company's net revenues increased by $37,066,000, or 37%, to
$135,985,000 in 1996 from $98,919,000 in 1995. This increase was primarily
attributable to the increase in revenues of PRO TV and POP TV, which were
operational for all of 1996 compared to one month in 1995, and the increase in
Nova TV's net revenues. PRO TV and POP TV posted net revenues of $15,803,000 and
$9,080,000 in 1996, respectively, and Nova TV's net revenues increased
$10,937,000, or 11%, to $109,242,000 in 1996 from $98,305,000 in 1995. Nova TV's
increase in net revenue was primarily attributable to the continued growth of
the total advertising market in the Czech Republic and Nova TV's ability to
maintain an audience share of 65% to 70%. To a lesser extent, Videovox, a
Hungarian dubbing company, purchased in May 1996, also contributed to the
increase in the Company's net revenues with net revenues of $1,707,000 for 1996.

Total station operating costs and expenses increased $32,559,000, or 62%,
to $85,101,000 in 1996 from $52,542,000 in 1995. The increase in total station
operating costs and expenses was primarily attributable to PRO TV, POP TV, and
Videovox's total station operating costs and expenses which were $16,497,000,
$12,764,000 and $1,213,000 in 1996, respectively, and, to a lesser extent, to an
increase in Nova TV's total station operating costs and expenses of $4,684,000,
or 9%, to $54,578,000 in 1996. The increase in Nova TV's total station operating
costs and expenses is primarily the result of an enhancement in the production
quality of self-produced programs necessary to maintain Nova TV's audience
share.

Station selling, general and administrative expenses increased $13,632,000,
or 176%, to $21,357,000 in 1996 from $7,725,000 in 1995. This increase was
primarily attributable to additional station selling, general and administrative
expenses for PRO TV and POP TV. From 1995, Nova TV's station selling, general
and administrative expenses increased by $3,714,000, or 67%, to $9,247,000 due
to increased marketing efforts in 1996 and the write-off of bad debts in the
fourth quarter of 1996 totaling $1,300,000, from co-producers of certain game
shows broadcast on Nova TV.

<PAGE>

Corporate operating costs and development expenses for 1996 and 1995 were
$15,782,000 and $10,669,000, respectively, increasing $5,113,000, or 48%. The
increase was primarily attributable to the Company's increased scope of
operations over the same period in 1995, which includes the Company's new
operations in Poland, Ukraine, and Hungary, the launch of Markiza TV in August
1996 and development activities in other countries.

Amortization of goodwill and allowance for development costs decreased
$502,000, or 15%, to $2,940,000 in 1996 from $3,442,000 in 1995. The decrease
was primarily the result of an allowance for development activities in Poland
during 1995, partially offset by amortization related to the Additional Nova TV
Purchase and, to a lesser extent, the amortization of goodwill and license
acquisition costs related to investments in PRO TV and POP TV in December 1995.

A stock compensation charge of $0 and $858,000 was recognized in 1996 and
1995, respectively. The stock compensation charge was related to shares granted
to a former officer of the Company.

The Company incurred $809,000 and $1,375,000 in capital registration taxes
for 1996 and 1995, respectively.

Operating income decreased $12,312,000, or 55%, to $9,996,000 in 1996 from
$22,308,000 in 1995. The decrease in the Company's operating results was
primarily attributable to operating losses of PRO TV and POP TV, and, to a
lesser extent, increased corporate and development expenses, partially offset by
the increase in operating income of Nova TV over the same period in 1995.

Equity in loss of unconsolidated affiliates increased by $3,051,000, or
21%, to $17,867,000 in 1996 from $14,816,000 in 1995, primarily attributable to
the launch of Markiza TV in August 1996, partially offset by reduced losses at
FFF. The Company's share of the losses of Markiza TV for 1996 totaled
$3,583,000. The Company's share of losses in PULS and FFF decreased by
$1,045,000, or 7% in 1996. The Company's share of losses in PULS, including
goodwill amortization, for 1996 remained at approximately the same level despite
the Company's increase in ownership from 48.5% at December 31, 1995 to 58.0% at
December 31, 1996. In 1996, PULS began a new local programming format which
resulted in reduced operating costs and slightly increased net revenues. In
addition, losses at FFF have also decreased as a result of a similar change in
its programming format and slightly increased net revenues.

Interest and other income increased $1,638,000, or 132%, to $2,876,000 for
1996 from $1,238,000 in 1995. The increase in interest income is primarily
attributable to the net cash proceeds from the Company's 1996 public offering of
Class A Common Stock which was completed in November 1996 (the '1996 Offering').

Interest expense decreased $289,000, or 5.8%, to $4,670,000 in 1996 from
$4,959,000 in 1995. This is primarily attributable to lower debt levels at Nova
TV, including the early repayment of debt, during 1996 compared to 1995;
partially offset by interest expense from debt incurred to make the Additional
Nova TV Purchase.

The foreign currency exchange loss of $2,861,000 in 1996 was primarily
attributable to the US dollar denominated borrowings of PRO TV and POP TV and
the devaluation during 1996 of the Romanian lei and the Slovenian tolar,
respectively, against the dollar. Movements in these currencies in 1995 had less
of an impact on the Company because PRO TV and POP TV commenced operations in
December 1995.

Provision for income taxes was $16,405,000 for 1996 and $16,340,000 for
1995. The income tax provision in 1996 and 1995 primarily related to income
taxes payable in the Czech Republic on Nova TV's pre-tax profits which have
increased due to higher operating income at Nova TV, offset by an income tax
rate of 41% in 1995 and a lower income tax rate of 39% in 1996.

Minority interest in income (loss) of consolidated subsidiaries was
$1,072,000 in 1996 and $6,491,000 in 1995. This decrease was primarily the
result of the Additional Nova TV Purchase, together with losses for PRO TV and
POP TV.

<PAGE>

Primarily as a result of these factors, the net loss of the Company was
$30,003,000 and $18,736,000 for 1996 and 1995, respectively.

1995 compared to 1994

The Company's net revenues increased $45,353,000, or 85%, to $98,919,000 in
1995 from $53,566,000 in 1994. This increase was attributable primarily to the
increase in advertising revenues earned by Nova TV as a result of growth in the
television advertising market in the Czech Republic and, to a lesser extent,
increased market share in that market. In addition, the increase in the 1995
figure was partially attributable to the fact that PRO TV and POP TV commenced
broadcasting in December 1995. Since the Company has a non-controlling ownership
interest in PULS and FFF, losses incurred by PULS and FFF are accounted for
under the equity method and, therefore, no revenues are presented in respect of
these entities.

Station operating expenses increased $16,459,000, or 46%, to $52,542,000 in
1995 from $36,083,000 in 1994. As a percentage of net revenues, station
operating costs and expenses decreased from 67% in 1994 to 53% in 1995. These
expenses represent the costs associated with the operations of Nova TV, PRO TV
and POP TV, including amortization of programming rights of $16,319,000 and
$10,403,000 and depreciation of station assets and amortization of other
intangibles of $7,251,000 and $3,773,000 for the years ended 1995 and 1994,
respectively. The increase in station operating costs and expenses was primarily
attributable to the expanding Nova TV operations and Nova TV broadcasting for
the full year in 1995 compared with 11 months during 1994, as well as the
launches of PRO TV and POP TV in December 1995. Station operating costs and
expenses as a percentage of net revenues decreased due to revenues growing at a
faster rate than such costs and expenses.

Station selling, general and administrative expenses increased $1,716,000,
or 29%, to $7,725,000 in 1995 from $6,009,000 in 1994. As a percentage of net

revenues, station selling, general and administrative expense decreased from 11%
in 1994 to 8% in 1995. This decrease in station selling, general and
administrative expenses as a percentage of net revenues was a result of fixed
costs being spread over a larger revenue base, certain start-up expenses
associated with Nova TV early in 1994 not recurring in 1995, and offset in part
by the operations of PRO TV and POP TV commencing in December 1995.

Total corporate operating expenses in 1995 and 1994 were $10,669,000 and
$3,699,000 respectively, increasing $6,970,000, or 188%. The increase was
primarily attributable to the Company's increased scope of operations and the
increased number of development projects in 1995. Amortization of goodwill and
allowance for development costs increased $2,457,000 to $3,442,000 in 1995 from
$985,000 in 1994. The increase was primarily due to additional development
efforts in Poland, Romania and Slovenia.

The non-cash stock compensation charge of $5,833,000 and $858,000
recognized in 1994 and in 1995, respectively, relates to shares and options
granted to officers and employees of the Company. Under the terms of the
Company's contracts with its former President, the Company issued 454,703 shares
of Class A Common Stock to a trust nominated by him. Upon his departure in
August 1995, 194,872 shares remained unvested. The Company and the former
President agreed that 18,000 of these unvested shares vested on December 31,
1996. In 1995, $858,000 was recognized as expense to account for the vesting of
64,958 shares under the original plan and the 18,000 unvested shares which
remained eligible for vesting, all of which vested prior to December 31, 1996.

Operating income increased $21,351,000 as the Company generated operating
income before minority interest of $22,308,000 in 1995 compared to $957,000 in
1994. The overall increase in the Company's operating results was attributable
to continued improved performance at Nova TV in the comparative periods.

Equity in loss of unconsolidated affiliates increased $1,139,000, or 8%, to
$14,816,000 in 1995 from $13,677,000 in 1994. The increase in losses was due to
an increase in the Company's share of

<PAGE>

losses in PULS as a result of increased investment in PULS and the recognition
of a full year of losses for FFF for 1995 compared to a partial year for 1994.
The Company invested in FFF in April of 1994.

Interest and other income increased $1,059,000 to $1,238,000 in 1995 from
$179,000 in 1994. This increase was primarily attributable to the interest
earned on the proceeds of issuance of common stock of the Company on October 13,
1994 and November 9, 1995.

Interest expense increased $2,967,000 to $4,959,000 in 1995 from $1,992,000
in 1994. This increased interest expense was primarily due to interest on bank
loans and a capital lease on the building at Nova TV for a full year in 1995
compared to a partial year for 1994, and partially to interest payments related
to a loan from Ronald S. Lauder, the principal shareholder of the Company.

Provision for income taxes was $16,340,000 in 1995 and $3,331,000 in 1994.
The increase in 1995 income tax provision primarily relates to income taxes
payable in the Czech Republic on Nova TV pre-tax profits which were $39,050,000
in 1995 and $10,276,000 in 1994.

Minority interest in income of consolidated subsidiaries was $6,491,000 in
1995 and $2,396,000 in 1994. This increase reflected the increased profitability
of Nova TV, offset, in part, by losses for PRO TV and POP TV.

The net loss of the Company was $18,736,000 and $20,505,000 in 1995 and
1994, respectively. The decrease in losses was attributable to the increased
profits of Nova TV offset by increases in the Company's share of losses in PULS
and FFF, higher development costs and the effect of increased station operating
expenses and selling, general and administrative expenses resulting from the
launches of PRO TV and POP TV in December 1995.

LIQUIDITY AND CAPITAL RESOURCES

Cash (used in) provided by operating activities was ($6,619,000) in 1996
and $1,943,000 in 1995. This change was primarily attributable to tax payments
by Nova TV and the inclusion of full-year losses for PRO TV and POP TV.

Accounts receivable increased by $4,867,000, or 15%, to $37,342,000, net of
currency fluctuations, at December 31, 1996, from $32,475,000 at December 31,
1995. This increase is primarily attributable to increased sales at Nova TV and
the addition of accounts receivable at PRO TV and POP TV launched in December
1995. Current liabilities increased $14,053,000 or 30%, to $60,506,000 at
December 31, 1996 from $46,453,000 at December 31, 1995, principally as a result
of increased accounts payable and increased accrued liabilities related to the
Company's new operations, PRO TV and POP TV, offset by reduced tax liabilities.

Cash used in investing activities increased by $27,573,000 or 40%, to
$95,936,000 in 1996 from $68,363,000 in 1995, primarily due to funding of the
newly launched station, Markiza TV (included in investments in unconsolidated
affiliates) and higher capitalized development costs.

The Company's investment in unconsolidated affiliates increased to
$56,599,000 at December 31, 1996 from $12,433,000 at December 31, 1995. This is
primarily a result of an increase of the investments in PULS of DM28,861,000
($18,620,000), FFF of DM3,000,000 ($1,935,000), SFF of DM1,500,000 ($968,000),
Markiza TV of $29,323,000 (including $3,714,000 which was classified as
development costs at December 31, 1995) and the Polish operations of
$11,500,000, partially offset by the Company's share of losses in PULS of
$10,279,000 (excluding goodwill amortization of $1,543,000), FFF of $1,949,000,
SFF of $325,000, Markiza TV of $3,583,000 (including license acquisition costs
amortization of $182,000) and the Polish operations of $188,000. The investments
reflect additional capital calls agreed in 1996 of DM26,575,000 ($17,145,000)
for PULS of which DM26,361,000 ($17,007,000) is to be funded by the Company and
of which DM2,000,000 ($1,290,000) remained outstanding as of December 31, 1996.
During 1996, the Company provided equity funding to Markiza TV of $25,609,000
and loans of $9,000,000. These loans are registered with the Slovakian central
bank and will mature in 2001 and carry an interest rate of 6.0% per annum.

<PAGE>

In 1996 the Company invested $17,801,000 in property, plant and equipment
(compared to $23,196,000 in 1995) and $18,936,000 in development activities
(compared to $12,325,000 in 1995). The reduction in investment in property,
plant and equipment for 1996 reflects the fact that PRO TV and POP TV are no
longer start up operations. The higher capitalized development costs principally
relate to investments in the Studio 1+1 Group.

Cash provided by financing activities for the year ended December 31, 1996
was $127,609,000. The largest cash inflow was $144,348,000 from the 1996
Offering before related expenses. Cash outflows consist primarily of loans to
affiliates.

The Company's operations to date have been financed primarily through
public offerings of shares of Class A Common Stock completed in October 1994
(the 'IPO') and November 1995 and the 1996 Offering which raised net proceeds
after offering expenses of approximately $68,800,000, $86,600,000 and
$143,600,000, respectively. Prior to the IPO, the Company relied on certain
affiliates for capital in the form of both debt and equity financing.

The Company was paid a dividend of approximately $1,400,000 in 1995 by Nova
TV. In 1996, the Company was paid a total of approximately $8,447,000 in
dividends by Nova TV.

Primarily as a result of the 1996 Offering and the results of operations of
Nova TV in 1995 and 1996, the Company had cash of $78,507,000 at December 31,
1996 ($53,210,000 at December 31, 1995) and marketable securities of $2,896,000
at December 31, 1996 ($10,652,000 at December 31, 1995) available to finance its
future activities.

The Company has made and will continue to make investments to develop
broadcast operations in Central and Eastern Europe. The Company currently is
developing broadcast operations in Ukraine and Poland and intends to bid for a
national broadcast license in Hungary. The Company's cash needs for those
investment activities may exceed cash generated from operations, resulting in
external financing requirements.

On August 1, 1996, the Company entered into the Additional Nova TV Purchase
for the purchase of CS's 22% economic interest and virtually all of CS's voting
rights in Nova TV 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 remainder of the purchase price Kc150,000,000 ($5,488,000)
was paid by the Company on November 15, 1996 out of the Company's cash balances.
The loan from CS was drawn in August 1996 and is expected to be drawn in April
1997 in the amounts of Kc450,000,000 ($16,464,000) and Kc400,000,000
($14,636,000), respectively, to fund purchase payments due at those times, and
the loan bears an interest rate of 12.9% annually. Quarterly repayments on the
loan are required in the amount of Kc22,500,000 ($823,000) during the period
from November 1997 through November 1998, Kc42,500,000 ($1,555,000) during the
period from February 1999 through August 2002, and Kc 20,000,000 ($732,000)
during the period from November 2002 through November 2003.

The Company expects that Nova TV's future cash requirements will continue
to be satisfied through operating cash flows and available borrowing facilities.
Nova TV currently has two loan facilities with CS. The first facility consists
of a long term loan due on December 30, 1999 in the principal amount of
Kc180,000,000 ($6,586,000) and bears interest at a rate of 2.5% over the bank's
prime rate, currently 12.5%. Principal payments of Kc60,000,000 ($2,195,000) are
due each year on this facility. In January 1996 Nova TV paid the Kc60,000,000
($2,195,000) due on this facility for 1996. The second facility is a line of
credit, obtained in November 1995, for an amount up to Kc250,000,000
($9,147,000) bearing interest at a rate 0.5% over Prague Interbank Offer Rate
('PRIBOR'). This facility was unutilized at December 31, 1996. These loans are
secured by Nova TV's equipment, vehicles and receivables.

PRO TV has two borrowing facilities with Tiriac Bank in Romania which were
obtained in July 1996. The first facility consists of $2,000,000 line of credit
substantially payable by July 31, 1997. The line of credit bears interest at a
rate of 5% over LIBOR (5.72% at December 31, 1996). At December 31, 1996
$1,709,000 was borrowed under this facility. The second facility is a long term
loan for $4,000,000 due July 31, 2001. The long term loan bears interest at 5%
over LIBOR (5.72% at December 31, 1996) and

<PAGE>

is repaid in installments starting July 31, 1997. At December 31, 1996
$2,758,000 was borrowed under this facility. These facilities are secured by PRO
TV's equipment and vehicles. Notwithstanding these borrowing facilities, the
Company believes that it will be required to provide additional funding to PRO
TV in 1997.

PULS, in which the Company has a substantial equity investment, continues
to require additional cash funding to meet ongoing operating deficits. The
Company estimates total cash funding required for PULS to be approximately $5.5
million through June 1997. None of the investors in PULS, including the Company,
have further contractual obligations to invest additional capital in this
station. The partners of PULS have retained a financial advisor and are
currently in discussions with potential investors in PULS. Any investor would be
expected to acquire a significant equity interest in PULS and assume
responsibility for PULS' operations. Such an investment would be anticipated to
significantly dilute the Company's equity interest in PULS and to decrease the
Company's future funding obligations to PULS. Such an investment also could
result in a material reduction of the carrying value of the Company's equity
investment in PULS which was $12,600,000 at December 31, 1996 and a
corresponding charge against the Company's earnings. Regardless of whether a
transaction with an investor is consummated, there is no assurance that the
Company may not have to take a reduction of all or a portion of the carrying
value of PULS. In addition, a reduction of the carrying value of PULS, or other
factors, might cause the Company to reduce all or part of the carrying value of
the Company's investments in FFF (the parent company of the Nuremberg Station)
and SFF (through which the Company owns its interests in the Leipzig Station and
the Dresden Station), which were $6,100,000 and $1,600,000, respectively, as of
December 31, 1996.

The laws under which the Company's currently operating subsidiaries and
affiliates 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 Nova TV 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. In the case of POP TV, the Company's voting
power is not sufficient to compel the payment of dividends. 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. In the case of PULS, the
PULS Partnership Agreement provides that if profits are available for
distribution, 66 2/3% of the partnership interest may require that 40% of such
profits be placed in reserves until DM16,700,000 ($10,774,000) are reserved. All
profits in excess thereof must be distributed. The agreement relating to FFF
does not contain restrictions on distributions out of available profits. The
laws of countries where the Company is developing operations contain
restrictions on the payment of dividends.

Except for the Company's working capital requirements and completing the
funding of existing television broadcast operations and the mobile
telecommunications venture in Romania (MobilRom), the Company's future cash
needs will depend on management's acquisition and development decisions. The
Company is actively engaged in the development of additional broadcast
operations and investing in existing broadcasting companies throughout Central
and Eastern Europe. The Company incurs limited expenses in identifying and
pursuing broadcast opportunities before any investment decision is made. The
Company anticipates making additional investments in other broadcast operations,
supplemented by capital raised from local financial or strategic partners as
well as local debt and lease financing, to the extent that it is available and
appropriate for each project. The Company's aggregate funding commitment with
respect to MobilRom is up to $12.0 million, of which approximately $3.6 million
has been funded to date.

<PAGE>

The Company believes that the net proceeds from the Offering, together with
its current cash balances, cash generated from Nova TV and local financing of
broadcast operations and broadcast operations under development should be
adequate to satisfy the Company's operating and capital requirements for 12 to
18 months for both its current operations and operations under development.

Statements made in this section, 'Liquidity and Capital Resources,'
regarding future investments in existing television broadcast operations and the
development of new television broadcast operations (including the amount and

nature thereof), business strategies 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 set forth in or contemplated by the forward-looking statements herein.
Important factors that contribute to such risks include the Company's success in
obtaining additional broadcast licenses, the cost of developing these
opportunities into television broadcast operations, the ability to acquire
programming, the ability to attract audiences, the rate of development of
advertising markets in these countries and general market and economic
conditions.

<PAGE>

BUSINESS

GENERAL

The Company or its strategic and financial partners have been successful in
obtaining broadcast rights and then in turn transforming these rights into
operating television stations in a relatively short period of time. In many of
the Company's markets the Company's broadcast operations have become the top
rated stations within their broadcast reach in their first year of operation.
License fees, if any, payable to governmental entities in connection with
securing television licenses are usually minimal. A summary of the Company's
broadcast operations appears below.

<TABLE>
<CAPTION>
TELEVISION BROADCAST
OPERATIONS TERRITORY BROADCAST REACH(1) ECONOMIC INTEREST
- ---------------------------- ---------------------------- ------------------ -----------------
<S> <C> <C> <C>
Nova TV Czech Republic 10.2 93.2%(2)
PRO TV Romania 12.5 77.5%(3)
POP TV Slovenia 1.6 85.3%(4)
Markiza TV Slovak Republic 4.3 80.0%

Studio 1 + 1 Group Ukraine 48.5 50.0%
TV Wisla Poland 7.8 16.2%
PULS Berlin-Brandenburg 6.0 58.0%
Nuremberg Station Nuremberg 1.2 37.4%
Leipzig Station Saxony 0.7 16.7%
Dresden Station Saxony 1.1 16.7%
-----
Totals 93.9
-----
-----
</TABLE>

- ------------------
(1) 'Broadcast Reach' measures the number of people in millions the Company's or
the Company's local partners' broadcast signal can reach.

(2) The Company has recently obtained additional interests in Nova TV, raising
the Company's economic interest from 66.0% to 93.2%. The Company is in the
process of registering these additional interests pursuant to Czech law.

(4) The Company has recently obtained additional interests in POP TV, raising
the Company's economic interest in POP TV from 72.0% to 85.3%.

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 parts of Western Europe in the 1950s, but not
until the 1980s and 1990s in Germany, and the 1990s in Central and

<PAGE>

Eastern Europe. Commercial television has become an important medium for
advertisers in the more developed advertising markets. For example, in 1996,
television advertising expenditures totaled $38 billion in the United States and
an aggregate of $23 billion in the 16 countries in Western Europe. The Company
believes that, over time, television advertising expenditures in Central and
Eastern European countries, which are relatively low, will follow a pattern of
development similar to that of Western Europe and the United States.

The following table and chart set forth (i) the population and number of TV
households for those countries of Central and Eastern Europe where the Company
is focusing its efforts and (ii) the recent growth in television advertising
expenditures in certain of those countries.

<TABLE>
<CAPTION>
COUNTRY POPULATION(1) TV HOUSEHOLDS(2)

- ----------------------------------------------------------------------------- ------------- ----------------
<S> <C> <C>
Czech Republic............................................................... 10,300,000 4,000,000
Hungary...................................................................... 10,200,000 3,800,000
Poland....................................................................... 38,600,000 12,300,000
Romania...................................................................... 22,700,000 6,700,000
Slovak Republic.............................................................. 5,400,000 1,800,000
Slovenia..................................................................... 2,000,000 600,000
Ukraine...................................................................... 52,100,000 17,300,000
------------- ----------------
Total...................................................................... 141,300,000 46,500,000
------------- ----------------
------------- ----------------
</TABLE>

- ------------------
(1) Source: Economist Intelligence Unit Limited, December 1996.

(2) Source: Zenith Media, January 1997, except for Ukraine: CIT Publications,
November 1996. A TV Household is a residential dwelling with one or more
television sets.

<PAGE>

[CHART SHOWING ADVERTISING EXPENDITURES
IN AREAS OF CENTRAL AND EASTERN EUROPE IN WHICH THE COMPANY
CONDUCTS OPERATIONS OR IS DEVELOPING BROADCAST OPPORTUNITIES]

Note: Romania, Slovenia and Ukraine data not available for certain years.
- ------------------
(1) Source: DDB Needham Worldwide A.S. Praha Advertising, IP Prague and Company
estimates.

(2) Source: Plus Advertising and Company estimates.

(3) Source: DDB Needham Worldwide A.S. Praha Advertising, IP Bratislava and
Company estimates.

(4) Source: M&M Magazine, Mediana Research and Company estimates.

(5) Source: IP Arbo and Company estimates.

(6) Source: Company estimates.

<PAGE>

The Regional Agreement for European Broadcasting Area of 1961 allocates
television broadcast frequencies to each country. Access to the available
frequencies is controlled by regulatory agencies in each country. New awards of
licenses to broadcast on these frequencies occur infrequently.

Czech Republic

The Czech Republic is a parliamentary democracy of approximately 10.3
million people, which the Company believes has developed a stable market economy
and is moving toward eventual membership in the European Union. Prior to 1992,
television advertising in the Czech Republic was limited to two public channels.
Currently, there are four over-the-air television stations in the Czech
Republic: two public stations which reach 96% and 83% of the population,
respectively, and two private commercial stations, Nova TV and Prima TV, which
reach 99% and 44% of the population, respectively. Since the onset of
privatization activities in 1992, the television advertising market in the Czech
Republic has expanded rapidly to approximately $165 million in 1996. The Czech
media law, originally adopted in 1991, and revised in 1996, allowed for the
creation of Nova TV and generally permits up to 10% of its broadcast time to be
used for advertising compared with 1% of broadcast time on each public channel.
It is currently estimated that at some point during prime time hours 60% to 70%
of the Czech population watches television, as compared with 60% of the
population of the United States.

Romania

Romania is a parliamentary democracy of approximately 22.7 million people,
making it one of the largest potential markets in Central and Eastern Europe.

Approximately 97% of Romanian households have television, and cable penetration
is approximately 31%. According to the Company's estimates, television
advertising totaled approximately $45 million in 1996. In 1992, the National
Commission for Audio-Visual (the 'Romanian Media Commission') was established to
grant broadcast licenses and regulate television, radio and cable. Currently,
there are two public stations and two private stations competing with PRO TV. Of
the public stations, TVR1 reaches the entire Romanian population and TVR2
reaches 60%. The two primary private competitors, Antena 1 and Tele 7ABC, reach
approximately 15% and 9% of the population, respectively. Private broadcasters,
such as PRO TV, are permitted to use up to 15% to 20% of their broadcast time
for advertising, as compared to public broadcasters which are permitted to use
only up to 7.5% of their time for advertising. PRO TV has a broadcast reach of
55% of the Romanian population.

Slovenia

Slovenia is a parliamentary democracy of 2.0 million people and had an
estimated per capita GDP of $9,600 in 1996, the highest among the former Eastern
bloc countries. Approximately 97% of Slovenian households have television.
Television advertising increased 17% in 1996 to $35 million, and represented
approximately 32.5% of total advertising expenditures. The POP 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 1988.
Private broadcasters are permitted to use up to 20% of their broadcast time for
advertising compared to 15% on public stations. Currently, there are two public
stations and two private stations in Slovenia competing with the POP TV network.
Historically, the Slovenian television market has been dominated by one of the
public stations, SLO 1, which reaches 97% of the Slovenian population. In
addition, cable television penetration in Slovenia is at a relatively high 35%.

Slovak Republic

The Slovak Republic has a population of 5.4 million and 99% of households
have television. The economy of the Slovak Republic has recently begun to
respond to economic reform, with estimated GDP growth of 6.5% in 1996. The
Company believes that as a market economy develops in the Slovak Republic,
television advertising spending has the potential to grow significantly.
Television advertising increased 28% in 1996 to $32 million, according to the
Company's estimates, yet television advertising spending per capita in the
Slovak Republic in 1996 still was less than half of that of the Czech Republic.

<PAGE>

The license under which Markiza TV operates is regulated pursuant to the Act on
Radio and Television Broadcasting. Currently, there are two national public
stations which compete with Markiza TV, each of which reach 98% of the
population of the Slovak Republic.

Ukraine

Ukraine, a parliamentary democracy of 52.1 million people, is the largest
market served by the Company. Approximately 94% of Ukrainian households have

television, and cable penetration is approximately 6%. Although television
advertising in Ukraine was only $20 million in 1996, the Company expects that
Ukraine's television advertising market will grow rapidly as Ukraine develops an
economy that fosters competition among providers of goods and services. The
Studio 1+1 Group is permitted to use up to 15% of its broadcasting time for
advertising and has a broadcast reach through UT-2 of 93% of Ukraine's
population.

Poland

Poland is a parliamentary democracy of 38.6 million people and had an
estimated per capita GDP of approximately $3,500 in 1996. Poland has the largest
television advertising market of the former eastern bloc countries, other than
Russia, with $385 million of television advertising expenditures in 1996. In
1996, television advertising expenditures increased by 15% from 1995.
Approximately 98% of Polish households have television, and cable and satellite
penetration are 23% and 16%, respectively. Competition in Poland consists of two
national public broadcast channels, TVP1 and TVP2, with broadcast reaches of 98%
and 96% of Poland's population, respectively; Polsat, the largest private
broadcaster, with a broadcast reach of 74%; and 11 regional channels.
Restrictions on advertising provide that public advertising on TV Wisla may not
exceed 15% of daily broadcasting time and 12 minutes in any one hour.

Germany

Germany is currently Europe's largest television advertising market with
television advertising expenditures of approximately $4.9 billion in 1996. In
1984, legislation was enacted which permitted the expansion of private national
television stations and which reduced restrictions on advertising on private
television stations. Since that time, television broadcasting in Germany has
been conducted primarily by several well-established public and private national
stations. Until 1993, there were no privately owned regional television stations
in Germany. Efforts to broadcast television on a regional basis were limited to
(i) ARD, one of the public station groups, which, in addition to their joint
nationwide program provide programs intended for regional reception and (ii) the
inclusion on certain national television broadcast stations of a program segment
of 30 to 45 minutes in length in the early evening which focuses on a particular
region's news and events. As a result, television advertising has been purchased
and broadcast primarily on a national basis.

In 1993, certain of the 16 German states began to award private regional
broadcasting licenses, such as those awarded to operate PULS, the Nuremberg
Station, the Leipzig Station and the Dresden Station (collectively, the 'German
Stations'). Licenses to broadcast regional television have been awarded to other
broadcasters in Munich, Hamburg and Berlin.

STRATEGY

The Company's objective is to strengthen its position as the leading
broadcaster in Central and Eastern Europe by applying its broadcasting,
financial and political expertise to achieve profitability in all of its
existing broadcast operations and to develop and operate additional television
broadcast operations.

