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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER: 0-24796
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
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CLARENDON HOUSE
CHURCH STREET
HAMILTON HM CX
BERMUDA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(441) 296-1431
(REGISTRANT'S TELEPHONE NUMBER)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, $0.01 PAR VALUE
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Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for each shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock of registrant held by
non-affiliates of the registrant as of March 20, 1997 was approximately
$606,826,465.
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Number of shares of Class A Common Stock outstanding as of March 20,
1997: 16,716,478
Number of shares of Class B Common Stock outstanding as of March 20,
1997: 7,149,475
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DOCUMENTS INCORPORATED BY REFERENCE
LOCATION IN FORM 10-K IN WHICH
DOCUMENT DOCUMENT IS INCORPORATED
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Registrant's Proxy Statement Part III
for the Annual Meeting of
Shareholders to be held on May 2, 1997
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 22
Item 3. Legal Proceedings............................................... 23
Item 4. Submission of Matters to a Vote of Security Holders............. 23
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 24
Item 6. Selected Financial Data......................................... 24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 27
Item 8. Financial Statements and Supplementary Data..................... 37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 105
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 105
Item 11. Executive Compensation.......................................... 105
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 105
Item 13. Certain Relationships and Related Transactions.................. 105
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K........................................................... 106
SIGNATURES
i
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Central European Media Enterprises Ltd. ('CME') is a Bermuda corporation.
CME, together with its subsidiaries (CME and its subsidiaries are collectively
referred to as the 'Company,' and the term 'subsidiaries' includes each
corporation or partnership in which CME has a direct or indirect equity or
voting interest) owns, operates and develops private commercial television
stations in Central and Eastern Europe and regional private commercial
television stations in Germany. 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.
Unless otherwise noted, all statistical and financial information presented
in this report has been converted into United States dollars using exchange
rates as of December 31, 1996. All references to '$' or 'dollars' are to United
States dollars, all references to 'Kc' are to Czech korunas, all references to
'ROL' are to Romanian lei, all references to 'SIT' are to Slovenia tolar, all
references to 'Sk' are to Slovak korunas, all references to 'Zl' are to Polish
zloty, all references to 'Hrn' are to Ukrainian hryvna and all references to
'DM' are to German marks. The exchange rates as of December 31, 1996 used in
this report are 27.33 Kc/$; 4,035 ROL/$; 141.48 SIT/$; 31.90 Sk/$; 2.88 Zl/$;
1.89 Hrn/$ and 1.55 DM/$.
The Company owns a 93.2% economic interest in Ceska Nezavisla Televizni
Spolecnost s.r.o. ('Nova TV') in the Czech Republic, which has consistently
achieved a 65% to 70% audience share. Nova TV continues to benefit from the
growing television advertising market in the Czech Republic. Gross television
advertising expenditures grew from approximately $96 million in 1994 to $165
million in 1996, according to the Company's estimates. During 1996, Nova TV
recorded $109.2 million in net revenues and $53.1 million in broadcast cash
flow, a 48.6% broadcast cash flow margin. 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 27.0% 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 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
<PAGE>
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 has loans to, and a consulting agreement with, Radio Alfa a.s.
('Radio Alfa'), a national radio broadcaster in the Czech Republic. In October
1995, the Company relaunched Radio Alfa with a new entertainment driven program
format. Under the new format, audience share was approximately 7.5% during the
fourth quarter of 1996. Recent changes in the Czech broadcasting regulations
have allowed the Company to directly hold an equity interest in Radio Alfa. The
Company recently purchased a 62% interest in Radio Alfa, and has outstanding
loans convertible into an additional equity interest which, when combined with
its current 62% interest, would give the Company an 84% interest in Radio Alfa.
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 currently in discussions with potential investors which could
bring additional broadcasting expertise, programming and capital to the station.
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.
CORPORATE STRUCTURE
Central European Medial 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.
2
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CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CORPORATE STRUCTURE*
Central European Media Enterprises Ltd.
|
|
|
Dutch and
CME Development_____100.0%_____Netherlands_____100.0%_____CME Programming
Corporation Antilles Services Inc.
Holding
Companies
|
|
___________________________________|_______________________________________
| | | | | | | |
| | | | | | | |
100.0% 93.2%(1) 62.0%(2) 77.5%(3) | 72.0%(4) 80.0%(5) |
| | | | | | | |
| | | | | | | |
German Nova TV Radio Alfa Media Pro | Pro Plus STS |
Holding (Czech (Czech International | (POP TV) (Markiza TV) |
Companies Republic) Republic) (PRO TV/ | (Slovenia) (Slovak |
| PRO FM) | Republic) |
|_______________________ (Romania) | |
| | | ______________| |
| | | | __________________________________|
58.0% 50.0% 50.0% | | | | |
| | | | | | | |
| | | | 50.0% | 95.0%(6)(7) 33.0%(6)(8)
PULS FFF ____SFF____ | | | | |
| | | | | | | |
| | | | Studio 1+1 | Broadcast Broadcast
74.8% 33.3% 33.3% | Group | Oper. Under Oper. Under
| | | | (Ukraine) | Develop. Develop.
| | | | | 2002 Kft. TVN
Nuremberg Leipzig Dresden | | (Hungary) (Poland)
Station Station Station | | |
| |_______ |
| | |
9.5% 97.4% 49.0%
| | |
| | |
MobilRom Videovox TV Wisla
(Romania) (Hungary)
- ---------------
(1) The Company is in the process of registering its recent acquisitions of
additional interests of Nova TV under Czech law, raising its economic
interest in Nova TV from 66.0% to 93.2%.
(2) The Company has outstanding loans to Radio Alfa which are convertible into
an additional equity interest which, when combined with its current 62.0%
interest, would give the Company an 84.0% interest in Radio Alfa.
(3) The Company's partners in Romania hold options to purchase equity from the
Company which, if exercised, would reduce the Company's equity interest to
not less than 66%.
(4) The Company owns 58.0% of the equity in Pro Plus, but has an effective 72.0%
economic interest, as a result of its rights to 33.0% of the profits of MMTV
and 33.0% of the profits of Tele 59.
(5) The Company has an 80.0% economic interest and a 49.0% voting interest in
STS.
(6) The Company or its local partners have acquired television broadcast
licenses (or are applying for television broadcast licenses) and are
developing broadcast operations in these countries.
(7) 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%.
(8) TVN, the Company's Polish subsidiary, in which it has a 33.0% equity
interest has been awarded television broadcast licenses in northern Poland
and the cities of Warsaw and Lodz. TVN currently owns 49.0% of TV Wisla and
has an option which could increase TVN's equity interest in TV Wisla and has
an option which could increase TVN's equity interest in TV Wisla to
approximately 76.0%.
* All interests indicated are economic interests; equity and/or voting interests
may vary.
3
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The Company's ownership interest in Nova TV is governed by the terms of a
Memorandum of Association and Investment Agreement dated as of May 4, 1993 (the
'Nova Agreement') 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 agreed to provide
Nova TV with exclusive access to the use of the broadcast license to Nova TV.
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.
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.
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'). The Company owns 58.0% of the equity in Pro Plus, but has an
effective economic interest of 72.0%, as a result of its right to 33.0% of the
profits of MMTV and 33.0% of the profits of Tele 59 which, in turn, each have
21.0% equity interests in Pro Plus. The Company owns 10.0% of the equity of each
of Tele 59 and MMTV. Voting power and interests in profits of Pro Plus are equal
to the partners' equity interests. All major decisions concerning the affairs of
Pro Plus are made by the general meeting of partners and require a 70.0%
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.
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
4
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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% economic 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% equity interest in
Prioritet, a Ukrainian based company ('Prioritet'). Innova holds an indirect 30%
equity interest in a separate Ukrainian based company which holds the license to
broadcast programming and sell advertising on Ukranian National Channel Two
('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% 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 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% 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
5
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partners have approved capital calls aggregating DM44,075,000 ($28,435,000) and
the Company has been the only partner agreeing to fund virtually all 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 one or more 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 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 NMF Neue Medien Franken GmbH & Co.
KG (the 'Nuremberg Station' or 'NMF'), 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, 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. 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 DM 1,860,000 ($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 both Leipzig Fernsehen (the 'Leipzig Station') and Dresden Fernsehen
(the 'Dresden Station').
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 is a wholly-owned subsidiary of the Company
which provides development services to the Company. CME Programming Services,
Inc. ('CMEPS') is a wholly-owned subsidiary of the Company which 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.
6
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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.
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>
BROADCAST ECONOMIC
TELEVISION BROADCAST OPERATIONS TERRITORY REACH (1) 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 72.0%
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 which have
raised 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 66.0%.
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 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.
7
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The following table sets forth the population and number of TV households
for those countries of Central and Eastern Europe where the Company is focusing
its efforts.
<TABLE>
<CAPTION>
COUNTRY POPULATION (1) TV HOUSEHOLDS (2)
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<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
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Total........... 141,300,000 46,500,000
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</TABLE>
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(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.
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 licenses under which
the stations which constitute the POP TV network operate are regulated pursuant
to the Law on Public Media adopted in 1994 and pursuant to the Law on
Telecommunications adopted in 1988. Private
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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 people 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.
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.
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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.
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 4.0 million TV households. Nova TV generated $109
million in net advertising revenues in 1996.
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 Walt Disney, Sony Pictures,
Twentieth Century Fox, Warner Bros., Canal+ and Paramount Pictures. 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 Reuters, CNN 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.
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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.
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.
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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% interest in Radio Alfa
for a purchase price of Kc39,000,000 ($1,427,000). 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% interest,
would give the Company an 84% interest in Radio Alfa.
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 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 Sony Pictures, Warner Bros., Twentieth Century Fox, Paramount, CBS,
MCA, MGM and Granada. 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.
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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.
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. Restrictions on advertising content include that (i)
tobacco advertising is restricted but not prohibited, (ii) advertising targeted
at children or during children's programming must account for the overall
sensitivity of that age group, (iii) advertising of alcoholic beverages is
restricted but not prohibited and (iv) 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.'
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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.
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 'Legal Proceedings'.
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
14
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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.
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 people, 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 Warner Bros., Twentieth Century Fox, MCA, and BBC.
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
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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.
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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 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.
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 Warner Bros., Universal and Paramount. 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. However, the
17
<PAGE>
Company believes 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%. 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.'
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, StarTrek-Next Generation, Sudden Impact, Arthur, Batman
Returns, Rain Man and others from Warner Bros., Paramount, MGM and Mediaset.
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
18
<PAGE>
for 30% of programming in 1997 and 1998, 35% in 1999 and 40% 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.
OPERATIONS IN GERMANY: THE GERMAN STATIONS
General
The Company owns interests in four regional television stations operating
in Germany: PULS, the Nuremberg Station, the Leipzig Station and the Dresden
Station (collectively, the 'German Stations'). 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.
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 and the Leipzig and
Dresden Stations.
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.
19
<PAGE>
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 compete 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 Company.
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.
Recent Developments
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's 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 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
20
<PAGE>
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.
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.
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. Over
97% 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.
21
<PAGE>
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.
ITEM 2. 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.
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
22
<PAGE>
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.
ITEM 3. LEGAL PROCEEDINGS
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. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
23
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Class A Common Stock began trading on the Nasdaq National Market on
October 13, 1994 under the trading symbol 'CETV.' On March 20, 1997, the last
reported sales price for the Class A Common Stock was $33.25. The following
table sets forth the high and low sales prices for the Class A Common Stock for
each quarterly period during the last two fiscal years of the Company and for
the first quarter of 1997, as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
PRICE PERIOD 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 (through March 20, 1997)... 37.250 30.750
</TABLE>
At March 20, 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 to 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.
RECENT SALES OF UNREGISTERED SECURITIES
In October 1996, the Company executed a Promissory Note in favor of Ronald
S. Lauder pursuant to which Mr. Lauder agreed to make loans of up to $20.0
million to the Company (the 'Lauder Loan'). The Lauder Loan carried interest of
2.0% over LIBOR and provided Mr. Lauder with warrants exercisable for up to
100,000 shares of Class A Common Stock. The Lauder Loan was repaid in accordance
with its terms at the consummation of the offering of 5,520,000 shares of Class
A Common Stock (the '1996 Offering'). Based on the aggregate advances made by
Mr. Lauder of $14.0 million, Mr. Lauder has received warrants exercisable for
70,000 shares of the Class A Common Stock at an exercise price of $30.25 per
share, which warrants will be exercisable for 4 years commencing on October 2,
1997. The issuance of such warrants were exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof, being that such
transaction was by an issuer not involving any public offering.
ITEM 6. SELECTED FINANCIAL DATA
(Selected Financial Data begins on the following page and ends on the page
immediately preceding Item 7).
24
<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. In the opinion of the Company, such information reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such data on a basis consistent with that of the audited
data presented herein. The following selected financial information should be
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto as of December 31, 1996, 1995 and 1994, 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 --
Dutch 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 average shares outstanding.......... 14,678,000 19,373,000
------------ ------------
------------ ------------
Cash dividends declared...................... $ -- $ -- $ -- $ -- $ --
OTHER DATA:
Broadcast cash flow (1)...................... $ -- $ -- $ 12,233 $ 38,182 $ 36,942
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
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1992 1993 1994 1995 1996
----- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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 and advances from affiliates...... -- 6,178 32,592 22,972 55,702
Shareholders' equity......................... -- 3,464 62,631 138,936 249,320
</TABLE>
- ------------------
(1) '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.'
26
<PAGE>
ITEM 7. 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
operations in Romania, Slovenia and the Slovak Republic command the leading
audience share within their respective areas of broadcast reach. The Company
recently commenced operations in Ukraine and southern Poland and has 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 on 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
27
<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 1996(1) 1995 1994
- --------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Combined Operating Data:
Net revenues................................. $141,587 $ 98,919 $ 53,566
Total station operating costs and expenses... (93,409) (52,542) (36,083)
Selling, general and administrative
expenses................................... (21,192) (7,725) (6,009)
-------- -------- --------
Station operating income..................... 26,986 38,652 11,474
Depreciation of assets....................... 14,691 7,251 3,773
Amortization of programming rights........... 24,000 16,319 10,403
Cash program rights costs.................... (28,735) (24,040) (13,417)
-------- -------- --------
Broadcast cash flow.......................... 36,942 38,182 12,233
Broadcast cash flow margin................... 26.1% 38.6% 22.8%
Broadcast cash flow attributable to the
Company.................................... $ 34,447(2) $ 24,667 $ 8,074
<CAPTION>
NOVA TV
YEAR ENDED DECEMBER 31,
---------------------------------
$000s 1996 1995 1994
- --------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Operating Data:
Net revenues................................. $109,242 $ 98,305 $ 53,566
Total station operating costs and expenses... (54,578) (49,894) (36,083)
Selling, general and administrative
expenses................................... (9,247) (5,533) (6,009)
-------- -------- --------
Station operating income..................... 45,417 42,878 11,474
Depreciation of assets....................... 8,024 6,904 3,773
Amortization of programming rights........... 16,207 16,077 10,403
Cash program rights costs.................... (16,520) (21,070) (13,417)
-------- -------- --------
Broadcast cash flow.......................... 53,128 44,789 12,233
Broadcast cash flow margin................... 48.6% 45.6% 22.8%
Broadcast cash flow attributable to the
Company.................................... $ 46,753(2) $ 29,561 $ 8,074
</TABLE>
28
<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 19% to $53,128,000 from $44,789,000 in 1995;
while broadcast cash flow attributable to the Company from Nova TV would have
increased by 58%, or $17,192,000, had the Additional Nova TV Purchase (See Note
1 to the Consolidated Financial Statements) been effective from January 1, 1996,
compared to $29,561,000 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 to achieve
lower program costs. As anticipated by the Company, for 1996, Nova TV's
broadcast cash flow continued to
29
<PAGE>
be partially offset by negative broadcast cash flow of PRO TV ($5,290,000), POP
TV ($6,394,000) and Markiza TV ($4,502,000) as these stations continue to
develop operations 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 ('Zl')
and German marks ('DM'), and incur substantial operating expenses in those
currencies. The Romanian lei, Slovenian tolar, Ukranian hryvna 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>
INCOME STATEMENT
BALANCE SHEET -----------------------------
--------------------------- 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)
30
<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.
31
<PAGE>
Results of Operations
1996 compared to 1995
The Company's net revenues rose to a new high for the third consecutive
year, rising 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 $2,112,000 in 1996, respectively, and, to a lesser extent, 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 totaling
$1,300,000, from co-producers of certain game shows broadcast on Nova TV in the
fourth quarter of 1996.
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
32
<PAGE>
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 is 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.
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
33
<PAGE>
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 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.
34
<PAGE>
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 investments in PULS of DM 28,861,000
($18,620,000), FFF of DM3,000,000 ($1,935,000), SFF of DM 1,500,000 ($968,000),
Markiza TV of $29,323,000 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 DM 26,575,000 ($17,145,000) for PULS
of which DM 26,361,000 ($17,007,000) is to be funded by the Company and of which
DM 2,000,000 ($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.
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 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.
35
<PAGE>
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 million
($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 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
$7,097,000 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. Such an investment
would be expected to acquire a significant equity interest in PULS and assume
responsibility for PULS' operations. Such an investor would be anticipated to
significantly dilute the Company's equity interest in PULS and to decrease the
Company's future funding obligations to PULS. Furthermore, such 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 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 $6.1 million and $1.6 million, 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
36
<PAGE>
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 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.
The Company believes that 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 its current operations through 1997. In order to fund
the development and build out of new broadcast opportunities in Central and
Eastern Europe, the Company currently is actively exploring significant
additional financing at the CME level. If the Company is unsuccessful in raising
such additional funds, the Company may not be able to acquire additional
broadcast rights or complete the development of additional broadcast
opportunities.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Financial Statements and Supplementary data begin on the following page
and end on the page immediately preceding Item 9.)
37
<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
38
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
($000s)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
NOTE 1996 1995
-------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. 4 $ 78,507 $ 53,210
Investments in marketable securities....... 4 2,896 10,652
Restricted cash............................ 5 2,749 4,216
Accounts receivable (net of allowances of
$3,200, $1,105)......................... 37,342 32,475
Program rights costs....................... 4 12,675 9,219
Value-added tax recoverable................ 182 733
Amounts due from unconsolidated
affiliates.............................. 13 1,066 --
Advances to affiliates..................... 13 4,119 953
Other short-term assets.................... 7 850 --
Prepaid expenses........................... 5,773 5,270
-------- --------
TOTAL CURRENT ASSETS.................... 146,159 116,728
Investment in unconsolidated affiliates...... 56,599 12,433
Investments.................................. 3,600 --
Loans to affiliates.......................... 13 17,766 6,272
Property, plant & equipment (net of
depreciation of $22,317, $10,281).......... 6 58,982 51,699
Program rights costs......................... 4 14,266 10,496
Broadcast license costs and other intangibles
(net of amortization of $1,579, $1,007).... 4 3,097 2,365
License acquisition costs (net of
amortization of $854, $54)................. 4 3,923 4,723
Goodwill..................................... 4 35,338 1,510
Organization costs (net of amortization of
$950, $507)................................ 4 934 1,337
Development costs (net of allowance of $996,
$4,373).................................... 4 19,105 10,127
Deferred taxes............................... 8 868 559
Other assets................................. 7 4,493 3,778
-------- --------
TOTAL ASSETS............................ $365,130 $222,027
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
39
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
($000s)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
NOTE 1996 1995
-------- --------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................... $ 18,775 $ 12,956
Accrued liabilities........................ 17,010 9,804
Duties and other taxes payable............. 3,312 288
Income taxes payable....................... 8 9,948 15,946
Current portion of obligations under
capital leases.......................... 12 1,794 2,111
Current portion of credit facilities....... 10 7,106 2,661
Investments payable........................ 1,955 --
Advances from affiliates................... 13 606 2,687
-------- --------
TOTAL CURRENT LIABILITIES............... 60,506 46,453
Deferred income taxes........................ 8 2,142 2,317
Obligations under capital leases............. 12 7,120 8,747
Long-term portion of credit facilities....... 10 22,488 6,766
Investments payable.......................... 14,633 --
Other liabilities............................ 305 173
Minority interest in consolidated
subsidiaries............................... 4 8,616 18,635
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: 16,664,143 at December
31, 1996, and 10,294,549 shares at
December 31, 1995....................... 167 103
Class B Common Stock, $0.01 par value:
authorized: 15,000,000 shares; issued
and outstanding: 7,191,475 at December
31, 1996, and 8,078,297 shares at
December 31, 1995....................... 72 81
Additional paid-in capital................. 330,315 187,997
Class A Treasury stock of $0.01 par value:
none at December 31, 1996 and 176,872 at
December 31, 1995....................... -- (2,476)
Accumulated deficit........................ (78,004) (48,001)
Cumulative currency translation
adjustment.............................. (3,230) 1,232
-------- --------
TOTAL SHAREHOLDERS' EQUITY.............. 249,320 138,936
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................ $365,130 $222,027
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
40
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
($000s EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
NOTE 1996 1995 1994
---- -------- -------- --------
<S> <C> <C> <C> <C>
Gross revenues.......................... $170,114 $121,113 $ 64,389
Discounts and Agency Commissions........ (34,129) (22,194) (10,823)
-------- -------- --------
Net revenues............................ 4 135,985 98,919 53,566
Station Expenses:
Other operating costs and expenses.... 50,188 28,972 21,907
Amortization of programming rights.... 21,599 16,319 10,403
Depreciation of station fixed assets
and other intangibles.............. 13,314 7,251 3,773
-------- -------- --------
Total station operating costs and
expenses........................... 85,101 52,542 36,083
Selling, general and administrative
expenses........................... 21,357 7,725 6,009
Corporate Expenses:
Corporate operating costs and
development expenses............... 15,782 10,669 3,699
Stock compensation charge............. 15 -- 858 5,833
Amortization of goodwill and allowance
for development costs.............. 2,940 3,442 985
Capital registration tax.............. 8(b) 809 1,375 --
-------- -------- --------
19,531 16,344 10,517
Operating income........................ 9,996 22,308 957
Equity in loss of unconsolidated
affiliates............................ 14 (17,867) (14,816) (13,677)
Interest and other income............... 2,876 1,238 179
Interest expense........................ (4,670) (4,959) (1,992)
Foreign currency exchange (loss)/gain... 4 (2,861) 324 (245)
-------- -------- --------
Net (loss) income before provision for
income taxes.......................... (12,526) 4,095 (14,778)
Provision for income taxes.............. 8 (16,405) (16,340) (3,331)
-------- -------- --------
Net loss before minority interest....... (28,931) (12,245) (18,109)
Minority interest in loss of
consolidated subsidiaries............. (1,072) (6,491) (2,396)
-------- -------- --------
NET LOSS................................ $(30,003) $(18,736) $(20,505)
-------- -------- --------
-------- -------- --------
Per share data:......................... 4
Net loss per share...................... $ (1.55) $ (1.28)
-------- --------
-------- --------
Weighted average number of common shares
outstanding (000s).................... 19,373 14,678
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
41
<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.
42
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000s)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss..................................... $(30,003) $(18,736) $(20,505)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in loss of unconsolidated
affiliates............................... 17,867 14,816 13,677
Depreciation & amortization (excluding
amortization of barter programs)......... 33,288 23,705 14,176
Minority interest in income (loss) of
consolidated subsidiaries................ 1,072 6,491 2,396
Services contributed by shareholders....... -- -- 169
Valuation allowance for development
costs.................................... 714 3,388 985
Stock compensation charge.................. -- 858 5,833
Changes in assets & liabilities:
Accounts receivable........................ (4,881) (18,176) (12,950)
Related party receivable................... -- 115 263
Program rights paid........................ (24,072) (24,040) (13,417)
Value-added tax recoverable................ 551 (710) 1,121
Dividends paid to minority shareholders.... (3,575) (612) --
Advances to affiliates..................... (3,334) (337) --
Production costs........................... -- -- 355
Prepaid expenses........................... (415) (1,780) (673)
Other assets............................... (1,838) (3,639) (5)
Accounts payable........................... 3,931 1,180 646
Accrued liabilities........................ 7,227 6,197 2,698
Income & other taxes payable............... (3,151) 13,223 3,699
-------- -------- --------
Net cash provided by (used in) operating
activities............................. (6,619) 1,943 (1,532)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated affiliates.... (52,977) (19,220) (19,268)
Investments................................ (3,600) -- --
Investments in marketable securities....... 7,756 (2,927) (7,725)
Restricted cash............................ 1,467 (2,616) (1,072)
Acquisition of fixed assets................ (17,801) (23,196) (13,298)
Acquisition of minority shareholders'
interest................................. (5,607) -- --
Purchase of business....................... (4,895) (1,510) --
Payments for license acquisition costs..... -- (4,777) --
Payments for organization costs............ (48) (1,032) --
Payments for broadcast license costs and
other intangibles........................ (1,295) (760) (790)
Development costs.......................... (18,936) (12,325) (2,175)
-------- -------- --------
Net cash used in investing activities.... (95,936) (68,363) (44,328)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Credit facilities.......................... 3,045 (6,140) 14,398
Payments under capital leases.............. (1,636) (1,570) --
Loans to affiliates........................ (16,705) (6,272) (1,396)
Advances received from affiliates.......... -- 2,687 7,457
Loans received from affiliates............. -- -- 3,546
Repayment of advances from affiliates...... -- -- (7,216)
Repayment of advances by affiliates........ (2,081) -- (9,336)
Shareholder loans.......................... -- -- 6,500
Capital contributed by shareholders........ 144,849 86,585 73,260
Other liabilities.......................... 137 173 --
Investments by minority shareholders in
consolidated subsidiaries................ -- 2,000 --
-------- -------- --------
Net cash provided by financing
activities............................. 127,609 77,463 87,213
-------- -------- --------
IMPACT OF EXCHANGE RATE FLUCTUATIONS ON
CASH....................................... 243 165 (281)
Net increase in cash and cash
equivalents............................ 25,297 11,208 41,072
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 53,210 42,002 930
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period..... $ 78,507 $ 53,210 $ 42,002
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL INFORMATION
Cash paid for interest................... $ 4,590 $ 4,942 $ 1,891
-------- -------- --------
-------- -------- --------
Income taxes............................. $ 22,048 $ 2,922 $ --
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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
Kc 37,500,000 ($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.
44
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND BUSINESS--(CONTINUED)
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 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 pro forma effects of the Additional Nova TV Purchase, as if this
transaction occurred at the beginning of 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net revenues ($000).... $135,985 $98,919
Net loss ($000)........ (33,110) (21,260)
Net loss per share..... (1.71) (1.45)
</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.
45
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
3. FINANCING OF OPERATING AND CAPITAL NEEDS
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.
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 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.
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.
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.
46
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
3. FINANCING OF OPERATING AND CAPITAL NEEDS--(CONTINUED)
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.
47
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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
$6,354,000, $3,647,000 and $2,841,000 have been recognized for the years ended
December 31, 1996, 1995 and 1994, 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, 1996 and 1995, barter
48
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
receivables were $361,000 and $587,000, 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
$70,584,000 in 1996 and $44,896,000 in 1995 are shown net of amortization of
$43,643,000 and $25,181,000 at December 31, 1996 and 1995, respectively.
Payments made for program rights in which the license period has not begun
before year end are classified as prepaid expenses and are $2,854,000 and
$2,688,000 at December 31, 1996 and 1995, 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.
49
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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, 1996 and 1995, $4,777,000 and $4,777,000, respectively, has been capitalized
and $854,000 and $54,000, 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, 1996 and 1995,
$1,756,000 and $1,804,000, respectively, has been capitalized in the
accompanying consolidated financial statements related to the Company's 12 year
broadcast license in the Czech Republic, and $534,000 and $392,000 has been
amortized through December 31, 1996 and 1995, 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, 1996 and 1995, $2,920,000 and $1,568,000, respectively,
has been capitalized, and $1,045,000 and $615,000, respectively, has been
amortized.
Organization Costs
The Company has capitalized $1,884,000 and $1,844,000 in costs incurred in
connection with the organization and incorporation of consolidated subsidiaries
at December 31, 1996 and 1995, respectively, which will be amortized over four
years. Amortization of $950,000 and $507,000 has been provided through December
31, 1996 and 1995, 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,
1996 and 1995, the Company had incurred capitalizable costs of $20,101,000 and
$14,500,000, respectively, which have been reduced by an allowance of $996,000
and $4,373,000, respectively. As a result of its review, management has
determined that such assets are fairly stated at December 31, 1996 and 1995.
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
50
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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,
1996 and 1995, 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.
51
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Year end exchange rates and average exchange rates for the respective
periods are as follows:
<TABLE>
<CAPTION>
INCOME STATEMENT
BALANCE SHEET -----------------------------
--------------------------- 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>
- ------------------
(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, 1996 or 1995
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 year ended December 31, 1996 and 1995.
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
52
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
Reclassifications
Certain reclassifications were made to prior period amounts to conform to
current period classifications.
53
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
5. RESTRICTED CASH
Restricted cash at December 31, 1996 and 1995 is $2,749,000 and $4,216,000,
respectively. Restricted cash at December 31, 1996 consists of (1) $1,600,000 of
cash restricted in connection with DM 2,000,000 letter of credit issued on
behalf of FFF ('FFF Letter of Credit') in relation to leasing commitments in
that entity and (2) $1,149,000 held by the Romanian customs authority for
imports into Romania. Restricted cash at December 31, 1995 consists of (1)
$1,600,000 of cash restricted in connection with the FFF Letter of Credit, (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.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL ------------------
LIVES 1996 1995
------ ------- -------
YEARS $000 $000
<S> <C> <C> <C>
Land and buildings held under capital
leases..................................... 25 19,803 17,899
Leasehold improvements....................... 4-15 3,894 3,873
Station machinery, fixtures and equipment.... 4-8 52,605 37,893
Other equipment.............................. 4-8 3,754 --
Construction in progress..................... -- 1,243 2,315
------- -------
81,299 61,980
Less--Accumulated depreciation............... (22,317) (10,281)
------- -------
58,982 51,699
------- -------
------- -------
</TABLE>
7. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
----- -----
$000 $000
<S> <C> <C>
Current:
Satellite transponder...................... 850 --
----- -----
----- -----
Long-term:
Advances for technical equipment........... 3,970 2,591
Satellite transponder...................... -- 850
Other...................................... 523 337
----- -----
4,493 3,778
----- -----
----- -----
</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.
54
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
8. INCOME AND CAPITAL TAXES PAYABLE
(a) Provision for income taxes relates primarily to the profits of Nova TV.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995 1994
------ ------ -----
$000 $000 $000
<S> <C> <C> <C>
Current income taxes......................... 16,826 15,473 2,428
Deferred income taxes........................ (421) 867 903
------ ------ -----
16,405 16,340 3,331
------ ------ -----
------ ------ -----
</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 39%, 41% and 42% for the
years ended December 31, 1996, 1995 and 1994, 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.
Deferred income tax assets relate to the following timing differences:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------ ------
$000 $000
<S> <C> <C>
Provisions against receivables............... 1,045 891
Accelerated amortization of programming
licenses................................... 856 529
Other........................................ 12 30
------ ------
1,913 1,450
Valuation allowance on deferred tax asset.... (1,045) (891)
------ ------
868 559
------ ------
------ ------
</TABLE>
A full valuation allowance is provided for provisions against receivables
in 1996 and 1995 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,
----------------
1996 1995
------ ------
$000 $000
<S> <C> <C>
Depreciation and amortization................ 1,491 1,503
Lease payments............................... 382 595
Other........................................ 269 219
------ ------
2,142 2,317
------ ------
------ ------
</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
55
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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
1996 and 1995, as it is not dependent upon the level of income, in the amount of
$809,000 and $1,375,000, 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 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.
56
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
10. LOAN AND OVERDRAFT OBLIGATIONS
Group loan obligations and overdraft facilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------ ------
$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) 6,586 8,877
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 --
------ ------
29,594 9,427
Less current maturities...................... (7,106) (2,661)
------ ------
22,488 6,766
------ ------
------ ------
</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.
(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
57
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
10. LOAN AND OVERDRAFT OBLIGATIONS--(CONTINUED)
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>
58
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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, 1996 and 1995 and changes during the years is presented in the table and
narrative below:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------- -----------------------------------------
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......... 1,049,600 13.81 0.20-20.00 354,500 6.10 0.20-14.00
Granted........ 636,800 21.51 20.75-21.75 756,600 16.44 14.00-20.00
Exercised...... (139,644) 8.78 0.20-14.63 (55,000) 0.20 0.20
Forfeited...... (12,653) 20.00 20.00 (6,500) 14.63 14.63
--------- ------ --------- ------
Outstanding at
end of year.. 1,534,103 17.41 0.20-21.75 1,049,600 13.81 0.20-20.00
--------- ------ --------- ------
--------- ------ --------- ------
</TABLE>
At December 31, 1996 and 1995, 528,356 and 122,250 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
59
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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,
--------------------
1996 1995
-------- --------
<S> <C> <C> <C>
Net Loss ($000)................. As Reported (30,003) (18,736)
Pro Forma (34,468) (20,197)
Net Loss Per Common Share ($)... As Reported (1.55) (1.28)
Pro Forma (1.78) (1.38)
</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.
60
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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%. 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%
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% by the Company and 5% 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 DM 77,661,000
($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.
61
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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 DM 860,000 ($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 DM
1,900,000 ($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 DM 2,500,000 ($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.
Slovak Republic
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% of the
equity in TVN and the Company holds the remaining 33%. During 1996, TVN
exercised an option to acquire a 49% 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. These amounts are classified as investments in Unconsolidated
Affiliates at December 31, 1996. At December 31, 1995, the Company's investment
in Poland was classified as development costs.
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.
62
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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% 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.
63
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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 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 $43,876,000 and
$13,179,000 in respect of future programming which includes contracts signed
with license periods starting after December 31, 1996 and 1995, 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 $000s
- ---------------------------------------- -------
<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, 1996, 1995 and 1994, the Company
paid aggregate rent on all facilities of $1,776,000, $340,000 and $2,430,000,
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.
64
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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, 1996, 1995 and 1994, were $88,000,
$357,000 and $733,000, 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, 1996 and 1995, PRO TV had $692,000 and $297,000,
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, 1996 and 1995.
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, 1996 and 1995. 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.
65
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
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, 1996 and 1995 related to affiliates who
provide various administrative services for the Company were $22,500 and
$271,000, respectively, and are included in advances from affiliates in the
accompanying consolidated balance sheets.
Interest of $68,000, $565,000 and $757,000 was charged to income in 1996,
1995 and 1994, 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, 1996, PRO TV and POP TV owed $193,000 and $385,000,
respectively, under affiliation agreements. At December 31, 1995, POP TV owed
$84,000 under affiliation agreements.
66
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
14. SUMMARY FINANCIAL INFORMATION FOR PULS, MARKIZA TV AND FFF
<TABLE>
<CAPTION>
AS AT
-------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------- -----------------
PULS MARKIZA TV FFF PULS FFF
------- ---------- ------- ------- ------
$000 $000 $000 $000 $000
------- ---------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Current assets............. 3,235 10,896 2,694 6,938 2,538
Non-current assets......... 12,260 28,783 2,105 15,971 3,308
Current liabilities........ (3,996) (6,635) (1,270) (5,678) (1,410)
Non-current liabilities.... (6,305) (9,222) (11,923) (9,081) (9,526)
------- ---------- ------- ------- ------
Net assets (liabilities)... 5,194 23,822 (8,394) 8,150 (5,090)
------- ---------- ------- ------- ------
------- ---------- ------- ------- ------
<CAPTION>
FOR THE YEARS ENDED
-------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------- -----------------
PULS MARKIZA TV FFF PULS FFF
------- ---------- ------- ------- ------
$000 $000 $000 $000 $000
------- ---------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net revenues............... 3,248 7,462 4,736 3,371 4,410
Operating loss............. (18,812) (3,712) (3,585) (24,387) (5,058)
Net loss................... (18,785) (4,230) (3,823) (24,204) (6,027)
</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.
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 $0,
$858,000 and $5,833,000 and in the years ended December 31, 1996, 1995 and 1994,
respectively.
16. SUBSEQUENT EVENTS
1997 Nova TV Purchase
In March 1997, the Company (CME) acquired an additional 5.2% interest in
Nova TV as a result of 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
67
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
16. SUBSEQUENT EVENTS--(CONTINUED)
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.