<PAGE>

Early Entry Into Attractive Television Markets

The Company's strategy is to establish national and regional television
broadcast operations in the emerging markets of Central and Eastern Europe. The
Company believes there are significant competitive advantages to being an early
entrant into these markets including: (i) the number of television broadcast
frequencies being made available is regulated by government licensing
authorities, thus limiting competition, and (ii) early entrants have the
opportunity to establish good relationships with advertisers and build viewer
loyalty and station identity before other entrants can commence operations. In
Central and Eastern Europe, early entrants also have the opportunity to acquire
exclusive rights to attractive programming for their respective markets.

The Company believes that advertising expenditures in Central and Eastern
European countries generally will continue to increase rapidly as those
countries develop market-based economies and competition increases for goods and
services. For example, in the Czech Republic, television advertising
expenditures increased from approximately $6 million in 1991 to $165 million in
1996. The Company believes that Nova TV, as an early entrant with limited
competition, has been able to capitalize successfully on this market growth,
having achieved net advertising revenues of $109 million during 1996. Since
December 1995, the Company has launched television broadcast operations in
Romania, Slovenia and the Slovak Republic which have established themselves as
the leading television broadcasters within their broadcast reach. The Company
recently commenced television broadcast operations in Ukraine and southern
Poland. The Company intends to compete for commercial television licenses in
other Central and Eastern European markets which it deems economically
attractive, including in other areas of Poland and in Hungary.

Attractive Programming

The Company seeks to create and acquire programming which will appeal to a
mass market audience in the Central and Eastern European countries within which
the Company and its partners operate. Programming is a critical element in
building audience share, which is an extremely important factor in generating
advertising revenues. The Company's strategy is to broadcast a mix of locally
and internationally produced movies, series, talk shows, variety shows, sports
and news. The Company believes broadcasting a significant amount of locally
produced programming and developing a distinctive independent news program give
a strong local identity to its broadcast operations, cater to local tastes and
appeal to the desires of the local regulatory authorities. The Company
complements its local programming by maintaining an extensive library of
exclusive programming rights to popular films and television series produced by
the world's leading studios, including Paramount Pictures, Sony Pictures,
Twentieth Century Fox and Warner Bros. The Company utilizes 'western style'
production techniques to provide high quality local language programming to its
television audiences. The Company employs modern equipment and short, lively
program formats and purchases state of the art equipment for its studios in each
location where it conducts broadcast operations.

Investment Alliances

The Company's strategy is to form investment alliances with local strategic
partners in each country or region where it seeks to establish broadcast
operations. The Company believes that these alliances are essential to obtaining
television broadcast licenses. The Company seeks investment alliances with local
strategic partners who are known to local licensing authorities, are well
respected in their local media communities and are politically non-partisan. In
addition, the Company believes that having alliances with local partners
demonstrates to local licensing authorities that it has a strong commitment to
broadcast programming which is responsive to particular local interests. The
success of this strategy has been demonstrated by the Company's record of
obtaining broadcast rights in several markets in Central and Eastern Europe
under competitive conditions.

<PAGE>

Maximize Broadcast Reach

The Company's strategy is to maximize its broadcast reach within its
markets in order to maximize its potential audience share and therefore increase
the attractiveness of its programming to advertisers. In those areas where the
Company and its partners' stations do not reach the entire population, the
Company seeks to create a network for its programming and seeks to distribute it
through other, unaffiliated local broadcasters and through local cable systems.
The Company concentrates on reaching urban areas where advertising dollars are
focused. The media laws in many of the countries where the Company operates
require cable operators to carry all over-the-air broadcasting within their
areas free of charge. The Company currently employs satellite technology in
Romania, which does not have a well-developed terrestrial television
distribution system, to distribute its programming to a network of affiliate
stations. In order to serve other markets, the Company has obtained a 12 year
lease on a transponder on the Satellite Transponder, which is scheduled to be
launched in the fourth quarter of 1997. The Satellite Transponder will allow the
Company's broadcast operations to distribute programming efficiently to a
disbursed network of terrestrial television transmitters and cable system
headends without the necessity of building a potentially costly transmission
infrastructure. Using existing digital compression technology, the Company will
be able to use the Satellite Transponder to simultaneously distribute
programming on up to five different channels emanating from five distinct
locations.

Leveraging Critical Mass Among Its Operations

The Company currently broadcasts to approximately 93.9 million people in
seven countries and is developing or exploring operations in several other
countries. The Company believes it has reached a critical mass which has enabled
it to begin to benefit from synergies among the Company's operations. For
example, the Company has begun to gain greater leverage in its purchasing,
programming, news gathering and production abilities. In addition, the Company
intends to develop related businesses which serve broadcasters both affiliated
and not affiliated with the Company, and intends to market certain lower cost

production services to producers and broadcasters in the higher cost countries
of Western Europe and the United States.

Employing a Dedicated Team of Experienced Professionals

License application procedures in Central and Eastern Europe are complex
and typically involve lengthy competition against numerous other parties,
including major media companies. The Company has assembled an experienced team
of professionals who have successfully led the Company through complex licensing
processes in several locations in Central and Eastern Europe and who are seeking
broadcast rights in other markets of Central and Eastern Europe. Leonard M.
Fertig, President and Chief Executive Officer of the Company, has been active in
obtaining broadcast licenses for the Company and its strategic partners in
Central and Eastern Europe since 1991. In addition, Ronald S. Lauder, Chairman
of the Company and former U.S. Ambassador to Austria, has been actively involved
in the affairs of Central and Eastern Europe for many years and plays an active
role in pursuing and maintaining licenses for the Company's operations. The
Company believes its management and dedicated licensing team provide a
competitive advantage in obtaining broadcast licenses. The Company also employs
experienced operating and financial managers and accesses international
technology, programming and funding to promote the successful development and
management of its broadcast operations.

OPERATIONS IN THE CZECH REPUBLIC: NOVA TV

General

Nova TV is the leading commercial television broadcaster in the Czech
Republic, broadcasting pursuant to a 12 year license awarded in February 1993.
Nova TV's signal reaches 99% of the Czech Republic's population of approximately
10.3 million, including approximately 4.0 million TV households. Nova TV
generated $109.2 million in net advertising revenues in 1996.

<PAGE>
As the first private national station serving the Czech Republic,
broadcasting a wide range of programming, including movies, comedies, dramatic
series, soap operas, news and sports, Nova TV has built and maintained
significant market share during its first three years of operations. According
to independent surveys undertaken by GFK/AISA, an independent polling agency,
for the period from January 1, 1996 through December 31, 1996, Nova TV achieved
an overall 67% audience share of the Czech Republic television market. 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 19 hours daily, including locally produced news, sports
(including exclusive 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 1996, Nova TV produced
approximately 2,500 hours of original local programming, which primarily

consists of a daily breakfast show, news broadcasts and news related shows,
sports, game shows and music videos. In 1996, original local programming
produced by the Company, together with Czech films and other Czech origin
programming, comprised approximately 36% 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 produced by such companies as Canal+, Paramount Pictures,
Sony Pictures, Twentieth Century Fox, Walt Disney and Warner Bros. Nova TV, has
the rights to broadcast over 13,000 internationally released films and
television episodes during the next several years. Many of these films will not
have been released in the Czech Republic prior to being broadcast by Nova TV.
Nova TV has agreements with CNN, Reuters and WTN to receive foreign news reports
and film footage to integrate into its news programs. All foreign language
programs and films are dubbed into the Czech language.

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 such large multi-national advertisers as
Colgate-Palmolive, Jacobs Suchard, Procter & Gamble and Unilever. In 1996, no
single advertiser accounted for more than 10% of Nova TV's revenues.

Nova TV is permitted to broadcast advertising for up to 20% of its
broadcast time in any one hour, subject to an overall daily limit of 10% of
broadcast time. In addition, up to 60 minutes per day 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
'Czech Radio and Television Council') makes 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. As the television advertising market in the Czech Republic continues to
develop, the Company believes Nova TV is well positioned to capitalize on its
much larger inventory of available advertising time.

Competition

Nova TV competes principally with CT1 for audience, programming and
advertising. Nova TV competes on a more limited basis with CT2, a public network
of regional frequencies which reaches approximately 83% of the Czech Republic's
population and Prima TV, a privately owned and operated television station
serving Prague and several other metropolitan areas which include approximately
44% of the country's population. There are no other significant television
stations broadcasting Czech language programming to the Czech Republic. The
Company believes that, for various technical, political and financial reasons,
additional private national broadcast competition in the Czech Republic is
unlikely in the near future.

<PAGE>

Limited competition for viewers also comes from foreign stations
transmitted through cable and satellite television. At the present time,
approximately 14% of all Czech Republic households have cable television and
approximately 20% 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 Kable Plus, with
over 325,000 subscribers. Czech authorities have required 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 pursuant to which it operates are
regulated by the Czech Radio and Television Council pursuant to recently amended
legislation. The license was granted by the Czech Radio and Television Council
to CET 21 for 12 years under terms which require CET 21 to cooperate with the
Company in operating Nova TV. CET 21 has given Nova TV the exclusive access to
the use of the license.

Under Czech legislation or the license pursuant to which Nova TV operates,
Nova TV is required to comply with certain restrictions on programming and
advertising, none of which the Company believes have had a material adverse
effect on Nova TV. If the Czech Republic becomes a member of the European Union,
Nova TV may be subject to additional program content regulation.

Regulations relating to the amount of advertising broadcast on television
in the Czech Republic provide that advertising on Nova TV cannot exceed 20% of
its broadcast time in any one hour subject to an overall limit on advertising of
10% of total daily broadcast time. In addition, up to 60 minutes per day of
broadcast time may be used for 'direct sales' 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.

The Czech legislation pursuant to which CET 21 holds its license and
pursuant to which Nova TV operates contains certain provisions concerning the
relationship between the license holder and the broadcaster. The Czech Radio and
Television Council recently conducted administrative procedures to review these
relationships for all the private commercial broadcasting licenses granted
pursuant to Czech legislation, including the license granted to CET 21. These
procedures have been suspended. No determination adverse to Nova TV was made by
the Czech Radio and Television Council.

OPERATIONS IN THE CZECH REPUBLIC: RADIO ALFA

In February 1995, the Company entered into the first of a series of loan
and consulting agreements with Radio Alfa, one of two private Czech Republic
national radio broadcasters. The Company has advanced a total of approximately
Kc107,000,000 ($3,915,000) in loans to Radio Alfa under these agreements. In
addition to receiving interest under these loans, the Company receives a
consulting fee equal to 60% of the pre-tax profits of Radio Alfa and provides
management advisory services to the radio station. Recent changes in the Czech
broadcasting regulations have allowed the Company to directly hold an equity
interest in Radio Alfa. The Company has purchased a 62.0% interest in Radio Alfa
for a purchase price of Kc37,500,000 ($1,372,000). The Company has also paid
Kc11,300,000 ($413,000) in order to purchase a Kc17,300,000 loan ($633,000) from
one of the former shareholders of Radio Alfa. Certain of the Company's
outstanding loans to, and interest in, Radio Alfa are convertible into an
additional equity interest which, when combined with its current 62.0% interest,
would give the Company an 83.7% interest in Radio Alfa.

<PAGE>

Radio Alfa, which was awarded a license in January 1993, had been operating
as a 'news/information' station with an audience share of approximately 5%. In
October 1995, the Company relaunched Radio Alfa with a greater proportion of
entertainment-driven programming. Audience share was approximately 7.5% during
the fourth quarter of 1996. Radio competition in the Czech Republic is provided
by Czech public radio, one other national private radio station and over 40
local radio stations.

OPERATIONS IN ROMANIA: PRO TV

General

PRO TV is a national television broadcast network in Romania which
broadcasts its programming on, and sells advertising for, regional television
stations operated under licenses held by PRO TV, SRL and Media Pro, SRL. PRO TV
reaches approximately 55% of the Romanian population of 22.7 million, focusing
primarily on Romania's urban areas. PRO TV broadcasts from studios located in
Bucharest via digitally encoded satellite signals which deliver programming to
terrestrial broadcast facilities throughout Romania. The Company anticipates
that PRO TV will be able to increase its reach from current levels through
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.

PRO TV broadcasts a wide range of programming, including movies, comedies,
dramatic series, talk shows, news and reports. Independent research from Gallup
Media 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
42% during prime time for all of 1996.

Media Pro International, through which PRO TV is operated, also operates
PRO FM, a radio network which is broadcast through owned and affiliated stations
to approximately 9.2 million people in Romania.

Programming

PRO TV's programming strategy is to appeal to a mass market audience. PRO
TV broadcasts 24 hours of programming daily except Monday, when PRO TV
broadcasts for 18 hours. Approximately 26% of PRO TV's programming is comprised
of locally produced programming, including, news, sports (including coverage of
Romania's soccer league), a breakfast show and current affairs shows.

PRO TV has secured exclusive broadcast rights in Romania to a large number
of successful American and Western European programs and films produced by such
companies as CBS, Granada, MCA, MGM, Paramount, Sony Pictures, Twentieth Century
Fox and Warner Bros. PRO TV's library includes over 2,000 feature films and
approximately 5,000 television episodes. Many of these films will not have been
released in Romania prior to their broadcast on PRO TV. All foreign language
programs and films are subtitled in Romanian. PRO TV also receives foreign news
reports and film footage from Reuters and WTN to integrate into its news
programs.

Advertising

PRO TV derives revenues principally from the sale of commercial advertising
time, most of which is sold through independent agencies. Advertisers include
large multinational firms such as Coca-Cola, Colgate-Palmolive, Daewoo, Henkel,
Pepsi, Philip Morris, Procter & Gamble, Unilever and Wrigley.

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. PRO
TV's primary competitor, TVR 1, a public broadcaster, is restricted to 7.5% of
daily broadcast time for advertising, and a maximum of 10% during any one hour.
Both private and public broadcasters are subject to restrictions on the
frequency of advertising breaks, as well as on the advertising of tobacco and
alcohol, but restrictions on public stations are more severe. For example,
private broadcasters can insert advertising during news programs while public
broadcasters cannot.

<PAGE>

Competition

Prior to the launch of PRO TV, TVR 1 was the dominant television station in
Romania with its coverage of the entire population, a popular news show and
limited entertainment programming. Other local competitors include public TVR 2,
with a 40% reach, and privately-owned Antena 1 and Tele 7 ABC, covering about
20% and 9% of the population, respectively.

Additional competitors include cable and satellite stations. 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 the Romanian
Media Commission. In addition to its terrestrial television licenses which have
been granted for seven year periods expiring in 2001 and 2002, PRO TV has been
granted a seven year license to broadcast via satellite.

Under regulation established by the Romanian Media Commission, PRO TV and
the stations which broadcast programming and advertising provided by PRO TV are
required to comply with certain restrictions on programming and advertising.
These restrictions include the establishment of a target of at least 40% of
programming to be of Romanian origin for television operators, such as PRO TV,
which use satellite transmission.

Regulations relating to the amount of advertising broadcast on television
in Romania provide that advertising on PRO TV cannot exceed 20% of its broadcast
time in any one hour, subject to an overall limit on advertising of 15% of total
daily broadcast time. In addition, up to 5% of broadcast time may be used for
'direct sale' advertising. Regulations related to advertising content include
(i) restrictions related to tobacco and 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. There are also
restrictions on the placement of advertisements during programming.

Recent Developments

The Company owns a 95.0% equity interest in Unimedia which owns a 10.0%
equity interest in MobilRom. In December 1996, MobilRom was awarded one of two
national GSM cellular telephone licenses in Romania. The Company is currently
evaluating its plans with respect to its interest in MobilRom. The Company does
not anticipate exercising any managerial or operational control over MobilRom
although one of the Company's employees serves on MobilRom's Board of Directors.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'

OPERATIONS IN SLOVENIA: POP TV

General

POP TV is a national television broadcast network in Slovenia which
provides its programming to, and sells advertising for, MMTV, Tele 59 and an
additional affiliate, TV Robin. POP TV reaches approximately 80% of the
population of Slovenia, including Ljubljana, the capital of Slovenia, and
Maribor, Slovenia's second largest city. POP TV currently is negotiating
affiliation agreements with other regional television broadcasters to expand its
broadcast reach in Slovenia.

POP TV broadcasts a wide range of programming, including movies, comedies,
dramatic series, talk shows, news and sports. Independent industry research
shows that in the areas of Slovenia in which POP TV can be seen POP TV had an
average television viewer share of approximately 49% for 1996, the largest
television market share in these areas.

<PAGE>

Programming

POP TV's programming strategy is to appeal to a mass market audience. POP
TV provides an average of 18 hours of programming daily. Local programming
includes a nightly news program and a daily game show.

POP TV has secured exclusive program rights in Slovenia to a large number
of successful American and Western European programs and films from many of the
major studios, including X-Files, ER, Friends, The Bodyguard, Forever Young and
Robin Hood: Prince of Thieves. Many of these films will not have been released
in Slovenia prior to their broadcast on POP TV. All foreign language programs
and films are subtitled in Slovenian.

Advertising

POP TV derives revenues principally from the sale of commercial advertising
time. Advertisers include large multinational firms such as Coca Cola, Henkel,
Johnson & Johnson and Wrigley. Private commercial television stations are
permitted to broadcast advertising for up to 20% of daily broadcast time
compared with 15% for public television stations in Slovenia. Both private and
public television broadcasters in Slovenia are subject to restrictions on the
frequency of advertising breaks, as well as on the advertising of tobacco and
alcohol.

Competition

Historically, the television market in Slovenia has been dominated by SLO
1, a public television station. SLO 1 is entertainment oriented while the other
public station, SLO 2, focuses on information and culture. SLO 1 reaches 97% of
the Slovenian population, and SLO 2 reaches 96% of the Slovenian population. Two
private television stations which compete with POP TV in Slovenia have achieved
a relatively small share of the market. 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 in competition with
POP TV, which agreement would increase POP TV's broadcast reach to 85%. There is
currently an injunction in effect preventing the completion of the Kanal A
Agreement. See 'Business--Litigation.'

POP TV also competes with foreign television stations, particularly
Croatian, Italian, German and Austrian stations. Cable penetration at 32% is
relatively high compared with other countries in Central Europe and
approximately 32% 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.

Regulation

The licenses granted to MMTV and Tele 59 have been granted for 10 year
terms expiring in 2003. 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 pm and 6:00 am, and POP
TV news editors, journalists and correspondents must not reflect a biased
approach toward news reporting.

Regulations relating to the amount of advertising broadcast on television
in Slovenia provide that advertising on POP TV cannot exceed 20% of its daily
broadcast time. Advertising is not permitted during news, documentary and
children's programming which is not in excess of 30 minutes or during religious
programming. There are also restrictions on the frequency of advertising breaks
during films and other programs. Restrictions on advertising content include a
prohibition on tobacco advertising and on the advertising of alcoholic beverages
other than low alcohol content beer.

<PAGE>

Recent Developments

In March 1997, the Company consummated the Additional Pro Plus Purchase.
After giving effect to the Additional Pro Plus Purchase, the Company currently
owns 78.0% of the equity in Pro Plus, but has an effective economic interest of
85.3% as a result of its right to 33.0% of the profits of MMTV and 33.0% of the
profits of Tele 59. Tele 59 currently owns a 21.0% equity interest in Pro Plus,
and MMTV currently owns a 1.0% equity interest in Pro Plus. The Company, which
owns 10.0% of the equity of each of Tele 59 and MMTV, has acquired an option to
increase its equity interest in MMTV in conjunction with the Additional Pro Plus
Purchase. Pursuant to the Additional Pro Plus Purchase, the Company also has
acquired a 20.0% interest in Meglic Telekom, d.o.o., a start-up venture in
Slovenia involved in cable television and telecommunications.

OPERATIONS IN THE SLOVAK REPUBLIC: MARKIZA TV

General

Markiza TV, in which the Company owns an 80% economic interest, was
launched as a national television station in the Slovak Republic on August 31,
1996. According to third party estimates, Markiza TV reaches approximately 79%
of the Slovak Republic's population of 5.4 million, including virtually all of
its major cities. The Company intends to increase Markiza TV's broadcast reach
by adding additional transmitters or affiliates. According to independent
industry research, Markiza TV had an average television viewer share of
approximately 51% for its broadcast reach areas for the portion of 1996 during
which it broadcast, representing the highest market share in these areas.

Programming

Markiza TV's programming strategy is to appeal to a mass market audience.
Markiza TV provides an average of 18 hours of programming daily. Approximately
47% of Markiza TV's programming is locally produced, including news, current
affairs, game shows, variety shows and a weekly sitcom.

Markiza TV has secured exclusive broadcast rights in the Slovak Republic to

a large number of top rated United States and European programs produced by
major studios including BBC, MCA, Twentieth Century Fox, and Warner Bros.
Markiza TV's library includes over 1,000 films and nearly 3,000 television
episodes. All foreign language programming is dubbed in either Slovak or Czech.
Markiza TV also receives foreign news reports and film footage from CNN, Reuters
and WTN, which it integrates into Markiza TV's news programs.

Advertising

Markiza TV derives revenues principally from the sale of commercial
advertising time. Advertisers include large multinational firms such as Henkel,
Jacobs Suchard, Master Foods, Nestle, Procter & Gamble, Unilever and Wrigley.
Private commercial 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.

Competition

The Slovak Republic is served by two public television stations, STV1 and
STV2, which dominated the ratings until Nova TV began broadcasting in 1994. Nova
TV's signal reaches a portion of the Slovak Republic where it had a 17% audience
share in 1996. Markiza TV also competes with VTV, a private satellite
broadcaster; public television stations located in Austria, the Czech Republic
and Hungary, which stations' signals reach the Slovak Republic; additional
foreign private television stations; and foreign satellite stations. Competitors
have indicated a possibility of legal action to challenge the Company's
partnership arrangements with Markiza TV in connection with the formation of
STS.

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
license to operate Markiza TV was granted by the Slovak Television Council to
the

<PAGE>

Company's local partner in STS, for a period of 12 years under terms which
require 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 that of Markiza TV's monthly broadcast time: 40% must be Slovak
production (increasing to a minimum of 51% within three years from commencement
of broadcasting); 10% must be programming for children; broadcasts of first
performance films and series must have a minimum of 51% 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 performance

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, the
intentional use of indecent language or immoral behavior. Programming
endangering the psychological or moral growth of children and youth cannot be
broadcast between 6:00 am and 10:00 pm, and Markiza TV's news broadcasts must be
objective and balanced and clearly differentiate between opinion and news. If
the Slovak Republic becomes a member of the European Union, Markiza TV may be
subject to additional program content regulation.

Under both the license pursuant to which Markiza TV operates and Slovak
statutes, Markiza TV must comply with certain limitations in its broadcast of
advertising, none of which the Company believes will have a material adverse
effect on Markiza TV. Regulations relating to the amount of advertising
broadcast on Markiza TV provide that advertising may not exceed 20% of broadcast
time in any single hour, subject to an overall advertising limit of 10% of total
daily broadcast time. In addition, up to one hour daily, not exceeding 20% in
any one hour, may be used for 'direct sales' advertising. The news may not be
sponsored and news staff may not appear in advertisements. Restrictions on
advertising content include that (a) tobacco advertising is prohibited, (b)
advertising for children or in which children perform and which promotes
behavior endangering the health, psychological or moral development of children
is prohibited, and (c) advertising which endangers morals or consumer's interest
in health, safety and environmental protection are also prohibited. The
advertisement of beer is permitted, however, advertisement of other alcoholic
beverage remains prohibited. There are also restrictions on the frequency of
advertising breaks within a program.

Recent Developments

The Slovak parliament recently announced a tender procedure for the
privatization of STV2 under which bids were required to be submitted by the end
of February 1997. Markiza, the Company's local partner in Markiza TV, submitted
a bid for a television broadcast license to operate Markiza TV on the STV2
frequencies in exchange for its current frequencies because STV2 has a broadcast
reach greater than the current reach of Markiza TV. A successful bid by Markiza
for the television broadcast license on STV2 would have no effect on its
partnership with the Company.

OPERATIONS IN UKRAINE: STUDIO 1 + 1 GROUP

General

The Company owns a 50% economic interest in the Studio 1+1 Group, which has
the right pursuant to a ten-year television broadcast license held by a
Ukrainian-based member of the Studio 1+1 Group to broadcast programming and sell
advertising on Ukrainian National Channel Two ('UT-2'), one of Ukraine's public
television stations, for 63 hours per week, including during prime time. UT-2
reaches approximately 93% of Ukraine's population. The Studio 1+1 Group began
broadcasting on UT-2 in January 1997. Prior to that time, the Studio 1+1 Group
had been broadcasting programming for approximately 50 hours per week on
Ukrainian National Channel One ('UT-1') pursuant to a contractual, rather than
license, right, which contract was to expire in 2000. The Studio 1+1 Group was
required to relinquish its right to broadcast programming on UT-1 in order to

acquire the license to broadcast on UT-2.

The Company continues to hold a 30% equity interest in Gravis, a company
which operates two terrestrial television stations in the capital city of Kiev.
Gravis currently generates only limited revenues.

<PAGE>

Programming

The Studio 1+1 Group's programming strategy is to appeal to a mass market
audience. The Studio 1+1 Group has secured exclusive territorial or local
language broadcast rights in Ukraine to a large number of successful American
and Western European programs and films from many of the major studios,
including Paramount, Universal and Warner Bros. All foreign language programs
and films (other than those in the Russian language) are dubbed into the
Ukrainian language. During 1996, the Studio 1+1 Group broadcast primarily
foreign programming. During 1997, the Company intends to increase the percentage
of its programming that is locally produced, including talk shows and
entertainment shows.

Advertising

The Studio 1+1 Group derives revenues principally from the sale of
commercial advertising time. Advertisers include Coca-Cola, Master Foods,
Nestle, Procter & Gamble and Wrigley. The Studio 1+1 Group is permitted to sell
15% of its overall broadcast time for advertising. UT-2, like other
broadcasters, is subject to restrictions on the frequency of advertising breaks,
as well as on the advertising of tobacco and alcohol. Although television
advertising in Ukraine was only $20 million in 1996, the Company expects that
Ukraine's television advertising market will grow rapidly as Ukraine develops an
economy that fosters competition among providers of goods and services.

Competition

Ukraine is served by four television stations, including UT-1 and UT-2,
which are Ukrainian public stations, and ICTV, a private network. The Studio 1+1
Group, through UT-2, has a broadcast reach of 93% of the Ukrainian population.
UT-1 and ICTV reach 98% and 28% of Ukraine's population, respectively.

Regulation

The Studio 1+1 Group provides programming to UT-2 pursuant to a ten-year
television broadcast license expiring in December 2006. Broadcasts of the Studio
1+1 Group'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 (the 'Ukraine National Council'). These agencies
enforce Ukraine's developing media laws, which include restrictions on the
content of programming and advertising and limitations on the amount and
placement of advertising in programs. The Company does not expect these
restrictions to have a material adverse impact on the Studio 1+1 Group.

Competitors and others opposed to the Ukraine National Council's award of
the UT-2 License have indicated a possibility of legal or administrative actions
to challenge the UT-2 License or a possibility of other action against the
Company in connection with the UT-2 License. However, the Company believes that
there is no basis for challenging its actions and that the Ukraine National
Council's decision to grant Studio 1+1 the UT-2 License would be upheld. There
can be no assurance, however, as to the outcome of such proceedings, if
initiated.

OPERATIONS IN POLAND

General

TVN acquired its initial interest in TV Wisla in September 1996, although
TV Wisla began broadcasting in December 1994. The Company owns a 33.0% interest
in TVN, which in turn, owns a 49% interest in TV Wisla. TV Wisla operates a
television station in southern Poland with a broadcast reach of approximately
7.8 million people. TVN holds an option to increase its ownership in TV Wisla to
76.2%. The Company anticipates that TV Wisla will become part of a national
Polish television broadcast network to be formed by the Company and ITI, the
Company's partner in TVN. See 'Operations in Poland--Recent Developments.'

<PAGE>

Programming

TV Wisla's programming strategy is to appeal to a mass market audience.
Currently, TV Wisla provides approximately 19 hours of programming per day. TV
Wisla has secured exclusive programming rights in Poland to such popular shows
as Falcon Crest, Star Trek: the Next Generation, Sudden Impact, Arthur, Batman
Returns, Rain Man and others from MGM, Mediaset, Paramount and Warner Bros.

Advertising

TV Wisla derives revenues principally from the sale of commercial
advertising time. Advertisers include a number of local, national and
international companies such as Benkiser, Henkel and S.C. Johnson. Restrictions
on advertising provide that advertising on TV Wisla may not exceed 15% of daily
broadcasting time and 12 minutes in any one hour.

Competition

Competition in Poland consists of two national public broadcast channels,
TVP 1 and TVP 2, with broadcast reaches of 98% and 96% of Poland's population,
respectively, Polsat, the largest private broadcaster, with a broadcast reach of
74%, and 11 regional public channels. Cable and satellite stations currently
have 20% and 14% market penetration respectively. Additional competition for
advertising revenues includes other media, such as newspapers, radio, magazines,
outdoor advertising, telephone directory advertising and direct mail.

Regulation

Television broadcasting in Poland is subject to regulations imposed by the
Act on Communications (the 'Polish Communications Act') and regulated by the
Polish National Radio and Television Council (the 'Polish Television Council').
The Polish Communications Act restricts the foreign ownership and voting power
of license holders to 33%. In addition, Polish nationals residing in Poland must
comprise the majority of the managing boards of such license holders.

The license granted to TV Wisla contains restrictions on programming and
advertising. Programming produced in Poland is required to account for 40% of
programming. In addition, TV Wisla must produce itself or commission at least
15% of annual programming, and programming produced by Polish producers not
associated with TV Wisla must account for 10% of annual programming.

Restrictions on advertising provide that advertising on TV Wisla may not
exceed 15% of daily broadcasting time and 12 minutes in any one hour.

The licenses recently awarded to TVN in northern Poland, Warsaw and Lodz
also contain restrictions on programming and advertising. Programming produced
in Poland is required to account for 30% of programming in 1997, 1998 and 1999
and 35% in 2000 and thereafter. In addition, TVN must produce itself or
commission at least 10% of annual programming, and programming produced by
Polish producers not associated with TVN must account for 15% of annual
programming.

Recent Developments

In February 1997, the Polish Television Council awarded television
broadcast licenses for northern Poland and television broadcast licenses
covering the cities of Warsaw and Lodz in Poland to TVN. The Company estimates
that these television broadcast licenses have a potential broadcast reach of
approximately 11 million people. The Company and ITI, its partner in TVN, intend
to develop a national television broadcast network in Poland, which will
broadcast programming and sell advertising through affiliate stations, including
TV Wisla and those broadcasting under the television broadcast licenses awarded
to TVN in northern Poland, Warsaw and Lodz. The Company anticipates owning a 50%
interest in this television broadcast network, which the Company anticipates
will be launched in the fourth quarter of 1997. The network is expected to
broadcast 19 hours of acquired and self-produced programming daily. The Company
intends to broadcast the television network signal through terrestrial
transmitters as well as via digitally encoded satellite signals. The Company
expects to expand the signal to reach 80-85% of the population of Poland. These
are forward-looking statements. The timing of this launch and the potential
reach of the network depend upon the timely completion of broadcast facilities,
sourcing programming, obtaining access to transmitters and recruiting and
retaining qualified staff.

<PAGE>

OPERATIONS IN GERMANY: THE GERMAN STATIONS

General

The Company owns interests in four regional television stations operating
in Germany: PULS (formerly known as 1A Berlin), the Nuremberg Station, the
Leipzig Station and the Dresden Station. The German Stations reach an aggregate
of approximately 9.0 million people including the capital city of Berlin.
Germany is served on a nationwide basis by three major over-the-air private
commercial television stations and two major over-the-air public television
stations. German television broadcasters include several other private
television stations, regional members of the public network ARD, providers of
regional windows, and television stations delivered only by cable or satellite.

Recent Developments

The partners of PULS have retained a financial advisor and are currently in
discussions with potential investors in PULS. Any such investor would be
expected to acquire a significant equity interest in PULS and assume
responsibility for PULS' operations. Such an investment would be anticipated to
significantly dilute the Company's equity interest in PULS and to decrease the
Company's future funding obligations to PULS. Such an investment also could
result in a material reduction of the carrying value of the Company's equity
investment in PULS, which was $12.6 million as of December 31, 1996, and a
corresponding charge against the Company's earnings in the period incurred.
Regardless of whether a transaction with a strategic investor is consummated,
there is no assurance that the Company may not have to take a reduction of all
or a portion of the carrying value of PULS. In addition, a reduction of the
carrying value of PULS, or other factors, might cause the Company to reduce all
or part of the carrying value of the Company's investments in FFF and SFF, which
were $6.1 million and $1.6 million, respectively, as of December 31, 1996.

Programming

The German Stations currently broadcast a 'total local' programming
schedule which consists of in-depth local coverage of news and events in their
respective regions. The objective of 'total local' is to provide an alternative
to the public and private national broadcasters by being uniquely responsive to
the distinct regional tastes of local viewers.

PULS's program schedule currently consists of 7 hours of original
programming per day. On most days, this 7 hour schedule is repeated once during
the day (with some news broadcasts repeated more than once). The Nuremberg
Station broadcasts original programming for 4.5 hours each day and repeats this
programming. The program schedules of the Leipzig Station and the Dresden
Station consist of 2.5 hours of original programming per day and repeats this
programming. In addition, there is a commercial videotext service which
broadcasts the remainder of the day on the Nuremberg Station, the Leipzig
Station and the Dresden Station.

Advertising

The German Stations have local sales forces which work closely with local
advertising agencies and customers in their regions. Advertisers on the German
Stations include area department stores, food chains, furniture stores and
automobile dealers.

Competition

The German Stations compete primarily with three over-the-air private
commercial national television stations, SAT.1, RTL and PRO 7, and two
over-the-air public national television stations, ZDF and ARD (an association of
regional public broadcasters). Under applicable regulations, the public
television stations may broadcast advertising only before 8:00 pm., Monday
through Saturday, and they are limited to an annual average of 20 minutes of
advertising per day. The German Stations also compete with approximately 25
stations delivered through cable or satellite.

Each of the German Stations also competes with other media, such as
newspapers, radio, magazines, outdoor advertising, transit advertising,
telephone directory advertising and direct mail. Some of their competitors are
public operations or are larger and have greater financial, marketing and other
resources than the German Stations.

<PAGE>

Regulation

The German Stations, and the terms of the licenses pursuant to which they
operate, are regulated by the German states in which they are situated. These
regulations are based on an inter-state treaty and, therefore, generally are
similar in each state.

Under German regulations, the German Stations are required to comply with a
number of restrictions on programming and advertising, none of which the Company
believes has had a material adverse effect on these television stations. German
regulations prohibit programming that might offend public morals or that
violates measures designed to protect children. In addition, the majority of
programming consisting of films, series and documentary features is required to
be of European content. The license under which PULS operates requires that the
station broadcast at least 7 hours of non-repeated original programming each day
and that 30% of programming broadcast between 5:00 pm and 11:00 pm be of
regional character. In addition, PULS must cooperate with local independent
producers; it may not enter into arrangements favoring licensed productions over
programming produced or commissioned by the station. PULS also has agreed to
construct a second studio and establish further permanent and mobile facilities
in Potsdam, a city in the state of Brandenburg. Each of the licenses under which
the German Stations operates require regulatory approval to alter the overall
type and mix of programming broadcast on the stations.

Regulations relating to the amount of advertising broadcast on the German
Stations provide that advertising may not interrupt religious services, shows
for children, or news or political features of less than 30 minutes. Advertising
may be shown only after program segments of at least 20 minutes and movies
exceeding 45 minutes may be interrupted by advertising only once for each
complete block of 45 minutes. The total amount of advertising may not exceed 20%
of daily broadcast time, and spot advertising may not exceed 15% of daily
broadcast time or 20% of a given one hour period. Restrictions on advertising
content include prohibitions on advertising contrary to health, consumer safety
or the environment, on political and religious advertising and on advertising

employing persons who regularly present news or political features.

BROADCAST OPERATIONS UNDER DEVELOPMENT

The Company continues to pursue and develop opportunities for television
broadcasting throughout Central and Eastern Europe and other areas and continues
to evaluate the economic viability of commencing broadcast operations in such
areas. There can be no assurance that the Company will successfully pursue the
development of these broadcast operations or that these broadcast operations
will generate profits in the future. The Company, together with local partners,
is actively engaged in developing operations in Hungary, as discussed below.

Hungary

In January 1997, the Hungarian National Radio and Television Commission
(the 'Hungarian Television Commission') announced tender procedures for the
award of two national television broadcast licenses. Each license would be for a
ten-year term and would provide a broadcast reach of approximately 87% of the
population of Hungary. The Hungarian media law provides that consortiums bidding
for these licenses must consist of at least three entities. No entity will have
the right to own greater than 49% of any consortium and at least 26% of the
ownership interests must be owned by domestic entities. The Company currently is
forming a consortium in order to bid for these licenses. The tender procedures
require bids to be submitted no later than April 10, 1997, with awards to be
announced 60 days thereafter. If the Company's consortium is awarded one of
these licenses, it would be required to commence broadcasting 90 days
thereafter.

The Company owns 95% of 2002 Kft, a broadcasting company in Hungary which
has been awarded a local microwave (MMDS) license. If developed, operations
under the license would have a potential broadcast reach of approximately
200,000 homes in Budapest. As a condition to bidding for one of the two national
television broadcast licenses, the Company will be required to reduce its
ownership of 2002 Kft to below 25%. The satisfaction of this condition would not
have a material adverse effect on the Company.

<PAGE>

A subsidiary of 2002 Kft acquired Videovox, a company engaged in the
dubbing of foreign language programming, films, videos and commercials into
Hungarian, which was privatized by the Hungarian government in May 1996. In
December 1996, as part of a restructuring, CME BV acquired a direct 97.4%
interest in Videovox from 2002 Kft. The acquisition of Videovox is an integral
component of the Company's plans to develop broadcast operations in Hungary
because (i) a significant percentage of programming and films which the Company
likely would broadcast in Hungary will be of foreign origin and (ii) Videovox
owns a facility which can be converted into television studios.

Hungary has one of the more advanced economies in Central and Eastern
Europe with a relatively high GDP per capita estimated at $4,400 in 1996. The
Hungarian television advertising market grew 18% to $188 million in 1996.
Approximately 96% of households in Hungary have television and approximately 40%

of households have cable television, the largest cable penetration in the
region. Per capita television advertising expenditures are significantly greater
than the average in Central and Eastern Europe, but are still relatively low
when compared to Western Europe. The Company believes that as a market economy
continues to develop in Hungary, television advertising expenditures will
continue to grow.

PROGRAMMING SERVICES

Through CMEPS, the Company provides an array of program-related services to
its television operations in Central and Eastern Europe, including program
acquisition, production, distribution (including satellite transmission),
promotion, schedule advisory services, and coordination of viewer research.
Currently, CMEPS assists the Company's broadcast operations and broadcast
operations under development in obtaining programming from American and Western
European film and television studios. As the Company has expanded its broadcast
operations in Central and Eastern Europe, the Company has begun to use CMEPS to
reduce overall program costs by centralizing the purchase of rights to films and
programming. CMEPS will also create a program exchange service among the
Company's broadcast operations and will provide opportunities for co-production
and co-financing of programming among these broadcast operations. In addition,
CMEPS advises the Company's broadcast operations in connection with locally
produced programming.

SEASONALITY

The experience of the television industry is that advertising sales tend to
be lowest during the third quarter of each calendar year which includes the
summer holiday schedule (typically July and August) and highest during the
fourth quarter of each calendar year.

EMPLOYEES

As of December 31, 1996, (i) the Company had a central staff of 54
employees, (ii) Nova TV had 444 employees, (iii) PRO TV had approximately 659
employees, (iv) POP TV had approximately 147 employees, (v) Markiza TV had
approximately 380 employees, (vi) the Studio 1+1 Group had approximately 253
employees, (vii) TV Wisla had approximately 148 employees, (viii) Videovox had
approximately 71 employees, (ix) Radio Alfa had 26 employees, (x) PULS had
approximately 143 employees, (xi) the Nuremberg Station had approximately 79
employees and (xii) the Leipzig Station and the Dresden Station together had 94
employees. None of the Company'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, and that its
Subsidiaries' relations with their employees are good.

PROPERTIES

The Central European Media Enterprises Ltd. group of companies leases
office space in London, in three separate 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. A third lease of 2,600 square feet of office space in another

nearby building expires in 1998.

<PAGE>

Nova TV is party to a capitalized lease for a building in Prague for its
main studios and principal offices. The studios and offices total approximately
65,000 square feet. Modern studio facilities have been constructed in the
building. This capitalized lease provides for rental payments to be made
including principal and interest by Nova TV of $3,934,000 in each of 1997, 1998
and 1999. Through December 31, 1996, Nova TV has made principal payments of
$2,868,000 to be applied for the purchase of this facility. The term of the
lease is for one year, but is renewable for additional one year periods at the
option of Nova TV. PULS leases studios and offices, totalling approximately
40,000 square feet, located at the base of Berlin's government operated
broadcasting tower. This lease expires in December 1999. The Nuremberg Station
leases studios and offices, totalling approximately 37,000 square feet, in an
industrial center north of Nuremberg. This lease expires in 2001. CME BV has
entered into an agreement on behalf of Media Pro International for the purpose
of acquiring 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 which occupy
2,000 square meters (approximately 21,528 square feet). Videovox owns the
building in Budapest in which its studios are located. The building contains
5,605 square meters (approximately 60,332 square feet). STS owns its principal
office facility in Bratislava which provides STS with 4,350 square meters of
office space (approximately 46,823 square feet).

In June 1995 the Company, through its wholly-owned subsidiary CMEPS,
obtained leasehold rights to a 33 Mhz transponder on the Eutelsat HB3 Satellite
which is scheduled to be launched in the fourth quarter of 1997. The Satellite
Transponder, which has been leased through British Telecommunications plc for a
12 year period, will give the Company's stations the capability of distributing
programs to their terrestrial television transmitters as well as to cable
television systems throughout the Central and Eastern European region. The
Company paid a deposit of $850,000 toward future transponder lease obligations.
The annual charge for the lease is approximately $4.4 million, beginning after
the launch of the satellite. The obligations of CMEPS under the transponder
lease are guaranteed by CME.

LITIGATION

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 Kanal A Agreement in a United Kingdom court. Both the Company and SBS have
been granted injunctions by the United Kingdom courts preventing SBS, in the
case of the Company, and the Company, in the case of SBS, 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
action in a Slovenian court requesting that courts in Slovenia resolve these

claims.

Various competitors of PULS and the Nuremberg Station have instituted legal
action against the media authorities for Berlin-Brandenburg and the Nuremberg
area seeking to overturn their decisions to award broadcast licenses to PULS and
the Nuremberg Station, respectively. These actions were instituted in 1993 and
1994, and there have been no decisions in relation thereto in the last 12
months. Similar action has been instituted by other applicants for the licenses
awarded to the Company's local partner in Leipzig and Dresden. An unfavorable
decision in any of these actions could have an adverse effect on the Company.

One of the owners of CET 21 has filed a claim in the Regional Commercial
Court in Prague challenging the transfer by four other owners of CET 21 of a
portion of their interests in CET 21 to Vladimir Zelezny. This owner of CET 21
interests alleges that the proper procedures were not followed prior to the
interests being transferred to Dr. Zelezny. A preliminary injunction was sought
with respect to the transfer of these ownership interests and was denied by the
Czech Republic Court of Appeals. The underlying claim is still before the Court.

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.

<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Certain information concerning executive officers and directors of the
Company is set forth below:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Ronald S. Lauder................................ 53 Chairman of the Board of Directors
Leonard M. Fertig............................... 50 President, Chief Executive Officer and Director
John A. Schwallie............................... 34 Vice President--Finance and Chief Financial
Officer
Andrew Gaspar................................... 49 Director
Nicolas G. Trollope............................. 49 Vice President, Secretary and Director
Herbert S. Schlosser............................ 70 Director
Robert A. Rayne................................. 48 Director
</TABLE>

All of the current directors of the Company have served as directors since
1994 except for Mr. Rayne who became a director in 1996.

Ronald S. Lauder, Chairman of the Board of Directors of the Company, has

served as Chairman of Central European Development Corporation Ltd. ('CEDC')
since 1990, Chairman of RSL Investments, Inc. and Chairman of RSL
Communications, Ltd. ('RSLC'), an international telecommunications company,
since 1994. Mr. Lauder has served as Chairman of Estee Lauder International
since 1992 and Chairman of Clinique Laboratories, Inc., an Estee Lauder
division, since 1992. From 1986 until 1987, Mr. Lauder served as U.S. Ambassador
to Austria, having previously served as Deputy Assistant Secretary of Defense
for European and NATO Policy. Mr. Lauder currently serves as a director of The
Estee Lauder Companies Inc., The International Society for Yad Vashem, as
Chairman of the Board of Directors of The Museum of Modern Art and as President
of the Jewish National Fund.

Leonard M. Fertig, a Director of the Company, has served as President and
Chief Executive Officer of the Company since August 1995. Mr. Fertig served as
Vice President--Finance and Chief Financial Officer of the Company from its
inception in June 1994 until August 1995. Mr. Fertig is also President of CME
Programming and CME Development Corporation. Mr. Fertig was an independent
consultant to the media industry from 1989 until 1994. From 1985 until 1989, Mr.
Fertig was Executive Vice President and Chief Financial Officer of Reiss Media
Enterprises, a pay-per-view network. His experience includes over 20 years of
consulting, planning and management of businesses, including with American
Airlines and Capital Cities/ABC. Mr. Fertig also serves as a director of Nova
TV, PULS, Media Pro International, Pro Plus, various entities in the Studio
1 + 1 Group, STS and SFF.

John A. Schwallie has served as Vice President--Finance and Chief Financial
Officer of the Company since August 1995. Mr. Schwallie, a certified public
accountant, served as Financial Director of Nova TV from 1994 until August 1995.
From 1992 until 1993 Mr. Schwallie served as the Advisor to the Financial
Director of Prague Breweries, the second largest brewery in the Czech Republic.
During 1991, he served as the Assistant to the Regional Director of General
Atlantic, a London based multi-billion dollar privately held conglomerate,
operating retail outlets in Prague. Mr. Schwallie serves as a director of Media
Pro International and SFF, and director of the audit committee of Nova TV.

Andrew Gaspar, a Director of the Company, directed the activities of the
Company from 1991 through June 1994. Since its incorporation in June 1994 until
December 1996, Mr. Gaspar served as Vice President and Secretary of the Company.
Mr. Gaspar has been President of the general partner of R.S. Lauder, Gaspar &
Co., LP, a venture capital company and Vice Chairman of CEDC since 1991. Mr.
Gaspar has been a director and Vice Chairman of RSLC since 1994. From 1982 until
1991, Mr. Gaspar was a partner of Warburg, Pincus & Co., a venture capital firm,
in which Mr. Gaspar specialized in start-up ventures in the telecommunications
industry. Mr. Gaspar is Chairman of the Board and a director of Auto Info Inc.,
a financial services company.

<PAGE>

Nicolas G. Trollope, a Director of the Company, has served as Vice
President and Secretary of the Company since January 1997. Mr. Trollope has been
a partner with the law firm of Conyers, Dill & Pearman, Hamilton, Bermuda, since
1991. Mr. Trollope serves as a director of RSLC.

Herbert S. Schlosser, a Director of the Company, has served as a Senior
Advisor, Broadcasting and Entertainment to Schroder Wertheim & Co. Incorporated
since 1986. Mr. Schlosser serves as a consultant to the Company and receives a
fee for such services. Mr. Schlosser was Executive Vice President of RCA
Corporation from 1978 until 1985 and President of the National Broadcasting
Company (NBC) from 1974 until 1978. Mr. Schlosser is a director of United States
Satellite Broadcasting Company, Inc. and Data Broadcasting Corporation.

Robert A. Rayne, a Director of the Company, has been a director of London
Merchant Securities plc, a U.K. investment firm, since 1983. Mr. Rayne also is
Investment Director of Westpool Investment Trust plc. Mr. Rayne serves as a
director for several U.K.-based companies and in addition, serves on the Board
of Directors of Energy Ventures Inc.

OTHER MANAGEMENT

Vladimir Zelezny, 52, the General Director of Nova TV, has been associated
with Czech television for over 30 years. During this period, Dr. Zelezny was a
screenwriter for numerous television series and televised plays broadcast on
Czech television and served as an editor and a director for a government-owned
and operated Czech television station. Dr. Zelezny was involved actively in the
Velvet Revolution in 1989 in what was formerly Czechoslovakia.

<PAGE>

DESCRIPTION OF NOTES

GENERAL

The Notes are to be issued under an Indenture, dated as of April , 1997
(the 'Indenture'), between the Company and , as Trustee (the
'Trustee'). For purposes of this Description of the Notes, the term 'Company'
refers only to Central European Media Enterprises Ltd., and does not include its
subsidiaries except for purposes of financial data determined on a consolidated
basis. The terms of the Notes include those stated in the Indenture and those
made a part of the Indenture by reference to the Trust Indenture Act of 1939
(the 'Trust Indenture Act') as in effect on the date of the Indenture. A draft
of the Indenture has been filed as an exhibit to the Registration Statement
referred to below under 'Available Information.' The following summarizes the
material provisions of the Indenture and is subject to, and qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definition therein of certain terms not otherwise defined herein. The Notes are
subject to all such terms and holders of the Notes are referred to the Indenture
and the Trust Indenture Act for a complete statement of such terms. Wherever
defined terms of the Indenture are referred to, it is intended that such defined
terms shall be incorporated herein by reference. Certain terms used herein are
defined below under '--Certain Definitions.'

The Notes will be unsecured subordinated obligations of the Company limited
to an aggregate principal amount of $125,000,000 (or $143,750,000 if the
over-allotment option is fully exercised). The Company's Subsidiaries will have
no direct obligations to pay amounts due on the Notes and will not guarantee the
Notes on the Issue Date.

The Indenture and the Notes will not limit the amount of Indebtedness which
may be incurred or securities which may be issued, and will not contain any
restrictions on the payment of dividends or the repurchase of securities of the
Company or any financial covenants. The Indenture contains no covenants or other
provisions to afford protection to holders of Notes in the event of a highly
leveraged transaction or a change in control of the Company except to the extent
described under '--Repurchase at the Option of Holders Upon a Change of Control'
and '--Right to Require Repurchased Notes upon a Termination of Trading.'

PRINCIPAL MATURITY AND INTEREST

The Notes will be limited to $125,000,000 aggregate principal amount (or
$143,750,000 if the over-allotment option is exercised in full), will be
unsecured subordinated obligations of the Company, and will mature on ,
2004. The Notes will bear interest from , 1997 at the rate of %
per annum. Interest will be payable semiannually on and of
each year ('Interest Payment Dates'), commencing , 1997, to the
persons in whose names the Notes are registered at the close of business on the
day of or , as the case may be ('Regular Record Date'),
next preceding such Interest Payment Date. Interest will be computed on the
basis of a 360-day year composed of twelve 30-day months. Principal of, premium,
if any, and interest (including Additional Amounts (as defined below), if any),
on the Notes will be payable, and the Notes will be convertible and exchangeable

and transfers thereof will be registrable, at the office of the Trustee or the
office or agency of the Company maintained for such purpose in The City of New
York and at any other office or agency maintained by the Company for such
purpose, provided that at the option of the Company, payment of interest may be
made by check mailed to the address of the person entitled thereto as it appears
in the Security Register. All payments of interest and principal will be made in
U.S. Dollars.

No service charge will be made for any registration or transfer or exchange
of Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. The Company is
not required to (i) issue, register the transfer of, or exchange any Note during
a period beginning at the opening of business 15 days before the days of the
mailing of a notice of redemption and ending at the close of business on the
date of such mailing, or

<PAGE>

(ii) register the transfer of or exchange any Note selected for redemption in
whole or in part, except the unredeemed portion of Notes being redeemed in part.

The Notes will be issued only in registered form without coupons in
denominations of $1,000 or any integral multiple thereof. No service charge will
be made for any registration of transfer or exchange of Notes, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.

ADDITIONAL AMOUNTS

Except to the extent required by law, any and all payments of, or in
respect of, any Note shall be made free and clear of and without deduction for
or on account of any and all present or future taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
imposed by Bermuda, or any other jurisdiction under the laws of which the
Company is organized ('Other Jurisdiction') or any political subdivision of or
any taxing authority in Bermuda or in any Other Jurisdiction ('Bermudian Taxes'
or 'Other Taxes,' respectively). If the Company shall be required by law to
withhold or deduct any Bermudian Taxes or Other Taxes from or in respect of any
sum payable under a Note, the sum payable by the Company, as the case may be,
thereunder shall be increased by the amount ('Additional Amounts') necessary so
that after making all required withholdings and deductions, the holder shall
receive an amount equal to the sum that it would have received had no such
withholdings and deductions been made; provided that any such sum shall not be
paid in respect of any of the following Bermudian Taxes or Other Taxes to a
holder (an 'Excluded Holder') (a) any tax, withholding, assessment or other
governmental charge which would not have been imposed but for (i) the existence
of any present or former connection between such holder (or between a fiduciary,
settlor, beneficiary, member or shareholder of, or possessor of a power over,
such holder, if such holder is an estate, trust, partnership or corporation) and
Bermuda or Other Jurisdiction including, without limitation, such holder (or
such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or
having been a citizen or resident thereof or being or having been present or

engaged in trade or business therein or having had a permanent establishment
therein or (ii) the presentation of a Note (where presentation is required) for
payment on a date more than 30 days after the date on which such payment became
due and payable or the date on which payment thereof is duly provided for,
whichever occurs later; (b) any estate, inheritance, gift, sale, transfer or
personal property tax; (c) any tax, assessment or other governmental charge that
is withheld by reason of the failure to timely comply by the holder or the
beneficial owner of the Note with a request in writing of the Company (i) to
provide information concerning the nationality, residence or identity of the
holder or such beneficial owner or (ii) to make any declaration or other similar
claim or satisfy any information or reporting requirement, which, in the case of
(i) or (ii), is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing or domicile jurisdiction as a precondition
to exemption from or reduction of all or part of such tax, assessment or other
governmental charge; provided, however, that this clause (c) shall not apply to
the Company's obligation to pay Additional Amounts if the completing and filling
of the information described in (i) above or the declaration or other claim
described in (ii) above would be materially more onerous in form, in procedure
or in substance of information disclosed, in comparison to the information
reporting requirements imposed under U.S. tax law with respect to Forms 1001,
W-8 and W-9; or (d) any combination of items (a), (b), and (c) above; nor shall
Additional Amounts be paid with respect to any payment of the principal of, or
any interest on, any Note to any holder who is not the sole beneficial owner of
such Note or is a fiduciary or partnership, but only to the extent that a
beneficial owner, a beneficiary or a settlor with respect to a fiduciary or a
member of the partnership would not have been entitled to the payment of the
Additional Amount had the beneficial owner, beneficiary, settlor or member of
such partnership received directly its beneficial or distributive share of the
payments.

At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable, if the Company will be obligated to pay
Additional Amounts with respect to such payment, the Company will deliver to the
Trustee an Officers' Certificate stating the fact that such Additional

<PAGE>

Amounts will be payable and the amounts so payable and will set forth such other
information necessary to enable such Trustee to pay such Additional Amounts to
holders on the payment date.

At the date of this Prospectus, no Bermudian Taxes are imposed, and
therefore no Additional Amounts would be payable in respect of such taxes, in
respect of any sum payable by the Company as principal of, premium or interest
on the Notes.

In addition, the Company will pay any stamp, issue, registration,
documentary or other similar taxes and duties, including interest and penalties,
in respect of the creation, issue and offering the Notes payable in Bermuda, the
United States or any political subdivision thereof or taxing authority of or in
the foregoing. The Company will also pay and indemnify the Trustee and the
holders of the Notes from and against all court fees and taxes or other taxes

and duties, including interest and penalties, paid by any of them in any
jurisdiction in connection with any action permitted to be taken by the Trustee
or the holders to enforce the obligations of the Company under the Notes and the
Indenture.

CONVERSION RIGHTS

The Notes will be convertible into shares of Class A Common Stock of the
Company (the 'Common Shares') at any time after 60 days following the Issuance
of the Notes through Maturity, unless previously redeemed (except as set forth
in the following sentence) prior to Maturity, initially at the conversion price
stated on the cover page hereof. The right to convert Notes called for
redemption will terminate at the close of business on the Business Day
immediately preceding a Redemption Date and will be lost if not exercised prior
to that time. See 'Optional Redemption.'

Notes surrendered for conversion during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such Interest Payment Date (except Notes called for
redemption on a Redemption Date within such period) must be accompanied by
payment in next day funds of an amount equal to the interest thereon which the
registered Holder is to receive on such Interest Payment Date. No other
adjustment for interest or dividends is to be made upon conversion. Fractional
shares of Common Stock will not be issued upon conversion, but in lieu thereof,
the Company will pay a cash adjustment based upon market price. As a result of
the foregoing provisions, Holders that surrender Notes for conversion on a date
that is not an Interest Payment Date will not receive any interest for the
period from the Interest Payment Date next preceding the date of conversion to
the date of conversion or for any later period, even if the Notes are
surrendered after a notice of redemption has been given (except for the payment
of interest on Notes called for redemption on a Redemption Date or repurchasable
on a Repurchase Date between a Regular Record Date and the Interest Payment Date
to which it relates, as provided above). No other payment or adjustment for
interest, or for any dividends in respect of Common Stock, will be made upon
conversion.

The conversion price will be subject to adjustment upon the occurrence of
any of the following events: (a) the payment of dividends and other
distributions in shares of Common Stock on any class or series of Capital Stock
of the Company, (b) subdivisions and combinations of Common Stock, (c)
distributions to all holders of Common Stock of evidence of indebtedness, shares
of any class or series of its Capital Stock, cash or other assets (including
securities, but excluding any dividend or distribution referred to in clause (a)
or (b)), (d) the issuance to all holders of Common Stock of shares of Common
Stock, rights, options or warrants entitling such holders to subscribe for or
purchase shares of Common Stock, or securities convertible into or exchangeable
for Common Stock for a consideration per share less than the Current Market
Price per share (determined as provided in the Indenture) to the extent that the
below market portion of such issuances (together with the below market or above
market portions (as the case may be) of all other below market issuances and
above market tender or exchange offers) is greater than 12.5% of the Company's
Total Market Capitalization of the Common Stock, (e) distributions consisting
exclusively of cash to all holders of Common Stock in an aggregate amount that,
together with (i) other all-cash distributions made within the preceding 12

months to all holders of Common Stock and (ii) the aggregate of any cash and the
fair market value of other consideration paid in respect of any tender offer by
the Company or any Subsidiary for the Common

<PAGE>

Stock consummated within the preceding 12 months, exceeds 12.5% of the product
of the then Current Market Price of the Common Stock times the number of shares
of Common Stock then outstanding on the record date of such distributions, (f)
the consummation of a tender or exchange offer made by the Company or any
Subsidiary for shares of Common Stock or the purchase by the Company of shares
of Common Stock in the open market to the extent the above market portion of
such tender or exchange offers (together with the below market or above market
portions (as the case may be) of all other above market tender or exchange
offers and all below market issuances) is greater than 12.5% of the Company's
Total Market Capitalization, (g) certain reclassifications and (h) certain other
events that could have the effect of depriving holders of the Notes of the
benefit of all or a portion of the conversion rights in respect of any Note. The
foregoing provisions for adjustment will be subject to certain exceptions, as
set forth in the Indenture. In the case of certain consolidations or mergers to
which the Company is a party or the conveyance or transfer of the Properties and
assets of the Company substantially as an entirety, each Note then outstanding
shall, without the consent of any holders of Notes, become convertible only into
the kind and amount of securities, cash and other Property receivable upon such
consolidation, merger, conveyance or transfer by a holder of the number of
shares of Common Stock into which the Note might have been converted immediately
prior to such consolidation, merger, conveyance or transfer. In the event that
such holder of Common Stock failed to exercise his rights of election, if any,
as to the kind or amount of securities, cash and other Property receivable upon
such consolidation, merger, conveyance or transfer (provided that if the kind or
amount of securities, cash and other Property so receivable is not the same for
each non-electing share), then the kind and amount of securities, cash and other
Property so receivable by each non-electing share shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares.

No adjustment in the conversion price will be required unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the conversion price; provided, that any adjustment which is not made will be
carried forward and taken into account in any subsequent adjustment. Moreover,
no adjustment in the conversion price shall be required for any transaction in
which holders of Notes are to participate on a basis and with notice that the
Company's Board of Directors determines to be fair and appropriate in light of
the basis and notice on which holders of Common Stock participate in the
transaction.

Certain antidilution adjustments could have tax consequences for holders of
the Notes. See 'Certain Tax Considerations--Constructive Distributions.'

In addition to the foregoing adjustments, the Company will be permitted to
reduce the conversion price as it considers to be advisable in order that any
event treated for United States federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of the Common Stock or,

if that is not possible, to diminish any income taxes that are otherwise payable
because of such event. Fractional Shares of Common Stock will not be issued upon
conversion, but, in lieu thereof, the Company will pay a cash adjustment based
upon the then closing price at the close of business on the day of conversion.