68
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To IA TV Beteiligungsgesellschaft mbH & Co. Betriebs-KG:
We have audited the accompanying balance sheet of IA TV Beteiligungsgesellschaft
mbH & Co. Betriebs-KG (a Limited Partnership organized under German law) as of
December 31, 1995 and 1996, and the related statements of operations, partners'
capital and cash flows for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of 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 IA TV Beteiligungsgesellschaft
mbH & Co. Betriebs-KG as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with United
States generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As described in Note 3 to the
financial statements, the Partnership has incurred significant operating losses
during the years 1994 through 1996, and is dependent upon additional capital to
fund its operations. These factors raise substantial doubt about the
Partnership's ability to continue as a going concern. The financial statements
do not include any adjustments relating to the recoverability or classification
of asset carrying amounts or the amount and classification of liabilities that
might result should the Partnership be unable to continue as a going concern.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
March 5, 1997
Berlin, Germany
69
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT
MBH & CO. BETRIEBS-KG
BALANCE SHEET AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... 1,721 3,015
Accounts receivable............................. 1,018 662
Program rights costs............................ 37 441
Value-added tax receivables..................... 287 534
Other receivables (Note 5)...................... 1,724 2,727
Prepaid expenses................................ 116 43
Contribution receivable......................... 112 2,500
------------ ------------
Total current assets......................... 5,015 9,922
------------ ------------
PROPERTY, PLANT & EQUIPMENT, including equipment
held under lease, net (Note 6).................. 16,653 20,280
------------ ------------
BROADCAST LICENSE COSTS, net...................... 44 55
------------ ------------
OTHER INTANGIBLE ASSETS, net (Note 7)............. 2,306 2,504
------------ ------------
Total assets................................. 24,018 32,761
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note
8)........................................... 5,603 7,337
Duties and other taxes payable.................. 457 364
Related party payables.......................... 132 419
------------ ------------
Total current liabilities.................... 6,192 8,120
------------ ------------
NON CURRENT LIABILITIES:
Capital lease obligation........................ 4,117 6,125
Deferred income (Note 9)........................ 5,657 6,861
------------ ------------
Total non current liabilities................ 9,774 12,986
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
PARTNERS' CAPITAL:
Contributed Capital............................. 135,575 111,000
Accumulated deficit............................. (127,523) (99,345)
------------ ------------
Total Partners' capital...................... 8,052 11,655
------------ ------------
Total liabilities and partners' capital...... 24,018 32,761
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
70
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
TDM TDM
------- -------
<S> <C> <C>
REVENUES:
Advertising.......................................... 4,872 4,847
------- -------
STATION EXPENSES:
Amortization of programming rights................... (652) (4,375)
Depreciation of station equipment.................... (4,056) (3,846)
Other operating costs and expenses................... (7,544) (13,321)
Selling, general and administrative expenses......... (20,838) (18,374)
------- -------
Operating loss.................................... (28,218) (35,069)
------- -------
INTEREST AND OTHER INCOME.............................. 581 1,115
INTEREST EXPENSE....................................... (541) (851)
------- -------
40 264
------- -------
Net loss.......................................... (28,178) (34,805)
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of this statement.
71
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Partners' capital, brought forward................ 11,655 8,960
Capital contributions during the year............. 24,575 37,500
Net loss for the year............................. (28,178) (34,805)
------------ ------------
Partners' capital, carried forward................ 8,052 11,655
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
72
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
TDM TDM
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)................................................ (28,178) (34,805)
Adjustments to reconcile net (loss) to net cash used in
operating activities:
Depreciation and amortization.......................... 4,708 8,222
Increase in assets and liabilities:
Accounts receivable.................................. (356) 193
Prepaid expenses..................................... (73) (21)
Accounts payable and accrued liabilities............. (1,734) 1,360
Program and film rights.............................. (248) (3,368)
Related party liabilities............................ (287) (158)
Value-added tax receivables.......................... 247 464
Other receivables.................................... 1,003 1,392
Other payables....................................... 93 (1,145)
-------- --------
Net cash used in operating activities.................. (24,825) (27,866)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditure....................................... (1,637) (1,295)
Additions to other intangible assets...................... (240) (2,516)
Disposals................................................. 157 1,039
Deferred income--investment grants and allowances......... 296 1,030
-------- --------
Net cash used in investing activities..................... (1,424) (1,742)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft............................................ 0 (864)
Partners' capital contributions, net...................... 26,963 35,000
Capital lease payments.................................... (2,008) (1,857)
-------- --------
Net cash provided by financing activities................. 24,955 32,279
-------- --------
Net decrease/increase in cash and cash equivalents.......... (1,294) 2,671
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 3,015 344
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... 1,721 3,015
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
73
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND BUSINESS
IA TV Beteiligungsgesellschaft mbH & Co. Betriebs-KG, Berlin ('IA
Fernsehen' or 'the Partnership'), set up under German law as a Limited
Partnership, was established in 1993.
The management of the Partnership is carried out by IA TV
Beteiligungsgesellschaft mbH, Berlin ('IA TV'), the sole general partner of IA
Fernsehen. According to the Partnership agreement the general partner is not
required to contribute any capital nor does he participate in Partnership
profits or losses. IA TV has a supervisory board which monitors the activities
of management.
IA Fernsehen principally broadcasts television programs in the
Berlin/Brandenburg area of Germany. Until the third quarter of 1995 this
included the purchase and airing of acquired program rights for films and
series. The Partnership limited the acquisition of such rights and has since
been pondering more strongly on the broadcasting of self produced news and
entertainment features with regional content. In May 1996 the station was
relaunched and is since then broadcasting under the name of 'Puls Tv'.
The Partnership was awarded the first private regional television license
in Germany on August 4, 1993 from the Media Authority of Berlin-Brandenburg. The
license is limited to a period of 7 years commencing from the date of
broadcasting which was November 28, 1993. The license granted to the Partnership
is, under the terms of the license, renewable. However, no statutory or
regulatory presumption exists for the current license holder, and there can be
no assurance that the Partnership will receive a renewal upon expiration of the
initial term of the license.
2. FINANCING OF OPERATING AND CAPITAL NEEDS
Under the provisions of the Partnership Agreement the limited Partners were
required to contribute fixed capital of DM 10 mio. and variable capital of DM 90
mio. The total amount of fixed and variable capital of DM 100 mio. was called up
as of June 30, 1995.
According to the bylaws of the Partnership Agreement the partners may
decide with a majority of 75 % of votes cast to call variable capital amounts
exceeding DM 90 mio. The obligation and the right to contribute in such a case
shall exist only for those limited partners who have voted in favour of a
corresponding resolution or who give notice in writing to the General Partner
within one month following such resolution that they will participate in the
increase. The contributions shall be made in proportion to the share in fixed
capital of the limited partners participating in the increase.
In response to the capital needs of the Partnership the partners have
resolved the following capital calls in 1996 that were mainly supported by one
major partner:
<TABLE>
<CAPTION>
TDM
------
<S> <C>
March 26, 1996........ 10,000
June 19, 1996......... 2,500
August 6, 1996........ 2,500
August 28, 1996....... 2,000
September 17, 1996.... 2,500
September 17, 1996.... 575
November 12, 1996..... 4,500
------
24,575
------
------
</TABLE>
74
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
3. GOING CONCERN
Since its inception the Partnership has incurred losses of DM 127.5 mio.
The initially agreed fixed and variable capital of DM 100 mio. as well as
additional capital of DM 35.5 mio. was nearly used until year-end 1996. Until
December 31, 1997, losses are projected to reach DM 15 mio. to DM 20 mio. Due to
the amortization of liabilities and capital expenditures the necessary funding
for 1997 is beyond DM 15 mio. as well and therefore exceeds the cash presently
available and resolved capital calls.
To maintain the operation as a going concern until year-end 1997 further
capital calls and funding are necessary. Presently the Partnership is unable to
fulfil its financial commitments. On September 4, 1996, the Partnership engaged
an investment bank to seek a strategic investor who may acquire a share in the
Partnership. Meanwhile the Partnership is provided with Partner's capital on a
day to day basis.
The factors described in the preceding paragraph raise substantial doubt
about the Partnership's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability or
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Partnership be unable to continue as a
going concern.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Program and Film Rights
The book value of film licences reduced from TDM 441 as of December 31,
1995 to TDM 37 as of December 31, 1996. Since the change of the program
structure in 1995 the Partnership limited the purchase of film rights. In 1996
the Partnership changed its accounting policy for program and film rights from
capitalization and amortization based upon the actual airing to directly
expensing the costs for program rights.
Production Costs
Production costs for self-produced programs are recorded as operating
costs.
Property, Plant and Equipment and Intangible Assets
Fixed and intangible assets are carried at cost and are depreciated on a
straight line basis using the shorter of estimated useful lives, the underlying
lease period or the term of the television license period.
Replacements, renewals and improvements are capitalized. Maintenance and
repairs are charged to expense as incurred.
Investment grants and allowances that subsidize the assets of IA Fernsehen
are recorded as deferred income and disclosed among other liabilities.
Accordingly the assets are reported at their acquisition value net of
amortization. The amortization of deferred investment grants and allowances
relate to the underlying estimated useful lives of fixed assets acquired and are
netted with the amortization of such assets.
Income Taxes
Income taxes have not been recorded in the accompanying financial
statements as they are the obligation of the partners. Municipal trade tax on
income is payable by the Partnership. No such tax is due for the period ending
December 31, 1996 due to losses incurred by the Partnership in this period.
75
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash and cash equivalents
Cash and cash equivalents include cash in banks and cash on hand.
Revenue Recognition
Revenues result from the sale of advertising time. Advertising revenue is
recognized at the time the commercials are broadcast.
Barter Transactions
Revenue from barter transactions (television advertising provided in
exchange for goods and services) is recognized as income when advertisements are
broadcast, and merchandise or services received are charged to expense (or
capitalized as appropriate) when received or used.
Receivables and payables arising from barter transactions are offset when
the services have been rendered to the customer and from the vendor.
Barter transactions in 1996 of TDM 944 are included in advertising revenues
and the related expenditures of TDM 917 are included in direct operating costs.
5. OTHER RECEIVABLES
Other receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Receivable from Deutsche Leasing AG (see Note
10)............................................. 1,497 1,610
Investment subsidies receivable................... 20 1,075
Other receivables................................. 207 42
------------ ------------
1,724 2,727
------------ ------------
------------ ------------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Fixtures and fittings............................. 12,094 12,043
Station machinery and office equipment............ 19,219 17,875
-- thereof relating to assets held under lease:
TDM 15,144 (1995: TDM 15,144)
------------ ------------
31,313 29,918
Less-Accumulated depreciation..................... (14,660) (9,638)
------------ ------------
16,653 20,280
------------ ------------
------------ ------------
</TABLE>
76
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
7. OTHER INTANGIBLE ASSETS
Other intangible assets, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Studio equipment software held under lease........ 2,586 2,500
Financial systems software........................ 578 425
------------ ------------
3,164 2,925
Less--Accumulated depreciation.................... (858) (421)
------------ ------------
2,306 2,504
------------ ------------
------------ ------------
</TABLE>
The studio equipment software represents a traffic system leased from
Enterprise Air-Time Systems Limited, Thames Ditton, U.K.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Accounts payable, trade........................... 4,169 6,152
Vacation accrual.................................. 354 354
Ancillary rental cost............................. 339 245
Consulting fees................................... 241 --
Compensation...................................... 117 214
Contract risks.................................... 70 120
Miscellaneous accruals............................ 313 252
------------ ------------
5,603 7,337
------------ ------------
------------ ------------
</TABLE>
Trade payables include an unsettled liability of TDM 1,980 relating to the
operating lease contract with Enterprise Air-Time Systems Limited, Thames
Ditton, U.K., for the new traffic system.
9. DEFERRED INCOME
On October 5, 1993 the Partnership was awarded a first federal and state
funded grant amounting to 23% of capital investment of up to DM 50 mio. between
1993 and 1996. Total investments relating to the underlying budget for this
investment grant amounted to DM 37.1 mio. as of August 1996 with the Partnership
having received investment grants of TDM 8,544. As all budgeted investments were
finalized by that time the approval for investment grants was adjusted from
initially TDM 11,287 to TDM 8,544.
On August 26, 1996 the Partnership was awarded a second federal and state
funded grant amounting to 25% of capital investments of up to DM 13 Mio. between
1996 and 1999. As of December 31, 1996 the Partnership has received investment
grants of TDM 349 relating to this second investment grant approval.
The Partnership is required to retain the underlying assets acquired, upon
which these grants were received, in its business and region for a period of at
least 3 years. Furthermore 130 employment positions are guaranteed to be
maintained for a period of five years beginning with the first airing in
77
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
9. DEFERRED INCOME--(CONTINUED)
November 1993. The second investment grant increases the number of guaranteed
labour from 130 to 150 for a period of five years beginning with the completion
of the budgeted investments. A failure to meet these two conditions could result
in the Partnership having to repay some or all of the grants received.
In addition the Partnership has the right, as governed by German tax law,
to receive tax free investment subsidies of 5% respectively of 8% of the cost of
acquired moveable fixed assets. The allowance is granted subject to the acquired
fixed assets remaining in the business for a period of at least 3 years.
Deferred investment grants and tax free subsidies are amortized according
to the underlying estimated useful lives of fixed assets acquired.
The total amount of grants and tax free subsidies received by the
Partnership and recorded in the accompanying balance sheet as deferred income is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Investment grants and subsidies................... 10,308 10,012
Less--Amortization to December 31................. (4,651) (3,151)
------------ ------------
5,657 6,861
------------ ------------
------------ ------------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
Commitments under capital leases
The Partnership signed a contract with an investment bank, the Deutsche
Leasing AG, Berlin (Deutsche Leasing), to finance a part of its investments in
studio equipment. The total lease financing of DM 10 mio. represented two thirds
of the originally planned volume of investments in studio equipment of DM 15
mio. It was agreed that Deutsche Leasing retains a guarantee of DM 1 mio. at an
interest rate payable to IA Fernsehen of 5.35% p.a. The loan of DM 10 mio. is
financed at an annual interest rate of 6.9%. The loan has to be repaid to
Deutsche Leasing by October 1998 with monthly installments of TDM 201.
Deutsche Leasing is entitled to demand immediate repayment of the loan
amount outstanding if IA Fernsehen fails to meet the terms of the loan
agreement. The corresponding liability to the fixed assets held under finance
lease is the DM 4.1 mio. payable to Deutsche Leasing as of December 31, 1996.
Additionally, IA Fernsehen records a receivable from Deutsche Leasing of DM 1.5
mio. representing the guarantee (DM 1 mio.) and the unused finance volume (DM
0.5 mio.). The future obligations under the capital leases are as follows:
<TABLE>
<CAPTION>
INTEREST AMORTIZATION TOTAL
TDM TDM TDM
-------- ------------ -----
<S> <C> <C> <C>
1997.... 239 2,172 2,411
1998.... 64 1,945 2,009
-------- ------------ -----
303 4,117 4,420
-------- ------------ -----
-------- ------------ -----
</TABLE>
78
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Commitments under operating leases
--TV station headquarters
The Partnership entered into an operating lease for the television station
headquarters adjacent to the Television tower at the Alexanderplatz in Berlin on
May 14, 1993. The lease term commenced on May 1, 1993 and expires on December
31, 1999. The lease provides for a renewal option. For the period ended December
31, 1996, the Partnership paid rent and operating expenses amounting to DM 1.8
mio. Under the agreement the monthly rent amounts to DM 105,000 until April 30,
1998. Thereafter it increases to DM 197,500 per month. In addition the
Partnership is obliged to pay certain taxes, insurance costs and operating
expenses, as provided in the lease agreement.
According to the lease contract the Partnership is liable for possible
third party claims arising from restitution filings on the premises leased. The
Partnership as tenant cannot obtain valid evidence from the BVS ('Bundesanstalt
fur vereinigungs-bedingte Sonderaufgaben'--the former privatization agency
of the German Government) regarding any pending restitution claims. Should the
Partnership be forced to terminate its rental agreement prior to December 31,
1999, the lessor has agreed to negotiate the amount of capital expenditures
incurred to be reimbursed. The management will cooperate with the lessor in
order to obtain information on possible restitution claims.
According to the lease contract the Partnership is liable to guarantee the
pedestrians' safety on all passageways around the rented building. The
Partnership has taken steps to provide for such safety. Furthermore the
Partnership has to carry out maintenance work relating to the building at its
own cost. This obligation may result in additional costs which have not been
evaluated and correspondingly not been accrued for.
The Company has minimum future obligations under the operating lease
relating to the TV station headquarters as follows:
<TABLE>
<CAPTION>
TDM
-----
<S> <C>
1997.... 1,620
1998.... 2,360
1999.... 2,730
</TABLE>
--Traffic system
On May 24, 1995, the Partnership entered into a lease agreement for a
traffic system with the Enterprise Air-Time Systems Limited, Thames Ditton, U.K.
The lease term commenced on May 24, 1995, and expires on May 24, 2005. The
agreement may be terminated by written notice if a party e.g. ceases to carry on
its business. The traffic system was capitalized at TDM 2,568 and
correspondingly accrued for under trade liabilities. Amortization of TDM 266 for
1996 was expensed. The future payments represent the repayment of the liability
and will annually be increased with reference to the
79
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
development of the Electrical and Electronical Engineering Index. The future
obligations under the terms of this operating lease are as follows:
<TABLE>
<CAPTION>
TDM
-----
<S> <C>
1997.......... 248
1998.......... 248
1999.......... 248
2000.......... 248
thereafter.... 1,236
</TABLE>
Government Regulation
Broadcast operations in Germany are subject to extensive Government
regulation. Television in Germany is regulated by the Media Authority of each
region, and the Media Authority Berlin-Brandenburg ('MABB') is responsible for
the activities of the Partnership. Regulations govern the issuance, renewal,
transfer and ownership of station licenses, as well as the timing and content of
programming and the timing, content and amount of commercial advertising
permitted. There are also regulations requiring that certain percentages of
programming are being produced or originated in local markets. The ownership of
a private TV station is closely monitored to avoid a single shareholder being
able to exercise a dominant influence on the business and program of a TV
station.
The Partnership communicated in writing the changes effected and intended
regarding the Partners' capital, the Partners' voting rights and the program
structure to MABB and obtained assurance to comply with the rules of the TV
license.
Employment Agreements
The managing directors of the Partnership are employed at the general
partner. In 1996 the following persons have been managing directors:
<TABLE>
<CAPTION>
APPOINTMENT PER DISMISSAL PER PARTNERS'
PARTNERS' RESOLUTION RESOLUTION
-------------------- -----------------------
<S> <C> <C>
Dr. Dietmar Straube.... September 19, 1995 September 30, 1996
Stefan Ziegenhagen..... March 26, 1996
</TABLE>
In accordance with para 4.1 of the General Partner's Agreement IA TV
Beteiligungs--gesellschaft mbH shall have at least two managing directors. The
Partnership is aware of this deficiency and will take corrective action. None of
the resolutions or changes of 1995 and 1996 have been inscribed in the
commercial register.
In 1996 an average of 148 employees and 103 freelancers worked for the
Partnership. Generally employment agreements may be terminated by either party
within 1 to 2 months upon prior written notice.
Litigation
Various competitors of IA Fernsehen have taken legal action against the
Media Authority Berlin-Brandenburg to overturn its decision in awarding the
Partnership the broadcast license for IA Fernsehen. The Partnership and legal
counsel believe that its broadcast license for IA Fernsehen is in
80
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
no danger. The Media Authority has informed the Partnership that these legal
actions have no realistic chance of success.
The Company is from time to time involved in litigation incidental to the
conduct of its business. Management and its counsel believe such pending
litigation will not have a material adverse effect on the company's financial
condition.