<PAGE>

SUBORDINATION OF NOTES

The Notes will be subordinated and subject, to the extent and in the manner
set forth in the Indenture, to the prior payment in full of all Senior
Indebtedness. Senior Indebtedness is defined to include the principal of, and
premium, if any, and interest on and other amounts due on any Indebtedness,
whether now outstanding or hereafter created, incurred, assumed or guaranteed by
the Company, for money borrowed from others (including obligations under Capital
Lease Obligations or purchase money Indebtedness) or in connection with the
acquisition by the Company or a Subsidiary of any other business or entity, or
in respect of letters of credit or bid, performance or surety bonds issued for
the account or on the credit of the Company or a Subsidiary, and, in each case,
all renewals, extensions and refundings thereof, other than (i) any such
Indebtedness as to which, in the instrument creating or evidencing the same, it
is provided that such Indebtedness is not superior in right of payment to the
Notes, (ii) if such Indebtedness or obligation is non-recourse to the Company,
(iii) any conditional sale contract or any account payable or other Indebtedness
created or assumed by the Company in the ordinary course of business in
connection with the obtaining of materials, inventories or services, (iv)
Indebtedness of the Company to any Affiliate and (v) the Notes. At December 31,
1996, the Company had approximately $55,096,000 of outstanding Indebtedness that
would have constituted Senior Indebtedness under the Indenture. The Indenture
does not limit the amount of Senior Indebtedness or other Indebtedness that the
Company or its Subsidiaries may incur.

In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to its creditors as such, or to
its Property, or in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company, or in the event of any
assignment for the benefit of creditors of the Company and any marshaling of
assets of the Company, the holders of all Senior Indebtedness of the Company
will be entitled to receive payment in full of the principal of, premium, if
any, and interest, including interest accruing after the commencement of any
such proceeding, on all Senior Indebtedness of the Company, before the holders
of the Notes will be entitled to receive any payment in respect of the Notes.
Upon the maturity of any Senior Indebtedness of the Company by lapse of time,
acceleration or otherwise, such Senior Indebtedness of the Company shall first
paid in full (to the same extent as provided in the preceding sentence), or
provided for, before any payment is made by the Company, directly or indirectly
on the Notes. Upon the happening of any event of default with respect to any
Senior Indebtedness of the Company, as defined therein or in the instrument
under which it is outstanding, permitting the holders to accelerate the maturity
thereof, then, unless and until such event of default shall have been cured or
waived or shall have ceased to exist, no payment shall be made by the Company,

directly or indirectly, on the Notes. By reason of such subordination, in the
event of insolvency, creditors of the Company who are not holders of Senior
Indebtedness of the Company (or who are holders of the Notes) may recover less,
ratably, than holders of Senior Indebtedness of the Company and holders of
Senior Indebtedness of the Company may recover more, ratably, than the holders
of the Notes.

The Notes are obligations exclusively of the Company and not of its
Subsidiaries. Because the operations of the Company are conducted through
Subsidiaries, the cash flow and the consequent ability to service Indebtedness
and other liabilities of the Company, including the Notes, are dependent upon
the earnings of its Subsidiaries and the distribution of those earnings to the
Company or upon loans or other payments of funds by those Subsidiaries to the
Company. The Subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes, whether by dividends, loans or other payments. In addition, the payment
of dividends and the making of loans and advances to the Company by its
Subsidiaries may be subject to statutory or contractual restrictions, and
dividends paid by a Subsidiary that does not consolidate with the Company for
tax purposes will be subject to taxation.

The Notes will be effectively subordinated to all Indebtedness and other
liabilities, including current liabilities and commitments under leases, if any,
of the Company's Subsidiaries. At December 31, 1996, the Company's Subsidiaries
had indebtedness and other liabilities (other than Indebtedness of such

<PAGE>

Subsidiaries that is guaranteed by the Company on a senior basis and included in
Senior Indebtedness) of approximately $105,052,000. Any right of the Company to
receive assets of any of its Subsidiaries upon liquidation or reorganization of
such Subsidiary (and the consequent right of the holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subject to any liens held by other creditors in the
assets of such Subsidiary and subordinated to any Indebtedness of such
Subsidiary senior to that held by the Company. In addition, any minority
stockholder of such Subsidiary would be entitled to participate in the assets of
such Subsidiary on the same terms as the Company (except to the extent that the
Company itself is recognized as a creditor).

OPTIONAL REDEMPTION

The Notes are not redeemable at the option of the Company prior to
, 2000 except as provided in '--Optional Tax Redemption'.
Thereafter, the Notes will be redeemable upon not less than 30 nor more than 60
days' notice by mail at any time on or after , 2000, as a whole
or in part, at the election of the Company, at a Redemption Price equal to the
percentage of the principal amount set forth below if redeemed in the 12-month
period beginning of the years indicated:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------------------------- -----------
<S> <C>
2000....................................................... %
2001....................................................... %
2002....................................................... %
</TABLE>

and thereafter at a Redemption Price equal to 100% of the principal amount,
together in each case with accrued and unpaid interest (including Additional
Amounts, if any) to the redemption date (subject to the right of holders of
record on Regular Record Dates to receive interest due on an Interest Payment
Date).

OPTIONAL TAX REDEMPTION

The Notes may be redeemed at the option of the Company, in whole but not in
part, upon not less than 30 nor more than 60 days' notice given as provided in
the Indenture at a redemption price equal to the principal amount thereof, plus
accrued and unpaid interest (including Additional Amounts, if any), if, as a
result of any change in or amendment to the laws or any regulations or rulings
promulgated thereunder of Bermuda or any Other Jurisdiction or any political
subdivision thereof or any authority thereof or having power to tax therein, or
any change in the application or official interpretation of such laws or
regulations, or any change in administrative policy or assessing practice of the
applicable taxing authority, which change or amendment becomes effective on or
after the date of this Prospectus, the Company is or would be required on the
next succeeding Interest Payment Date to pay Additional Amounts with respect to
the Notes and the payment of such Additional Amounts cannot be avoided by the
use of any reasonable measures available to the Company. The Company will also
pay to holders on the redemption date any Additional Amounts payable in respect
of the period ending on the redemption date.

Prior to the publication of any notice of redemption pursuant to this
provision, which in no event will be given earlier than 90 days prior to the
earliest date on which the Company would be required to pay such Additional
Amounts were a payment in respect of the Notes then due, the Company shall
deliver to the Trustee an Officers' Certificate stating that (i) the obligation
to pay such Additional Amounts cannot be avoided by the Company taking
reasonable measures and (ii) an opinion of counsel, independent of the Company
and approved by the Trustee, to the effect that the Company has or will become
obligated to pay such Additional Amounts as a result of such change or
amendment. Such notice, once delivered by the Company to the Trustee, will be
irrevocable.

<PAGE>

MANDATORY REDEMPTION

Except as set forth under '--Repurchase at the Option of Holders upon a
Change of Control,' and '--Right to Require Repurchase of Notes upon a
Termination of Trading,' the Company is not required to make mandatory
redemption payments or sinking fund payments with respect to the Notes.

REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL

Upon the occurrence of a Change of Control (as defined below), each holder
of Notes shall have the right to require the Company to repurchase all or any
part (equal to $1,000 principal amount or an integral multiple thereof) of such
holder's Notes pursuant to an irrevocable and unconditional offer described
below (the 'Change of Control Offer') at a purchase price (the 'Change of
Control Purchase Price') equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, and Additional Amounts, if any, thereof, to
any Change of Control Payment Date.

A 'Change in Control' will occur when: (i) all or substantially all of the
assets of the Company and its Subsidiaries taken as a whole are sold as an
entirety to any Person or related group of Persons; (ii) there shall be
consummated any consolidation or merger of the Company (A) in which the Company
is not the continuing or surviving corporation (other than a consolidation or
merger with a Wholly-Owned Subsidiary of the Company in which all shares of
Common Stock outstanding immediately prior to the effectiveness thereof are
changed into or exchanged for the same consideration) or (B) pursuant to which
the shares of Common Stock are converted into cash, securities or other
Property, in each case other than a consolidation or merger of the Company in
which the holders of the Common Stock immediately prior to the consolidation of
merger have, directly or indirectly, at least a majority of the shares of Common
Stock of the continuing or surviving corporation immediately after such
consolidation or merger, or (iii) any Person or any Persons acting together
which would constitute a 'group' for purposes of Section 13(d) of the Exchange
Act, together with any Affiliates thereof, other than Permitted Holders acquire
'beneficial ownership' (as defined in Rule 13d-3 under the Exchange Act) of at
least 50% of the total voting power of all classes of Capital Stock of the
Company entitled to vote generally in the election of directors of the Company.
Notwithstanding clause (iii) of the foregoing definition, a Change in Control
will not be deemed to have occurred solely by virtue of the Company, any
Subsidiary, any employee share purchase plan, share option plan or other share
incentive plan or program, retirement plan or automatic dividend reinvestment
plan or any substantially similar plan of the Company or any Subsidiary or any
person holding securities of the Company for or pursuant to the terms of any
such employee benefit plan, filing or becoming obligated to file a report under
or in response to Schedule 13D or Schedule 14D-1(or any successor schedule, form
or report) under the Exchange Act disclosing beneficial ownership by it of
shares of securities of the Company, whether at least 50% of the total voting
power referred to in clause (iii) of the foregoing definition or otherwise. A
recapitalization or a leveraged buyout or similar transaction involving members
of management or their Affiliates will constitute a Change in Control if it
meets the foregoing definition.

Within 15 days following any Change of Control, the Company or the Trustee
(at the expense of the Company) shall mail a notice to each holder stating,
among other things: (1) that a Change of Control Offer is being made pursuant to
the covenant in the Indenture entitled 'Repurchase at the Option of Holders upon

a Change of Control' and that all Notes properly tendered will be accepted for
payment; (2) the Change of Control Purchase Price and the purchase date (the
'Change of Control Payment Date'), which shall be no earlier than 30 days nor
later than 40 days from the date such notice is mailed; (3) that any Notes or
portions thereof not properly tendered will continue to accrue interest and
Additional Amounts, if applicable, from and after the Change of Control Payment
Date; (4) that holders electing to have any Notes or portions thereof purchased
pursuant to a Change of Control Offer will be required to surrender the Notes,
with the form entitled 'Option of Holder to Elect Purchaser' on the reverse of
the Notes completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day preceding the Change of
Control Payment Date; (5) that holders will be entitled to withdraw their
election if the Payment Agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of Notes

<PAGE>

delivered for purchase, and a statement that such holder is withdrawing his
election to have such Notes or portions thereof purchased; (6) that holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Note or Notes surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof; and (7) the instructions and any other information
necessary to enable holders to accept a Change of Control Offer or effect
withdrawal of such acceptance.

The Company will comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws and regulations, to the extent such
laws and regulations are applicable, in connection with the repurchase of any
Notes pursuant to a Change of Control Offer.

On the Change of Control Payment Date, the Company will (1) accept for
payment Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (2) irrevocably deposit with the Paying Agent in immediately
available funds an amount equal to the Change of Control Purchase Price in
respect of all Notes or portions thereof so tendered, and (3) deliver, or cause
to be delivered, to the Trustee the Notes so accepted together with an Officers'
Certificate listing the Notes or portions thereof tendered to the Company and
accepted for payment. The Paying Agent shall promptly mail to each holder of
Notes so accepted payment in an amount equal to the Change of Control Purchase
Price for such Notes and the Trustee shall promptly authenticate and mail to
each holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each new Note shall be in a
principal amount of $1,000 or any integral multiple thereof. The Company will
announce publicly the results of a Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.

The existence of the holders' right to require, subject to certain
conditions, the Company to repurchase Notes upon a Change of Control may deter a
third party from acquiring the Company in a transaction that constitutes a

Change of Control. If a Change of Control Offer is made, there can be no
assurance that the Company will have sufficient funds to pay the Change of
Control Purchase Price for all Notes tendered by holders seeking to accept the
Change of Control Offer. The right to require the Company to repurchase Notes as
a result of the occurrence of a Change of Control could create an event of
default under Senior Indebtedness of the Company, as a result of which any
repurchase could, absent a waiver, be blocked by the subordination provisions of
the Notes. See '--Subordination of Notes.' In addition, instruments governing
other Indebtedness of the Company or any Subsidiary may prohibit the Company or
such Subsidiary from purchasing, or providing funds to permit the Company to
purchase, any Notes prior to their Maturity, including pursuant to a Change of
Control Offer. In the event that a Change of Control Offer occurs at a time when
the Company does not have sufficient available funds to pay the Change of
Control Purchase Price for all Notes tendered pursuant to such offer or at a
time when the Company is prohibited from purchasing the Notes (and the Company
is unable either to obtain the consent of the holders of the relevant
Indebtedness or to repay such Indebtedness), an Event of Default would occur
under the Indenture. In addition, one of the events that constitutes a Change of
Control under the Indenture is a sale, conveyance, transfer or lease of all or
substantially all of the assets of the Company or the Company and its
Subsidiaries taken as a whole. The Indenture will be governed by New York law,
and there is no established definition under New York law of 'substantially all'
of the assets of a corporation. Accordingly, if the Company were to engage in a
transaction in which it disposed of less than all of its assets, a question of
interpretation could arise as to whether such disposition was of 'substantially
all' of its assets and whether the Company was required to make a Change of
Control Offer.

The foregoing provisions with respect to a Change of Control would not
necessary permit holders of Notes to require that the Company repurchase or
redeem Notes in the event of a takeover, recapitalization or similar
restructuring or in the event of a highly leveraged transaction.

<PAGE>

RIGHT TO REQUIRE REPURCHASE OF NOTES UPON A TERMINATION OF TRADING

In the event of any Termination of Trading (as defined below) occurring
after the Issue Date and on or prior to Maturity, each holder of Notes will have
the right, at the holder's option, to require the Company to repurchase all or
any part of such holder's Notes on the date (the 'Repurchase Date') that is 30
days after the date the Company gives notice of the Termination of Trading as
described below at a price (the 'Repurchase Price') equal to 100% of the
principal amount thereof, together with accrued and unpaid interest, if any, and
Additional Amounts, if any, thereon to the Repurchase Date. On or prior to the
Repurchase Date, the Company shall deposit with the Trustee or a Paying Agent an
amount of money sufficient to pay the Repurchase Price of the Notes which are to
be repaid on or promptly following the Repurchase Date.

On or before the 15th day after the occurrence of a Termination of Trading,
the Company is obligated to mail to all holders of Notes a notice of occurrence
of such Termination of Trading, the Repurchase Date, the date by which the
repurchase right must be exercised, the Repurchase Price for Notes and the
procedures which the holder must follow to exercise this right. To exercise the
repurchase right, the holder of a Note must deliver, on or before the close of
business on the Repurchase Date, irrevocable written notice to the Company (or
an agent designated by the Company for such purpose) and to the Trustee of the
holder's exercise of such right, together with certificates evidencing the Notes
with respect to which the right is being exercised, duly endorsed for transfer.
Such written notice is irrevocable.

A 'Termination of Trading,' shall occur if the Class A Common Stock (or
other Common Stock into which the Notes are then convertible) are neither listed
for trading on a U.S. national securities exchange nor approved for trading on
the Nasdaq National Market or any other established automated over-the-counter
trading market in the United States or, if the Company is a Foreign Private
Issuer (as defined in Rule 3b-4(c) under the Exchange Act) on the principal
securities exchange on which such Common Stock is listed or admitted to trading
in a Designated Offshore Securities Market (as defined in Rule 902(a) under the
Securities Act); provided, however, that a suspension of trading that lasts no
longer than 30 trading days shall not be considered to be a Termination of
Trading.

Failure by the Company to provide timely notice of Termination of Trading,
as provided for above or the failure of the Company to repurchase Notes as a
result of the occurrence of a Termination of Trading could create an Event of
Default under the Senior Indebtedness of the Company, as a result of which any
repurchase could, absent a waiver, be blocked by the subordination provisions of
the Notes. See '--Subordination of Notes.' Failure by the Company to repurchase
the Notes when required will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions. In
addition, instruments governing other Indebtedness of the Company or any
Subsidiary may prohibit the Company or such Subsidiary from purchasing, or
providing funds to permit the Company to purchase, any Notes prior to their
maturity, including pursuant to a repurchase offer upon a Termination of
Trading. The Company's ability to pay cash to the holders of Notes pursuant to a
repurchase offer upon a Termination of Trading may be limited by certain

financial covenants contained in the other then existing Indebtedness of the
Company or its Subsidiaries.

REPORTS

The Indenture provides that, whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
the Company shall file with the Commission the annual reports, quarterly reports
and other documents which the Company would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) or any successor provision
thereto if the Company were subject thereto, such documents to be filed with the
Commission on or prior to the respective dates (the 'Required Filing Dates') by
which the Company would have been required to file

<PAGE>

them. The Company shall also (whether or not it is required to file reports with
the Commission), within 30 days of each Required Filing Date, (i) transmit by
mail to all holders of Notes, as their names and addresses appear in the
Security Register and to any Persons that request such reports in writing,
without cost to such holders or Persons, and (ii) file with the applicable
Trustee, copies of the annual reports, quarterly reports and other documents
(without exhibits) which the Company has filed or would have filed with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act, any successor
provisions thereto or this covenant. The Company shall not be required to file
any report with the Commission if the Commission does not permit such filing.

SATISFACTION AND DISCHARGE

The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange or
conversion of the Notes, as expressly provided for in the Indenture) as to all
outstanding Notes upon the mandatory conversion thereof or when (a) either (i)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or repaid and Notes for whose payment
money has theretofore been deposited in trust or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged from such trust)
have been delivered to the Trustee for cancellation or (ii) all Notes not
theretofore delivered to the Trustee for cancellation (except lost, stolen or
destroyed Notes which have been replaced or paid) (A) have become due and
payable, (B) will become due and payable at their Maturity within one year, (C)
are to be called for redemption within one year under arrangements satisfactory
to the Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company, or (D) are delivered to the Trustee
for conversion in accordance with the Indenture, and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire indebtedness on the Notes not

theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest (including Additional Amounts, if any) on the
Notes to the date of deposit together with irrevocable instructions from the
Company directing the Trustee to apply such funds to the payment thereof at
Maturity or redemption, as the case may be; (b) the Company has paid all other
sums payable under the Indenture by the Company; (c) no Default or Event of
Default under the Indenture or the Notes shall have occurred and be continuing
on the date of such deposit or shall occur as a result thereof; and (d) the
Company has delivered to the Trustee an Officers' Certificate and an opinion of
counsel stating that all conditions precedent under the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.

AMENDMENT, SUPPLEMENT AND WAIVER

The Company and the Trustee may, at any time and from time to time, without
notice to or consent of any holder of the Notes, enter into one or more
indentures supplemental to the Indenture, (1) to evidence the succession of
another Person to the Company and the assumption by such successor of the
covenants and obligations of the Company in the Indenture and the Notes; (2) to
add to the covenants of the Company, for the benefit of the holders, or to
surrender any right or power conferred upon the Company by the Indenture; (3) to
add any additional Events of Defaults; (4) to provide for uncertificated Notes
in addition to or in place of certificated Notes; (5) to evidence and provide
for the acceptance of appointment under the Indenture of a successor Trustee;
(6) to add security for such Notes; (7) to cure any ambiguity in the Indenture,
to correct or supplement any provision in the Indenture which may be
inconsistent with any other provision therein or to add any other provisions
with respect to matters or questions arising under such Indenture; provided such
actions shall not adversely affect the interests of the holders in any material
respect; (8) to make provision with respect to the conversion rights of the
holders of the Notes in the event of a consolidation, merger or sale of assets
involving the Company, as required by the Indenture; or (9) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.

With the consent of the holders of not less than two-thirds in aggregate
principal amount of the outstanding Notes, the Company and the Trustee may enter
into one or more indentures supplemental

<PAGE>

to the Indenture for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or modifying in any
manner the rights of the holders; provided that no such supplemental indenture
shall, without the consent of the holder of each outstanding Note, (1) change
the Maturity of the principal of, or any installment of interest on, any Note,
or reduce as applicable, the principal amount thereof (or premium, if any), or
the interest thereon (including Additional Amounts, if any) that would be due
and payable upon Maturity thereof, or change the place of payment where, or the
coin or currency in which, any Note or any premium or interest (including
Additional Amounts, if any) thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the maturity thereof;

(2) reduce the percentage in principal amount of the outstanding Notes, the
consent of whose holders is necessary for any such supplemental indenture or
required for any waiver of compliance with certain provisions of the Indenture
or certain Defaults thereunder, make any change in the subordination provisions
of the Notes that would adversely affect the holders of the Notes; (4) adversely
affect the right of the holders of Notes to convert such Notes; (5) modify the
obligations of the Company to make offers to purchase Notes upon a Change of
Control or, in the case of a Termination of Trading of the Common Shares of the
Company, the obligation of the Company to make an offer to repurchase the Notes;
or (6) modify any provision of this paragraph (except to increase any percentage
set forth herein).

The holders of not less than a majority in principal amount of the
outstanding Notes may, on behalf of the holders of all the Notes, waive any past
Default under the Indenture and its consequences, except Default in the payment
of the principal of (or premium, if any) or interest (including Additional
Amounts, if any) of any Notes, or in respect of a covenant or provision hereof
which under the proviso to the prior paragraph cannot be modified or amended
without the consent of the holder of each outstanding Note affected.

EVENTS OF DEFAULT

Each of the following is an 'Event of Default' under the Indenture (except
where otherwise expressly indicated):

(a) default in the payment of interest (or Additional Amounts, if any) on
any Note issued pursuant to the Indenture when the same becomes due and
payable, and the continuance of such default for a period of 30 days;

(b) default in the payment of the principal of (or premium, if any, on) any
Note issued pursuant to the Indenture at its Maturity, upon optional
redemption, required repurchase (including pursuant to a Change of
Control Offer, a repurchase offer upon a Termination of Trading of the
Common Shares) or otherwise or the failure to make an offer to purchase
any Note as required;

(c) the Company fails to perform or comply with the provisions described
under '--Repurchase at the Option of the Holders upon a Change of
Control' '--Consolidation, Merger, Conveyance, Lease or Transfer,' or
'--Right to Require Repurchase of Notes upon a Termination of Trading.'

(d) default in the performance, or breach, of any covenant of the Company
in the Indenture (other than a covenant addressed in clauses (a), (b)
or (c) above) and continuance of such Default or breach for a period of
30 days after written notice thereof has been given to the Company by
the Trustee or to the Company and the Trustee by holders of at least
25% of the aggregate principal amount of the outstanding Notes;

(e) The principal amount of any Indebtedness of the Company is not paid
when due within the applicable grace period, if any, or such
Indebtedness is accelerated by the holders thereof and, in either case,
the principal of such unpaid or accelerated Indebtedness exceeds $15
million and such acceleration is not rescinded or such Indebtedness is
not paid or discharged within (30) days after written notice to the

Company as provided in the Indenture;

(f) the entry by a court of competent jurisdiction of one or more final
judgments against the Company in an uninsured or unindemnified
aggregate amount in excess of $15 million which is

<PAGE>

not discharged, waived, appealed, stayed, bonded or satisfied for a
period of 60 consecutive days; or

(g) certain events in bankruptcy, insolvency or reorganization of the
Company or any Material Subsidiary.

In any Event of Default (other than certain events of Default specified in
clause (g) above) occurs and is continuing, then and in every such case the
Trustee or the holders of not less than 25% of the outstanding aggregate
principal amount of the Notes may declare the aggregate principal amount of,
premium, if any, and any accrued and unpaid interest (and Additional Amounts, if
any) on all such Notes then outstanding to be immediately due and payable by a
notice in writing to the Company (and to the Trustee if given by holders of the
Notes), and upon any such declaration, all amounts payable in respect of the
Notes will become and be immediately due and payable. If any Event of Default
relating to the Company specified in clause (g) above occurs, the aggregate
principal amount of, premium, if any, and any accrued and unpaid interest (and
Additional Amounts, if any) on the Notes then outstanding shall become
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder of the Notes. Under certain circumstances, the holders
of a majority in aggregate principal amount of the outstanding Notes by notice
to the Company and the Trustee may rescind an acceleration and its consequences.

The holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the holders of all such
Notes waive any existing Default or Event of Default under the Indenture and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest (and Additional Amounts, if any) on, premium, if any,
on or the principal of, the Notes. Subject to the provisions of the Indenture
relating to the duties of the Trustee, the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of any of the holders, unless such holders have offered to the
Trustee reasonable security or indemnity. Subject to the provisions of the
Indenture and applicable law, the holders of a majority in aggregate principal
amount of the Notes at the time outstanding have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
applicable Trustee, or exercising any trust or power conferred upon such
Trustee.

The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required within 5
days after becoming aware of any Default or Event of Default under the Indenture
to deliver to the Trustee a statement describing such Default or Event of
Default, its status and what action the Company is taking or proposes to take

with respect thereto.

CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER

The Company will not, in any transaction or series of transactions, merge
or consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its Properties and assets as an
entirety to, any Person or Persons, and the Company will not permit any of its
Subsidiaries to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in a
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the Properties and assets of the Company, to any other
Person or Persons, unless at the time of and after giving effect thereto (a)
either (i) if the transaction or series of transactions is a merger or
consolidation, the Company shall be the surviving Person of such merger or
consolidation, or (ii) the Person formed by such consolidation or into which the
Company is merged or to which the Properties and assets of the Company are
transferred (any such surviving Person or transferee Person being the 'Surviving
Entity') (A) shall be a corporation organized and existing under the laws of
Bermuda, the United States of America, any state thereof or the District of
Columbia or any country that is a member state of the European Union, (B) shall
expressly assume by a supplemental indenture executed and delivered to the
Trustee, in form reasonably satisfactory to the Trustee, all the obligations of
the Company under the Notes and the Indenture and (C) shall have provided for
conversion rights described under '--Conversion Rights'; (b) immediately before
and immediately after giving effect to such transaction or series of
transactions, no Default or Event of

<PAGE>

Default shall have occurred and be continuing; and (c) certain other conditions
under the Indenture are met.

In connection with any consolidation, merger, transfer, lease, assignment
or other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease assignment or other disposition
and the supplemental indenture in respect thereof comply with the requirements
under the Indenture.

Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing in which the
Company is not the continuing corporation, the successor corporation formed by
such a consolidation or into which the Company is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if the successor corporation had been named as the Company therein.

GOVERNING LAW

The Notes will be governed by, and construed in accordance with, the laws

of the State of New York, without giving effect to applicable principles of
conflicts of law.

THE TRUSTEE

will be the Trustee under the Indenture and its current address is
.

CONSENT TO JURISDICTION AND SERVICE

The Indenture provides that the Company will irrevocably appoint
Corporation Service Company, 375 Hudson Street, New York, New York 10014, as its
agent for service of process in any suit, action or proceeding with respect to
the Indenture and that any such action may be brought in any federal or state
court located in New York County and that the Company will submit to the
jurisdiction of such courts.

CURRENCY INDEMNITY

The U.S. Dollar is the sole currency of account and payment for all sums
payable by the Company under or in connection with the Notes and the Indenture,
including damages. Any amount received or recovered in a currency other than
U.S. Dollars (whether as a result of a judgment or order of a court of any
jurisdiction or the enforcement thereof, in the winding up or dissolution of the
Company or otherwise) by any holder in respect of any sum expressed to be due to
it from the Company shall only constitute discharge of the Company to the extent
of the U.S. Dollar amount which the recipient is able to purchase with the
amount so received or recovered in that other currency on the date of that
receipt or recovery (or, if it is not practicable to make that purchase on that
date, on the first date on which it is practicable to do so). If that U.S.
Dollar amount is less than the U.S. Dollar amount expressed to be due to the
recipient under any Note, the Company shall indemnify the holder against the
cost of making any such purchase. For the purposes of this paragraph, it will be
sufficient for the holder to certify that it would have suffered a loss had an
actual purchase of U.S. Dollars been made with the amount so received in that
other currency on the date of receipt or recovery (or, if a purchase of U.S.
Dollars on such date had not been practicable, on the first date on which it
would have been practicable). To the extent permitted by applicable law, these
indemnities constitute a separate and independent obligation from the Company
shall give rise to a separate and independent cause of action, shall apply
irrespective of any indulgence granted by any holder and shall continue in full
force and effect despite any other judgment, order, claim or proof for a
liquidated amount in respect of any sum due under any Note or any other judgment
or order.

<PAGE>

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
Indenture, except where the context otherwise indicates. Reference is made to
the Indenture for the full definition of all such terms, as well as any

capitalized terms used herein for which no definition is provided.

'Affiliate' means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. For purposes of this definition, 'control' (including, with correlative
meanings, the terms 'controlling,' 'under common control with,' and 'controlled
by'), and as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of Voting
Stock, by agreement or otherwise; provided that beneficial ownership of 10% or
more of the Voting Stock of a Person (on a fully diluted basis) shall be deemed
to be control.

'Board of Directors' means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.

'Capital Lease Obligation' of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right of use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with generally accepted
accounting principles that are applicable at the date of determination.

'Capital Stock' in any Person means any and all shares, interests,
participation or other equivalents in the equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or options to acquire an equity interest in such
Person.

'Closing Price' on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the Nasdaq National Market or, if such
shares are not listed or admitted to trading on any national securities exchange
or quoted on such automated quotation system but the issuer is a Foreign Private
Issuer (as defined in Rule 3b-4(c) under the Exchange Act) and the principal
securities exchange on which such shares are listed or admitted to trading is a
Designated Offshore Securities Market (as defined in Rule 902(a) under the
Securities Act), the average of the reported closing bid and asked prices
regular way on such principal exchange, or, if such shares are not listed or
admitted to trading on any national securities exchange or quoted on such
automated quotation system and the issuer and the principal securities exchange
to not meet such requirements, the average of the closing bid and asked prices
in the over-the-counter market as furnished by any New York Stock Exchange
member firm that is selected from time to time by the Company for that purpose
and is reasonably acceptable to the Trustee.

'Common Stock' includes any stock of any class of any Person which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of such person
and which is not subject to redemption by such person, including, without
limitation, the Company's Class A Common Stock and Class B Common Stock. Subject

to the provisions of the Indenture, however, shares issuable on conversion of
the Notes shall include only shares of the class designated as Common Shares of
the Company at the date of the Indenture or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which are not subject to redemption by the Company; provided, that if at any
time there shall be more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the proportion which the

<PAGE>

total number of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting from all such
reclassifications.

'Default' means any event that is, or after notice or passage of time or
both would be, an Event of Default.