81
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Slovenska televizna spolocnost, s.r.o.
We have audited the accompanying balance sheets of Slovenska televizna
spolocnost, s.r.o. as of December 31, 1996 and 1995, and the related statements
of income and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Slovenska televizna spolocnost,
s.r.o. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with United States
generally accepted accounting principles.
ARTHUR ANDERSEN
Bratislava, Slovak Republic
13 March 1997
82
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... 15,257 30,756
Accounts receivable (net of allowances of 3,387
TSK)......................................... -- 169,979
Program rights costs, net (Note 3).............. -- 5,155
Amounts due from shareholders................... -- 6
Other assets (Note 4)........................... 52,214 141,681
------------ ------------
Total current assets......................... 67,471 347,577
------------ ------------
INVESTMENT (Note 5)............................... -- 100
PROPERTY, PLANT & EQUIPMENT (net of depreciation
of 299 SK and 39,843 SK) (Note 6)............... 36,248 682,480
PROGRAM RIGHTS COST, net (Note 3)................. -- 166,618
INTANGIBLE ASSETS (net of amortisation of 27 SK,
1,324 SK) (Note 7).............................. 198 13,782
PRE OPERATIONAL COSTS (net of amortisation of nil,
5,016 SK) (Note 3).............................. 5,459 55,185
------------ ------------
Total assets................................. 109,376 1,265,742
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ 4,910 158,537
Accrued Liabilities (Note 8).................... 1,005 24,233
Duties and other taxes payable.................. 167 17,162
Amounts due to Shareholders (Note 9)............ -- 10,521
Amounts due to related parties (Note 10)........ -- 1,192
------------ ------------
Total current liabilities.................... 6,082 211,645
------------ ------------
NON CURRENT LIABILITIES:
Shareholder loan (Note 9)....................... -- 294,192
------------ ------------
Total non current liabilities................ -- 294,192
------------ ------------
SHAREHOLDERS' EQUITY: (Note 13)
Capital stock................................... 100 100
Other contributed capital....................... 105,446 893,768
Accumulated deficit............................. (2,252) (133,963)
------------ ------------
Total shareholders' equity................... 103,294 759,905
------------ ------------
Total liabilities and shareholders' equity... 109,376 1,265,742
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
83
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
INCOME STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
<TABLE>
<CAPTION>
1995 1996
------ --------
<S> <C> <C>
REVENUES:
Advertising............................................... -- 227,026
Other..................................................... 1 5,334
------ --------
1 232,360
------ --------
------ --------
STATION EXPENSES:
Depreciation of station equipment......................... (299) (39,544)
Amortisation of programming rights........................ -- (74,769)
Amortisation of intangibles and pre-operational costs..... (27) (6,313)
Other operating costs and expenses........................ (1,908) (177,374)
Selling, general and administrative expenses.............. -- (49,966)
------ --------
Operating loss.............................................. (2,233) (115,606)
------ --------
------ --------
INTEREST AND OTHER INCOME (NOTE 14)......................... 4 7,750
INTEREST EXPENSE (NOTE 15).................................. (23) (23,855)
------ --------
Net loss.................................................... (2,252) (131,711)
------ --------
------ --------
</TABLE>
The accompanying notes are an integral part of these income statements.
84
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. (2,252) (131,711)
Depreciation and amortization............................. 326 45,857
Depreciation of program rights............................ -- 74,769
Provision for bad debts................................... -- 3,387
-------- ----------
Operating profit before changes in operating assets....... (1,926) (7,698)
(Increase) decrease in operating assets:
Accounts receivable.................................... -- (173,366)
Other assets........................................... (52,214) (84,037)
Increase (decrease) in operating liabilities:
Accounts payable....................................... 4,910 153,627
Accrued liabilities.................................... 1,005 23,228
Duties and other taxes payable......................... 167 16,995
Amounts due to shareholders............................ -- 10,521
Amounts due to related parties......................... -- 1,192
-------- ----------
Net cash (used)/ from operating activities............. (48,058) (59,538)
-------- ----------
-------- ----------
Cash flows from investing activities:
Investments in program rights............................. -- (251,978)
Investments............................................... -- (100)
Net purchase of property, plant & equipment............... (36,547) (685,776)
Net purchase of intangible assets......................... (225) (14,881)
Pre-operational cost capitalised.......................... (5,459) (54,742)
-------- ----------
Net cash (used)/ from investing activities.................. (42,231) (1,007,477)
-------- ----------
-------- ----------
Cash flows from financing activities:
Increase in shareholder loan.............................. -- 294,192
Capital increase.......................................... 100 --
Increase in other contributed capital..................... 105,446 788,322
-------- ----------
Net cash(used)/ from financing activities................... 105,546 1,082,514
-------- ----------
-------- ----------
Net increase in cash and cash equivalents................... 15,257 15,499
-------- ----------
-------- ----------
Cash and cash equivalents at the beginning of the year.... -- 15,257
-------- ----------
Cash and cash equivalents at end of year.................. 15,257 30,756
-------- ----------
-------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
85
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
(1) ORGANIZATION AND BUSINESS
Slovenska televizna spolocnost, s.r.o. (STS or the Company) was established
as a Limited Liability Company under the Laws of the Slovak Republic on October
9, 1995, to develop an independent, private television station, TV Markiza, and
to both technically secure the preparation of television broadcasting and to
provide full scale television programming.
Programming prepared by STS, is broadcast by Markiza Slovakia, s.r.o., in
accordance with the license granted to Markiza Slovakia, by The Council of the
Slovak Republic for Broadcasting and Television Transmission. The license
provides for broadcast within the territory of the Slovak Republic utilising
terrestrial signals, achieving an initial 65% national coverage. The license is
limited for a period of 12 years commencing August 7, 1995.
The provision of programming to Markiza Slovakia by STS, is performed in
accordance with the terms of an agreement between these parties, under which
Markiza Slovakia grants STS the rights to all revenues derived from broadcasting
in exchange for a 51% ownership interest and a 20% economic interest in the
Company, subject to the repayment of the original capital contribution made by
Central Media Enterprises, B.V. (CME).
(2) FINANCING OF OPERATING AND CAPITAL NEEDS
The share capital of 100 TSK is 51% owned by Markiza Slovakia, s.r.o., a
limited liability company established under the Laws of the Slovak Republic, and
41% owned by CME, a Limited Liability Company established under the Laws of The
Netherlands.
In addition to the share capital provided, contributions amounting to
893,768 TSK have been received from CME for the provision of operating funds to
the Company. As a result of this increased contribution, and in accordance with
the Participants agreement between the shareholders, CME is entitled to 80% of
the Company's profits and losses and 80% of the proceeds upon liquidation of the
Company's assets.
In addition to shareholders capital, CME have granted loans to the Company
amounting to 294,192 TSK, as of December 31, 1996, inclusive of accrued interest
of 6,815 TSK.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements, consisting of the balance sheet as
of December 31, 1996 and 1995, and the related statements of income, cash-flow
statements and notes to the financial statements for the year ended 31 December
1996 are presented in accordance with US GAAP and, accordingly, give a true and
fair view of the Company's net worth, financial position and results.
a) Basis of accounting
The Company maintains its books of accounts and prepares statements for
regulatory purposes in accordance with Slovak accounting principles. The
accompanying financial statements are based on the accounting records of the
Company, together with appropriate reclassifications necessary for fair
presentation in accordance with US GAAP.
86
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
b) Property, Plant and Equipment and Intangible Assets
Fixed and Intangible assets are carried at cost less accumulated
depreciation. Depreciation is computed using the straight line method over the
estimated useful lives of the related assets. (Notes 6 and 7).
c) Assets held under Capital Leases
Assets held under capital leases are accounted for in accordance with
Statement of Financial Accounting Standards No. 13, 'Accounting for Leases', and
recorded in Property, Plant and Equipment. The related liability is included in
obligations under capital lease.
d) Program Rights and Production Costs
Program rights acquired by the Company under license agreements and the
related obligations incurred are recorded as assets and liabilities when the
license period begins, and the assets are amortised to expense using accelerated
methods based on the estimated period of usage, ranging from one to five years.
Amortisation estimates for program rights are reviewed periodically and adjusted
prospectively. Program rights costs are shown net of amortisation of 74,769 TSK.
Payments made for program rights for which the license period has not begun
before the year end are classified as prepaid expenses and amount to 5,436 TSK
at December 31, 1996. (See Note 4).
The elements of program rights for which the licence period will expire
within one year, amounting to 5,155 TSK have been reclassified as current
assets.
Production costs for self-produced programs are capitalised, and expensed
when first broadcast except where the programming has potential to generate
future revenues. When this is the case, production costs are capitalised and
amortised on the same basis as programming obtained from third parties.
e) Pre Operational Costs
The Company has capitalised 60,201 TSK in costs incurred in connection with
the organisation and incorporation of the business prior to the commencement of
broadcasting of its programming. These costs will be amortised over four years
from the commencing of broadcasting of the station. Amortisation of 5,016 TSK
has been provided to December 31, 1996. (1995--nil)
f) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes.' No tax is
due for the period ending December 31, 1996 due to losses incurred by the
Company in this period.
g) Foreign Currency Transactions
Transactions denominated in foreign currencies are recorded at the exchange
rate in effect at the date of the transaction. Outstanding foreign currency
obligations and receivables have been translated at the exchange rate in effect
as of the balance sheet date. Translation gains or losses have been charged to
other income and expense.
87
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
h) Cash and cash equivalents
Cash and cash equivalents include cash in banks and on hand. The Company
does not have any restricted cash balances.
i) Revenue Recognition
Revenues primarily result from the sale of advertising time and are
recognized at the time the advertisements are broadcast.
j) Barter Transactions
Revenue from barter transactions (television advertising provided in
exchange for goods and services) is recognised as income when advertisements are
broadcast, and programming, merchandise or services received are charged to
expense (or capitalised as appropriate) when received or used. Barter revenues
and related expenditures of 11,977 TSK have been recognised for the year within
advertising revenues and operating expenses respectively.
The Company does not believe that the bartered programming has significant
value on its second showing on Slovak television as it has been the experience
of the industry that first runs, on average, account for a substantial majority
of the program's potential revenue. Thus, no asset or liability is recorded on
the balance sheet for the potential rebroadcast of bartered programming.
The Company records barter transactions at the estimated fair value of the
production or services received. In cases where bartered programs can only be
obtained through a barter agreement the Company values the barter at the value
of the asset given up. In other cases where the Company has elected to enter
into barter agreements as an alternate method of payment, strictly for economic
reasons, the Company values the barter agreement at the value of the asset
received. If merchandise or services are received prior to the broadcast of a
commercial, a liability is recorded. Likewise, if a commercial is broadcast
first, a receivable is recorded.
Receivables and payables arising from barter transactions are offset when
the services have been rendered to the customer and the services rendered, or
the merchandise received from the vendor.
(4) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Value-added tax......................... 2,189 18,765
Operational advances 50,018 116,413
Prepayments
--programming......................... -- 5,436
--other............................... -- 854
Other................................... 7 213
-------- -----------------
52,214 141,681
-------- -----------------
-------- -----------------
</TABLE>
In 1996, the Company entered into an agreement with Slovak Telecom for the
provision of the broadcasting infrastructure and signal transmission. In
accordance with this, advances of 127,000 TSK were remitted to Slovak Telecom,
against future signal transmission charges. This agreement accounts for 50,000
TSK and 108,632 TSK at December 31, 1995 and 1996, respectively.
88
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
(5) INVESTMENTS
The Company hold 100% (100 TSK) of the share capital of company, 'Vyhra'. A
limited liability company established by STS under the Laws of the Slovak
Republic. Vyhra has not traded since its establishment.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following:
<TABLE>
<CAPTION>
USEFUL DECEMBER 31, DECEMBER 31,
LIVES 1995 1996
------ --------------- ---------------
<S> <C> <C> <C>
Land and buildings...................... 25 -- 243,838
Technical Equipment..................... 4-8 1,197 394,595
Other................................... 4 -- 70,552
Construction in progress................ -- 15,102 --
Advances for tangibles.................. -- 20,248 13,338
--------------- ---------------
36,547 722,323
Less--Accumulated depreciation.......... (299) (39,843)
--------------- ---------------
36,248 682,480
--------------- ---------------
--------------- ---------------
</TABLE>
(7) INTANGIBLE ASSETS
Intangible assets, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
--------------- ---------------
<S> <C> <C>
Software................................ 25 7,013
Other................................... 200 8,093
--------------- ---------------
225 15,106
Less--Accumulated amortisation.......... (27) (1,324)
--------------- ---------------
198 13,782
--------------- ---------------
--------------- ---------------
</TABLE>
(8) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
--------------- ---------------
<S> <C> <C>
Legal and Professional fees............. -- 194
Personnel accruals...................... 1,005 15,381
Social fund............................. -- 297
Other................................... -- 8,361
--------------- ---------------
1,005 24,233
--------------- ---------------
--------------- ---------------
</TABLE>
89
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
(9) AMOUNTS DUE TO SHAREHOLDERS
Shareholder Loan
The Company has borrowed a total of 287,377 TSK over the period from July
10, 1996 to August 26, 1996. These loans are unsecured, repayable after a period
of no less than 5 years, maturing in 2007, and bearing interest at the rate of
6% per annum Interest of 6,815 TSK has accrued as at December 31, 1996 relating
to the period to this date.
Other
The Company owes 10,521 TSK to CME as at December 31, 1996, in relation to
consultancy services for the six months to the year end and for programming
services provided to the Company by CME.
(10) AMOUNTS DUE TO RELATED PARTIES
The Company has liabilities to Ceska nezavisla televizni spolecnost, s.r.o.
(TV Nova) at December 31, 1996, amounting to 1,192 TSK, relating to the purchase
of programs.
(11) LOAN OBLIGATIONS
The Company has no loan obligations other than that disclosed in Note 9.
(12) COMMITMENTS AND CONTINGENCIES
Commitments under Capital Leases
The Company has no material Capital Lease commitments at December 31, 1996.
Commitments under Operating Leases
The Company has entered into operating leases for three properties located
in Bratislava. The lease terms commenced June 15, and July 1, 1996 and expire
June 30, 1999 or have unlimited terms. Where a definitive term is set, the lease
provides for a renewal option. For the fiscal year ended December 31, 1996, the
Company paid aggregate rent on all facilities of 8,083 TSK.
The Company has minimum future obligations under operating leases relating
to property with definitive terms as follows:
<TABLE>
<CAPTION>
YEAR DM TSK
- -------- --- -----
<S> <C> <C>
1996.... 96 1,969*
1997.... 96 1,969
1998.... 96 1,969
1999.... 48 985
--- -----
336 6,892
--- -----
--- -----
</TABLE>
- ------------------
*translated using the exchange rate as at December 31, 1996.
Monthly payments relating to leases with unlimited terms amount to 56 TSK.
90
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
Programming Rights Commitments
The Company has commitments amounting to 80,122 TSK in respect of rights
for future programming.
The Company has also entered into certain barter agreements in 1996 that
continue through 1997 and beyond, by which television advertising will be
provided in exchange for programming. As the value of this advertising time will
only be established at the time of broadcast, it is not possible to quantify the
impact of these agreements.
(13) SHAREHOLDERS' EQUITY
The movement on shareholders' equity in the year is as follows:
<TABLE>
<CAPTION>
OTHER TOTAL
CONTRIBUTED ACCUMULATED SHAREHOLDERS'
SHARE CAPITAL CAPITAL DEFICIT EQUITY
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance as at December 31, 1995.... 100 105,446 (2,252) 103,294
Contributions...................... -- 788,322 -- 788,322
Loss for the year.................. -- -- (131,711) (131,711)
----- ----------- ----------- -------------
Balance as at December 31, 1996.... 100 893,768 (133,963) 759,905
----- ----------- ----------- -------------
----- ----------- ----------- -------------
</TABLE>
(14) INTEREST INCOME
Interest income consists of the following:
<TABLE>
<CAPTION>
1995 1996
---- -----
<S> <C> <C>
Bank & short term deposit......................... 4 2,509
Realised foreign exchange gains................... -- 190
Other............................................. -- 5,051
---- -----
4 7,750
---- -----
---- -----
</TABLE>
(15) INTEREST EXPENSE
Interest expense consists of the following:
<TABLE>
<CAPTION>
1995 1996
---- ------
<S> <C> <C>
Shareholder loan interest......................... -- 6,815
Foreign exchange losses
--realised...................................... -- 529
--unrealised.................................... -- 14,333
Other............................................. 23 2,178
---- ------
23 23,855
---- ------
---- ------
</TABLE>
91
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
(16) NUMBER OF EMPLOYEES
The number of employees as of December 31, 1996, was 380 full time and 3
part-time.
(17) TAXATION
The reconciliation between the accounting loss and the taxable base of the
Corporate Income Tax is as follows:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Profit for the year............................... (131,711)
Permanent differences
Non deductible expenses......................... 12,667
Temporary differences
Unrealised exchange looses...................... 19,340
Difference with tax depreciation................ 4,124
US GAAP Adjustments............................. (54,733)
--------
Taxable income, (loss)............................ (150,313)
--------
--------
</TABLE>
Following the prudence principle and due to the uncertainty on the
recoverability of the tax credit following the current Slovak tax legislation,
the Management of STS has decided not to record the tax carry forward (60,125
TSK) or the deferred tax (asset, 21,893 TSK, liability, 9,386 TSK) as of
December 31, 1996.