'Indebtedness' means any time, with respect to any Person, whether recourse
is to all or a portion of the assets of such Person, and whether or not
contingent, (i) any obligation of such Person for money borrowed, (ii) any
obligation of such Person evidenced by bonds, debenture, notes, guarantees or
other similar instruments, including, without limitation, any such obligations
incurred in connection with acquisition of Property, assets or businesses,
excluding trade accounts payable made in the ordinary course of business, (iii)
any reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) any obligation of such Person issued or assumed as the deferred
purchase price of Property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business, which in either
case are not more than 60 days overdue or which are being contested in good
faith), (v) any Capital Lease Obligation of such Person, and (vi) any obligation
of the type referred to in clauses (i) through (v) of this definition of another
Person and all dividends and distributions of another Person the payment of
which, in either case, such Person has guaranteed or is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise.

'Issue Date' means the date on which the Notes are first authenticated and
delivered under the Indenture.

'Material Subsidiary' means a Subsidiary which is consolidated on the
Company's financial statements, if the Company's and its other Subsidiaries'
proportionate share of the total assets (after intercompany eliminations) of
such Subsidiary, including its Subsidiaries, exceeds 10 percent of the total
assets of the Company and its Subsidiaries consolidated for the most recently
completed fiscal year.

'Maturity' means, when used with respect to a Note, the date on which the
principal of such Note becomes due and payable as provided therein or in the
Indenture, whether at stated maturity, on the Change of Control Payment Date or
purchase date established pursuant to the terms of the Indenture with regard to

a Change of Control Offer, or an offer to repurchase upon Termination of Trading
of the Common Shares of the Company, as applicable, or by declaration of
acceleration, call for redemption or otherwise.

'Permitted Holders' means each beneficial owner of the Issuer's Class B
Common Stock on the Issuance Date and their respective families and Affiliates.

'Person' means any individual, corporation, partnership, joint venture,
limited liability company, trust, unincorporated organization, government or any
agency or political subdivision thereof or other entity.

'Preferred Stock' means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.

'Property' means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, excluding Capital Stock in any other Person.

'Subsidiary' means, with respect to any Person, (i) any corporation more
than 50% of the outstanding shares of Voting Stock of which is owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person,
(ii) any general partnership, joint venture or similar entity, more than 50% of
the outstanding partnership or similar interests of which are owned, directly or
indirectly, by such Person, or by one or more other Subsidiaries of such Person,
or by such Person and one or more other Subsidiaries of such Person, or (iii)
any limited partnership of which such Person or any Subsidiary of such Person is
a general partner.

<PAGE>

'Total Market Capitalization' of any Person means, as of any day of
determination, the sum of (a) the consolidated indebtedness of such Person and
its Subsidiaries on such day, plus (b) the product of (i) the aggregate number
of outstanding shares of Common Stock of such Person on such day (which shall
not include any options or warrants on, or securities convertible or
exchangeable into, shares of Common Stock of such Person other than, in the case
of the Company, any shares of Preferred Stock of the Company, that, as of the
day of determination, cannot, pursuant to the terms thereof as in effect on the
date of the Indenture, be required to be redeemed by the Company in cash, and
(ii) the average Closing Price of such Common Stock over the 20 consecutive
Trading Days immediately preceding such day, plus (c) the liquidation value of
any outstanding shares of Preferred Stock of such Person on such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (b) for the preceding sentence shall be determined
by the Company's Board or Directors in good faith and evidenced by a written
opinion as to such value issued by an investment banking firm or recognized
national standing.

'Trading Day' means, with respect to a securities exchange or automated

quotation system, a day on which such exchange or system is open for a full day
of trading.

'Voting Stock' means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such Person.

'Wholly-Owned Subsidiary' means any Subsidiary, all of the outstanding
Capital Stock (other than directors' qualifying shares) of which are owned,
directly or indirectly, by the Company.

DESCRIPTION OF CAPITAL STOCK

The authorized share capital of the Company is 50,000,000 shares, which
consists of (i) 30,000,000 shares of Class A Common Stock, par value $.01 per
share (the 'Class A Common Stock'), 15,000,000 shares of Class B Common Stock,
par value $.01 per share (the 'Class B Common Stock') and (ii) 5,000,000 shares
of preferred stock, par value $.01 per share (the 'Preferred Stock'). At the
1997 annual meeting of the Company's shareholders to be held on May 2, 1997, the
Company's shareholders will be asked to approve an increase in the number of
authorized shares of the Class A Common Stock to 100,000,000 shares, resulting
in a total authorized share capital of the Company of 120,000,000 shares.
Currently 16,716,478 shares of Class A Common Stock and 7,149,475 shares of
Class B Common Stock are outstanding and no shares of Preferred Stock are
outstanding. The following statements are summaries of certain provisions of the
Company's Memorandum of Association, bye-laws and The Companies Act 1981 of
Bermuda. These summaries do not purport to be complete and are qualified in
their entirety by reference to the full Memorandum of Association and bye-laws
which have been incorporated by reference as exhibits to the Company's
Registration Statement of which this Prospectus is a part.

CLASS A COMMON STOCK

The holders of the Class A Common Stock are entitled to one vote per share
and are entitled to vote as a single class together with the holders of the
Class B Common Stock on all matters subject to shareholder approval, except that
the holders of the Class A Common Stock and the holders of the Class B Common
Stock will each vote as a separate class with respect to any proposed 'going
private' transactions between the Company and Ronald S. Lauder and any matter
requiring class voting by The Companies Act 1981 of Bermuda. The holders of the
outstanding shares of Class A Common Stock are entitled to receive dividends as
and when declared by the Board of Directors, pari passu with the holders of
Class B Common Stock, out of funds legally available therefor after the payment
of any dividends declared but unpaid on any shares of Preferred Stock then
outstanding. The holders of the Class A Common Stock have no preemptive or
cumulative voting rights and no rights to convert their shares of Class A Common
Stock into any other securities. All of the outstanding shares of the Class A
Common Stock and shares of Class A Common Stock issued by the Company in the
Offering, will be,

<PAGE>

fully paid and nonassessable. On liquidation, dissolution or winding up of the
Company, the holders of Class A Common Stock are entitled to receive, pari passu
with the holders of Class B Common Stock, pro rata the net assets of the Company
remaining after preferential distribution to holders of Preferred Stock and the
payment of all creditors and liquidation preferences, if any.

The transfer agent and registrar for the Class A Common Stock is American
Stock Transfer and Trust Company.

CLASS B COMMON STOCK

The holders of the Class B Common Stock are entitled to ten votes per share
and are entitled to vote as a single class together with the holders of the
Class A Common Stock on all matters which are subject to shareholder approval,
except that the holders of the Class A Common Stock and the holders of the Class
B Common Stock will each vote as a separate class with respect to any proposed
'going private' transactions between the Company and Ronald S. Lauder and any
matter requiring class voting by The Companies Act 1981 of Bermuda. The holders
of the outstanding shares of Class B Common Stock are entitled to receive
dividends as and when declared by the Board of Directors, pari passu with the
holders of the Class A Common Stock, out of funds legally available therefor
after the payment of any dividends declared but unpaid on any shares of
Preferred Stock then outstanding. The holders of the Class B Common Stock have
no preemptive or cumulative voting rights. The holders of the Class B Common
Stock have the right to convert their shares of Class B Common stock into shares
of Class A Common Stock at their election and on a one to one basis, and all
shares of Class B Common Stock will automatically convert into shares of Class A
Common Stock on a one to one basis when the number of shares of Class B Common
Stock represent less than 10% of the combined total number of shares of Class A
Common Stock and Class B Common Stock outstanding. All of the outstanding shares
of the Class B Common Stock are fully paid and nonassessable. Shares of Class B
Common Stock may be transferred only to other original holders of Class B Common
Stock or to members of the family of the original holder by gift, devise or
otherwise through laws of inheritance, descent, distribution or to a trust
established by the holder for the holder's family members, to corporations the
majority of beneficial owners of which are or will be owned by the holders of
Class B Common Stock and from corporations or partnerships which are the holders
of Class B Common Stock, to their shareholders or partners, as the case may be
(each a 'Permitted Transferee'). Any other transfer of Class B Common Stock is
void, although the Class B Common Stock may be converted at any time into Class
A Common Stock on a one to one basis and then sold, subject to the conditions
and restrictions of Rule 144. A transfer by an original holder of Class B Common
Stock which is either a corporation or a partnership of more than 50% of the
equity interest in such corporation or partnership to other than a Permitted
Transferee shall result in an automatic conversion of all shares of Class B
Common Stock held by such corporation or partnership into an equal number of
shares of Class A Common Stock. The Company is entitled to seek specific
enforcement of such conversion of shares of Class B Common Stock into shares of
Class A Common Stock upon the failure of any holder and/or transferee of shares
of Class B Common Stock to comply with such conversion. In such event, the
Company is entitled to recover from the holder and the transferee who failed to
comply with such conversion, jointly and severally, the court costs, reasonable

attorneys' fees and other costs and expenses incurred by it in connection with
the obtaining of such specific enforcement. On liquidation, dissolution or
winding up of the Company, the holders of Class B Common Stock are entitled to
receive, pari passu with the holders of the Class A Common Stock, pro rata the
net assets of the Company remaining after preferential distribution to holders
of Preferred Stock and the payment of all creditors and liquidation preferences,
if any.

A 'going private' transaction is any 'Rule 13e-3 Transaction,' as such term
is defined in Rule 13e-3 promulgated under the Securities Exchange Act between
the Company and (i) Ronald S. Lauder, (ii) any Affiliate of Mr. Lauder, as
defined below or (iii) any group consisting of Mr. Lauder or Affiliates of Mr.
Lauder.

An Affiliate of Ronald S. Lauder is (i) any individual or entity who or
that, directly or indirectly, controls, is controlled by, or is under common
control with, Mr. Lauder, (ii) any corporation or

<PAGE>

organization (other than the Company or a majority-owned subsidiary of the
Company) of which Mr. Lauder is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of voting
securities, or in which Mr. Lauder has a substantial beneficial interest, (iii)
any trust or other estate in which the Mr. Lauder has a substantial beneficial
interest or as to which Mr. Lauder serves as trustee or in a similar fiduciary
capacity or (iv) any relative or spouse of Mr. Lauder, or any relative of such
spouse, who has the same residence as Mr. Lauder.

PREFERRED STOCK

The Preferred Stock may be issued from time to time as determined by the
Board of Directors of the Company, without shareholder approval. Such Preferred
Stock may be issued in such series and with such preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications or other provisions, as may be fixed by the Board of Directors.
It is intended that Preferred Stock be issued, among other reasons, for
financing acquisitions, for raising additional capital, or for similar corporate
purposes. While the Board of Directors has no current intention of doing so, the
Board of Directors, without shareholder approval, could issue Preferred Stock
with voting and conversion rights which could adversely affect the benefit of
any voting power and the benefit of other rights of the holders of the Class A
Common Stock and which could be used as an anti-takeover measure by the Company
without any further action by the holders of Class A Common Stock. This may have
the effect of delaying, deferring or preventing a change of control of the
Company by increasing the number of shares necessary to gain control of the
Company. At the date of this Prospectus, the Board of Directors has not
authorized the issuance of any shares of Preferred Stock and the Company has no
agreements or understanding for the issuance of any shares of Preferred Stock.

ANTI-TAKEOVER PROTECTIONS

The voting provisions of the Class A Common Stock and Class B Common Stock
and the broad discretion conferred upon the Board of Directors with respect to
the issuance of series of Preferred Stock (including with respect to voting
rights) could substantially impede the ability of one or more shareholders
(acting in concert) to acquire sufficient influence over the election of
directors and other matters to effect a change in control or management of the
Company, and the Board of Directors' ability to issue Preferred Stock could also
be utilized to change the economic and control structure of the Company. As a
result, such provisions, together with certain other provisions of the bye-laws
summarized in the succeeding paragraph, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in such shareholder's best interest, including
attempts that might result in a premium over the market price for the Class A
Common Stock held by shareholders.

The bye-laws establish an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors, as well as for other shareholder proposals to be
considered at annual general meetings of shareholders. In general, notice of
intent to nominate a director or raise business at such meeting must be received
by the Company not less than 90 nor more than 120 days prior to the meeting, and
must contain certain specified information concerning the person to be nominated
or the matter to be brought before the meeting and concerning the shareholder
submitting the proposal.

DIFFERENCES IN CORPORATE LAW

The Companies Act 1981 of Bermuda differs in certain respects from laws
generally applicable to United States corporations and their shareholders. Set
forth below is a summary of certain significant provisions of The Companies Act
(including any modifications adopted pursuant to the Company's bye-laws)
applicable to the Company, which differ in certain respects from provisions of
Delaware corporate law. The following statements are summaries, and do not
purport to deal with all aspects of Bermuda law that may be relevant to the
Company and its shareholders.

<PAGE>

Interested Directors. The bye-laws provide that any transaction entered
into by the Company in which a director has an interest is not voidable by the
Company nor can such director be liable to the Company for any profit realized
pursuant to such transaction provided the nature of the interest is disclosed at
the first opportunity at a meeting of directors, or in writing to the directors.
Under Delaware law no such transaction would be voidable if (i) the material
facts as to such interested director's relationship or interests are disclosed
or are known to the board of directors and the board in good faith authorizes
the transaction by the affirmative vote of a majority of the disinterested
directors, (ii) such material facts are disclosed or are known to the
stockholders entitled to vote on such transaction and the transaction is
specifically approved in good faith by vote of the stockholders or (iii) the
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified. Under Delaware law, such interested director could be held

liable for any transaction for which such director derived an improper personal
benefit.

Merger and Similar Arrangements. The Company may acquire the business of
another Bermuda company similarly exempt from Bermuda taxes or a company
incorporated outside Bermuda and carry on such business when it is within the
objects of its Memorandum. The Company may amalgamate with another Bermuda
company or with a company incorporated in another jurisdiction which permits
such a company to amalgamate with a Bermuda company, subject to shareholder
approval. A shareholder may apply to a Bermuda court for a proper valuation of
such shareholder's shares if such shareholder is not satisfied that fair value
has been paid for such shares. The court ordinarily would not disapprove the
transaction on that ground absent evidence of fraud or bad faith. Under Delaware
law, with certain exceptions, any merger, consolidation or sale of all or
substantially all the assets of a corporation must be approved by the board of
directors and a majority of the outstanding shares entitled to vote. Under
Delaware law, a stockholder of a corporation participating in certain major
corporate transactions may, under varying circumstances, be entitled to
appraisal rights pursuant to which such stockholder may receive cash in the
amount of the fair market value of the shares held by such stockholder (as
determined by a court or by agreement of the corporation and the stockholder) in
lieu of the consideration such stockholder would otherwise receive in the
transaction. Delaware law does not provide stockholders of a corporation with
voting or appraisal rights when the corporation acquires another business
through the issuance of its stock or other consideration (i) in exchange for the
assets of the business to be acquired, (ii) in exchange for the outstanding
stock of the corporation to be acquired or (iii) in a merger of the corporation
to be acquired with a subsidiary of the acquiring corporation.

Takeovers. Bermuda law provides that where an offer is made for shares of
another company and, within four months of the offer the holders of not less
than 90% of the shares which are the subject of the offer accept, the offeror
may by notice require the nontendering shareholders to transfer their shares on
the terms of the offer. Dissenting shareholders may apply to the court within
one month of the notice objecting to the transfer. The burden is on the
dissenting shareholders to show that the court should exercise its discretion to
enjoin the required transfer, which the court will be unlikely to do unless
there is evidence of fraud or bad faith or collusion as between the offeror and
the holders of the shares who have accepted the offer as a means of unfairly
forcing out minority shareholders. Delaware law provides that a parent
corporation, by resolution of its board of directors and without any shareholder
vote, may merge with any 90% or more owned subsidiary. Upon any such merger,
dissenting stockholders of the subsidiary would have appraisal rights.

Shareholder's Suit. The rights of shareholders under Bermuda law are not
as extensive as the rights of shareholders under legislation or judicial
precedent in many United States jurisdictions. Class actions and derivative
actions are generally not available to shareholders under the laws of Bermuda.
However, the Bermuda courts ordinarily would be expected to follow English case
law precedent, which would permit a shareholder to commence an action in the
name of the Company to remedy a wrong done to the Company where the act
complained of is alleged to be beyond the corporate power of the Company or is
illegal or would result in the violation of the Memorandum and bye-laws.
Furthermore, consideration would be given by the court to acts that are alleged

to constitute a fraud against the minority shareholders or where an act requires
the approval of a greater percentage of the Company's shareholders than actually
approved it. The winning party in such an action generally would be able to

<PAGE>

recover a portion of attorneys fees or fees incurred in connection with such
action. Class actions and derivative actions generally are available to
stockholders under Delaware law for, among other things, breach of fiduciary
duty, corporate waste and actions not taken in accordance with applicable law.
In such actions, the court has discretion to permit the winning party to recover
attorney fees incurred in connection with such action.

Indemnification of Directors. The Company may indemnify its directors or
officers in their capacity as such in respect of any loss arising or liability
attaching to them by virtue of any rule of law in respect of any negligence,
default, breach of duty or breach of trust of which a director or officer may be
guilty in relation to the Company other than in respect of his own wilful
default, wilful neglect, fraud or dishonesty. Bermuda law recently was amended
to permit such indemnification by a corporation for acts by a director or
officer involving wilful default or wilful negligence. The Company, however, has
not adopted, and has no present intention of adopting, this provision in its
bye-laws. Under Delaware law, a corporation may adopt a provision eliminating or
limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for breaches of the director's duty of loyalty, for acts or omissions not
in good faith or which involve intentional misconduct or knowing violations of
law, for improper payment of dividends or for any transaction from which the
director derived an improper personal benefit. Delaware law has provisions and
limitations similar to Bermuda regarding indemnification by a corporation of its
directors or officers, except that under Delaware law the statutory rights to
indemnification may not be as limited.

Inspection of Corporate Records. Members of the general public have the
right to inspect the public documents of the Company available at the office of
the Registrar of Companies in Bermuda which will include the Memorandum
(including its objects and powers) and any alteration to the Memorandum and
documents relating to an increase or reduction of authorized capital. The
shareholders have the additional right to inspect the bye-laws, minutes of
general meetings and audited financial statements of the Company, which must be
presented to the annual general meeting of shareholders. The register of
shareholders of the Company is also open to inspection by shareholders without
charge, and to members of the public for a fee. The Company is required to
maintain its share register in Bermuda but may establish a branch register
outside Bermuda. The Company is required to keep at its registered office a
register of its directors and officers which is open for inspection by members
of the public without charge. Bermuda law does not, however, provide a general
right for shareholders to inspect or obtain copies of any other corporate
records. Delaware law permits any shareholder to inspect or obtain copies of a
corporation's shareholder list and its other books and records for any purpose
reasonably related to such person's interest as a shareholder.

CERTAIN PROVISIONS OF BERMUDA LAW

The Company has been designated as a non-resident under the Exchange
Control Act of 1972 (the 'Control Act') by the Bermuda Monetary Authority whose
permission for the issue of shares of Common Stock of the Company has been
obtained. This designation allows the Company to engage in transactions in
currencies other than the Bermuda dollar. Prior to the Offering, this Prospectus
will be filed with the Registrar of Companies in Bermuda in accordance with
Bermuda law.

In granting such permission and in accepting this Prospectus for filing,
neither the Bermuda Monetary Authority nor the Registrar of Companies in Bermuda
accepts any responsibility for the financial soundness of the Company or of the
correctness of any of the statements made or opinions expressed in this
Prospectus.

The transfer of shares between persons regarded as resident outside Bermuda
for exchange control purposes and the issue of shares after the completion of
the Offering to or by such persons may be effected without specific consent
under the Control Act and regulations thereunder. Issues and transfers of shares
involving any person regarded as resident in Bermuda for exchange control
purposes require specific prior approval under the Control Act.

Non-Bermuda owners of the Company's shares of Common Stock are not
restricted in the exercise of the rights to hold or vote their shares. Because
the Company has been designated as a non-resident for Bermuda exchange control
purposes there are no restrictions on its ability to transfer funds in and

<PAGE>

out of Bermuda or to pay dividends to United States residents who are holders of
the Company's Common Stock, other than in respect of local Bermuda currency.

In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an applicant
acting in a special capacity (for example as a trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity the Company
is not bound to investigate or incur any responsibility in respect of the proper
administration of any such trust.

The Company will take no notice of any trust applicable to any of its
shares whether or not it had notice of such trust.

As an 'exempted company,' the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians, but
as an exempted company the Company may not participate in certain business
transactions including: (1) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years); (2) the taking of mortgages on land in Bermuda
to secure an amount in excess of $50,000 without the consent of the Minister of
Finance of Bermuda; (3) the acquisition of securities created or issued by, or

any interest in, any local company or business, other than certain types of
Bermuda government securities of another 'exempted' company, partnership or
other corporation resident in Bermuda but incorporated abroad; or (4) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda or under a license granted by
the Minister of Finance of Bermuda.

CERTAIN TAX CONSIDERATIONS

The following discussion is a summary of certain anticipated tax
consequences of the operations of the Company and of an investment in the Notes
under United States federal income tax laws and Bermuda tax laws. The discussion
does not deal with all possible tax consequences relating to the Company's
operations or to an investment in the Notes. In particular, the discussion does
not address the tax consequences under state, local and other (e.g., non-United
States federal, non-Bermuda) tax laws. Accordingly, each prospective investor
should consult his or her tax advisor regarding the tax consequences of an
investment in the Notes. The discussion is based upon laws and relevant
interpretations thereof in effect as of the date of this Prospectus, all of
which are subject to change. In this section of the Prospectus, the term the
'Company' includes only CME.

BERMUDA TAXATION

In the opinion of Conyers, Dill & Pearman, Bermuda counsel to the Company,
the following discussion correctly describes certain tax consequences to the
Company with respect to the Offering and with respect to ownership of the Notes
under Bermuda law.

At the date hereof, there is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by the Company or holders of the Notes other than such
holders ordinarily resident in Bermuda. The Company is not subject to stamp or
other similar duty on the issue, transfer, conversion or redemption of the
Notes.

The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertaking Tax Protection Act 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or the shares, the Notes or
other obligations of the Company, until March 28, 2016, except insofar as such
tax applies to persons ordinarily resident in Bermuda and holding such shares,
the Notes or other obligations of the Company, or any real property or leasehold
interests in Bermuda owned by the Company. No reciprocal tax treaty affecting
the Company exists between Bermuda and the United States.

As an exempted company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares at a rate not exceeding $25,000 per annum.

<PAGE>

UNITED STATES FEDERAL INCOME TAXATION

In the opinion of Rosenman & Colin LLP, United States counsel to the
Company, the following correctly describes certain United States federal income
tax consequences to the Company and to a United States Investor making an
investment in the Notes. For purposes of this discussion, the term 'United
States Investor' includes a United States citizen or resident, a United States
corporation or partnership, a trust if a United States court is able to exercise
primary supervision over the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust, and an estate that is subject to United States federal income tax on
its income regardless of source. The following discussion does not generally
address the tax consequences to a United States Investor who holds (or will
hold), directly or indirectly, shares in the Company giving the holder the right
to exercise 10% or more of the total voting power of the Company's outstanding
stock (a '10% Shareholder') or to persons who are not United States Investors.
Non-United States Investors and 10% Shareholders are advised to consult their
own tax advisors regarding the tax considerations incident to an investment in
the Notes. In addition, the summary does not address the United States federal
income tax treatment of certain types of United States Investors (e.g.,
individual retirement and other tax-deferred accounts, life insurance companies,
tax-exempt organizations, dealers in securities or currencies, persons who hold
Notes as part of a straddle or conversion transaction and persons whose
functional currency is not the United States dollar) who may be subject to tax
rules that differ significantly from those summarized below. The discussion
below as it relates to United States federal income tax consequences is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
'Code'), and regulations, rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified so as to
result in United States federal income tax consequences different from those
discussed below. Prospective investors are advised to consult their own tax
advisors with respect to their particular circumstances and with respect to the
effect of state, local or foreign tax laws to which they may be subject.

Taxation of the Company and its Subsidiaries

In general, the Company and its foreign (non-United States) Subsidiaries
will be subject to United States federal income tax only to the extent they have
income which has its source in the United States or is effectively connected
with a United States trade or business. It is anticipated that the Company and
its foreign Subsidiaries will derive substantially all of their income from
foreign sources and that none of their income will be effectively connected with
a United States trade or business. In addition, it is anticipated that any
United States source income of the Company will be derived from investments the
interest on which will be exempt from United States federal income taxation. As
a result, the Company and its foreign Subsidiaries should be subject to little
or no United States federal income taxation. On the other hand, the domestic
(United States) Subsidiaries of the Company will be subject to United States
federal income taxation on their worldwide income (regardless of source),
subject to reduction by allowable foreign tax credits, and distributions by such
United States Subsidiaries to the Company or its foreign Subsidiaries generally
will be subject to United States withholding taxes.

Taxation of Noteholders

Stated Interest. A United States Investor using the accrual method of
accounting for tax purposes generally will be required to include interest in
income as such interest accrues on the Notes, while a cash basis United States
Investor generally will be required to include interest in income when interest
payments are received. It is expected that the Notes initially will be purchased
at a discount from their stated principal amount by the Underwriters, and then
will be sold by them to public investors at an amount equal to their stated
principal amount (or at a de minimis discount from the Notes' stated principal
amount). As a result, based upon applicable Treasury Regulations (which
generally provide that the purchase by underwriters for redistribution is
disregarded for purposes of determining original issue discount), the Notes
should not be treated as being issued with original issue discount.

<PAGE>

Market Discount. If a subsequent purchaser who is a United States Investor
purchases a Note for an amount that is less than its stated principal amount,
the amount of the difference, subject to a de minimis exception, will be 'market
discount.' The market discount rules generally provide that if such subsequent
purchaser thereafter disposes of the Note (including by means of a gift), the
lesser of the gain recognized (or appreciation, in the case of a gift) or the
portion of the market discount that accrued while the Note was held by such
subsequent purchaser will be treated as ordinary income at the time of the
disposition. Unless the United States Investor elects otherwise, the accrued
market discount generally would be the amount calculated by multiplying the
market discount by a fraction, the numerator of which is the number of days the
Note has been held by the United States Investor and the denominator of which is
the number of days after the United States Investor's acquisition of the Note up
to and including its maturity date. The market discount rules also provide that
unless such United States Investor elects to include market discount in income
on a current basis, then such United States Investor may be required to defer a
portion of any interest expense that would otherwise be deductible on any
indebtedness incurred or continued to purchase or carry the Note until such
holder disposes of the Note in a taxable transaction.

The Notes provide that they may be redeemed, in whole or in part, before
maturity. If some or all of the Notes are redeemed, each holder of a Note
acquired at a market discount would be required to treat the principal payment
as ordinary income to the extent of any accrued market discount on such Note.

A United States Investor of a debt instrument acquired at a market discount
may elect to include the market discount in income as the discount thereof
accrues, either on a straight line basis or, if elected, on a constant interest
basis. The current inclusion election, once made, applies to all market discount
obligations acquired by such holder on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the Internal Revenue Service (the 'IRS'). If a United States Investor
elects to include market discount in income in accordance with the preceding
sentence, the foregoing rules with respect to the recognition of ordinary income

on a sale or certain other dispositions of such Note and the deferral of
interest deductions on indebtedness related to such Note would not apply.

Amortizable Bond Premium. If a holder purchases a Note for an amount
greater than its stated principal amount, such holder will be considered to have
purchased the Note with 'amortizable bond premium' equal in amount to such
excess (to the extent such excess is not attributable to the conversion feature
of the Note). Such United States Investor may elect to amortize such premium
using a constant yield method determined by reference to such holder's basis in
the Note over the remaining term of the Note and offset interest otherwise
required to be included in gross income in respect of the Note during any
taxable year by the amortized amount of such excess for the taxable year. A
United States Investor who elects to amortize bond premium must reduce its tax
basis in the related Note by the amount of the aggregate deductions allowable
for amortizable bond premium. An election to amortize bond premium would apply
to amortizable bond premium on all taxable bonds held at or acquired after the
beginning of the United States Investor's taxable year for which the election is
made, and may be revoked only with the consent of the IRS.

Disposition. In general, a United States Investor will recognize gain or
loss upon the sale, exchange, redemption or other taxable disposition of the
Note measured by the difference between (i) the amount of cash and the fair
market value of property received and (ii) the United States Investor's adjusted
tax basis in the Note (including increases resulting from any market discount
previously included in income by such holder and decreases resulting from any
bond premium amortized over the term of the Note). Except as described above
under 'Market Discount,' any such gain or loss will generally be long-term
capital gain or loss, provided the Note is a capital asset in the hands of the
holder and had been held for more than one year. If the Company is determined to
be a passive foreign investment company, it is possible that a disposition of
the Notes at a gain would be subject to the special rules applicable to gains
realized on the securities of such a company. See discussion below under heading
'Passive Foreign Investment Companies.'

<PAGE>

Conversion. A United States Investor will not recognize gain or loss on
the conversion of a Note solely into the Class A Common Stock of the Company
except with respect to cash in lieu of fractional shares and except to the
extent that the shares issued upon conversion are treated as attributable to
accrued interest on the Notes. To the extent the Notes converted are subject to
accrued market discount, the amount of the accrued market discount will carry
over to the shares on conversion, and gain on the disposition of the shares will
be treated as ordinary income on such disposition to the extent of such accrued
market discount. To the extent that shares are received by a holder of a Note
without recognition of gain or loss, the holding period of the shares received
upon conversion of the Note will include the period during which the Note was
held, and the holder's aggregate basis in the shares received upon conversion of
the Note will be equal to the holder's aggregate basis in the Note exchanged
therefor (less a portion thereof allocable to any fractional share). A U.S.
holder of a Note will recognize gain or loss for federal income tax purposes on
the receipt of cash in lieu of a fractional share in an amount equal to the

difference between the amount of cash received and such holder's basis in such
fractional share. Except as described above under 'Market Discount,' such gain
or loss should be capital gain or loss, and should be long-term capital gain or
loss if the fractional share has been deemed held for more than one year. The
fair market value of shares received which is attributable to accrued interest
will be taxable as ordinary interest income.

Constructive Distribution

Under certain unlikely circumstances, an adjustment in the conversion price
of the Notes, pursuant to the terms of the Notes providing therefor, or the
absence of such an adjustment could cause a determination that there has been a
constructive, taxable distribution to a United States Investor under Section 305
of the Code, without there being a corresponding cash payment.

Taxation of Shareholders

A United States Investor receiving a distribution on the Class A Common
Stock into which the Notes are convertible generally will be required to include
such distribution in gross income as a dividend to the extent such distribution
is paid from the current or accumulated earnings and profits of the Company as
determined under United States federal income tax principles. Distributions in
excess of the earnings and profits of the Company generally will first be
treated, for United States federal income tax purposes, as a nontaxable return
of capital to the extent of the United States Investor's basis in the Class A
Common Stock and then as gain from the sale or exchange of a capital asset,
provided that the Class A Common Stock constitutes a capital asset in the hands
of the United States Investor. Dividends received on the Class A Common Stock by
United States corporate shareholders will not be eligible for the corporate
dividends received deduction.

A United States Investor will be entitled to claim a foreign tax credit
with respect to income received from the Company only for foreign taxes (such as
withholding taxes), if any, imposed on dividends paid to such United States
Investor and not for taxes, if any, imposed on the Company or on any entity in
which the Company has made an investment. (Special rules may apply, however, in
the case of a United States corporation that is a 10% Shareholder.) It is not
anticipated, however, under current Bermuda law that any such withholding taxes
would be imposed by Bermuda on distributions made by the Company to a United
States Investor. Distributions with respect to the Class A Common Stock that are
taxable as dividends generally will constitute income from sources without the
United States for purposes of determining the limitation on the allowable
foreign tax credits. The overall limitation on foreign taxes eligible for credit
is calculated separately with respect to specific classes of income. For this
purpose, dividends distributed by the Company to United States Investors
generally will constitute 'passive income' for purposes of applying the foreign
tax credit limitations.

With certain exceptions, gain or loss on the sale or exchange of the Class
A Common Stock will be treated as United States source gain or loss and will be
capital gain or loss if the Class A Common Stock is held as a capital asset.
Such capital gain or loss generally will be long-term capital gain or loss if
the United States Investor's holding period for the Class A Common Stock is more
than one year at the time of the sale or exchange.

<PAGE>

Various Code provisions impose special taxes in certain circumstances on
United States or foreign corporations and their United States stockholders. The
following is a summary of certain provisions which could have an adverse impact
on the Company and the United States Investors.

Personal Holding Companies

A corporation that is a personal holding company ('PHC') is subject to a
39.6% tax on its undistributed personal holding company income. In general, a
PHC is a corporation (i) more than 50% of the stock of which measured by value
is owned, directly or indirectly, by five or fewer individuals (without regard
to their citizenship or residence) and (ii) which receives 60% or more of gross
income, as specifically adjusted, from certain passive sources. For purposes of
this ownership test, pension plans and certain other tax-exempt organizations
are treated as 'individuals'. For purposes of this gross income test, income of
a foreign corporation means generally only taxable income derived from United
States sources or income that is effectively connected with a United States
trade or business.

At the present time, it is not likely that more than 50% of the outstanding
shares of the Common Stock of the Company or of the shares of its corporate
Subsidiaries by value will be owned, directly or indirectly, by five or fewer
individuals. In any event, since it is anticipated that the Company and its
foreign corporate Subsidiaries will derive substantially all of their income
from foreign sources that will not be effectively connected with a United States
trade or business, the Company believes that neither the Company nor any of such
Subsidiaries will satisfy the foregoing income test and therefore none of them
should be classified as a PHC. In addition, since it is anticipated that the
Company's United States Subsidiaries will derive most or all of their income
from non-passive sources, the Company further believes that such Subsidiaries
will not satisfy the foregoing income test and, thus, will not be classified as
PHCs. The Company intends to manage its affairs and the affairs of its
Subsidiaries so as to attempt to avoid or minimize the imposition of the
personal holding company tax, to the extent consistent with its other business
goals.

Foreign Personal Holding Companies

In general, if the Company or any of its foreign corporate Subsidiaries
were to be classified as a foreign personal holding company ('FPHC'), the
undistributed foreign personal holding company income (generally, the taxable
income, with certain adjustments) of the Company or such Subsidiary would be
imputed to all of the United States Investors who were deemed to hold the
Company's stock or the stock of such Subsidiary on the last day of its taxable
year. Such income would be taxable to such persons as a dividend, even if no
cash dividend were actually paid. United States Investors who dispose of their
Class A Common Stock prior to such date generally would not be subject to tax
under these rules. In certain circumstances, if the Company were to become an
FPHC, United States Investors who acquire Class A Common Stock from decedents

would be denied the step-up of the income tax basis for such Class A Common
Stock to fair market value at the date of death which would otherwise have been
available and instead would have a tax basis equal to the lower of the fair
market value or the decedent's basis.

A foreign corporation will be classified as an FPHC if (i) five or fewer
individuals, who are United States citizens or residents, directly or
indirectly, own more than 50% of the corporation's stock (measured by either
voting power or value, as opposed to only value as in the case of the PHC
ownership test described above) (the 'stockholder test') and (ii) the
corporation receives at least 60% of its gross income (regardless of source), as
specifically adjusted, from certain passive sources (the 'income test'). After a
corporation becomes an FPHC, the income test percentage for each subsequent
taxable year generally is reduced to 50%.

At the present time, it is likely that five or fewer individuals who are
United States citizens or residents will, directly or indirectly, own a
beneficial interest of more than 50% of the voting power of the outstanding
Common Stock of the Company and of the shares of certain of its foreign
corporate Subsidiaries for purposes of the FPHC rules. Accordingly, the Company
believes that the stockholder test will likely be met with respect to the
Company and such Subsidiaries. The Company believes, however, that none of its
foreign corporate Subsidiaries (except possibly for CME BV) should be classified
as an FPHC because each of these Subsidiaries should not satisfy the foregoing
income test.

<PAGE>

The Company also believes that CME BV, an indirect wholly-owned subsidiary of
the Company organized to hold and operate the Company's investments in its
Central and Eastern European and German broadcast operations, should not satisfy
the income test and should not be an FPHC because it will derive most of its
gross income from its equity interest in entities treated as partnerships for
United States federal income tax purposes under the recently issued 'check the
box' Treasury Regulations making entity classification essentially elective. In
particular, Nova TV, having made the election to be treated as a partnership
should be a partnership and not an association taxable as a corporation for
United States federal income tax purposes. As a result, the income of such
entity (as well as other entities owned by CME BV, each also having made the
election to be treated as a partnership) should 'flow through' to CME BV, and
the Company believes that substantially all of such income will not be
considered passive income for purposes of the FPHC rules. If, on the other hand,
these entities were nevertheless considered to be corporations and not
partnerships for United States federal income tax purposes, then distributions,
if any, to CME BV from these entities out of their current or accumulated
earnings and profits would result in passive income to CME BV and may cause CME
BV to be treated as an FPHC. In any event, it is possible that CME BV, itself,
will hereafter determine to make the election to be treated as a partnership for
United States federal income tax purposes, and, upon the effective date of such
election, if made, all risk of FPHC status for CME BV will be eliminated.

It is anticipated that the Company upon lending the proceeds in whole or in

part to CME BV will realize substantial amounts of interest income causing the
Company to be classified as a FPHC. However, the Company, by reason of its
substantial interest costs and other expenses, is not expected in the near term
to have any undistributed FPHC income. Generally, the Company intends, to the
extent possible and to the extent consistent with its other business goals, to
manage its affairs and the affairs of its Subsidiaries so as to avoid or
minimize having income that would be imputed to the United States Investors
under these FPHC rules. Furthermore, if CME BV determines to make the election
to be treated as a partnership, payments from CME BV to the Company with respect
to the inter-company loan will lose their character as interest so that little
or no income of the Company will be passive for purposes of the FPHC rules and
the risk of FPHC status for the Company should be eliminated.

Passive Foreign Investment Companies

If 75% or more of the gross income of the Company (taking into account,
under an income 'look-through' rule, the Company's pro rata share of the gross
income of any company of which the Company is considered to own 25% or more of
the stock by value) in a taxable year is passive income, or if at least 50% of
the average percentage of assets of the Company (generally determined based upon
the fair market value or, if the Company were a controlled foreign corporation
(see discussion below), based upon the adjusted tax bases of the Company's
assets, also taking into account, under an asset 'look-through' rule, the
Company's pro rata share of the assets of any company of which the Company is
considered to own 25% or more of the stock by value) in a taxable year produce
or are held for the production of passive income, the Company would be
classified as a 'passive foreign investment company' ('PFIC') for that taxable
year and generally for all subsequent taxable years. Passive income for purposes
of the PFIC rules generally includes dividends, interest and other types of
investment income and generally would include amounts derived by reason of the
temporary investment of excess funds. If the Company were a PFIC, each
shareholder who was a United States Investor (regardless of the percentage of
stock owned) would, upon certain distributions by the Company and upon
disposition of the Class A Common Stock at a gain, be liable to pay tax plus an
interest charge. The tax would be determined by allocating such distribution or
gain ratably to each day of the United States Investor's holding period for the
Class A Common Stock. The amount allocated to years prior to the taxable year of
the distribution or disposition would be taxed at the highest marginal rates for
ordinary income for such years (if the Company was a PFIC during such years).
The United States Investor would also be liable for interest on the amount of
such additional tax due with respect to such prior years in which the Company
was a PFIC. The amount allocated to the current taxable year and any non-PFIC
years would be taxed in the same manner as other ordinary income earned in the
current taxable year.

<PAGE>

Under certain circumstances, if the Company were to become a PFIC,
distributions and dispositions in respect of shares in a direct or indirect
foreign corporate Subsidiary of the Company may be attributed in whole or in
part to a United States Investor, and such United States Investor may be taxed
under the PFIC rules with respect to such distributions or dispositions.

If the Company were to become a PFIC, United States Investors who acquire
Class A Common Stock from decedents could be denied the step-up of the income
tax basis for such Class A Common Stock to fair market value at the date of
death which would otherwise have been available and instead could have a tax
basis equal to the lower of the fair market value or the decedent's basis.

The above results can be eliminated if a United States Investor elects to
treat the Company as a 'qualified electing fund' ('QEF') for United States
federal income tax purposes. A stockholder of a QEF is required for each taxable
year in which the QEF is a PFIC to include in income a pro rata share of the
ordinary income of the QEF as ordinary income and a pro rata share of the net
capital gain of the QEF as long-term capital gain. If a United States Investor
in a PFIC has made a QEF election for all years that such United States Investor
has held Class A Common Stock, gain on the sale of such stock generally will be
characterized as capital gain and the denial of basis step-up at death and the
interest charge (as well as the other PFIC tax consequences) described above
would not apply.

The Company believes that it is not now a PFIC and intends to manage its
business so as to attempt to avoid PFIC status in the future. The Company will
notify United States Investors in the event that it concludes that it will be
treated as a PFIC for any future taxable year to enable United States Investors
to consider whether to elect to treat the Company as a QEF for United States
federal income tax purposes. In addition, the Company will, at the request of a
United States Investor who elects to have the Company treated as a QEF, comply
with the applicable information reporting requirements.

Controlled Foreign Corporations

If 10% Shareholders, who are also United States persons, own, in the
aggregate, directly or indirectly, more than 50% (measured by voting power or
value) of the shares of a foreign corporation, that foreign corporation would be
a controlled foreign corporation ('CFC'). If a foreign corporation is
characterized as a CFC, then some portion of the undistributed income of the
foreign corporation may be imputed to such 10% Shareholders, and some portion of
the gains recognized by such 10% Shareholders on the disposition of their shares
in the foreign corporation (which would otherwise qualify for capital gains
treatment) may be converted into ordinary dividend income. At the present time,
it is likely that 10% Shareholders who are also United States persons would be
deemed to own more than 50% of the voting power of the outstanding Common Stock
of the Company and, thus, that the Company would be characterized as a CFC. If
the Company were to be classified as a CFC, however, the CFC rules referred to
above would only apply with respect to such 10% Shareholders. In future years,
the Company would continue to be characterized as a CFC as long as 10%
Shareholders who were also United States persons were deemed to own more than
50% of the voting power or value of the Company's outstanding Common Stock. In
addition, as discussed above, if the Company were a CFC, the asset test to
determine whether the Company would be a PFIC would be made by comparing the
relative adjusted tax bases of the Company's assets and not the relative fair
market values of such assets, making it more difficult for the Company to manage
its affairs so as to avoid PFIC status.

United States Information Reporting and Backup Withholding

Under current United States federal income tax law, generally payments of
interest and dividends made to, and the proceeds of sales before maturity by,
certain U.S. persons are subject to information reporting, and a 'back-up'
withholding tax at a rate of 31%, if such persons fail to supply correct
taxpayer identification numbers and certain other information in the required
manner. Payments of interest and dividends to a holder of Notes or Class A
Common Stock of the Company (a) made by mail or wire transfer to an address in
the United States, (b) made by a paying agent, broker or other intermediary in
the United States or (c) made by a United States broker or by a custodian,
nominee or agent that is (i) a United States person, (ii) a controlled foreign
corporation for United States tax

<PAGE>

purposes, or (iii) a foreign person 50% or more of whose gross income is from a
United States trade or business (hereinafter, any of the persons described in
(i), (ii) and (iii) shall be referred to as a 'United States Controlled Person')
to such holder outside the United States may be subject to United States
information reporting requirements. Payments of interest and dividends received
by non-U.S. holders generally would be exempt from these reporting requirements,
but such non-U.S. holders may be required to comply with certification and
identification procedures in order to prove their exemption from the reporting
requirements and from backup withholding with respect to payments of interest.
Treasury regulations currently in effect do not require backup withholding with
respect to dividends paid by a foreign corporation such as the Company.

The payment of proceeds of the disposition of Notes or Common Stock by a
holder to or through the United States office of a broker generally will be
subject to information reporting and backup withholding at a rate of 31%, unless
the holder either certifies its status as a non-U.S. holder under penalties of
perjury or otherwise establishes an exemption. The payment of proceeds of the
disposition by a holder of Common Stock to or through a non-U.S. office of a
broker will generally not be subject to backup withholding and information
reporting. However, information reporting (but not backup withholding) may apply
to such a holder who sells a beneficial interest in Notes or shares through a
non-United States branch of a United States broker, or through a non-United
States office of a United States Controlled Person, in either case unless the
holder establishes an exemption or the broker has documentary evidence in its
files of the holder's status as a non-U.S. person.

Any amounts withheld under the backup withholding rules from payment to a
holder will be refunded (or credited against the holder's United States federal
income tax liability, if any) provided that the required information is
furnished to the United States Internal Revenue Service.

SHARES ELIGIBLE FOR FUTURE SALE

The Company has a total of 23,865,953 shares of capital stock outstanding.
Of the shares, 16,256,015 shares of Class A Common Stock are freely tradeable
without restriction or registration under the Securities Act. 49,700 shares of
Class A Common Stock are subject to volume restrictions under the Securities

Act. All of the remaining 7,560,238 shares of capital stock are 'restricted'
securities as that term is defined by Rule 144 as promulgated under the
Securities Act, of which 6,502,580 shares currently may be sold under Rule 144
volume restrictions. In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated), including an affiliate, is entitled to
sell in 'broker's transactions' or to market makers, within any three-month
period, a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Class A Common Stock or (ii) the average weekly
trading volume in the shares of Class A Common Stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale, provided
that at least two years have elapsed since such shares were acquired from the
Company and subject to certain other limitations and restrictions. A person who
is not deemed to have been an affiliate of the Company at any time during the
three months preceding a sale would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above, provided that at
least three years have elapsed since the shares were acquired from the Company.
Sales of 'restricted securities' by affiliates, even after a three-year holding
period, are subject to the volume limitations described above. The Securities
and Exchange Commission has adopted changes to Rule 144 which will take effect
in April 1997. Such changes will reduce the two year holding requirement
described above to one year and reduce the three year holding requirement
described above to two years.

The Company and certain of the Company's officers, directors and
shareholders holding an aggregate of 347,046 shares of Class A Common Stock,
5,915,382 shares of Class B Common Stock and options and warrants to purchase up
to 760,000 additional shares of Class A Common Stock have agreed that, for a
period of 120 days after the date of this Prospectus, they will not, directly or
indirectly, offer, sell, pledge, offer to sell, contract to sell, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Class A Common Stock or Class B
Common Stock or any

<PAGE>

securities convertible into, exchangeable or exercisable therefor, except shares
purchased in the public market and grants and exercises of options under the
1994 Stock Option Plan and the 1995 Stock Option Plan, without the prior written
consent of the Representatives on behalf of the Underwriters. For a description
of the restriction on sales contained in the Underwriting Agreement relating to
the Offering, see 'Underwriting.'

Following the Offering, sales of substantial amounts of Class A Common
Stock (including shares of the Class A Common Stock issuable upon the conversion
of the Class B Common Stock or the exercise of options) in the public market
under Rule 144 or otherwise, or even the potential of such sales, could
adversely affect the prevailing market price of the Class A Common Stock and
impair the Company's ability to raise capital through the sale of equity
securities.

UNDERWRITING

The Underwriters named below have severally agreed, subject to certain
conditions, to purchase from the Company the aggregate number of Notes set forth
opposite their respective names:

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- ------------------------------------------------------- ----------------
<S> <C>
Schroder Wertheim & Co. Incorporated...................
Prudential Securities Incorporated.....................
Smith Barney Inc. .....................................
----------------
Total............................................. $125,000,000
----------------
----------------
</TABLE>

The Underwriting Agreement provides that the several Underwriters are
obligated to purchase all the Notes offered hereby (other than Notes that may be
purchased under the over-allotment option), if any are purchased. Schroder
Wertheim & Co. Incorporated, Prudential Securities Incorporated and Smith Barney
Inc., as representatives of the several Underwriters (the 'Representatives'),
have advised the Company that the Underwriters propose to offer the Notes to the
public initially at the public offering price set forth on the cover page of
this Prospectus; that the Underwriters propose initially to allow a concession
not in excess of % of the principal amount of the Notes to certain dealers,
including the Underwriters; that the Underwriters and such dealers may initially
allow a discount of not in excess of % of the principal amount of the Notes
to other dealers; and that the public offering price and the concession and
discount to dealers may be changed by the Representatives after the initial
public offering.

The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of the Underwriting Agreement,
to purchase up to an additional $18,750,000 aggregate principal amount of the
Notes at the public offering price less underwriting discounts and commissions,
all as set forth on the cover page of this Prospectus. The Underwriters may
exercise the option only to cover over-allotments, if any, in the sale of the
Notes in the Offering. To the extent that the Underwriters exercise this option,
each Underwriter will be committed, subject to certain conditions, to purchase
the Notes in an aggregate principal amount proportionate to such Underwriter's
initial commitment.

The Notes are a new issue of securities with no established trading market
although the Notes will be listed on the Nasdaq SmallCap Market, subject to
official notice of issuance. The Company has been advised by the Underwriters
that they intend to make a market in the Notes, but they are not obligated to do
so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for the Notes.

The Company and the Underwriters have agreed to indemnify each other

against certain liabilities, including liabilities under the Securities Act.

<PAGE>

The Company and its directors, officers, certain 5% shareholders and
certain other shareholders have agreed not to sell or otherwise dispose of any
shares of Class A Common Stock or Class B Common Stock for a period of 120 days
after the date of this Prospectus without the prior written consent of the
Representatives.

The Representatives have advised the Company that, pursuant to Regulation
M, certain persons participating in the Offering may engage in transactions,
including stabilizing bids, syndicate covering transactions or the imposition of
penalty bids, which may have the effect of stabilizing or maintaining the market
price of the Notes or the Common Stock at a level above that which might
otherwise prevail in the open market. A 'Stabilizing Bid' is a bid for or the
purchase of the shares of Common Stock or the Notes on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Notes or
Common Stock. A 'Syndicate Covering Transaction' is the bid for or the purchase
of Notes on behalf of the Underwriters to reduce a short position incurred by
the Underwriters in connection with the Offering. A 'Penalty Bid' is an
arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with the
Offering if the Notes originally sold by such Underwriter or syndicate member
are purchased by the Representatives in a syndicate covering transaction and
have therefore not been effectively placed by such Underwriter or syndicate
member. The Representatives have advised the Company that such transactions may
be effected on the Nasdaq SmallCap Market or the Nasdaq National Market or
otherwise and if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the Notes offered hereby will be passed upon by Conyers,
Dill & Pearman, counsel for the Company. Certain legal matters will be passed
upon for the Company by Rosenman & Colin LLP, United States counsel for the
Company, and Conyers, Dill & Pearman, Bermuda counsel for the Company. Certain
legal matters will be passed upon for the Underwriters by Akin, Gump, Strauss,
Hauer & Feld L.L.P.

EXPERTS

The Consolidated Financial Statements of the Company included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen & Co., independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

AVAILABLE INFORMATION

The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange

Commission (the 'Commission'). Reports, proxy statements and other information
filed by the Company may be inspected at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary
Plaza, Washington, DC 20549 and at certain regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, Washington, DC 20549 at prescribed rates.
The Class A Common Stock is listed on the Nasdaq National Market and reports and
other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, NW, Washington, DC
20006. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission and the address of such site is
(http://www.sec.gov).

The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended, with respect to the Notes
offered hereby. This Prospectus does not

<PAGE>

contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Notes offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules thereto. The
Registration Statement can be inspected without charge at the principal office
of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at the Commission's Regional offices at 7 World Trade Center, 13th Floor,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.

Statements made in this Prospectus concerning the provisions of any
document or agreement are not necessarily complete, and in each instance
reference is made to the copy of the document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by this
reference.

The Company furnishes its shareholders with annual reports containing
financial statements audited by its independent public accountants and files
with the Securities and Exchange Commission quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year.

INFORMATION INCORPORATED BY REFERENCE

The following documents filed by the Company with the Commission (File No.
0-24796) pursuant to the Exchange Act are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K for the fiscal year ended

December 31, 1996 filed pursuant to Section 13 of the Exchange Act.

2. The description of the Class A Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission on September
14, 1994.

3. All reports and other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of this Offering.

Any statement incorporated herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, in a supplement to this Prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as to modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the documents which are
incorporated herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such document).
Requests for such documents should be directed to the offices of the Company
located at 18 D'Arblay Street, London W1V 3FP England, telephone number
44-171-292-7900.

<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996.............................................................................................. F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the period from December 31, 1993 to
December 31, 1996..................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996.............................................................................................. F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. F-8
</TABLE>

F-1

<PAGE>

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, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with United States generally accepted
accounting principles.

ARTHUR ANDERSEN & CO.

Hamilton, Bermuda
March 24, 1997

F-2

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
($000S)

<TABLE>
<CAPTION>
NOTE DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. 4 $ 53,210 $ 78,507
Investments in marketable securities....... 4 10,652 2,896
Restricted cash............................ 5 4,216 2,749
Accounts receivable (net of allowances of
$1,105, $3,200)......................... 32,475 37,342
Program rights costs....................... 4 9,219 12,675
Value-added tax recoverable................ 733 182
Amounts due from unconsolidated
affiliates.............................. 13 -- 1,066
Advances to affiliates..................... 13 953 4,119
Other short-term assets.................... 7 -- 850
Prepaid expenses........................... 5,270 5,773
-------- --------

TOTAL CURRENT ASSETS.................... 116,728 146,159
Investment in unconsolidated affiliates...... 12,433 56,599
Investments.................................. -- 3,600
Loans to affiliates.......................... 13 6,272 17,766
Property, plant & equipment (net of
depreciation of
$10,281, $22,317).......................... 6 51,699 58,982
Program rights costs......................... 4 10,496 14,266
Broadcast license costs and other intangibles
(net of amortization of $1,007, $1,579).... 4 2,365 3,097
License acquisition costs (net of
amortization of $54, $854)................. 4 4,723 3,923
Goodwill..................................... 4 1,510 35,338
Organization costs (net of amortization of
$507, $950)................................ 4 1,337 934
Development costs (net of allowance of
$4,373, $996).............................. 4 10,127 19,105
Deferred taxes............................... 8 559 868
Other assets................................. 7 3,778 4,493
-------- --------
TOTAL ASSETS............................ $222,027 $365,130
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
($000S)

<TABLE>
<CAPTION>
NOTE DECEMBER 31,
--------------------
1995 1996
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................... $ 12,956 $ 18,775
Accrued liabilities........................ 9,804 17,010
Duties and other taxes payable............. 288 3,312
Income taxes payable....................... 8 15,946 9,948
Current portion of obligations under
capital leases.......................... 12 2,111 1,794
Current portion of credit facilities....... 10 2,661 7,106
Investments payable........................ -- 1,955
Advances from affiliates................... 13 2,687 606
-------- --------
TOTAL CURRENT LIABILITIES............... 46,453 60,506

Deferred income taxes........................ 8 2,317 2,142
Obligations under capital leases............. 12 8,747 7,120
Long-term portion of credit facilities....... 10 6,766 22,488
Investments payable.......................... -- 14,633
Other liabilities............................ 173 305
Minority interest in consolidated
subsidiaries............................... 4 18,635 8,616

SHAREHOLDERS' EQUITY:
Preferred Stock, $0.01 par value:
authorized: 5,000,000 shares; issued and
outstanding: none....................... -- --
Class A Common Stock, $0.01 par value:
authorized: 30,000,000 shares; issued
and outstanding: 10,294,549 shares at
December 31, 1995, and 16,664,143 shares
at December 31, 1996.................... 103 167
Class B Common Stock, $0.01 par value:
authorized: 15,000,000 shares; issued
and outstanding: 8,078,297 shares at
December 31, 1995, and 7,191,475 shares
at December 31, 1996.................... 81 72
Additional paid-in capital................. 187,997 330,315
Class A Treasury stock of $0.01 par value,
at cost: 176,872 shares at December 31,
1995 and none at December 31, 1996...... (2,476) --

Accumulated deficit........................ (48,001) (78,004)
Cumulative currency translation
adjustment.............................. 1,232 (3,230)
-------- --------
TOTAL SHAREHOLDERS' EQUITY.............. 138,936 249,320
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................ $222,027 $365,130
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-4

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
($000S EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
NOTE 1994 1995 1996
---- -------- -------- --------
<S> <C> <C> <C> <C>
Gross revenues.......................... $ 64,389 $121,113 $170,114
Discounts and Agency Commissions........ (10,823) (22,194) (34,129)
-------- -------- --------
Net revenues............................ 4 53,566 98,919 135,985

Station Expenses:
Other operating costs and expenses.... 21,907 28,972 50,188
Amortization of programming rights.... 10,403 16,319 21,599
Depreciation of station fixed assets
and
other intangibles.................. 3,773 7,251 13,314
-------- -------- --------
Total station operating costs and
expenses........................... 36,083 52,542 85,101
Selling, general and administrative
expenses........................... 6,009 7,725 21,357

Corporate Expenses:
Corporate operating costs and
development expenses............... 3,699 10,669 15,782
Stock compensation charge............. 15 5,833 858 --
Amortization of goodwill and allowance
for development costs.............. 985 3,442 2,940
Capital registration tax.............. 8(b) -- 1,375 809
-------- -------- --------
10,517 16,344 19,531

Operating income........................ 957 22,308 9,996
Equity in loss of unconsolidated
affiliates............................ 14 (13,677) (14,816) (17,867)
Interest and other income............... 179 1,238 2,876
Interest expense........................ (1,992) (4,959) (4,670)
Foreign currency exchange (loss)/gain... 4 (245) 324 (2,861)
-------- -------- --------
(Loss) income before provision for
income taxes.......................... (14,778) 4,095 (12,526)
Provision for income taxes.............. 8 (3,331) (16,340) (16,405)
-------- -------- --------
Loss before minority interest........... (18,109) (12,245) (28,931)
Minority interest in income/loss of
consolidated subsidiaries............. (2,396) (6,491) (1,072)

-------- -------- --------
NET LOSS................................ $(20,505) $(18,736) $(30,003)
-------- -------- --------
-------- -------- --------

Per share data:......................... 4
Net loss per share...................... $ (1.28) $ (1.55)
-------- --------
-------- --------
Weighted average number of common shares
outstanding (000s).................... 14,678 19,373
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM DECEMBER 31, 1993 TO DECEMBER 31, 1996
($000S)

<TABLE>
<CAPTION>
CLASS CLASS CUMULATIVE
A B ADDITIONAL CURRENCY
COMMON COMMON PAID-IN TREASURY DEFERRED ACCUMULATED TRANSLATION
STOCK STOCK CAPITAL STOCK COMPENSATION DEFICIT(1) ADJUSTMENT TOTAL
------ ------ ---------- -------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. $ -- $ -- $ 12,500 $ -- $ -- $ (8,760) $ (276) $ 3,464
Capital contributed by Shareholders,
net of related costs of $7,681...... 59 81 73,120 -- -- -- -- 73,260
Services contributed by Shareholders.... -- -- 169 -- -- -- -- 169
Stock compensation charge
(Note 15)............................. -- -- 9,167 -- (3,334) -- -- 5,833
Foreign Currency Translation
Adjustment............................ -- -- -- -- -- -- 410 410
Net loss................................ -- -- -- -- -- (20,505) -- (20,505)
------ ------ ---------- -------- ------------ ----------- ----------- --------
BALANCE, December 31, 1994.............. 59 81 94,956 -- (3,334) (29,265) 134 62,631
Capital contributed by Shareholders
including $6,500 loan converted,
less related costs of $5,426........ 44 -- 93,041 -- -- -- -- 93,085
Stock compensation charge
Charge.............................. -- -- -- -- 858 -- -- 858
Reduction in stock compensation
charge
(Note 15)......................... -- -- -- (2,476) 2,476 -- -- --
Foreign Currency Translation
Adjustment.......................... -- -- -- -- -- -- 1,098 1,098
Net loss.............................. -- -- -- -- -- (18,736) -- (18,736)
------ ------ ---------- -------- ------------ ----------- ----------- --------
BALANCE, December 31, 1995.............. 103 81 187,997 (2,476) -- (48,001) 1,232 138,936
Retirement of Treasury Stock.......... (2) -- (2,474) 2,476 -- -- -- --
Capital contributed by Shareholders,
less related costs of $8,177(2)..... 66 (9) 144,792 -- -- -- -- 144,849
Foreign Currency Translation
Adjustment.......................... -- -- -- -- -- -- (4,462) (4,462)
Net loss.............................. -- -- -- -- -- (30,003) -- (30,003)
------ ------ ---------- -------- ------------ ----------- ----------- --------
BALANCE, December 31, 1996.............. $167 $ 72 $330,315 $ -- $ -- $ (78,004) $ (3,230) $249,320
------ ------ ---------- -------- ------------ ----------- ----------- --------
------ ------ ---------- -------- ------------ ----------- ----------- --------
</TABLE>

- ------------------
(1) Of the accumulated deficit of $78,004,000 at December 31, 1996, $50,248,000
represents accumulated losses in unconsolidated affiliates.

(2) Includes transfers between Class A and Class B Common Stock in the year.

The accompanying notes are an integral part of these consolidated financial
statements.