92
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FF Franken Funk und Fernsehen GmbH:
We have audited the accompanying consolidated balance sheet of FF Franken Funk
und Fernsehen GmbH (a Limited Partnership organized under German law) and
subsidiary as of December 31, 1994 and 1995, and the related consolidated
statements of operations, shareholders' and partners' capital and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material mis-statement. 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 FF Franken Funk und Fernsehen
GmbH and subsidiary as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
United States generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 3 to the
financial statements, the Company has incurred significant operating losses
during the years ended December 31, 1994 through 1996, and is dependent upon
additional capital to fund its operations. These factors raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability or
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
ARTHUR ANDERSEN
WIRTSCHAFTSPRUFUNGSGESELLSCHAFT
STEUERBERATUNGSGESELLSCHAFT MBH
March 4, 1996
(except for the matters
discussed in Note 3, as to which
the date is March 5, 1997)
Berlin, Germany
93
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... 176 1,753
Accounts receivable............................. 765 745
Related party receivables (Note 5).............. 454 29
Amounts due from shareholder (Note 6)........... 1,752 0
Other assets (Note 7)........................... 429 1,006
Prepaid expenses................................ 55 2
Contribution receivable......................... 0 1,255
------------ ------------
Total current assets.............................. 3,631 4,790
------------ ------------
Investments in Uncombined Affiliates (Note 8)..... 78 78
------------ ------------
Property, Plant & Equipment, including equipment
held under lease, net (Note 9).................. 4,546 5,562
------------ ------------
Intangible Assets (Note 10)....................... 106 105
------------ ------------
Total Assets...................................... 8,361 10,535
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft.................................. 10 0
Accounts payable................................ 531 1,083
Accrued liabilities (Note 11)................... 430 414
Duties and other taxes payable.................. 273 910
Related party payables (Note 12)................ 773 137
------------ ------------
Total current liabilities......................... 2,017 2,544
------------ ------------
Non Current Liabilities:
Other liabilities (Note 13)....................... 3,622 2,602
Long term loans (Note 14)......................... 10,000 4,000
------------ ------------
Total non current liabilities..................... 13,622 6,602
------------ ------------
Commitments and Contingencies (Note 15)
Silent Partners' Capital
Initial capital................................. 8,000 8,000
Accumulated deficit............................. (7,431) (3,098)
------------ ------------
Total silent partners' capital.................. 569 4,902
------------ ------------
Shareholders' Equity
Capital stock................................... 1,355 1,355
Accumulated deficit............................. (9,202) (4,868)
------------ ------------
Total shareholders' equity........................ (7,847) (3,513)
------------ ------------
Total liabilities and partners' capital........... 8,361 10,535
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
94
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
TDM TDM
------- -------
<S> <C> <C>
REVENUES:
Advertising (Note 16)..................................... 2,935 2,666
Other (Note 17)........................................... 3,407 3,051
------- -------
6,342 5,717
------- -------
STATION EXPENSES:
Depreciation of station equipment......................... (1,628) (1,852)
Other operating costs and expenses........................ (7,614) (7,324)
Selling, general and administrative expenses.............. (4,374) (4,375)
------- -------
Operating loss......................................... (7,274) (7,834)
------- -------
INTEREST AND OTHER INCOME................................... 147 176
INTEREST EXPENSE (Note 18).................................. (1,540) (308)
------- -------
(1,393) (132)
------- -------
Net loss before loss allocation........................ (8,667) (7,966)
------- -------
LOSS PORTION SILENT PARTNER................................. 4,333 3,098
------- -------
Net loss............................................... (4,334) (4,868)
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of this statement.
95
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' AND PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
SHAREHOLDERS' CAPITAL
Capital Stock
Subscribed capital of FFF.................... 100 100
Minority share of NMF assigned to FFF........ 1,255 1,255
------------ ------------
Accumulated deficit 1,355 1,355
------------ ------------
Beginning balance............................ (4,868) 0
Net loss before allocation................... (8,667) (7,966)
Less--silent partner portion................. 4,333 3,098
------------ ------------
Ending balance............................... (9,202) (4,868)
------------ ------------
Total shareholders' capital..................... (7,847) (3,513)
------------ ------------
------------ ------------
SILENT PARTNERS' CAPITAL
Initial capital................................. 8,000 8,000
Accumulated deficit
Beginning balance............................ (3,098) 0
Loss portion of the year..................... (4,333) (3,098)
------------ ------------
Ending balance............................... 569 4,902
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
96
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
TDM TDM
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) before loss allocation......................... (8,667) (7,966)
Adjustments to reconcile net (loss) to net cash used in
operating activities
Depreciation of station equipment...................... 1,628 1,852
Increase in assets and liabilities:
Accounts receivable.................................. (20) (330)
Amount due from uncombined affiliates................ (425) 92
Prepaid expenses..................................... (53) 2
Other assets......................................... 577 (724)
Accounts payable and accrued liabilities............. (536) 1,122
Duties and other taxes payable....................... (637) 910
Related party liabilities............................ 636 (288)
Other liabilities.................................... 1,030 2,485
------ ------
Net cash used in operating activities.................. (6,467) (2,845)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (613) (7,498)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long term loans from silent partner....................... 7,000 2,000
Long term loan from shareholder........................... 0 2,000
Repayment of shareholder loan............................. (1,000) 0
Loan granted to shareholder............................... (1,752) 0
Partners' capital contributions........................... 1,255 8,000
------ ------
Net cash provided by financing activities................. 5,503 12,000
------ ------
Net decrease in cash and cash equivalents................. (1,577) 1,657
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,753 96
------ ------
CASH AND CASH EQUIVALENTS, end of period.................... 176 1,753
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of this statement.
97
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND BUSINESS
FF Franken Funk und Fernsehen GmbH, Berlin ('FFF' or 'the Company'), set up
under German law as a Limited Partnership, began broadcasting on December 10,
1990 ('RTL Regional Window') and on February 23, 1994 (Terrestrial/cable
frequency K23) and respectively reaches the Nuremberg metropolitan area of
approximately 1.1 million people.
On December 10, 1990 the Company was awarded the RTL Regional Window (cable
channel K9). This licence was limited until July 1, 1995, prolonged until
October 31, 1995 but then cancelled by the supervisory board of the BLM, because
FFF had not announced the silent Partnership with CME Medienbeteiligungen GmbH &
Co. Media Enterprises KG ('CME') on time.
On February 23, 1994 the BLM awarded a full time licence for regional
television in the Nuremberg metropolitan area on the terrestrial/cable frequency
K23 to the consolidated NMF Neue Medien Franken GmbH & Co. KG ('NMF'), a
Partnership of FFF and Mr. Rudolf Wohrl. The license is limited for a period of
7 years commencing on February 27, 1994.
The consolidated financial statements consider FFF as parent Company and
the Partnership NMF as subsidiary. NMF has been fully consolidated. The minority
share of Mr. Rudolf Wohrl has been assigned to FFF as majority shareholder.
2. FINANCING OF OPERATING AND CAPITAL NEEDS
The share capital of TDM 100 is fully owned by Perimed Verlag Dr. Dietmar
Straube. The minority share of TDM 1,255 legally owned by Mr. Rudolf Wohrl is
not separately classified as minority sharecapital, but assigned to FFF.
In 1994 FFF signed a silent Partnership agreement with CME
Medienbeteiligungen GmbH & Co. Media Enterprises KG, Berlin, which became
effective on April 1, 1994. According to this agreement CME Medienbeteiligungen
GmbH & Co. Media Enterprises KG granted a silent partner capital of DM 8 mio. to
FFF. The silent partner is entitled to 50% of FFF's profits and losses and 50%
of the proceeds upon liquidation of its assets.
In addition to shareholders' and partners' capital the shareholder and the
silent partner granted loans to FFF which amounted to DM 10 mio. as of December
31, 1995.
3. GOING CONCERN
Since its inception FFF incurred consolidated losses of DM 22.4 mio. which
have been funded with DM 20.0 mio. by the silent partner CME, while the net cash
contribution of the single shareholder of FFF, Dr. Dietmar Straube, amounted to
DM 2.5 mio. Until December 31, 1997, further cash losses are projected to reach
DM 2.5 mio. Due to the present illiquidity of FFF the going concern of the
Company depends on day to day cash contributions and financial commitments by
the shareholder and the silent partner respectively.
The factors described in the preceding paragraph raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability or
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
98
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The subsidiary NMF has been fully consolidated. For true and fair view
reasons the minority share of a minority partner in NMF has not been separately
shown in the consolidated financial statements.
Property, Plant and Equipment and Intangible Assets
Fixed and intangible assets are carried at cost and are depreciated on a
straight line basis using the shorter of estimated useful lives or the
underlying lease period.
Replacements, renewals and improvements are capitalized. Maintenance and
repairs are charged to expense as incurred.
Income Taxes
No tax is due for the period ending December 31, 1995 due to losses
incurred by the Company in this period.
Cash and cash equivalents
Cash and cash equivalents include cash in banks and cash on hand.
Revenue Recognition
Revenues result from the sale of advertising time and from cable charges.
Advertising revenue is recognized at the time the commercials are broadcast.
5. RELATED PARTY RECEIVABLES
Amounts due from related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
IA TV Beteilgungsgesellschaft mbH & Co.
Betriebs-KG..................................... 278 --
CME Medienbeteiligungen GmbH & Co. Media
Enterprises KG.................................. 150 --
B.I.S. Ballungsraumfernsehen in Sachen GmbH....... 26 --
Sachsen Funk und Fernsehen GmbH................... -- 27
Compliance Verlag Dr. Straube GmbH................ -- 2
----- --
454 29
----- --
----- --
</TABLE>
6. AMOUNTS DUE FROM SHAREHOLDER
On January 31, 1995 the Company granted a loan of TDM 1,632 to Perimed
Verlag Dr. Dietmar Straube. The loan bears interest at a rate of 8%. The accrued
interest of TDM 120 is included in the total balance as of December 31, 1995 of
TDM 1,752.
99
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
7. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
Value-added tax............... 115 238
Cable charges................. 100 617
Video-cassettes............... 70 75
Various....................... 144 76
----- ------------
429 1,006
----- ------------
----- ------------
</TABLE>
8. INVESTMENTS IN UNCOMBINED AFFILIATES
Investments in uncombined affiliates consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
Mittelfrankische Kabelgesellschaft mbH Region 7... 16 16
Medienbetriebsgesellschaft Oberfranken West mbH... 25 25
NMF-Neue Medien Franken Verwaltungs-GmbH.......... 37 37
----- ------------
78 78
----- ------------
----- ------------
</TABLE>
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
Technical equipment............................... 5,552 5,552
-- thereof relating to assets held under
lease: TDM 5,552 (1994: TDM 5,552)
Other equipment, operational and office
equipment....................................... 2,422 1,855
-- thereof relating to assets held under
lease: TDM 506 (1994:TDM 392)
------------ ------------
7,974 7,407
Less--Accumulated depreciation.................... (3,428) (1,845)
------------ ------------
4,546 5,562
------------ ------------
------------ ------------
</TABLE>
100
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
10. INTANGIBLE ASSETS
Intangible assets, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
Software................................ 124 167
Other intangibles....................... 17 20
----- ------------
141 187
Less--Accumulated depreciation.......... (35) (82)
----- ------------
106 105
----- ------------
----- ------------
</TABLE>
11. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
Legal and professional fees.................. 162 122
Vacation and overtime accrual................ 152 188
Miscellaneous accruals....................... 116 104
----- ------------
430 414
----- ------------
----- ------------
</TABLE>
12. RELATED PARTY PAYABLES
Related party payables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
CME Medienbeteiligungen GmbH & Co. Media
Enterprises KG.................................. 666 --
NMF Neue Medien Franken Verwaltungs-GmbH.......... 49 46
Perimed Verlag Dr. Dietmar Straube................ 47 80
Medienbetriebsgesellschaft Oberfranken West mbH... 11 11
----- ------------
773 137
----- ------------
----- ------------
</TABLE>
101
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
13. OTHER LIABILITIES
Other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
Capital lease obligation (see Note 15)....... 3,450 2,449
Other........................................ 172 153
------------ ------------
3,622 2,602
------------ ------------
------------ ------------
</TABLE>
14. LONG TERM LOANS
Long term loans consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
TDM TDM
------------ ------------
<S> <C> <C>
CME Medienbeteiligungen GmbH & Co. Media
Enterprises KG.................................. 9,000 2,000
Perimed Verlag Dr. Dietmar Straube................ 1,000 2,000
------------ ------------
10,000 4,000
------------ ------------
------------ ------------
</TABLE>
With loan agreements dated June 20, 1995 and September 10, 1995 CME granted
loans of DM 6.5 mio. and DM 2.5 mio. to FFF. These loans bear interest at a rate
of 10.5%. The loans shall be repayable at the latest on June 6, 1996, if and to
the extent the shareholder Dr. Dietmar Straube should until then not have
provided shareholder loans to FFF in the same amount. It is anticipated that the
loan will be substituted in the amount payable until June 6, 1996, by the
contributions of new shareholders. Should this not have happened and should FFF
not be able to repay, the parties will reach agreement on a refinancing, such as
by converting the loans into a silent Partnership contribution.
DM 1.0 mio. of the DM 2.0 mio. loan that the Perimed Verlag Dr. Dietmar
Straube granted to the Company in 1994 had been repaid on April 3, 1995.
15. COMMITMENTS AND CONTINGENCIES
Commitments under capital leases
The Company signed a contract with an investment bank, the Deutsche Leasing
AG, to finance most of its studio equipment and parts of its office equipment.
The total lease financing amounted to DM 5.6 mio. as of December 31, 1995.
The corresponding liability to the fixed assets held under capital lease is
the TDM 3,450 payable to Deutsche Leasing AG, which is included in other
liabilities.
102
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The future obligations under the capital leases are as follows:
<TABLE>
<CAPTION>
TOTAL
TDM
-----
<S> <C>
1996.... 1,714
1997.... 1,598
1998.... 303
1999.... 18
-----
3,633
-----
-----
</TABLE>
Commitments under operating leases
The Company entered into an operating lease for the television station
facilities in Erlangen with the Perimed Verlag Dr. Dietmar Straube. The lease
term commenced on January 1, 1994 and expires on December 31, 2001. For the
period ended December 31, 1995, the Company paid rent and operating expenses
amounting to TDM 2,635. Under the agreement the yearly rent amounted to TDM
1,000 for the studio facilities and TDM 1,635 for 3,800 m2 of office space,
parking lots and utilities. In 1996 the leased office space had been reduced to
3,600 m2 so that the Company has yearly minimum future obligations under
operating leases of TDM 2,552 until year end 2001.
Government Regulation
Broadcast operations in Germany are subject to extensive Government
regulation. Television in Germany is regulated by the Media Authority of each
region, and the Bayerische Landesmedienanstalt ('BLM') is responsible for the
activities of FFF and NMF respectively. Regulations govern the issuance,
renewal, transfer and ownership of station licenses, as well as the timing and
content of programming and the timing, content and amount of commercial
advertising permitted. There are also regulations requiring that certain
pecentages of programming be produced or originated in local markets. The
ownership of a private TV station is closely monitored to avoid a single
shareholder being able to exercise a dominant influence on the business and
program of a TV station.
The Company lost its licence for the RTL window frequency K9 in October
1995. This cancellation might have a negative impact on the terrestrial/cable
frequency K23 as the BLM requested FFF to start negotiations with the new owner
of the RTL Regional Window regarding a joint management of the frequency K23.
16. ADVERTISING REVENUES
The cancellation of the licence for the 'RTL Regional Window' has a
material impact on the economic situation of FFF. For the period from January
through October 1995 advertising income from this licence amounted to TDM 980
(1994: TDM 1,596). Comparable advertising income from the terrestrial/cable
frequency K23 was TDM 1,955 in 1995 (1944: TDM 1,070).
103
<PAGE>
FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
17. OTHER REVENUES
Other revenues consist of the following:
<TABLE>
<CAPTION>
1995 1994
TDM TDM
----- -----
<S> <C> <C>
BLM and cable charges.................................. 1,965 2,391
Production and intercompany charges.................... 1,078 538
Other.................................................. 364 122
----- -----
3,407 3,051
----- -----
----- -----
</TABLE>
18. INTEREST EXPENSE
Interest expense consists of the following:
<TABLE>
<CAPTION>
1995 1994
TDM TDM
----- -----
<S> <C> <C>
Long term loans due to CME Medienbeteiligungen GmbH & Co.
Media Enterprises KG...................................... 621 45
Perimed Verlag Dr. Dietmar Straube........................ 132 45
----- -----
753 90
Capital Lease Deutsche Leasing AG........................... 600 --
Perimed Verlag Dr. Straube (from acquisition)............... -- 207
Other....................................................... 187 11
----- -----
1,540 308
----- -----
----- -----
</TABLE>
104
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference to
the section entitled 'Election of Directors' in the Company's Proxy Statement
for the Annual Meeting of Stockholders to be held on May 2, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the sections entitled 'Executive Compensation,' 'Compensation Committee Report
on Executive Compensation' and 'Performance Graph' in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 2, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the section entitled 'Security Ownership of Certain Beneficial Owners and
Management' in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 2, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section entitled 'Certain Relationships and Related Transactions' in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
May 2, 1997.
105
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following Financial Statements of the Company are included in Part
II, Item 8 of this Report:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity (Deficit) for the period
from December 31, 1993 to December 31, 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a)(2) The following Financial Statements of 1A TV Beteiligungsgesellschaft MBH
& Co. Betreibs-KG are included in Part II, Item 8 of this Report:
Report of Independent Public Accountants
Balance Sheet as of December 31, 1996 and 1995
Statement of Operations for the years ended December 31, 1996 and 1995
Statement of Partners' Capital for the years ended December 31, 1996 and
1995
Statement of Cash Flows for the years ended December 31, 1996 and 1995
Notes to Financial Statements
(a)(3)The following Financial Statements of Slovenska Televizna Spolocnost,
s.r.o are included in Part II, item 8 of this Report:
Report of Independent Public Accountants
Balance Sheets as of December 31, 1995 and 1996
Income Statements for the periods ended December 31, 1995 and 1996
Statements of Cash Flows for the periods ended December 31, 1995 and 1996
Notes to Financial Statements
(a)(4) The following Financial statements of Franken Funk und Fernsehen GmbH are
included in Part II, Item 8 of this Report:
Report of Independent Public Accountants
Consolidated Balance Sheet as of December 31, 1995 and 1994
Consolidated Statement of Operations for the years ended December 31, 1995
and 1994
Consolidated Statement of Shareholders' and Partners' Capital for the
years ended December 31, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended December 31, 1995
and 1994
Notes to Consolidated Financial Statements
(a)(5) The following exhibits are included in this report:
106
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------- ----------
<S> <C> <C>
3.01 -- Memorandum of Association (incorporated by reference to
Exhibit 3.01 to the Company's Registration Statement No.
33-80344 on Form S-1, filed June 17, 1994).
3.02 -- Bye-Laws (incorporated by reference to Exhibit 3.02 to
Amendment No. 1 to the Company's Registration Statement No.
33-80344 on Form S-1, filed August 19, 1994).
3.03 -- Memorandum of Increase of Share Capital (incorporated by
reference to Exhibit 3.03 to Amendment No. 1 to the
Company's Registration Statement No. 33-80344 on Form S-1,
filed August 19, 1994).
3.04 -- Memorandum of Reduction of Share Capital (incorporated by
reference to Exhibit 3.04 to Amendment No. 2 to the
Company's Registration Statement No. 33-80344 on Form S-1,
filed September 14, 1994).
3.05 -- Amendment to Bye-Laws (incorporated by reference to Exhibit
3.05 to Amendment No. 2 to the Company's Registration
Statement No. 33-80344 on Form S-1, filed September 14,
1994).
4.01 -- Specimen Class A Common Stock Certificate (incorporated by
reference to Exhibit 4.01 to Amendment No. 1 to the
Company's Registration Statement No. 33-80344 on Form S-1,
filed August 19, 1994).
10.01 -- Central European Media Enterprises Ltd. Amended and
Restated 1994 Stock Option Plan (incorporated by reference
to Exhibit 10.01 to Amendment No. 3 to the Company's
Registration Statement No. 33-80344 on Form S-1, filed
October 13, 1994).
10.01A -- Central European Media Enterprises Ltd. Amended and
Restated 1994 Stock Option Plan, as amended to October 17,
1995. (incorporated by reference to Exhibit 10.01A to
Amendment No. 1 to the Company's Registration Statement No.
33-96900 on Form S-1, filed October 18, 1995).
10.02 -- Central European Media Enterprises Ltd. 1995 Stock Option
Plan, as amended to October 17, 1995. (incorporated by
reference to Exhibit 10.02A to Amendment No. 1 to the
Company's Registration Statement No. 33-96900 on Form S-1,
filed October 18, 1995).
10.03 -- Partnership Agreement for CEDC Management Services GmbH &
Co. CME Betriebs KG, dated May 25, 1993 between CEDC
Management Services GmbH and CEDC Management Services GmbH
& Co. Media Enterprises KG (incorporated by reference to
Exhibit 10.06 to the Company's Registration Statement No.
33-80344 on Form S-1, filed June 17, 1994).
10.04 -- Partnership Agreement for CEDC Management Services GmbH &
Co. Television KG between CEDC Management Services GmbH and
CEDC Management Services GmbH & Co. Media Enterprises KG
(incorporated by reference to Exhibit 10.07 to the
Company's Registration Statement No. 33-80344 on Form S-1,
filed June 17, 1994).
10.05 -- Partnership Agreement for Schamoni TV
Beteiligungsgesellschaft GmbH & Co. Betriebs-KG dated May
14, 1993 (incorporated by reference to Exhibit 10.08 to the
Company's Registration Statement No. 33-80344 on Form S-1,
filed June 17, 1994).
</TABLE>
107
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
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<S> <C> <C>
10.06 -- Memorandum of Association and Investment Agreement dated
May 4, 1993, as amended, by and between Central European
Development Corporation Management Services GmbH, Ceska
Sporitelna, a.s. and CET 21 s.r.o. (incorporated by
reference to Exhibit 10.09 to the Company's Registration
Statement No. 33-80344 on Form S-1, filed June 17, 1994).
10.07 -- Agreement on the Establishment of a Silent Partnership
dated April 19, 1994 between Dr. Dietmar Straube, CEDC
Management Services GmbH & Co. Media Enterprises KG and
Franken Funk and Fernsehen GmbH (incorporated by reference
to Exhibit 10.10 to the Company's Registration Statement
No. 33-80344 on Form S-1, filed June 17, 1994).
10.08 -- Amendment to the Agreement on the Establishment of a Silent
Partnership, dated January 23, 1995, between Franken Funk
und Fernsehen GmbH and CME Medienbeteiligungen GmbH & Co.
Media Enterprises KG. (incorporated by reference to Exhibit
10.10A to Amendment No. 1 to the Company's Registration
Statement No. 33-96900 on Form S-1, filed October 18,
1995).
10.09 -- Services Agreement dated as of July 29, 1994 among Andrew
Gaspar, Bukfenc Inc. and Central European Media Enterprises
Ltd. (incorporated by reference to Exhibit 10.12 to
Amendment No. 1 to the Company's Registration Statement No.
33-80344 on Form S-1, filed August 19, 1994).
10.10 -- Administrative Services Agreement, dated as of April 1,
1994 between R.S. Lauder, Gaspar & Co., LP and CME Media
Enterprises B.V. (incorporated by reference to Exhibit
10.14 to Amendment No. 1 to the Company's Registration
Statement No. 33-80344 on Form S-1, filed August 19, 1994).
10.10A -- Extension for the term of one year, dated as of March 28,
1995, of Administrative Services Agreement, dated as of
April 1, 1994, between R.S. Lauder, Gaspar & Co., LP and
CME Media Enterprises B.V. (incorporated by reference to
Exhibit 10.14A to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994).
10.10B -- Extension for the term of one year, dated as of March 14,
1996, of Administrative Services Agreement between R.S.
Lauder, Gaspar & Co., LP and CME Media Enterprises B.V.
(incorporated by reference to Exhibit 10.11B to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.11 -- Lease Contract, dated as of December 27, 1993, between CNTS
and CEDC Praha (incorporated by reference to Exhibit 10.15
to Amendment No. 1 to the Company's Registration Statement
No. 33-96900 on Form S-1, filed on September 13, 1995).
10.11A -- Amendment to Lease Contract, dated as of December 30, 1994,
between CNTS and CEDC Praha (incorporated by reference to
Exhibit 10.15A to the Company's Registration Statement No.
33-96900 on Form S-1, filed September 13, 1995).
10.12 -- Credit Agreement between Ceska Sportelma, a.s. and Ceska
Nezavisla Televizni Spolecnost, s.r.o. (incorporated by
reference to Exhibit 10.16 to Amendment No. 1 to the
Company's Registration Statement No. 33-80344 on Form S-1,
filed August 19, 1994).
</TABLE>
108
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------- ----------
<S> <C> <C>
10.13 -- Term Promissory Note in favor of Ronald S. Lauder dated
September 9, 1994 and Warrant for the Purchase of Shares of
Common Stock issued to Ronald S. Lauder dated as of
September 9, 1994 (incorporated by reference to Exhibit
10.17 to Amendment No. 2 to Registration Statement No.
33-80344 on Form S-1, filed September 14, 1994).
10.14 -- Consultancy Agreement, dated February 9, 1995, between CME
Media Enterprises B.V. and Radio Alfa a.s. (incorporated by
reference to Exhibit 10.18 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.15 -- Loan Agreement, dated as of February 9, 1995 between CME
Media Enterprises B.V. and Radio Alfa a.s. (incorporated by
reference to Exhibit 10.19 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.15A -- Supplementary Loan Agreement, dated March 20, 1995, between
CME Media Enterprises B.V. and Radio Alfa a.s.
(incorporated by reference to Exhibit 10.19A to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1995).
10.15B -- Second Supplementary Loan Agreement, dated July 14, 1995,
between CME Media Enterprises B.V. and Radio Alfa a.s.
(incorporated by reference to Exhibit 10.19B to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1995).
10.15C -- Third Supplementary Loan Agreement, dated December 11,
1995, between CME Media Enterprises B.V. and Radio Nova
Alfa a.s. (f.k.a. Radio Alfa a.s.) (incorporated by
reference to Exhibit 10.16C to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.15D -- Fourth Supplementary Loan Agreement, dated February 29,
1996, between CME Media Enterprises B.V. and Radio Alfa
a.s.
10.15E -- Fifth Supplementary Loan Agreement, dated November 29,
1996, between CME Media Enterprises B.V. and Radio Alfa
a.s.
10.16 -- Partnership Agreement of Produkcija Plus d.o.o. Ljubljana,
dated February 10, 1995 among CME Media Enterprises B.V.,
Boutique MMTV d.o.o. Ljubljana, and Tele 59 d.o.o. Maribor.
(incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994).
10.17 -- Letter Agreement, dated March 23, 1995, among, Kanal A,
Boutique MMTV d.o.o. Ljubljana, Tele 59 d.o.o. Maribor,
Euro 3 and Baring Communications Equity as advisor to
Baring Communications Equity Limited, regarding Produkcija
Plus d.o.o. (incorporated by reference to Exhibit 10.21 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
10.18 -- Credit Agreement, dated as of November 14, 1994, between
Ceska Sportelma, a.s. and Ceska Nezavisla Televizni
Spolecnost, s.r.o. (incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.19 -- Lease, dated February 2, 1995, between CME Development
Corporation Inc. and JRT (Properties) Limited for the term
of ten years for the offices at 9 Poland Street and 17, 18
and 19 D'Arblay Street in London. (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------- ----------
<S> <C> <C>
10.19A -- Shareholder Agreement, dated May 25, 1995, between ITI TV
Holdings Sp. z.o.o. and CME Media Enterprises B.V.
(incorporated by reference to Exhibit 10.24A to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1995).
10.19B -- Stock Purchase Agreement, dated May 25, 1995, between ITI
Media Group N.V. and CME Media Enterprises B.V.
(incorporated by reference to Exhibit 10.24B to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1995).
10.20 -- Contract for Space Segment Service dated June 9, 1995,
between British Telecommunications plc ('BT') and CME
Programming Services, Inc. for the provision of programming
transmission services by BT and the payment thereon
(incorporated by reference to Exhibit 10.25A to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1995).
10.20A -- Guarantee by Central European Media Enterprises Ltd. in
respect of obligations due to British Telecommunications
plc by CME Programming Services, Inc. dated June 9, 1995
(incorporated by reference to Exhibit 10.25B to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1995).
10.21 -- Employment Agreement, dated as of August 14, 1995, between
John A. Schwallie and Central European Media Enterprises
Ltd. (incorporated by reference to Exhibit 10.25 to
Amendment No.1 to the Company's Registration Statement No.
33-96900 on Form S-1, filed October 18, 1995).
10.22 -- Employment Agreement, dated as of August 14, 1995, between
John A. Schwallie and CME Development Corporation
(incorporated by reference to Exhibit 10.26 to Amendment
No. 1 to the Company's Registration Statement No. 33-96900
on Form S-1, filed October 18, 1995).
10.23 -- Cooperation Agreement among CME Media Enterprises B.V., Ion
Tiriac and Adrian Sarbu (incorporated by reference to
Exhibit 10.27 to the Company's Registration Statement
No.33- 96900 on Form S-1 filed September 13, 1995).
10.24 -- Preliminary Agreement, dated June 12, 1995, between CME
Media Enterprises B.V. and Markiza-Slovakia s.r.o.
(incorporated by reference to Exhibit 10.28 to the
Company's Registration Statement No. 33-96900 on Form S-1,
filed September 13, 1995).
10.24A -- Memorandum of Association between CME Media Enterprises,
B.V. and Markiza-Slovakia s.r.o. (incorporated by reference
to Exhibit 10.28A to Amendment No. 1 to the Company's
Registration Statement No. 33-96900 on Form S-1, filed
October 18, 1995).
10.24B -- Articles of Association of Slovenska Televizna Spolocnost,
s.r.o. founded by CME Media Enterprises, B.V. and
Markiza-Slovakia s.r.o. (incorporated by reference to
Exhibit 10.28B to Amendment No. 1 to the Company's
Registration Statement No. 33-96900 on Form S-1, filed
October 18, 1995).
10.25 -- Modification of the Articles of Association of 2002
Tanacsado es Szolgaltato Karlatolt Felelossegu Tarasag,
dated March 1, 1995 (incorporated by reference to Exhibit
10.29 to the Company's Registration Statement No. 33-96900
on Form S-1, filed September 13, 1995).
</TABLE>
110
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------- ----------
<S> <C> <C>
10.26 -- The Constituent Agreement on the Activity of the
Ukrainian-Dutch Joint Venture with Limited Liability
'Gravis', dated September 12, 1995, among
Manufacturing-Commercial Firm VGV and Victor K. Leshyk,
Olna O. Mykhailova, Pavlo D. Bohdan, Volodymyr P. Popov,
and CME Media Enterprises, B.V. (incorporated by reference
to Exhibit 10.30 to Amendment No.1 to the Company's
Registration Statement No. 33-96900 on Form S-1, filed
October 18, 1995).
10.26A -- Charter of the Ukrainian-Dutch Joint Venture with Limited
Liability Gravis, dated September 12, 1995 (incorporated by
reference to Exhibit 10.30A to Amendment No. 1 to the
Company's Registration Statement No. 33-96900 on Form S-1,
filed October 18, 1995).
10.27 -- Heads of Agreement, dated September 6, 1995, between Dr.
Dietmar Straube, CME Medienbeteiligungen GmbH & Co. Media
Enterprises KG and Sachsen Funk und Fernsehen GmbH.
(incorporated by reference to Exhibit 10.31 to Amendment
No. 1 to the Company's Registration Statement No. 33-96900
on Form S-1, filed October 18, 1995).
10.28 -- Contract of Sale, dated July 7, 1995 between In Razvoj in
Svetovanje d.o.o. Ljubljana and Produkcija Plus d.o.o.
Ljubljana and Central European Media Enterprises Group
(incorporated by reference to Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.29 -- Loan Agreement, dated December 4, 1995, between CME Media
Enterprises, B.V., and Inter Media S.R.L. (incorporated by
reference to Exhibit 10.30 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.30 -- Loan Agreement, dated as of March 4, 1996, by and between
CME Media Enterprises B.V. as lender and Nova Mova TV
Company (incorporated by reference to Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.31 -- Contocurrent Credit Contract kept with the Current Account,
dated as of November 1, 1995 between Ceska Sporitelna a.s.
and Czech Independent Television Company s.r.o. (Ceska
Nezavisla Televizni Spolecnost s.r.o.) (incorporated by
reference to Exhibit 10.32 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.32 -- Quota Purchase Agreement for Videovox (incorporated by
reference to Exhibit 10.01 to the Company's Report on Form
10-Q for the quarterly period ended June 30, 1996).
10.32A -- Amendment to the Quota Purchase Agreement for Videovox
(incorporated by reference to Exhibit 10.02 to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1996).
10.33 -- Transfer Agreement between Ceska Sporitelna and CME BV
(incorporated by reference to Exhibit 10.03 to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1996).
10.33A -- Annex to Transfer Agreement between Ceska Sporitelna and
CME BV (incorporated by reference to Exhibit 10.04 to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1996).
10.34 -- Loan Agreement between Ceska Sporitelna and CME BV
(incorporated by reference to Exhibit 10.05 to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1996).
</TABLE>
111
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------- ----------
<S> <C> <C>
10.35 -- Agreement on a Future Agreement between Ceska Sporitelna
and CME BV (incorporated by reference to Exhibit 10.06 to
the Company's Report on Form 10-Q for the quarterly period
ended June 30, 1996).
10.36 -- Bridge Loan Agreement between ING bank and CME BV
(incorporated by reference to Exhibit 10.07 to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1996).
10.37 -- Share Pledge Agreement between ING bank and CME BV
(incorporated by reference to Exhibit 10.08 to the
Company's Report on Form 10-Q for the quarterly period
ended June 30, 1996).
10.38 -- Loan Agreement beween Vladimir Zelezny and CME dated August
1, 1996 (incorporated by reference to Exhibit 10.01 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.38A -- Amendment to the Loan Agreement of August 1, 1996 and
agreements referred to as Security Documents between
Vladimir Zelezny and CME, dated as of March 11, 1997.
10.39 -- Promissory Note in Favor of Ronald S. Lauder, dated October
2, 1996 (incorporated by reference to Exhibit 10.02 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.40 -- Ronald S. Lauder Warrant for the Purchase of Shares, dated
October 2, 1996 (incorporated by reference to Exhibit 10.03
to the Company's Report on Form 10-Q for the quarterly
period ended September 30, 1996).
10.41 -- Articles of Association for Mobil Rom S.A., dated September
26, 1996 (incorporated by reference to Exhibit 10.04 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.42 -- Company Agreement for the creation of Mobil Rom S.A., dated
September 26, 1996 (incorporated by reference to Exhibit
10.05 to the Company's Report on Form 10-Q for the
quarterly period ended September 30, 1996).
10.43 -- GSM General Agreement, dated September 26, 1996
(incorporated by reference to Exhibit 10.06 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.44 -- Unimedia Assignment of Shares Agreement, dated September
22, 1996 (incorporated by reference to Exhibit 10.07 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.45 -- Additional Agreement for Unimedia, dated September 26, 1996
(incorporated by reference to Exhibit 10.08 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.46 -- Unimedia Warranties, dated September 26, 1996 (incorporated
by reference to Exhibit 10.09 to the Company's Report on
Form 10-Q for the quarterly period ended September 30,
1996).
10.47 -- Agreement between CME, Boris Fuchsmann, Alexander
Rodniansky and Innova Film GmbH in English, dated October
25, 1996 (incorporated by reference to Exhibit 10.10 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.48 -- Agreement between CME, Boris Fuchsmann, Alexander
Rodniansky and Innova Film GmbH in German, dated October
25, 1996 (incorporated by reference to Exhibit 10.11 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------- ----------
<S> <C> <C>
10.49 -- TVN--Realbud Agreement, dated September 4, 1996
(incorporated by reference to Exhibit 10.12 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.50 -- TVN--Realbud Agreement, dated September 4, 1996
(incorporated by reference to Exhibit 10.13 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.51 -- TVN--Realbud Agreement, dated September 6, 1996
(incorporated by reference to Exhibit 10.14 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.52 -- Appendix to the TVN--Realbud Agreement, dated September 19,
1996 (incorporated by reference to Exhibit 10.15 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.53 -- TVN--Realbud Share Sale Agreement, dated October 30, 1996
(incorporated by reference to Exhibit 10.16 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.54 -- Annex No. 2 to the Supplementary Agreement between TVN and
Realbud, dated October 30, 1996 (incorporated by reference
to Exhibit 10.17 to the Company's Report on Form 10-Q for
the quarterly period ended September 30, 1996).
10.55 -- Poland Street Lease Agreement, dated April 2, 1996
(incorporated by reference to Exhibit 10.18 to the
Company's Report on Form 10-Q for the quarterly period
ended September 30, 1996).
10.56 -- Share Purchase Agreement between IDOS Praha, spol. s.r.o.
and CME Media Enterprises B.V., dated November 15, 1996.
10.57 -- Share Purchase Agreement between Releas, a.s. and CME Media
Enterprises B.V., dated December 3, 1996.
10.58 -- Share Purchase Agreement between Ceska Sporitelna a.s. and
CME Media Enterprises B.V., dated December 12, 1996.
10.59 -- Agreement on Assignment of Claim between Ceska Sporitelna,
a.s. and CME Media Enterprises B.V., dated December 12,
1996.
10.60 -- Assignment of Shares Agreement between Balaclava B.V.,
Adrian Sarbu (as shareholders of PRO TV Ltd.), CME Media
Enterprises B.V., Grigoruta Roxana Dorina and Petrovici
Liana, dated December 6, 1996.
10.61 -- Quota Purchase Agreement between and by Magyarhang Dubbing
and Production Limited Liability Company and CME Media
Enterprises B.V., dated December 23, 1996.
10.62 -- Shareholders Agreement between TVN, Ltd. and Ambresa, dated
December 30, 1996.
10.63 -- First Amendment to Stock Purchase Agreement between ITI
Media Group N.V. and CME Media Enterprises B.V., dated
December 31, 1996.
10.64 -- Net Reimbursement Agreement by and among International
Teleservices Limited, International Media Services, Limited
and Limited Liability Company 'Prioritet', dated February
13, 1997.
10.65 -- Agreement by and between International Media Services, Ltd
and Innova Film GmbH, dated January 23, 1997.
10.66 -- Amended and Restated Charter of the Enterprise
'Inter-Media', dated January 23, 1997.