F-6

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000S)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss..................................... $(20,505) $(18,736) $(30,003)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in loss of unconsolidated
affiliates............................... 13,677 14,816 17,867
Depreciation & amortization (excluding
amortization of barter programs)......... 14,176 23,705 33,288
Minority interest in income (loss) of
consolidated subsidiaries................ 2,396 6,491 1,072
Services contributed by shareholders....... 169 -- --
Valuation allowance for development
costs.................................... 985 3,388 714
Stock compensation charge.................. 5,833 858 --
Changes in assets & liabilities:
Accounts receivable........................ (12,950) (18,176) (4,881)
Related party receivable................... 263 115 --
Program rights paid........................ (13,417) (24,040) (24,072)
Value-added tax recoverable................ 1,121 (710) 551
Dividends paid to minority shareholders.... -- (612) (3,575)
Advances to affiliates..................... -- (337) (3,334)
Production costs........................... 355 -- --
Prepaid expenses........................... (673) (1,780) (415)
Other assets............................... (5) (3,639) (1,838)
Accounts payable........................... 646 1,180 3,931
Accrued liabilities........................ 2,698 6,197 7,227
Income & other taxes payable............... 3,699 13,223 (3,151)
-------- -------- --------
Net cash provided by (used in) operating
activities............................. (1,532) 1,943 (6,619)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated affiliates.... (19,268) (19,220) (52,977)
Investments................................ -- -- (3,600)
Investments in marketable securities....... (7,725) (2,927) 7,756
Restricted cash............................ (1,072) (2,616) 1,467
Acquisition of fixed assets................ (13,298) (23,196) (17,801)
Acquisition of minority shareholders'
interest................................. -- -- (5,607)
Purchase of business....................... -- (1,510) (4,895)

Payments for license acquisition costs..... -- (4,777) --
Payments for organization costs............ -- (1,032) (48)
Payments for broadcast license costs and
other intangibles........................ (790) (760) (1,295)
Development costs.......................... (2,175) (12,325) (18,936)
-------- -------- --------
Net cash used in investing activities.... (44,328) (68,363) (95,936)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Credit facilities.......................... 14,398 (6,140) 3,045
Payments under capital leases.............. -- (1,570) (1,636)
Loans to affiliates........................ (1,396) (6,272) (16,705)
Advances received from affiliates.......... 7,457 2,687 --
Loans received from affiliates............. 3,546 -- --
Repayment of advances from affiliates...... (7,216) -- --
Repayment of advances by affiliates........ (9,336) -- (2,081)
Shareholder loans.......................... 6,500 -- --
Capital contributed by shareholders........ 73,260 86,585 144,849
Other liabilities.......................... -- 173 137
Investments by minority shareholders in
consolidated subsidiaries................ -- 2,000 --
-------- -------- --------
Net cash provided by financing
activities............................. 87,213 77,463 127,609
-------- -------- --------
IMPACT OF EXCHANGE RATE FLUCTUATIONS ON
CASH....................................... (281) 165 243
Net increase in cash and cash
equivalents............................ 41,072 11,208 25,297
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 930 42,002 53,210
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period..... $ 42,002 $ 53,210 $ 78,507
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL INFORMATION
Cash paid for interest................... $ 1,891 $ 4,942 $ 4,590
-------- -------- --------
-------- -------- --------
Income taxes............................. $ -- $ 2,922 $ 22,048
-------- -------- --------
-------- -------- --------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996

1. ORGANIZATION AND BUSINESS

Central European Media Enterprises Ltd., a Bermuda corporation ('CME'), was
formed in June 1994. Through its predecessor companies, CME has been in
operation since 1991. CME, together with its subsidiaries (CME and its
subsidiaries are collectively referred to as the 'Company'), develops, owns and
operates national and regional commercial television stations and networks in
Central and Eastern Europe and regional commercial television stations in
Germany.

In the Czech Republic, as of December 31, 1996, the Company owned an 88%
economic interest in Ceska Nezavisla Televizni Spolecnost s.r.o. ('Nova TV'),
the leading private national television station in the Czech Republic. On August
1, 1996, the Company increased its economic interest in Nova TV to 88% from 66%
through the acquisition of a 22% economic interest in Nova TV from Ceska
Sporitelna Bank ('CS') (the 'Additional Nova TV Purchase'). The Company is in
the process of registering the Additional Nova TV Purchase pursuant to Czech
law. On an ongoing basis, after giving effect to the Additional Nova TV
Purchase, the Company is entitled to 88% of the total profits of Nova TV and has
86% of the voting power in Nova TV. CET 21 had a 12% equity interest in Nova TV.
During 1996, the Company entered into an agreement to lend the General Director
of Nova TV funds to finance his purchase of shares in CET 21 in order to
increase his ownership in CET 21. In March 1997, the Company acquired an
additional 5.2% interest in Nova TV through the retirement of the loan (Note
16). In 1995, in the Czech Republic, the Company entered into loan ('Radio Alfa
Loan') and consulting agreements with Radio Alfa ('Radio Alfa'), one of two
private Czech Republic national radio broadcasters. Radio Alfa was re-launched
in October 1995. The Radio Alfa Loan may be converted into an equity interest in
Radio Alfa of up to 21.7%. During December 1996, the Company purchased a 62%
ownership interest from Radio Alfa's other shareholders for a purchase price of
Kc37,500,000 ($1,372,000). If the Radio Alfa Loan is converted to an equity
interest, the Company would have an 83.7% equity ownership interest in Radio
Alfa.

In Romania, the Company and two local partners, Adrian Sarbu and Ion Tiriac
operate PRO TV, a commercial television network launched in December 1995,
through Media Pro International S.A. ('Media Pro International'). The Company
holds a 77.5% equity interest in Media Pro International, although the Company's
partners hold options exercisable through October 1997 which, if exercised,
would reduce the Company's interest to not less than 66%. In September 1996, the
Company acquired a 95% equity interest in Unimedia SRL ('Unimedia'), which
acquired a 10% equity interest in a consortium, MobilRom, which obtained one of
two GSM licenses in Romania in December 1996 and is expected to commence
operations in June 1997.

In Slovenia, the Company launched POP TV in December 1995 together with
MMTV d.o.o. Ljubljana ('MMTV') (formerly known as Boutique MMTV) and Tele 59
d.o.o. Maribor ('Tele 59'), through the formation of Produkcija Plus d.o.o.

('Pro Plus'). POP TV provides programming to and sells advertising for MMTV,
Tele 59 and an additional affiliate, Robin TV. The Company owns 58% of the
equity of Pro Plus, but has an effective economic interest of 72%, as a result
of a 33% economic interest in MMTV and a 33% economic interest in Tele 59, each
of which have a 21% interest in Pro Plus. In July 1996, the Company, together
with MMTV and Tele 59 entered into an agreement to purchase a 66% equity
interest in Kanal A (Note 12).

In the Slovak Republic, the Company has an 80% economic and a 49% voting
interest in Slovenska Televizna Spolocnost s.r.o. ('STS') which launched Markiza
TV as a national television station on August 31, 1996.

In Hungary, the Company holds a 97.4% ownership interest in Videovox Studio
Limited Liability Company ('Videovox'), a Hungarian dubbing and production
company acquired in May 1996.

The Company owns a 58% non-controlling interest in PULS ('PULS'), a
regional television station based in Berlin, Germany. The Company owns a 50%
interest (non-voting profit participation) in Franken Funk & Fernsehen GmbH
('FFF'), which owns 74.8% of a regional television station in

F-8

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

1. ORGANIZATION AND BUSINESS--(CONTINUED)

Nuremberg, Germany, NMF Neue Medien Franken GmbH and Co., K.G. ('NMF'). The
Company has a 49% non-controlling interest, and a 50% economic interest in
Sachsen Funk und Fernsehen GmbH, Germany ('SFF') which owns a 33.33% equity
interest in Sachsen Fernsehen Betriebs KG, which operates regional television
stations in Leipzig and Dresden, Germany. The partners of PULS have retained a
financial advisor and are currently in discussions with potential investors in
PULS. Such an investor would be expected to acquire a significant equity
interest in PULS and assume responsibility for PULS' operations. Such an
investment would be anticipated to significantly dilute the Company's equity
investment in PULS and to decrease the Company's future funding obligations to
PULS. Such investment also could result in a material reduction of the net
realizable carrying value of the Company's equity investment in PULS, which was
$12,591,000 as of December 31, 1996, and a corresponding charge against the
Company's earnings in the period incurred. Regardless of whether a transaction
with a strategic investor is consummated, there is no assurance that the Company
may not have to take a reduction of all or a portion of the net realizable
carrying value of PULS. A reduction of the net realizable carrying value of
PULS, or other factors, might cause the Company to reduce all or part of the net
realizable carrying value of the Company's investments in FFF and SFF, which
were $6,069,000 and $1,561,000, respectively, as of December 31, 1996. As of
December 31, 1996 and as of the date of the financial statements, the Company
does not consider the value of PULS, FFF and SFF to be impaired, based on
discussions with potential investors to date.

In Poland, the Company together with the Polish media group ITI, formed TVN
Sp.z.o.o. ('TVN'). ITI holds 67% of the equity in TVN and the Company holds the
remaining 33%. In February 1997, TVN was awarded television broadcast licenses
for Northern Poland and the cities of Warsaw and Lodz in Poland. Also in 1996,
TVN exercised an option pursuant to which it acquired a 49% interest in
Televisja Wisla Sp.z.o.o. ('TV Wisla'), which operates a television station in
southern Poland.

In Ukraine, the Company recently acquired a 50% interest in a group of
companies (collectively, the 'Studio 1+1 Group'), which has the right through
2006 to broadcast programming and sell advertising on one of Ukraine's public
television stations, UT-2. The Company's investment in the Studio 1+1 Group of
$17,029,000, as of December 31, 1996, is classified in development costs in the
accompanying financial statements. The Studio 1+1 Group has not had material
operations through December 31, 1996.

2. PRO FORMA RESULTS OF ACQUISITIONS

The unaudited pro forma effects of the Additional Nova TV Purchase, as if
this transaction occurred at the beginning of 1995, are as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Net revenues ($000).... $98,919 $135,985
Net loss ($000)........ (21,260) (33,110)
Net loss per share..... (1.45) (1.71)
</TABLE>

This pro forma information includes the effects of the amortization of
goodwill related to the transaction, as well as interest expense associated with
related borrowings. The operations of Videovox were not material in 1995 or
1996.

3. FINANCING OF OPERATING AND CAPITAL NEEDS

In 1994, the Company raised cash contributions of $73,260,000 from
shareholders, primarily from its initial public offering, which raised
$76,475,000 from the issue of 5,462,500 shares of Class A Common Stock, less
underwriting costs and issue and other related expenses of approximately
$7,681,000.

F-9

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

3. FINANCING OF OPERATING AND CAPITAL NEEDS--(CONTINUED)

In 1995, the Company raised cash contributions of $92,000,000 from a public
offering of common stock, less underwriting costs and issue and other related
expenses of approximately $5,426,000, from the issue of 4,000,000 shares of
Class A Common Stock.

In 1996, the Company raised cash contributions of $151,800,000 from a
public offering of common stock, less underwriting costs and issue and other
related expenses of approximately $8,177,000, from the issue of 5,520,000 shares
of Class A Common Stock.

Proceeds from the above public offerings and other equity raised have been
used to fund the Company's activities and to repay certain loans and advances
from affiliates. The Company had cash of $78,507,000 and marketable securities
of $2,896,000 at December 31, 1996 to enable it to finance its future
activities.

Dividends from Consolidated Subsidiaries and Unconsolidated Affiliates

The Company conducts all of its operations through subsidiaries.
Accordingly, the primary internal source of the Company's cash available for
operations will ultimately be dividends and other distributions from its
subsidiaries. Each of these subsidiaries was formed under the laws of, and has
its operations in, a country other than Bermuda, the jurisdiction of the
Company. In addition, each of the operating subsidiaries receives the majority
of its revenues in the local currency of the jurisdiction in which it is
situated. As a consequence, 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.

laws of countries where the Company is developing operations contain
restrictions on the payment of dividends.

General

While losses from operating and development activities are expected to
continue in 1997, management believes that the Company's liquidity and capital
resources at December 31, 1996, including the proceeds of the 1996 Offering,
potential corporate and local debt facilities, the financial commitments of
local majority and minority shareholders or partners in its various operating
entities, are adequate to fund existing operations through 1997. The Company
believes that its ability to raise funding through the public and private equity
and debt markets will provide funding for the Company's planned expansion in
1997.

F-10

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996

4. 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 accounts of Nova TV, PRO TV,
POP TV, Videovox, Radio Alfa and 2002 Kft as consolidated entities, and reflect
the interests of the minority owners of these companies. The accounts of PULS,
FFF, SFF, Markiza TV and TVN, in which the Company has non-controlling ownership
interests, are included in the accompanying consolidated financial statements as
investments in unconsolidated affiliates under the equity method. The Company's
investment in MobilRom is accounted for at the lower of cost or market value.
Acquisitions have been accounted for using the purchase method.

Cash and Cash Equivalents

Cash and cash equivalents includes unrestricted cash in banks and highly
liquid investments with maturities of less than three months when purchased.

Investments in Marketable Securities

The Company accounts for Investments in Marketable Securities under
Statement of Financial Accounting Standards (SFAS) No.115 'Accounting for
Certain Investments in Debt and Equity Securities'. In connection with the
adoption of this pronouncement, debt and equity securities held by the Company
that may be sold in response to changes in interest rates, prepayments, and

other factors have been classified as available-for-sale. Such securities are
reported at fair value, with unrealized gains and losses excluded from earnings
and reported in a separate component of shareholders' equity (on an after tax
basis). Gains and losses on the disposition of securities are recognized on the
specific identification method in the period in which they occur. There were no
significant realized or unrealized gains or losses as of December 31, 1996 and
1995.

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. Barter revenues of
$2,841,000, $3,647,000 and $6,354,000 have been recognized for the years ended
December 31, 1994, 1995 and 1996, respectively.

The Company records barter transactions at the estimated fair market 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. At December 31, 1995 and 1996, barter

F-11

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

receivables were $587,000 and $361,000, and are included in accounts receivable
in the accompanying consolidated balance sheets.

Property, Plant and Equipment

Property, plant and equipment is carried at cost, less accumulated
depreciation. Depreciation is computed using the straight-line and accelerated
methods over the estimated useful lives of the related assets (Note 6).

Assets Held Under Capital Leases

Assets held under capital leases are accounted for in accordance with SFAS

No. 13, 'Accounting for Leases', and recorded in Property, Plant and Equipment.
The related liability is included in obligations under capital lease.

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 amortized to expense using
straight-line and accelerated methods based on the estimated period of usage,
ranging from one to five years. Amortization estimates for program rights are
reviewed periodically and adjusted prospectively. Program rights costs of
$44,896,000 in 1995 and $70,584,000 in 1996 are shown net of amortization of
$25,181,000 and $43,643,000 at December 31, 1995 and 1996, respectively.

Payments made for program rights in which the license period has not begun
before year end are classified as prepaid expenses and are $2,688,000 and
$2,854,000 at December 31, 1995 and 1996, respectively.

Production costs for self-produced programs are capitalized, and 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.

Goodwill

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.

During March 1995, the Financial Accounting Standards Board issued SFAS No.
121, 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of'. This statement establishes financial accounting and
reporting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. This statement is effective for financial statements for fiscal
years beginning after December 15, 1995 and was adopted by the Company in 1996.
The effect of the adoption was not material.

F-12

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

License Acquisition Costs

License acquisition costs reflect the excess of the Company's investment

above the Company's share of net assets received from newly formed, consolidated
entities and reflect the amounts paid to secure exclusive rights to the
licenses. It is amortized over the lives of the related licenses which range
from 5 to 10 years. License acquisition 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. At December
31, 1995 and 1996, $4,777,000 and $4,777,000, respectively, has been capitalized
and $54,000 and $854,000, respectively, has been amortized.

Broadcast License Costs and Other Intangibles

The costs of acquiring licenses to broadcast are capitalized and amortized
over the life of the related license. As of December 31, 1995 and 1996,
$1,804,000 and $1,756,000, respectively, has been capitalized in the
accompanying consolidated financial statements related to the Company's 12 year
broadcast license in the Czech Republic, and $392,000 and $534,000 has been
amortized through December 31, 1995 and 1996, respectively.

Other intangibles, which include the cost of acquiring software and other
intangible assets, are capitalized and amortized over their estimated useful
lives. At December 31, 1995 and 1996, $1,568,000 and $2,920,000, respectively,
has been capitalized, and $615,000 and $1,045,000, respectively, has been
amortized.

Organization Costs

The Company has capitalized $1,844,000 and $1,884,000 in costs incurred in
connection with the organization and incorporation of consolidated subsidiaries
at December 31, 1995 and 1996, respectively, which will be amortized over four
years. Amortization of $507,000 and $950,000 has been provided through December
31, 1995 and 1996, respectively.

Development Costs

In the course of its activities the Company incurs external costs in
connection with the development of new license opportunities for the Company.
These costs are capitalized and shown as an asset on the balance sheet where
separately identifiable. It is the Company's policy to account for these assets
at the lower of cost or estimated realizable value. As part of an ongoing review
of the valuation of such assets, management assesses their carrying value. If
this review indicates that the assets will not be recoverable through potential
future operations, the carrying values of these assets are reduced to their
estimated recoverable value by the recording of an allowance. As of December 31,
1995 and 1996, the Company had incurred capitalizable costs of $14,500,000 and
$20,101,000, respectively, which have been reduced by an allowance of $4,373,000
and $996,000, respectively. As a result of its review, management has determined
that such assets are fairly stated at December 31, 1995 and 1996.

Fair Value of Financial Instruments

Effective December 31, 1995, the Company accounts for the Fair Value of
Financial Instruments under 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

F-13

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

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,
1995 and 1996, the carrying value of all financial instruments (primarily loans
payable and receivable) approximated fair value.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
'Accounting for Income Taxes.' This statement requires a liability approach for
measuring deferred taxes based on temporary differences between the financial
statement and income tax bases of assets and liabilities existing at each
balance sheet date using enacted rates for the years in which the taxes are
expected to be paid or recovered.

Deferred income taxes are provided on temporary differences between
financial statement and taxable income. The primary sources of these differences
are depreciation, amortization and capital lease payments.

Foreign Currency Translation

The Company has applied the provisions of SFAS No. 52 'Foreign Currency
Translation' in translating the financial statements of its entities from German
marks ('DM'), Czech korunas ('Kc'), Romanian lei ('ROL'), Slovenian tolars
('SIT'), Slovak korunas ('Sk'), Hungarian forints ('HUF'), Polish Zloty ('Zl')
and Ukrainian Hryvna ('Hrn') to U.S. dollars. Transactions denominated in
foreign currencies are recorded at the exchange rate in effect at the date of
the transaction.

The financial statements of Nova TV, POP TV, Markiza TV, Videovox, Radio
Alfa, 2002 Kft, TVN and certain Studio 1+1 Group entities, which operate in
economies that are considered non-highly inflationary, are measured using the
local currency as the functional currency. Income and expense items are
translated at average monthly rates of exchange. Gains and losses from currency
translations of these affiliates are included in net earnings. Assets and
liabilities of these affiliates are translated at the rates of exchange at the
balance sheet date. The resultant translation adjustments are included as
cumulative currency translation adjustment as a component of shareholders'
equity.

PRO TV and certain Studio 1+1 Group entities operate in economies
qualifying as highly inflationary. Accordingly, non-monetary assets and
liabilities are translated at historical exchange rates and monetary assets and
liabilities are translated at current exchange rates. Translation adjustments
are included in the determination of income.

Year end exchange rates and average exchange rates for the respective
periods are as follows:

<TABLE>
<CAPTION>
BALANCE SHEET INCOME STATEMENT
--------------------------- -----------------------------
AS OF YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------- ----------------
1995 1996 MOVEMENT 1995 1996 MOVEMENT
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Czech koruna equivalent of $1.00........ 26.60 27.33 2.7% 26.57 27.21 2.4%
German mark equivalent of $1.00......... 1.43 1.55 8.4% 1.44 1.50 4.2%
Hungarian forint equivalent of $1.00.... n/a 162 n/a n/a 151 n/a
Polish zloty equivalent of $1.00........ n/a 2.88 n/a n/a 2.70 n/a
Romanian lei equivalent of $1.00........ 2,578 4,035 56.5% 2,402(1) 3,204 33.4%
Slovak koruna equivalent of $1.00....... n/a 31.90 n/a n/a 31.14 n/a
Slovenian tolar equivalent of $1.00..... 125.99 141.48 12.3% 125.99(2) 136.45 8.3%
Ukrainian hryvna equivalent of $1.00.... n/a 1.89 n/a n/a 1.83(3) n/a
</TABLE>

F-14

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

- ------------------
(1) Average exchange rate from December 1, 1995 through December 31, 1995 only.

(2) Average exchange rate from December 15, 1995 through December 31, 1995 only.

(3) Hryvna became the currency of Ukraine in September 1996.

In the accompanying notes, $ equivalents of Kc, ROL, SIT, Sk, HUF, DM, Zl
and Hrn amounts have been included in brackets at December 31, 1995 or 1996
rates, as applicable, for illustrative purposes only. Future amounts are shown
at December 31, 1996 exchange rates.

Stock-Based Compensation

During October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, 'Accounting for Stock-Based Compensation'. This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. SFAS No. 123 encourages entities to adopt a fair value based
method of accounting for stock compensation plans. However, SFAS No. 123 also
permits the Company to continue to measure compensation costs under pre-existing
accounting pronouncements. If the fair value based method of accounting is not
adopted, SFAS No. 123 requires pro forma disclosures of net income (loss) and
net income (loss) per common share in the notes to the financial statements. The
Company has elected to provide the necessary pro forma disclosures beginning in
1996 (Note 11).

Net Loss Per Share

Net loss per share was computed by dividing the Company's net loss by the
weighted average number of Common Shares (both Class A and Class B) and common
share equivalents outstanding during the years ended December 31, 1995 and 1996.
The impact of outstanding options and warrants has not been included in the
computation of 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.

Recently Issued Accounting Standards

In March 1997, the Financial Accounting Standards board issued SFAS No.
128, 'Earnings Per Share'. This statement establishes standards for computing
and presenting earnings per share ('EPS'), replacing the presentation of
currently required primary EPS with a presentation of Basic EPS. For entities
with complex capital structures, the statement requires the dual presentation of
both Basic EPS and Diluted EPS on the face of the statement of operations. Under
this new standard, Basic EPS is computed based on weighted average shares
outstanding and excludes any potential dilution. Diluted EPS reflects potential
dilution from the exercise or conversion of securities into common stock or from
other contracts to issue common stock and is similar to the currently required
fully diluted EPS. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and earlier
application is not permitted. When adopted, the Company will be required to
restate its EPS data for all prior periods presented. The Company does not
expect the impact of the adoption of this statement to be material to previously
reported EPS amounts.

F-15

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Reclassifications

Certain reclassifications were made to prior period amounts to conform to
current period classifications.

5. RESTRICTED CASH

Restricted cash at December 31, 1995 and 1996 is $4,216,000 and $2,749,000,
respectively. Restricted cash at December 31, 1995 consists of (1) $1,600,000 of
cash restricted in connection with a DM2,000,000 letter of credit issued on
behalf of FFF ('FFF Letter of Credit') in relation to leasing commitments in
that entity, (2) $2,000,000 restricted in connection with an extended offer to
purchase an entity in Hungary and (3) $616,000 pledged on behalf of a loan
obtained by an affiliated entity in Romania. Restricted cash at December 31,
1996 consists of (1) $1,600,000 of cash restricted in connection with the FFF
Letter of Credit and (2) $1,149,000 held by the Romanian customs authority for
imports into Romania.

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL ------------------
LIVES 1995 1996
------ ------- -------
<S> <C> <C> <C>
YEARS $000 $000
Land and buildings held under capital
leases..................................... 25 17,899 19,803
Leasehold improvements....................... 4-15 3,873 3,894
Station machinery, fixtures and equipment.... 4-8 37,893 52,605
Other equipment.............................. 4-8 -- 3,754
Construction in progress..................... -- 2,315 1,243
------- -------
61,980 81,299
Less--Accumulated depreciation............... (10,281) (22,317)
------- -------
51,699 58,982
------- -------
------- -------
</TABLE>

F-16

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

7. OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
----- -----
<S> <C> <C>
$000 $000
Current:
Satellite transponder...................... -- 850
----- -----
----- -----
Long-term:
Advances for technical equipment........... 2,591 3,970
Satellite transponder...................... 850 --
Other...................................... 337 523
----- -----
3,778 4,493
----- -----
----- -----
</TABLE>

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
HB3 Satellite which the Company anticipates will be launched in the fourth
quarter of 1997. The Company paid a deposit of $850,000 toward future
transponder lease obligations. The annual charge for the lease is approximately
$4.4 million, beginning after the launch of the satellite and lease obligations
are guaranteed by CME.

8. INCOME AND CAPITAL TAXES PAYABLE

(a) Provision for income taxes relates primarily to the profits of Nova TV.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995 1996
----- ------ ------
<S> <C> <C> <C>
$000 $000 $000
Current income taxes......................... 2,428 15,473 16,826
Deferred income taxes........................ 903 867 (421)
----- ------ ------
3,331 16,340 16,405

----- ------ ------
----- ------ ------
</TABLE>

Income taxes are provided on Nova TV profits, which cannot be offset
against losses incurred in PRO TV, POP TV, Videovox, PULS, FFF, SFF, TVN and
Markiza TV or against corporate costs incurred in other jurisdictions. The
effective income tax rate in the Czech Republic is 42%, 41% and 39% for the
years ended December 31, 1994, 1995 and 1996, respectively. Nova TV's net
operating losses brought forward from 1993 were fully utilized to offset profits
in 1994. These factors represent the difference between the Company's income tax
charge and the federal rate of income tax applied to the Company's loss before
tax.

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.

F-17

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

8. INCOME AND CAPITAL TAXES PAYABLE--(CONTINUED)

Deferred income tax assets relate to the following timing differences:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
----- ------
<S> <C> <C>
$000 $000
Provisions against receivables............... 891 1,045
Accelerated amortization of programming
licenses................................... 529 856
Other........................................ 30 12
----- ------
1,450 1,913
Valuation allowance on deferred tax asset.... (891) (1,045)
----- ------
559 868
----- ------
----- ------
</TABLE>

A full valuation allowance is provided for provisions against receivables
in 1995 and 1996 due to the delay in obtaining a tax deduction for such amounts
in the Czech Republic.

Deferred income tax liabilities relate to the following timing differences:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
----- ------
<S> <C> <C>
$000 $000
Depreciation and amortization................ 1,503 1,491
Lease payments............................... 595 382
Other........................................ 219 269
----- ------
2,317 2,142
----- ------
----- ------
</TABLE>

Net operating losses incurred in 1995 and 1996 in Germany, Romania,
Slovenia, Slovakia, Poland and Hungary 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 all net operating loss
carryforwards as it is more likely than not, for a variety of reasons, including
the uncertainties in the tax regimes, that they may not be 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
1995 and 1996, as it is not dependent upon the level of income, in the amount of
$1,375,000 and $809,000, respectively.

9. SHAREHOLDER LOAN

On September 9, 1994, the Company borrowed $6,500,000 from Ronald S. Lauder
(the 'Principal Shareholder Loan'), who is also a director of the Company. The
Principal Shareholder Loan was evidenced by an unsecured Term Promissory Note
due September 30, 1996, bearing interest at a rate of 10% per annum. In
addition, Mr. Lauder received warrants to purchase 250,000 shares of Class A
Common Stock at an exercise price of $16.10 per share. These warrants are
exercisable for five years, commencing one year after their date of issue.

Concurrent to the equity offering of 4,000,000 shares of Class A Common
Stock on November 9, 1995 (the '1995 Offering'), Mr. Lauder purchased 297,346
shares of Class A Common Stock at the

F-18

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

9. SHAREHOLDER LOAN--(CONTINUED)

price to the public in the 1995 Offering, less underwriting discounts and
commissions, in exchange for the Principal Shareholder Loan of $6,500,000.

Between October 2 and October 21, 1996 the Company borrowed up to
$14,000,000 from Mr. Lauder (the 'Lauder Loan'). The Lauder Loan was evidenced
by an unsecured Term Promissory Note due the earlier of (1) a public offering or
(2) October 1, 1998, bearing interest at a rate of LIBOR plus 2%. This loan was
repaid on November 14, 1996. In addition, Mr. Lauder received warrants to
purchase 70,000 shares of Class A Common Stock at an exercise price of $30.25
per share. The warrants are exercisable for four years commencing one year after
their date of issue.

10. LOAN AND OVERDRAFT OBLIGATIONS

Group loan obligations and overdraft facilities consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
$000 $000
<S> <C> <C> <C>
CME B.V.
Ceska Sporitelna Loan........................ (a) -- 16,464
Tele 59 Loan................................. (b) -- 903
Nova TV
Long-term investment loan.................... (c) 8,877 6,586
Line of credit loan.......................... (d) -- --
PRO TV
Operating bank loan.......................... (e) 250 --
Operating bank loan.......................... (e) 300 --
Line of credit............................... (f) -- 1,709
Long term loan............................... (g) -- 2,758
Overdraft facilities......................... (h) -- 969
POP TV
Unsecured short-term loans................... (i) -- 205
------ ------
9,427 29,594
Less current maturities...................... (2,661) (7,106)
------ ------
6,766 22,488

------ ------
------ ------
</TABLE>

CME B.V.

(a) On August 1, 1996, the Company entered into the Additional Nova TV Purchase
for the purchase of CS's 22% economic interest and virtually all of CS's voting
rights in Nova TV 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. The remainder of the purchase price of Kc150,000,000
($5,488,000) was paid by the Company on November 15, 1996. The CS loan was drawn
in August 1996 and will be drawn in April 1997 in the amounts of Kc450,000,000
($16,464,000) and Kc400,000,000 ($14,636,000), respectively, to fund purchase
payments due at those times, and the loan bears an interest rate of 12.9%
annually. Quarterly repayments on the loan are required in the amount of
Kc22,500,000 ($823,000) during the period from November 1997 through November
1998, Kc42,500,000 ($1,555,000) during the period from February 1999 through
August 2002, and Kc20,000,000 ($732,000) during the period from November 2002
through November 2003.

F-19

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

10. LOAN AND OVERDRAFT OBLIGATIONS--(CONTINUED)

(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
this loan is DM1,400,000 ($903,000). Under this agreement, the Company will
reimburse Tele 59 for payments made to SKB and Tele 59 is required to repay the
loan from the Company with any income received. The loan bears interest at 7.8%
per annum.

Nova TV

(c) The long-term investment loan was obtained from CS bank, an investor in Nova
TV, to be used for the purchase of equipment. The loan originally had a maximum
facility of Kc300,000,000 ($10,977,000) which was fully utilized at December 31,
1994. Principal payments of Kc60,000,000 ($2,195,000) are due on this loan each
year and were paid accordingly in 1995 and 1996. The loan bears interest at 2.5%
above the bank's prime rate (prime rate currently 12.5%). The long-term
investment loan is secured by the Nova TV's equipment, vehicles and 50% of its
receivables.

(d) The line of credit loan, also obtained from CS bank, has a maximum facility
of Kc250 million ($9,147,000) bearing interest of PRIBOR plus 0.5%. This
facility was unutilized at December 31, 1995 and 1996. The line of credit is
secured by the remaining 50% of receivables.

PRO TV

(e) In exchange for certain assets, PRO TV assumed two loans from an affiliated
entity, payable to Tiriac Bank, which is partially owned by a PRO TV investor.
These loans were repaid in 1996.

(f) The line of credit, obtained from Tiriac Bank, provides a maximum facility
of $2,000,000 bearing interest at 6 month LIBOR plus 5%. This line of credit is
substantially repayable by July 31, 1997 and is secured by assets with a book
value of $2,575,000

(g) The long-term loan, also obtained from Tiriac Bank, has a maximum facility
of $4,000,000, bearing interest at 6 month LIBOR plus 5%. This loan is payable
in monthly installments of $83,500 beginning July 31, 1997 through June 30,
2001, the final installment being $75,500. The loan is secured by assets
representing $3,357,000 and 70% of the assets purchased with the loan up to a
value of $2,800,000.

(h) Overdraft facilities are either secured by cash balances in lei or are
unsecured and are due within 1997.

POP TV

(i) The unsecured short-term loans consist of three separate facilities which
bear interest of Consumer Price Index plus 12%, three months' arithmetical
average of Slovene retail price increase ('TOM') plus 21%, and TOM plus 18%.

At December 31, 1996, maturities of debt are as follows:

<TABLE>
<CAPTION>
TOTAL
$000
------
<S> <C>
1997................ 7,106
1998................ 6,607
1999................ 9,416
2000................ 6,465
------
29,594
------
------
</TABLE>

F-20

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

11. STOCK OPTION PLAN

The Company adopted the 1994 Stock Option Plan in 1994 and the 1995 Stock
Option Plan in August 1995. 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 Stock Option Plan the
Compensation Committee is authorized to grant options for up to 1,200,000 shares
of the Company's Class A 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
incentive stock options under the Internal Revenue Code of 1986, as amended (the
'Code'), or non-qualified stock options. Under the Stock Option Plans,
non-affiliated directors are automatically granted each year options to purchase
10,000 shares of Class A Common Stock. 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 851,620 shares of Class A Common Stock
under the 1995 Stock Option Plan. The 1995 Stock Option Plan includes options to
purchase 117,000 shares of Class A Common Stock granted to the President and
Chief Executive Officer of the Company and 23,900 shares of Class A Common Stock
granted to the Vice President-Finance and Chief Financial Officer.

Under both plans the option exercise price equals the stock's market price
on date of grant. The 1994 plan options vest after two years and expire after
ten years. The 1995 plan was revised in February 1997 so that options granted
under this plan will vest after two years and will expire after ten years. This
change will be applied retrospectively and the following tables have been
prepared under the revised 1995 plan.

A summary of the status of the Company's two stock option plans at December
31, 1995 and 1996 and changes during the years is presented in the table and
narrative below:

<TABLE>
<CAPTION>
1995 1996
----------------------------------------- -----------------------------------------
WTD. AVG. WTD. AVG.
EXERCISE OPTION EXERCISE OPTION
SHARES PRICE PRICE $ SHARES PRICE PRICE $
--------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
start of
year........ 354,500 6.10 0.20-14.00 1,049,600 13.81 0.20-20.00
Granted....... 756,600 16.44 14.00-20.00 636,800 21.51 20.75-21.75
Exercised..... (55,000) 0.20 0.20 (139,644) 8.78 0.20-14.63
Forfeited..... (6,500) 14.63 14.63 (12,653) 20.00 20.00
--------- ---------
Outstanding at
end of
year........ 1,049,600 13.81 0.20-20.00 1,534,103 17.41 0.20-21.75
--------- ---------
--------- ---------
</TABLE>

At December 31, 1995 and 1996, 122,250 and 528,356 shares were exercisable,
respectively.

One of the Company's directors was awarded 25,000 options on August 3, 1995
which were granted outside of both the 1994 Amended and Restated Option Plan and
the 1995 Stock Option Plan. Half of his shares vested six months after issue and
the remainder after one year.

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

F-21

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

11. STOCK OPTION PLAN--(CONTINUED)

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:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
-------- --------
<S> <C> <C> <C>
Net Loss ($000)................. As Reported (18,736) (30,003)
Pro Forma (20,197) (34,468)
Net Loss Per Common Share ($)... As Reported (1.28) (1.55)
Pro Forma (1.38) (1.78)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
the grants made January 1, 1995, August 3, 1995, August 10, 1995, August 14,
1995, October 17, 1995, December 15, 1995, January 2, 1996 and August 1, 1996
respectively: risk-free interest rates of 7.84%, 6.21%, 6.23%, 6.28%, 5.76%,
5.53%, 5.30% and 6.36%; expected dividend yields of 0% for each grant; expected
lives of 4 years for all grants; expected stock price volatility of 47.6% for
all grants.

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.

12. COMMITMENTS AND CONTINGENCIES

Litigation

In July 1996, the Company, together with MMTV and Tele 59, entered into an
agreement to purchase 66% of the shares of Kanal A, a private televison station
in Slovenia ('the Kanal A Agreement') for $3,000,000. Scandinavian Broadcast
Systems, S.A. ('SBS'), which purportedly has certain rights to the equity of
Kanal A pursuant to various agreements, has challenged the validity of the Kanal
A Agreement in a United Kingdom court. Both the Company and SBS have been
granted injunctions by the United Kingdom courts preventing SBS, in the case of
the Company, and the Company, in the case of SBS, 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 action in a
Slovenian court requesting that courts in Slovenia resolve these claims.
Payments made by the Company under these agreements totaled $1,000,000 and are
classified in developments costs at December 31, 1996. Management believes these
amounts will be collected, refunded or will result in an equity interest in
Kanal A.

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.

F-22

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

Ownership and Financial Commitments--Existing Entities

The Company's ownership interests and financial commitments regarding
existing entities are as follows:

Nova TV

Current financing requirements are being met by cash generated from the
business. The Company does not anticipate that it will need to provide further
financing.

PRO TV

At December 31, 1996, the Company had contributed approximately $20,214,000
of which $2,750,000 is a short term loan. The Company is obligated to pay an
additional $536,000 to bring the paid in capital of PRO TV to $20,000,000.
Additional funding may be provided to PRO TV, on a temporary basis, until such
time as local debt financing can be obtained. Subsequent to December 31, 1996,

the Company has funded $4,050,000 to PRO TV.

The Company is entitled to 77.5% of the total profits of PRO TV, although
the Company's partners hold options which, if exercised, would reduce the
Company's stake of PRO TV's profits to not less than 66.0%. In addition, the
Company is entitled to a one-time preferred dividend of approximately $468,000
from PRO TV related to certain reorganization costs of an affiliated entity. The
Company would be entitled to receive a preferred dividend equal to any
additional future re-organizational costs paid for by the Company. PRO TV is
required to contribute 5% of net profits to a reserve fund until equal to at
least 20% of share capital.

UniMedia

At December 31, 1996, the Company had contributed $3,600,000 for a 10.0%
stake in MobilRom, a company which was awarded one of the mobile
telecommunication licenses in Romania. The Company's investment in MobilRom is
held by UniMedia which is owned 95.0% by the Company and 5.0% by Adrian Sarbu.
UniMedia is obligated to contribute a further $8,400,000 to MobilRom by June
1997, bringing UniMedia's total contribution to $12,000,000, representing 10% of
the equity capital of MobilRom.

POP TV

At December 31, 1996, the Company had funded approximately $28,196,000 to
POP TV, MMTV and Tele 59, which consists of $9,600,000 as equity, $17,346,000 as
a loan to POP TV and interest accrued on this loan of $1,250,000 at December 31,
1996. Further funding of the operations and capital needed for POP TV is
expected to be obtained from local debt financing, cash generated from the
business and additional funding by the Company. Additionally, local debt
financing may be used to partly repay the loan from the Company. Subsequent to
December 31, 1996, the Company has loaned an additional $1,500,000 to POP TV.

PULS

At December 31, 1996, the Company had contributed DM77,661,000
($50,104,000). Management estimates that DM11,000,000 ($7,097,000) in funding
will be required for the first half of 1997 of which DM2,500,000 ($1,613,000)
was funded since December 31, 1996. The Company's obligation to provide funding
to PULS will be based on its decisions to participate in future capital calls.
Funding beyond the percentage of ownership increases the Company's percentage of
ownership and accordingly the Company's share of profits or losses.

F-23

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

FFF

At December 31, 1996, the Company had contributed DM20,000,000
($12,903,000). Management estimates additional funding for operating and capital
needs in 1997 will be DM2,000,000 ($1,290,000). The Company has resolved to fund
these operations in 1997, of which DM860,000 ($555,000) has already been funded
during the first quarter of 1997. The Company's obligation to provide funding to
FFF will be based on its decisions to participate in future capital calls or
loans.

A partner in FFF is entitled to a one-time preferred distribution of
DM1,900,000 ($1,226,000) out of cumulative profits of FFF when the company has
achieved net positive retained earnings.

SFF

At December 31, 1996, the Company had contributed DM4,350,000 ($2,806,000).
Management estimates additional funding for operating and capital needs in 1997
will be DM3,000,000 ($1,935,000). The Company has resolved to fund these
operations for 1997 of which DM2,500,000 ($1,613,000) was funded in the first
quarter of 1997.

Radio Alfa

At December 31, 1996, the Company had agreed to contribute Kc107,000,000
($3,915,000) to Radio Alfa in the form of loans, a portion of which may be
converted into a 21.7% equity interest in Radio Alfa subject to the approval of
the Czech Radio and Television Council. At December 31, 1996, Kc101,400,000
($3,710,000) had been contributed. In the first quarter of 1997 the remaining
Kc5,600,000 ($205,000) was contributed. Further funding for operations and
capital is expected to be obtained from cash generated from the business and
additional funding provided by the Company.

Markiza TV

At December 31, 1996, the Company had contributed $38,323,000 to Markiza
TV. The Company is not required to provide any additional funding. It is
anticipated that any further funding for the project will be obtained from local
debt and cash generated from the business. The total funding of $38,323,000 was
contributed as $9,000,000 in loans and $29,323,000 in equity.

Poland

In Poland, the Company has entered into an alliance with the Polish media
group ITI, forming TVN Sp. z.o.o. ('TVN') which in May 1995 applied for
broadcast licenses in Poland. At December 31, 1996 the licenses had not been
formally awarded to TVN (See Subsequent Events Note 16). ITI holds 67.0% of the
equity in TVN and the Company holds the remaining 33.0%. During 1996, TVN
exercised an option to acquire a 49.0% interest in Telewizja Wisla Sp. z.o.o.
('TV Wisla'), which operates a television station in southern Poland. At
December 31, 1995 the Company had contributed $1,650,000 to TVN. During 1995 and
1996, the Company contributed an aggregate of $7,705,000 in equity to an
affiliated company of TVN. The Company is obligated to contribute an additional
$645,000 to this affiliate. At December 31, 1995, the Company's investment in
Poland was classified as development costs. These amounts are classified as

investments in Unconsolidated Affiliates at December 31, 1996.

The final funding requirements for the Polish project have not been agreed
with ITI but it is management's intention that the Company will fund the project
to approximately $40,000,000, with the remainder of the project funding to be
provided by local bank debt. At December 31, 1996, the Company had contributed
$11,500,000 to the Polish operations. Since December 31, 1996, the Company has
advanced an additional $1,555,000.

F-24

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

Ukraine

In September 1996 the Company entered into an agreement to acquire a 50%
equity interest in the Studio 1+1 Group. At December 31, 1996 the Company has
contributed $17,029,000 to acquire this equity interest. In the first quarter of
1997 the Company contributed $2,000,000 as a loan. It is anticipated that the
project will require further funding of up to $3,000,000 in 1997 which will be
made through loans. The remainder of the funding required for the Studio 1+1
Group is anticipated to be raised through its operations.

The Studio 1+1 Group has the right, pursuant to a ten-year television
broadcast license held by a Ukrainian-based member of the Studio 1+1 Group, to
broadcast programming and sell advertising on UT-2. Competitors and others
opposed to the award of the license have indicated a possibility of legal or
administrative actions to challenge the license. However, the Company believes
that the grant of the license would be upheld. There can be no assurance,
however, as to the outcome of such proceedings, if initiated.

Videovox

Management anticipate that any future funding requirements for Videovox
will be met by cash generated from the business.

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.

Ownership and Financial Commitments--Future Expansion

The Company's ownership interest and financial commitments regarding
entities to be considered for future expansion are as follows:

Hungary

The Company owns 95.0% of the equity of 2002 Kft., which was awarded a
local microwave (MMDS) license in Budapest. The Company's business plan
contemplates commencing broadcast operations in Hungary in 1997. 2002 Kft. has
signed program contracts or deal memos which call for future payments of
approximately $8,900,000 in future periods. At December 31, 1996, approximately
$420,000 of program payments had been made. If the Company's Hungarian license
bid is unsuccessful, management believes that the program library from these
contracts or deal memos will be realised in Hungary through various possible
business arrangements or existing program contracts and deal memos may be
re-negotiated.

Other potential commitments

The Company is pursuing additional broadcast development opportunities in
other areas. In some of these countries and regions, the Company has entered
into preliminary understandings with local strategic and financial partners to
seek television broadcast licenses from the local government authorities.

Currency exchange rate fluctuation

The Company generates most of its revenues in German marks ('DM'), Czech
korunas ('Kc'), Slovenian tolars ('SIT'), Romanian lei ('ROL'), Slovak korunas
('Sk') Polish zloty ('Zl'), Ukrainian hryvna ('Hrn') and Hungarian forints
('HUF') and incurs expenses in those currencies, as well as in

F-25

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

British pounds and U.S. dollars. In addition, certain expenses, primarily for
programming, are incurred in U.S. dollars, and certain of the Company's capital
and operating commitments are in foreign currencies. Fluctuations in the value
of foreign currencies may cause U.S. dollar translated amounts to change in
comparison with previous periods. 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 U.S. dollar,
the Company cannot anticipate the effect of exchange rate fluctuations on its
financial condition.

Pension and other post-retirement benefits

The Company has no obligation to provide pension and other post-retirement
benefits.

Station Programming Rights Agreements

The Company had programming rights commitments for $13,179,000 and
$43,876,000 in respect of future programming which includes contracts signed
with license periods starting after December 31, 1995 and 1996, respectively.

Lease Commitments

In 1994 Nova TV purchased part of the buildings it currently occupies and
uses for its Prague television headquarters through a capital lease transaction
with a bargain purchase option with an affiliated entity from which it had
previously rented the property under the terms of an operating lease. In
accordance with the decision to purchase the property, the Company will continue
to make quarterly fixed and variable payments until the loan obligation on the
property has been repaid at which point title of the property will be
transferred to Nova TV. In accordance with the lease agreement, Nova TV must
also pay certain taxes, expenses and other amounts.

During November and December 1995, POP TV entered into 10 capital leases on
vehicles for employees accounted for as capital leases.

Minimum future obligations under capital leases, including interest, are
expected to be as follows:

<TABLE>
<CAPTION>
PAYMENTS DUE $000
- ---------------------------------------- -------
<S> <C>
1997.................................... 4,030
1998.................................... 4,023
1999.................................... 3,940
-------
11,993
Less: Amounts representing interest..... (3,079)
-------
Total................................... 8,914
Less current maturities................. (1,794)
-------
7,120
-------
-------
</TABLE>

For the fiscal years ended December 31, 1994, 1995 and 1996, the Company
paid aggregate rent on all facilities of $2,430,000, $340,000 and $1,776,000,
respectively. Future minimum lease payments at December 31, 1996 for
noncancelable operating leases with remaining terms in excess of one year
aggregate $3,564,000, and are payable as follows: 1997--$1,129,000;
1998--$700,000; 1999-- $486,000; 2000--$414,000; 2001--$192,000; 2002 and
thereafter in the aggregate--$643,000.

F-26

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

13. RELATED PARTY TRANSACTIONS

Contributed Services

Affiliates controlled by certain shareholders of the Company provide
various administrative services for the Company and its predecessors. Amounts
charged for the years ended December 31, 1994, 1995 and 1996, were $733,000,
$357,000 and $88,000, respectively, and are included in corporate operating
costs and expenses.

Amounts due from Unconsolidated Affiliates

During 1996, the Company made payments for programming, goods and services
and incurred costs on behalf of unconsolidated affiliates which totaled
$1,066,000 and are classified as amounts due from unconsolidated affiliates in
the accompanying consolidated balance sheets. These amounts are due from TVN,
Markiza TV, and PULS, and certain of the amounts will be applied toward future
capital contributions to these entities.

Advances to Affiliates

The Company has ongoing business relations with television and radio
service providers owned by the other equity holders in the various broadcast
operations, some of which are the only service providers in their respective
field; affiliation agreements, whereby funds are advanced to license holders for
expenses to be incurred on behalf of the Company and repaid from advertising
sales from regional windows, and has agreed to provide funding as part of the
original purchase agreement to license holding companies, as well as to pay
related party companies for services rendered by the General Directors. Under
affiliate agreements at December 31, 1995, the Company and POP TV had advances
to affiliates of $543,000 and $66,000, respectively. At December 31, 1996, PRO
TV and POP TV had advances to affiliates under affiliation agreements which
total $735,000 and $354,000, respectively.

At December 31, 1995 and 1996, PRO TV had $297,000, and $692,000
respectively, of advances to affiliates for future services to be provided. At
December 31, 1996, PRO TV and POP TV had advances to affiliates related to
financing arrangements to license holders which totaled $1,399,000 and $903,000,
respectively. These amounts are to be repaid to the Company from the license
holding companies.

Loans to Affiliates

Upon the initial contribution to the broadcast operations, the Company has,
at times, financed the other equity holders' capital contributions into the
broadcast operations, entered into certain business arrangements which are
beneficial to the broadcast operation, and provided funding to the broadcast
operations through loans. During 1995, the Company had contributed $2,000,000 in

share capital to PRO TV on behalf of Adrian Sarbu, which was outstanding at
December 31, 1995 and 1996.

Also during 1995, the Company made a $1,302,000 loan to InterMedia in order
to finance InterMedia's purchase of a majority equity interest in a construction
company owning PRO TV's television broadcast station which was outstanding at
December 31, 1995 and 1996. During 1996, the Company entered into an agreement
to lend the General Director of Nova TV funds totaling $5,200,000 to finance his
purchase of interests in CET 21 in order to increase his ownership in CET 21 to
60.0% (Note 16). During 1996, the Company provided a series of loans to Markiza
TV as part of the funding to the project. At December 31, 1996, $9,224,000 in
loans were due from Markiza TV. The loans bear an interest of 6% per annum and
are due in 2001.

In 1995, the Company had a loan to Radio Alfa of Kc79,000,000 ($2,970,000).
In 1996, such loans eliminate in consolidation.

F-27

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

Advances from Affiliates

From time-to-time, the Company has received financing from its majority
shareholder, Ronald S. Lauder, and services from related party affiliates and
has incurred charges under affiliation agreements and employment agreements. In
addition, during the initial start up of a particular station, the Company may
owe amounts to the other shareholders in connection to various purchase
agreements.

Prior to 1995, $7,216,000 was advanced by R.S. Lauder, Gaspar & Co., LP to
fund the acquisition of the Nuremberg Station, certain development expenses of
PULS and corporate overhead. The total amount of this advance was repaid prior
to December 31, 1995. These amounts were non-interest bearing.

Amounts outstanding at December 31, 1995 and 1996 related to affiliates who
provide various administrative services for the Company were $271,000 and
$22,500, respectively, and are included in advances from affiliates in the
accompanying consolidated balance sheets.

Interest of $757,000, $565,000 and $68,000 was charged to income in 1994,
1995 and 1996, respectively, in relation to these loans and the Principal
Shareholder Loan (refer to Note 8). At December 31, 1995, interest of $116,000
remained unpaid and is included in Advances from Affiliates in the accompanying
consolidated balance sheet.

The Company owed $1,766,000 and $450,000 to the other equity holders in PRO
TV and POP TV at December 31, 1995 in connection with the original purchase
agreements for these entities for shares or assets purchased.

At December 31, 1995, POP TV owed $84,000 under affiliation agreements. At
December 31, 1996, PRO TV and POP TV owed $193,000 and $385,000, respectively,
under affiliation agreements.

14. SUMMARY FINANCIAL INFORMATION FOR PULS, MARKIZA TV AND FFF
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ---------------------------------
PULS FFF PULS MARKIZA TV FFF
------- ------ ------- ---------- -------
$000 $000 $000 $000 $000
------- ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Current assets............. 6,938 2,538 3,235 10,896 2,694
Non-current assets......... 15,971 3,308 12,260 28,783 2,105
Current liabilities........ (5,678) (1,410) (3,996) (6,635) (1,270)
Non-current liabilities.... (9,081) (9,526) (6,305) (9,222) (11,923)
------- ------ ------- ---------- -------
Net assets (liabilities)... 8,150 (5,090) 5,194 23,822 (8,394)
------- ------ ------- ---------- -------
------- ------ ------- ---------- -------

FOR THE YEARS ENDED
------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ---------------------------------
PULS FFF PULS MARKIZA TV FFF
------- ------ ------- ---------- -------
$000 $000 $000 $000 $000
------- ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Net revenues............... 3,371 4,410 3,248 7,462 4,736
Operating loss............. (24,387) (5,058) (18,812) (3,712) (3,585)
Net loss................... (24,204) (6,027) (18,785) (4,230) (3,823)
</TABLE>

The Company's share of the losses of PULS, Markiza TV and FFF accounted for
by the equity method were $10,279,000, $3,401,000 and $1,949,000, respectively,
for the year ended December 31,1996 (excluding $1,543,000 of goodwill
amortization in respect of PULS and license acquisition costs amortization of
$182,000 in respect of Markiza TV).

F-28

<PAGE>

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996

15. STOCK COMPENSATION CHARGE

Under the terms of the Company's contracts with its former President, the
Company issued 454,703 shares of Class A Common Stock to a trust nominated by
him. Ownership of 194,873 shares had vested by December 31, 1994. Upon the
former President's departure in August 1995, 194,872 shares remained unvested.
The Company and its former President agreed that 18,000 of these unvested shares
would vest on December 31, 1996 and the remaining 176,872 shares were forfeited
by the former President. In the year ended December 31, 1995, $858,000 was
recognized as the current expense to account for the vesting of 64,958 shares in
1995 under the original plan and for the recognition of the 18,000 unvested
shares, which no longer required additional services in order to vest. The
deferred compensation charge related to the remaining unvested shares of
$2,476,000 was recognized as treasury stock, and the treasury stock was retired
in 1996.

In addition, the Company granted 203,000 options to officers and employees
with an exercise price below market price in the year ended December 31, 1994.

The above transactions have resulted in stock compensation charges of
$5,833,000, $858,000 and $0 in the years ended December 31, 1994, 1995 and 1996,
respectively.

16. SUBSEQUENT EVENTS

1997 Nova TV Purchase

In March 1997, the Company (CME) acquired an additional 5.2% interest in
Nova TV through the retirement of a $5.2 million loan in exchange for such
interest (the '1997 Nova TV Purchase'). The Company is in the process of
registering the 1997 Nova TV purchase pursuant to Czech law. On an ongoing
basis, after giving effect to the 1997 Nova TV Purchase, the Company is entitled
to 93.2% of the total profits of Nova TV and has 91.2% of the voting power in
Nova TV.

Stock Options

Since December 31, 1996, 10,335 stock options for Class A Common Stock were
exercised at prices of $14.00--$20.00.

F-29

<PAGE>

[PHOTOS OF CME'S NEWS
OPERATIONS, SPORTS AND
OTHER LOCAL PROGRAMMING]

<PAGE>

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS FURNISHED OR THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------------
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 10
The Company...................................... 18
Use of Proceeds.................................. 23
Capitalization................................... 24
Selected Consolidated Financial
Data........................................... 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 27
Business......................................... 38
Management....................................... 58
Description of Notes............................. 60
Description of Capital Stock..................... 75
Certain Tax Considerations....................... 80
Shares Eligible for Future Sale.................. 87
Underwriting..................................... 88
Legal Matters.................................... 89
Experts.......................................... 89
Available Information............................ 89
Information Incorporated by Reference............ 90
Index to Financial Statements.................... F-1
</TABLE>

$125,000,000

[LOGO]

CENTRAL EUROPEAN

MEDIA ENTERPRISES LTD.

% CONVERTIBLE SUBORDINATED
NOTES DUE 2004

SCHRODER WERTHEIM & CO.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.

, 1997

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The Registrant's expenses in connection with the issuance of the securities
being registered, other than underwriting discounts and commissions, are
estimated as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............................. $ 43,561
NASD filing fee.................................................................. 14,875
Printing and engraving........................................................... 175,000
Counsel fees and expenses........................................................ 300,000
Accountants' fees and expenses................................................... 120,000
Trustee fees..................................................................... 10,000
Blue Sky qualification fees and expenses......................................... 10,000
Transfer agent and registrar fees and expenses................................... 5,000
Nasdaq listing fee for listing of Notes.......................................... 10,000
Miscellaneous.................................................................... 161,564
--------
Total..................................................................... $850,000
--------
--------
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Bermuda law and the Company's Memorandum of Association and bye-laws,
the directors, officers, liquidators and auditors of the Company and their
heirs, executors and administrators are indemnified and held harmless out of the
assets of the Company from and against all actions, costs, charges, losses and
expenses which they or any of them, their heirs, executors or administrators,
shall or may incur or sustain by or by reason of any act done, concurred in or
omitted in or about the execution of their duty, or supposed duty, or in their
respective offices or trusts, and none of them shall be answerable for the acts,
receipts, neglects or defaults of the others of them or for joining in any
receipts for the sake of conformity or for any loss, misfortune or damage which
may happen in the execution of their respective offices or trusts, or in
relation thereto, provided that they are not entitled to indemnification in
respect of any willful negligence, willful default, fraud or dishonesty which
may attach to them.

ITEM 16. EXHIBITS.

The following documents are filed as part of this Registration Statement.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION

- ------ ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
*1.1 -- Form of Underwriting Agreement
4.1 -- Specimen Certificate for Common Stock (incorporated by reference to Registration Statement on Form
S-1, Reg. No. 33-80344, where it appears as Exhibit 4.01)
*4.2 -- Specimen Note
*4.3 -- Form of Indenture
*5.1 -- Opinion of Conyers, Dill and Pearman
12.1 -- Calculation of Ratio of Earnings to Fixed Charges
*23.1 -- Consent of Conyers, Dill & Pearman (included in Exhibit Number 5.1)
*23.2 -- Consent of Rosenman & Colin LLP
23.3 -- Consent of Arthur Andersen & Co. (included at page II-3)
24.1 -- Power of Attorney (included on signature page at page II-4)
*25.1 -- Statement of Eligibility of Trustee
</TABLE>

- ------------------
*To be filed by amendment

II-1

<PAGE>

ITEM 17. UNDERTAKINGS

Insofar as indemnification arising under the Securities Act may be
permitted to directors, officers or persons controlling the Registrant pursuant
to the foregoing provisions described in Item 15, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered hereby, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(b) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form

of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(c) For the purpose of determining any liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.

II-2

<PAGE>

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the inclusion in
this Registration Statement of our report dated March 24, 1997, and to the
incorporation by reference in this registration statement of our reports dated
March 24, 1997, March 5, 1997, March 13, 1997, and March 4, 1996 (except for the
matters discussed in Note 3, as to which the date is March 5, 1997) included in
the Form 10-K of Central European Media Enterprises Ltd. for the year ended
December 31, 1996 and to all references to our Firm included in this
registration statement.

ARTHUR ANDERSEN & CO.

Hamilton, Bermuda
April 1, 1997

II-3

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, New York on April 2, 1997.

CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
By: /s/ LEONARD M. FERTIG
----------------------------------
Leonard M. Fertig
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each of the undersigned hereby
constitutes and appoints Leonard M. Fertig, Andrew Gaspar and John A. Schwallie,
and any of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement on Form S-3 relating
to the securities offered pursuant hereto and any and all Registration
Statements filed pursuant to Rule 462 under the Securities Act of 1933, and to
file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and such other
state and federal government commissions and agencies as may be necessary or
advisable, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------- -------------------

<C> <S> <C>
/s/ RONALD S. LAUDER Chairman of the Board of Directors April 2, 1997
- ------------------------------------------
Ronald S. Lauder

/s/ LEONARD M. FERTIG President, Chief Executive Officer and April 2, 1997
- ------------------------------------------ Director (Principal Executive Officer)
Leonard M. Fertig

/s/ JOHN A. SCHWALLIE Vice President--Finance and Chief April 2, 1997
- ------------------------------------------ Financial Officer (Principal Accounting

John A. Schwallie and Principal Financial Officer)

/s/ NICOLAS G. TROLLOPE Vice President, Secretary and Director April 2, 1997
- ------------------------------------------
Nicolas G. Trollope

/s/ ANDREW GASPAR Director and Authorized U.S. April 2, 1997
- ------------------------------------------ Representative
Andrew Gaspar

/s/ HERBERT S. SCHLOSSER Director April 2, 1997
- ------------------------------------------
Herbert S. Schlosser

/s/ ROBERT A. RAYNE Director April 2, 1997
- ------------------------------------------
Robert A. Rayne
</TABLE>

II-4

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------ ------------------------------------------------------------------------------------------------- ----
<S> <C> <C> <C>
12.1 -- Calculation of Ratio of Earnings to Fixed Charges

23.3 -- Consent of Arthur Andersen & Co. (included at page II-3)

24.1 -- Power of Attorney (included on signature page at page II-4)
</TABLE>

II-5

<PAGE>

EXHIBIT 12.1

CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
$000

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----------- ---------- -----------

Net income (loss) before provision for income taxes*...................... $(14,778) $ 4,095 $(12,526)
Add: Equity in loss of unconsolidated affiliates.......................... 13,677 14,816 17,867
Add: Fixed Charges (Interest Expense)..................................... 1,992 4,959 4,670
----------- ---------- -----------
Earnings Available for Fixed Charges...................................... 891 23,870 10,011
Fixed Charges............................................................. 1,992 4,959 4,670
----------- ---------- -----------
Ratio of earnings to fixed charges........................................ N/A 4.8:1 2.1:1
----------- ---------- -----------
----------- ---------- -----------
Deficiency of earnings available to cover fixed charges................... (1,101) N/A N/A
----------- ---------- -----------
----------- ---------- -----------
</TABLE>

- ------------------
* Excludes minority interest in income (loss) of subsidiaries.