10.67 -- Amended and Restated Charter of the Broadcasting Company
'Studio 1+1', dated January 23, 1997.
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------- ----------
<S> <C> <C>
10.68 -- Amended and Restated Foundation Agreement on the
Establishment and Operation of the Broadcasting Company
'Studio 1+1,' dated January 23, 1997.
10.69 -- Protocol of the Participants' Assembly of the Broadcasting
Company 'Studio 1+1,' dated January 23, 1997.
10.70 -- Marketing, Advertising and Sales Agreement by and between
International Media Services Ltd and Innova Film GmbH,
dated January 23, 1997.
10.71 -- Marketing and Sales Agreement by and between International
Media Services Ltd. and Prioritet, dated January 23, 1997.
10.72 -- Lease between Sony Music Entertainment (UK) Limited and CME
Development Corporation, dated December 19, 1996,
concerning Great Marlborough Street, London premises.
21.01 -- List of subsidiaries.
23.01 -- Consent of Arthur Andersen & Co.
27.01 -- Financial data schedule.
</TABLE>
(b) -- Current Reports on Form 8-K:
None
(c) -- Exhibits: See (a)(5) above for a listing of the exhibits
included as part of this report.
(d) -- Report of Independent Public Accountants on Schedule
Schedule II--Schedule of Valuation Allowances
114
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
BY: /s/ LEONARD M. FERTIG
Leonard M. Fertig
President and Chief Executive Officer
March 23, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------- ------------------------------------ --------------
<S> <C> <C>
/s/ RONALD S. LAUDER Chairman of the Board of Directors March 23, 1997
Ronald S. Lauder
/s/ LEONARD M. FERTIG President, Chief Executive Officer March 23, 1997
Leonard M. Fertig and Director (Principal Executive
Officer)
/s/ JOHN A. SCHWALLIE Vice President--Finance and Chief March 23, 1997
John A. Schwallie Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ NICOLAS G. TROLLOPE Vice President, Secretary and March 23, 1997
Nicolas G. Trollope Director
/s/ ANDREW GASPAR Director March 23, 1997
Andrew Gaspar
/s/ HERBERT S. SCHLOSSER Director March 23, 1997
Herbert S. Schlosser
/s/ ROBERT A. RAYNE Director March 23, 1997
Robert A. Rayne
</TABLE>
115
<PAGE>
INDEX TO SCHEDULES
Report of Independent Public Accountants on Schedule:...................... S-2
Schedule II: Schedule of Valuation Allowances............................. S-3
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To: Central European Media Enterprises Ltd.:
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements of Central European Media Enterprises
Ltd. included in this filing and have issued our report thereon dated March 24,
1997. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen & Co.
Hamilton, Bermuda
March 24, 1997
S-2
<PAGE>
SCHEDULE II
SCHEDULE OF VALUATION ALLOWANCES
$000s
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER 31,
1996 EXPENSES ACCOUNTS DEDUCTIONS 1996
---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Bad debt provision... 1,105 2,095 -- -- 3,200
Development costs.... 4,373 714 -- (4,091) 996
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER 31,
1995 EXPENSES ACCOUNTS DEDUCTIONS 1995
---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Bad debt provision... 945 160 -- -- 1,105
Development costs.... 985 3,388 -- -- 4,373
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER 31,
1994 EXPENSES ACCOUNTS DEDUCTIONS 1994
---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Bad debt provision... -- 945 -- -- 945
Development costs.... -- 985 -- -- 985
</TABLE>
S-3
<PAGE>
Fourth Supplementary Loan Agreement ("Agreement")
made on the 29 Feb., 1996
Between
(1) CME MEDIA ENTERPRISES B.V., a limited liability company organized and
existing under the laws of The Netherlands with its registered office at 29
Leidenplatz, Amsterdam, The Netherlands (hereinafter referred to as the
"Lender"), represented by Mr. Loenard Fertig;
and
(2) RADIO ALFA a.s., a joint stock company organized and existing under the laws
of the Czech Republic with its registered office at Na Porici 12, Prague 1,
Czech Republic, Company Identification Number 49240935, Bank Account Number CSPO
159650-988/0800 and represented by Ing. Vaclav Kasik (hereinafter referred to as
the "Borrower").
WHEREAS:
A. The loan agreement which the parties concluded on February 9, 1995 (the
"Original Loan Agreement") foresees the possibility of additional loans being
provided by the Lender to the Borrower.
B. The Lender has already provided three additional loans to the Borrower in the
amount of 25 Million CZK under the Supplementary Loan Agreement dated March 30,
1995 and in the amount of 20 Million CZK under the Second Supplementary Loan
Agreement dated July 14, 1995 and in the amount of 9 Million CZK under the Third
Supplementary Loan Agreement dated December 11, 1995.
C. The Lender now to proffer and the Borrower wishes to receive a fourth
additional loan facility.
The parties have therefore agreed to the following:
1. THE LOAN
<PAGE>
1.1 The Lender shall advance to the Borrower an additional loan in the amount
of twelve million Czech crowns (12.000.000 CZK) ("the Loan amount").
2. TERMS AND CONDITIONS
2.1. The terms and conditions of the loan and of the entry into effect of this
Agreement shall be identical to those set out in the Original Loan Agreement,
except in the following particulars:
2.1.1. In lieu of a payment schedule, the Loan amount shall be disbursed in full
to the Borrower's aforementioned bank account, within thirty (30) days of the
entry into effect of this Agreement.
2.1.2. Article 8 (Approvals) of the Original Loan Agreement shall not apply to
this Agreement. However, the Borrower is obliged to report the terms of this
loan to the Czech National Bank pursuant to its obligation under the foreign
exchange regulations.
2.1.3. Article 9 (Governing law and Interpretation) of the Original Loan
Agreement shall also not apply to this Agreement.
2.2. For the purpose of the securing of this Loan, the equipment of Radio Alfa,
a.s. as described in provision 4.1. of the Original Loan Agreement, will be
increased with all equipment and receivables, obtained by Radio Alfa, a.s.,
before the date of this contract.
3. GOVERNING LAW AND ARBITRATION
3.1. This Agreement shall be governed by and construed in accordance with the
laws of the Czech Republic. Any dispute that may result from this transaction
shall be resolved by Arbitration court attached to the Economic Chamber of the
Czech Republic and the Agricultural Chamber of the Czech Republic. Proceedings
shall be conducted in the English and Czech language in accordance with the ICC
arbitration rules.
4. ENTRY INTO EFFECT
<PAGE>
5. COUNTERPARTS, LANGUAGE OF AGREEMENT AND INTERPRETATION
5.1. The Agreement shall be executed in four (4) counterparts, of which each
party shall retain two, one in English and one in Czech.
5.2. The Agreement is executed in both the English and the Czech languages, but
in the event of any dispute the Czech language version shall govern. In the
event of any conflict between the meaning of any provision in the Agreement and
that of the Original Loan Agreement, the interpretation which most conforms to
this Agreement shall prevail.
IN WITNESS HEREOF the parties attach their signatures:
Signed Signed
/s/ /s/
- ---------------------------- -------------------------------------
for and on behalf of for and on behalf of Radio Alfa, a.s.
CME Media Enterprises B.V.
<PAGE>
Fifth Supplementary Loan Agreement ("Agreement")
made on 29 November, 1996
Between
(1) CME MEDIA ENTERPRISES B.V., a limited liability company organized
and existing under the laws of The Netherlands with its registered office at
29 Leidenplatz, Amsterdam, The Netherlands (hereinafter referred to as
the "Lender"), represented by Mr. Loenard Fertig;
and
(2) RADIO ALFA a.s., a joint stock company organized and existing under
the laws of the Czech Republic with its registered office at Na Porici
12, Prague 1, Czech Republic, Company Identification Number 49240935,
Bank Account Number CSPO 159650-988/0800 and represented by Ing. Vaclav
Kasik (hereinafter referred to as the "Borrower").
WHEREAS:
A. The loan agreement which the parties concluded on February 9, 1995
(the "Original Loan Agreement") foresees the possibility of additional
loans being provided by the Lender to the Borrower.
B. The Lender has already provided four additional loans to the
Borrower.
C. The Lender now to proffer and the Borrower wishes to receive a fourth
additional loan facility.
The parties have therefore agreed to the following:
1. THE LOAN
1.1. The Lender shall advance to the Borrower an additional loan in the
amount of twenty million Czech crowns (20.000.000 CZK) ("the Loan
amount").
2. TERMS AND CONDITIONS
2.1. The terms and conditions of the loan and of the entry into effect of
this Agreement shall be identical to those set out in the Original Loan
Agreement, except in the following particulars:
2.1.1. In lieu of a payment schedule, the Loan amount shall be disbursed
in full to the Borrower's aforementioned bank account, within seven (7)
days of the entry into effect of this Agreement.
<PAGE>
2.1.2. Article 8 (Approvals) of the Original Loan Agreement shall not
apply to this Agreement. However, the Borrower is obliged to report the
terms of this loan to the Czech National Bank pursuant to its obligation
under the foreign exchange regulations.
2.1.3. Article 9 (Governing law and Interpretation) of the Original Loan
Agreement shall also not apply to this Agreement.
2.2. For the purpose of the securing of this Loan, the equipment of
Radio Alfa, a.s. as described in provision 4.1. of the Original Loan
Agreement, will be increased with all equipment, obtained by Radio Alfa,
a.s., between 11th December 1995 and the date of this contract.
3. GOVERNING LAW AND ARBITRATION
3.1. This Agreement shall be governed by and construed in accordance
with the laws of the Czech Republic. Any dispute that may result from
this transaction shall be resolved by Arbitration court attached to the
Economic Chamber of the Czech Republic and the Agricultural Chamber of
the Czech Republic. Proceedings shall be conducted in the English and
Czech language in accordance with the ICC arbitration rules.
4. ENTRY INTO EFFECT
4.1. This Agreement shall enter into effect upon its signature by the
Parties.
5. COUNTERPARTS, LANGUAGE OF AGREEMENT AND INTERPRETATION
5.1. The Agreement shall be executed in four (4) counterparts, of which
each party shall retain two, one in English and one in Czech.
5.2. The Agreement is executed in both the English and the Czech
languages, but in the event of any dispute the Czech language version
shall govern. In the event of any conflict between the meaning of any
provision in the Agreement and that of the Original Loan Agreement, the
interpretation which most conforms to this Agreement shall prevail.
IN WITNESS HEREOF the parties attach their signatures:
Signed Signed
/s/ /s/
- ------------------------ ----------------------
for and on behalf of CME for and on behalf of
Media Enterprises B.V. Radio Alfa, a.s.
<PAGE>
Amendment to the Loan Agreement
of August 1, 1996 and agreements referred to as
Security Documents
This Amendment to the Loan Agreement of August 1, 1996 and agreements
referred to as Security Documents (hereinafter referred to as the
"Amendment") is made as of March 11, 1997 (hereinafter referred to as the
"Effective Date")
between:
1) PhDr. Vladimir o elezny, an individual residing at Sibeliova 45,
Praha 6, the Czech Republic, with birth number 450303/951 (hereinafter
referred to as the "Borrower")
and
2) CME Media Enterprises B. V., a limited liability company organised and
existing under the laws of the Netherlands, with its registered office at
Leidseplein 29, Amsterdam, the Netherlands, represented by Leonard Martin
Fertig, the Managing Director (hereinafter referred to as the "Lender")
The Borrower and the Lender are hereinafter individually referred to as the
"Party" and collectively referred to as the "Parties".
WHEREAS:
A. The General Meeting of CNTS approved on December 17, 1996 such changes
which resulted in obtaining the Target Participation Interest in CNTS by
CME and such changes have been submitted into the Companies Register.
B. The Council of the Czech Republic for Radio and TV Broadcasting
abolished the License condition No. 17 of the Licence No. 001/93 on
December 17, 1997 which decision shall enter into legal effect and become
enforceable on February 25, 1997.
Based upon the following the Parties herein declare:
1.
That the Lender having fulfilled all the obligations, covenants and /or
promises he has had under the Loan Agreement and the underling Security
Documents (hereinafter referred to as the "the Loan Agreement"). Insofar as
any obligation has not been specifically fulfilled or performed it is hereby
by the Lender waived.
2.
<PAGE>
The Parties further declare that all Release Events have either occurred or
are deemed to have occurred. The Parties, therefore, have agreed to
completely release the Lender from all of his obligations including but not
limited to the repayment of the Loan with any interest which may apply by
this Release subject to the fulfilment of the following preceding conditions:
2.1.
the Borrower shall submit to the Lender a copy of the binding agreement
concluded between the Borrower and other of all the remaining participants of
NOVA - Consulting, a. s. (hereinafter referred to as "NOVA - Consulting") who
are the shareholders of this company that at all relevant times the Borrower
shall obtain the right of the first refusal to obtain the shares of the other
remaining shareholder's shares for a fait price, that the Borrower shall
notify the Lender of any such offer if and when occurs and that he shall
exercise it if so requested or shall solely be authorised to offer such
shares to the Lender on the same conditions as stated hereinafter below; and
2.2.
that the Borrower shall in writing confirm the obligation to offer all
the shares of the entire or any part of NOVA - Consulting Participation
Interest in NOVA - Consulting and/or in CNTS on a priority basis to the
Lender under the conditions as referred in the Articles of Association and
the Investment Agreement of CNTS as amended; and
2.3.
that the Borrower shall submit to the Lender a satisfactory unilateral
obligation in consideration of this Release and waivers contained herein that
the Borrower during the period of duration of the License, or the extension
or renewals thereof shall exercise his voting rights in CET 21 s.r.o. to
cause CET 21 s.r.o. not to violate any existing or in the future entered into
agreements between CET 21 s.r.o. and CNTS or the Lender and CNTS as long as
such agreements have been duly entered into between such entities and that in
the case of renewal of CET 21 license or an application for renewal the
Borrower will exercise his voting rights to ensure that the agreements
between CNTS and CET 21 are extended; and
2.4.
that the Borrower shall submit in writing his power of attorney granted
to a law firm or an attorney of the Lender's choice authorising such attorney
to exercise in mortis causa (in the event of his death) his all voting rights
associated with his interest in which he may possess in CET 21 s.r.o. or its
successor at the time of his death and which power shall not be revoked; and
2.5.
that in the event the registration of the Target Participation Interest
of CME in CNTS is for any reason not caused by CME declined by the court or
prevented due to changes of Czech laws, the validity of the Loan Agreement
and Security Documents shall be fully reinstalled and such documents shall
become valid and fully enforceable.
<PAGE>
3.
Should the Borrower violate any of the foregoing commitments the Lender shall
be entitled to the contractual penalty in the amount in accordance with a
provision 10. 8. of the Memorandum of Association and Investment Agreement of
CNTS as approved on November 14, 1996 which does substitute for any claim for
damages the Lender may have.
4.
Any amendment or waiver of any provision of this Amendment and any waiver of
any default under this Amendment shall only be effective if made in writing
and signed by the Lender.
5.
If any provision of this Amendment is invalid, ineffective, unenforceable or
illegal for any reason, such decision shall not affect the validity or
enforceability of any or all of the remaining provisions. The Parties agree
that should any provision of this Amendment be invalid or unenforceable, they
shall promptly enter into good faith negotiations to amend such provision in
such a way that, as emended, it is valid and legal and to the maximum extent
possible carries out the original intent of the Parties as to the issues or
issues in question.
6.
The failure of the Lender to exercise any right or power given to it under
this Amendment or to insist upon strict compliance with the terms of this
Amendment by the other Party, shall not constitute a waiver of the terms and
conditions of this Amendment with respect to any subsequent breach thereof,
nor a waiver by the Lender of its rights at any time thereafter to require
strict compliance with all the terms of this Amendment.
7.
The Lender may assign or transfer any of its rights or obligations under this
Amendment without the prior consent of the Borrower. The Borrower shall not,
without the prior written consent of the Lender, assign or transfer any of
its rights and/or obligations under this Amendment, such consent to be
withheld or granted by the Lender in its sole discretion.
8.
This Amendment shall be governed by and construed in accordance with the laws
of the Netherlands without giving effect to the conflicts of laws provisions
thereof.
9.
<PAGE>
All disputes, controversies or claims arising out of or in connection with
this Amendment shall be finally settled in accordance with the UNCITRAL
Arbitration Rules in force as of the Effective Date; provided, however, that
the Lender, and only the Lender, may in its sole discretion elect to commence
legal action against the Borrower in the courts (or other relevant tribunal
or forum) of the Czech Republic and the Borrower hereby submits to the
jurisdiction of such Czech courts, tribunals or forums. For the avoidance of
doubt, the Borrower hereby waives any right to commence legal or equitable
action arising out of in connection with any dispute, controversy or claim
arising out of or in connection with this Amendment in any forum, court or
tribunal other than by arbitration in Amsterdam as provided hereinafter below:
9.1.
There shall be 3 (in words: three) arbitrators. The appointing
authority shall be the President of the Amsterdam Chamber of Commerce. If
the appointing authority refuses to act or fails to appoint an arbitrator
within 30 (in words: thirty) days of the receipt of the parties' request
thereof, any party may request the Secretary-General of the Permanent Court
of Arbitration at the Hague to designate an appointing authority.
9.2.
The language of arbitration proceedings shall be English; all
submissions and awards in relation to the arbitration shall be conducted in
English. The place of arbitration shall be Amsterdam.
10.
This Amendment is executed in 6 (in words: six) counterparts in the English
language, with 3 (in words: three) counterparts for each Party.
11.
The provisions of the articles 8., 9. and 10. shall survive the expiration or
termination of this Amendment.
12.
All notices, consents, requests, instructions, approvals and other
communications provided for herein shall be in writing and shall be deemed
validly given upon personal delivery or on the day of being sent by telecopy
or overnight courier service:
12.1.
To the Lender at:
CME Media Enterprises B.V.
Leidseplein 29
<PAGE>
Amsterdam, the Netherlands
with a copy to:
CME Group
18 D'Arblay Street
London W1V 3FP
United Kingdom
Facsimile: 44-171-292-7901
12.2.
To the Borrower at:
PhDr. Vladimir o elezny
Sibeliova 45
Praha 6, Czech Republic
or at such other address and telecopy number as either Party may designate by
written notice to the other Party.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment on the
Effective Date.
_________________________ _________________________
the Lender the Borrower
<PAGE>
SHARE PURCHASE AGREEMENT
entered into pursuant to Section 13 and following of Act No. 591/1992
Coll. on Securities and Section 358 and following and Section 409
and following of Act. No. 513/1991 Coll., the Commercial Code
This Share Purchase Agreement (hereinafter "the Agreement") has been entered
into on November 15, 1996
between
1. IDOS Praha, spol. s r. o., with its registered office at Praha 8, Kubisova
17, IDN: 4387 0660, represented by the Executive Ing. Lubomir Kasak
(hereinafter only "the Seller"), bank address: Komercni banka, a. s.,
pobocka Pribram, bank account: 15800-211/0100, SWIFT CODE: - KOMB CZ PP
and
2. CME Media Enterprises B.V., with its registered office at Leidseplein 29,
Amsterdam, the Netherlands, represented by JUDr. Martin Radvan, LL. M.,
advocate at the law office at Praha 1, Jindrisska 20, on the basis of the
power of attorney of July 17, 1996 (hereinafter only "the Purchaser"),
(hereinafter independently only "the Party" and collectively only "the
Parties").
Preamble
The Seller represents that it legally owns 1,600 (in words: one thousand and
six hundred) registered shares each having a nominal value of CZK 10,000 (in
words: ten thousand Czech crowns) in Radio Alfa, a. s., with its registered
office at Praha 1, Na po0iei 12, IDN: 4924 0935, (numbers of shares from 2.601
to 4.200) incorporated in the Companies Register maintained at the Regional
Court of Commerce in Prague, Part B, Insert No. 2055 (hereinafter only
"the Company"), such shares representing 32% of the Company's
Registered Capital (hereinafter "the Shares") which is registered at the date
of entering of this Agreement on the number of insert hereto.
1
<PAGE>
I.
Purpose of the Agreement
The Seller offers, sells and transfers to the Purchaser, and the Purchaser
accepts the offer of, purchases and acquires from the Seller, the Shares in the
Company.
II.
Purchase Price and Terms of Payment
1. The Purchase Price of the Shares has been agreed between the Parties to be
CZK 22,000,000 (in words: twenty-two million Czech crowns), and shall be
payable as follows:
a) Within 14 days from the day of effect of this Agreement the Purchaser
shall pay to the Seller's account a sum of CZK 16,000,000 (in words:
sixteen million Czech crowns);
b) As to the 31st of January of 1997, 1998 and 1999 the Purchaser shall
each year pay a sum of CZK 2,000,000 (in words: two million Czech
crowns) to the Seller, thereby settling the balance of CZK 6,000,000
(in words: six million Czech crowns) of the total Purchase Price
agreed.
2. The day on which the respective sum is credited to the Seller's Account No.
15800-21/0100 at the Pribram office of Komercni banka, a. s., or to a
different account the details of which the Seller shall provide to the
Purchaser no later than 30 (in words: thirty) days before the instalment is
due, shall be regarded as the day of payment.
3. Interest of 0.04 % for each day of delay has been agreed to be payable in
case the Purchaser should default on paying the Purchase Price by the dates
as above agreed.
III.
The Seller's Obligations
1. The representative of the Seller is obliged to escrow, with attendance of
the representative of the Purchaser, the Shares in time of signing this
Agreement to a notary deposit at the notary office of JUDr. Ales Brezina,
residing at Praha 1, Petrska 12 (hereinafter only "the Notary").
2. The representative of the Seller is obliged to appear the Notary, to draw,
with the attendance of the representative of the Purchaser, the Shares from
the deposit endorse, before the Notary, the Share transfer to the Purchaser
on the back of the Share Certificates. The endorsement must be complete
with all the required details stipulated in Section 156 of Act No. 513/1991
Coll., the Commercial Code, and Section 11 and the following Sections of
Act No. 191/1950 Coll., the Bills of Exchange Act; within 5 (in words:
five) days after the payment under the Section II. para 1 point a) will be
credit at the Seller's account in order the Shares could be transferred
into the Purchaser's ownership.
2
<PAGE>
3. A record shall be made of the procedures carried out under paragraphs 1 and
2 above. The record shall be signed by the representative of the Seller and
the representative of the Purchaser, and their signatures shall be
verified.
4. The Seller shall notify the Company of the Share transfer within 3 (in
words: three) days of the day on which it delivers the Shares to the
Purchaser.
5. If the Seller was under the obligation to obtain any approval with the sale
of the Shares, the Seller hereby declares that all such approvals have been
obtained.
IV.
The Purchaser's Obligations
1. The Purchaser shall in all respects grant its co-operation to the Seller to
support the Seller in meeting its obligations under Article III. hereof.
2. The Purchaser shall notify the Company of the Share transfer within 3 (in
words: three) days from the day on which the Shares are delivered to the
Purchaser.
V.
Contractual Fine
1. A contractual fine of 1,000 USD (in words: one thousand U. S. dollars) per
each day of delay has been agreed between the Parties to be applicable
should the Purchaser be in breach of the arrangements of the Article II.
The Purchaser is exempt of a contractual fine if he proves that he would
give to the bank a proper instruction to pay the respective amount to the
account of the Seller in such advance before the respective amount would be
payable, that adhering the rules of the international bank communication
the amount should be reimbursed to the account of the Seller on time and
that the financial resources sufficient to payment of the appropriate
amount would be on its account.
2. A contractual fine of CZK 3,000,000 (in words: three million Czech crowns)
has been agreed between the Parties to be applicable should either of the
Parties be in breach of the arrangements of the Article III. or IV. of this
Agreement.
3. The Party in breach shall pay the fine to the other Party irrespective of
whether in this connection, and if so to what extent, the other Party has
suffered any damage that may be claimed separately.
4. The contractual fine shall be paid to the bank account within 10 (in words:
ten) day after the breach of this Agreement.
3
<PAGE>
VI.
Final Provisions
1. This Agreement is valid and effective upon its signing. If the Purchaser
does not fulfil its obligation defined in the Article II. para 1a), the
Seller can declare the Agreement invalid. If the Party does not fulfil its
obligations defined in Articles II. para 1b), III. and IV. of this
Agreement, the second Party has the right to withdraw this Agreement. The
declaration of invalidity or the withdrawal must be noticed in written form
to the second Party within 30 (in words: thirty) days after the breach. The
Agreement shall be in this case withdrawn from the beginning and the
Parties are obliged to give the mutually provided fulfilment.
2. This Agreement has been entered into subject to, and shall be governed by
the Czech law.
3. This Agreement has been made out in the Czech and English languages. Both
language versions are equal. The appropriate disputes shall be decided
pursuant to the counterpart in Czech language.
4. This Agreement has been made out in four counterpart copies in each
language version. Each of the Parties shall receive two Czech copies and
two English copies of this Agreement.
5. Amendments or changes to this Agreement, if any, may only be made in
writing, subject to the consent of both Parties hereto.
6. The Parties have agreed that all disputes, if any, arising from or in
connection with this Agreement shall first of all be settled in an amicable
manner. In the event no amicable solution is reached within 30 (in words:
thirty) days. All disputes arising from or in connection with this
Agreement finally decided in the arbitration proceedings at the Court of
Arbitration attached to the Chamber of Economy of the Czech Republic and
the Agrarian Chamber of the Czech Republic by three arbitrators designated
pursuant to the Rules. The proceedings shall be governed by the Rules of
the Court of Arbitration.
7. If it is not stated in this Agreement otherwise, the relevant provisions of
the Act No. 591/1992 Coll. on Securities, and of the Act No. 513/1991
Coll., the Commercial Code, shall be used.
This Agreement constitutes a proper and solemn expression of free will of both
Parties hereto. In witness whereof, the Parties attach hands of their
authorised representatives hereto.
------------------------- -------------------------
the Seller the Purchaser
<PAGE>
SHARE PURCHASE AGREEMENT
entered into pursuant to Section 13 and following of Act No. 591/1992
Coll. on Securities and Section 358 and following and Section 409
and following of Act. No. 513/1991 Coll., the Commercial Code
This Share Purchase Agreement (hereinafter "the Agreement") has been
entered into on December 3, 1996
between
1. Releas, a. s., with its registered office at Praha 8, Chlumeanskeho 5, IDN:
49 24 10 61, represented by Ing. Vladimir Kratina, the Vice-Chairman of the
Board of Directors (hereinafter only "the Seller"), bank address: Komercni
banka, a. s., pobocka Praha - misto, bank account: 192783300227/0100, SWIFT
CODE: KOMB CZ PP
and
2. CME Media Enterprises B.V., with its registered office at Leidseplein 29,
Amsterdam, the Netherlands, represented by JUDr. Martin Radvan, LL.M.,
advocate at the law office at Praha 1, Jindrisska 20, on the basis of the
power of attorney of July 17, 1996 (hereinafter only "the
Purchaser"),
(hereinafter independently only "the Party" and collectively only "the
Parties").
Preamble
The Seller represents that it legally owns 1,000 (in words: one thousand)
registered shares each having a nominal value of CZK 10,000 (in words: ten
thousand Czech crowns) in Radio Alfa, a. s., with its registered office at
Praha 1, Na porici 12, IDN: 4924 0935, (numbers of shares from: 1.601 to 2.600)
incorporated in the Companies Register maintained at the Regional Court of
Commerce in Prague, Part B, Insert No. 2055 (hereinafter only "the
Company"), such shares representing 20% of the Company's Registered
Capital (hereinafter "the Shares") which is registered at the date of entering
of this Agreement on the number of insert hereto. The Parties concluded on May
24, 1994 the option and they have decided to exercise the option by this
Agreement.
1
<PAGE>
I.
Purpose of the Agreement
The Seller offers, sells and transfers to the Purchaser, and the Purchaser
accepts the offer of, purchases and acquires from the Seller, the Shares in the
Company.
II.
Purchase Price and Terms of Payment
1. The Purchase Price of the Shares has been agreed between the Parties to be
CZK 10,000,000 (in words: ten million Czech crowns), and shall be payable
within 14 (in words: fourteen) days after the signing of this Agreement.
2. The day on which the respective sum is credited to the Seller's Account No.
192783300227/0100 in Komercni banka, a. s., pobocka Praha - mesto, or to a
different account the details of which the Seller shall provide to the
Purchaser no later than at the time of signing of this Agreement.
3. Interest of 0.1 % for each day of delay has been agreed to be payable in
case the Purchaser should default on paying the Purchase Price by the dates
as above agreed.
III.
The Seller's Obligations
1. The Seller is obliged at the time of signing to escrow, the Shares to a
deposit at the law office of JUDr. Martin Radvan, residing at Praha 1,
Jindrisska 20. (hereinafter only "the Depositor").
2. The Seller is obliged within 10 (in words: ten) days after the payment of
the purchase price will be paid to appear the Depositor and to endorse on
the back of the Share Certificate the transfer of the Shares with all the
required details stipulated in Section 156 of Act No. 513/1991 Coll., the
Commercial Code, and Section 11 and the following Sections of Act No.
191/1950 Coll., the Bills of Exchange Act and to give the Shares to the
Purchaser.
3. A record shall be made of the procedures carried out under paragraphs 1 and
2 above. The record shall be signed by the Seller and the Purchaser, and
their signatures shall be notarised.
4. The Seller shall notify the Company of the Share transfer within 3 (in
words: three) days of the day on which it delivers the Shares to the
Purchaser.
5. If the Seller was under the obligation to obtain any approval with the sale
of the Shares, the Seller hereby declares that all such approvals have been
obtained.
2
<PAGE>
IV.
The Purchaser's Obligations
1. The Purchaser shall in all respects grant its co-operation to the Seller to
support the Seller in meeting its obligations under Article III. hereof.
2. The Purchaser shall notify the Company of the Share transfer within 3 (in
words: three) days from the day on which the Shares are delivered to the
Purchaser.
V.
Final Provisions
1. A penalty of CZK 1,000,000 ( in words: one million Czech crowns) has been
agreed between the Parties to be applicable should either of the Parties be
in breach of any of the arrangements hereunder, with the exception of
Article II. of this Agreement, which sanction in case of breach is defined
independently in the Article II., para 3 of this Agreement. The Party in
breach shall pay the penalty to the other Party irrespective of whether in
this connection, and if so to what extent, the other Party has suffered any
damage that may be claimed separately.
2. This Agreement is valid and effective upon its signing.
3. This Agreement has been entered into subject to, and shall be governed by
the Czech law.
4. This Agreement has been made out in the Czech and English languages. Both
language versions are equal.
5. This Agreement has been made out in four counterpart copies in each
language version. Each of the Parties shall receive two Czech copies and
two English copies of this Agreement.
6. Amendments or changes to this Agreement, if any, may only be made in
writing, subject to the consent of both Parties hereto.
7. The Parties have agreed that all disputes, if any, arising from or in
connection with this Agreement shall first of all be settled in an amicable
manner. In the event no amicable solution is reached within 30 (in words:
thirty) days. All disputes arising from or in connection with this
Agreement finally decided in the arbitration proceedings at the Court of
Arbitration attached to the Chamber of Economy of the Czech Republic and
the Agrarian Chamber of the Czech Republic by three arbitrators designated
pursuant to the Rules. The proceedings shall be governed by the Rules of
the Court of Arbitration.
3
<PAGE>
8. If it is not stated in this Agreement otherwise, the relevant provisions of
the Act No. 591/1992 Coll. on Securities, and of the Act No. 513/1991
Coll., the Commercial Code, shall be used.
This Agreement constitutes a proper and solemn expression of free will of both
Parties hereto. In witness whereof, the Parties attach their hand hereto.
------------------------- -------------------------
the Seller the Purchaser
<PAGE>
SHARE PURCHASE AGREEMENT
entered into pursuant to Section 13 and following of Act No. 591/1992
Coll. on Securities and Section 358 and following of
Act No. 513/1991 Coll., the Commercial Code
This Share Purchase Agreement (hereinafter "the Agreement") has been entered
into on December 12, 1996
between
1. Ceska sporitelna, a. s., with its registered office at Na Prikope 29, Praha
1, PSC 113 98, IDN: 45 24 47 82, represented by JUDr. Karel Kotrba, the
Vice-chairman of the Board of Directors and the First Deputy to the General
Director, and JUDr. Rudolf Hanus, the member of the Board of Directors and
the Deputy to the General Director (hereinafter only "the Seller")
and
2. CME Media Enterprises B.V., with its registered office at Leidseplein 29,
Amsterdam, the Netherlands, represented by JUDr. Martin Radvan, LL.M.,
advocate at the law office at Praha 1, Jindrisska 20, on the basis of the
power of attorney of July 17, 1996 (hereinafter only "the
Purchaser"),
(hereinafter independently only "the Party" and collectively only "the
Parties").
Preamble
The Seller represents that it legally owns 500 (in words: five hundred)
registered shares each having a nominal value of CZK 10,000 (in words: ten
thousand Czech crowns) in Radio Alfa, a. s., with its registered office at
Praha 1, Na porici 12, IDN: 49 24 09 35, (numbers of shares from: 1.101 to
1.600) incorporated in the Companies Register maintained at the Regional Court
of Commerce in Prague, Part B, Insert No. 2055 (hereinafter only "the
Company"), such shares representing 10% of the Company's Registered Capital
(hereinafter "the Shares") which is registered at the date of entering of this
Agreement on the number of insert hereto.
I.
Purpose of the Agreement
The Seller is obliged to transfer to the Purchaser the Shares in accordance
with terms defined by this Agreement. The Purchaser is obliged to pay the
concluded price for the Shares in accordance with terms defined by this
Agreement.
1
<PAGE>
II.
Purchase Price and Terms of Payment
1. The Purchase Price of the Shares has been agreed between the Parties to be
CZK 5,500,000 (in words: five million five hundred thousand Czech crowns),
and shall be payable within 14 (in words: fourteen) days after the signing
of this Agreement.
2. As the date of payment shall be considered the day on which the respective
sum pursuant to the point 1. will be credited to the Seller's Account No.
53034-861/0100, variable symbol (v. s.) No.: 471116871, constant symbol (k.
s.) No.: 3058 in Komercni banka Praha, SWIFT CODE: KOMB CZ PP or to a
different account the details of which the Seller shall provide to the
Purchaser no later than at the time of signing of this Agreement.
3. If the Purchaser is in delay with the payment of the Purchase Price, the
Purchaser would be obliged to pay an interest of 0.04 % for each day of
delay.
III.
The Seller's Obligations
1. The Seller is obliged within 10 (in words: ten) days after the signing of
this Agreement to endorse on the back of the Share Certificate the transfer
of the Shares with all the required details stipulated in Section 156 of
Act No. 513/1991 Coll., the Commercial Code, and Section 11 and the
following Sections of Act No. 191/1950 Coll., the Bills of Exchange Act and
to give the Shares to the Purchaser at the Seller's office at Praha 1,
Narodni 27.
2. A record shall be made of the procedures carried out under paragraph 1,
shall be signed by the Seller and the Purchaser, and their signatures shall
be notarised.
4. The Seller shall notify the Company of the Share transfer within 3 (in
words: three) days of the day on which it delivers the Shares to the
Purchaser.
5. If the Seller was under the obligation to obtain any approval with the sale
of the Shares, the Seller hereby declares that all such approvals have been
obtained.
IV.
The Purchaser's Obligations
1. The Purchaser shall in all respects grant its co-operation to the Seller to
support the Seller in meeting its obligations under Article III. hereof.
2. The Purchaser shall notify the Company of the Share transfer within 3 (in
words: three) days from the day on which the Shares are delivered to the
Purchaser.
2
<PAGE>
V.
Final Provisions
1. A penalty in the amount of 10% (in words: ten percent) of the Purchase
Price has been agreed between the Parties to be applicable should either of
the Parties be in breach of any of the arrangements hereunder, with the
exception of Article II. of this Agreement, which sanction in case of
breach is defined independently in the Article II., para 3 of this
Agreement. The Party in breach shall pay the penalty to the other Party
irrespective of whether in this connection, and if so to what extent, the
other Party has suffered any damage that may be claimed separately.
2. This Agreement is valid and effective upon its signing.
3. This Agreement has been entered into subject to, and shall be governed by
the Czech law.
4. This Agreement has been made out in the Czech and English languages; in the
event of ambiguity the Czech language shall control.
5. This Agreement has been made out in four counterpart copies in each
language version. Each of the Parties shall receive two Czech copies and
two English copies of this Agreement.
6. This Agreement may only be changed in written form of the Amendments signed
by both Parties.
7. The Parties have agreed that all disputes, if any, arising from or in
connection with this Agreement shall first of all be settled in an amicable
manner. In the event no amicable solution is reached within 30 (in words:
thirty) days. All disputes arising from or in connection with this
Agreement finally decided in the arbitration proceedings at the Court of
Arbitration attached to the Chamber of Economy of the Czech Republic and
the Agrarian Chamber of the Czech Republic by three arbitrators designated
pursuant to the Rules. The proceedings shall be governed by the Rules of
the Court of Arbitration. The proceeding shall take place in Prague in
Czech and English languages.
8. If it is not stated in this Agreement otherwise, the relevant provisions of
the Act No. 591/1992 Coll. on Securities, and of the Act No. 513/1991
Coll., the Commercial Code, shall be used.
3
<PAGE>
This Agreement constitutes a proper and solemn expression of free will of both
Parties hereto. In witness whereof, the Parties attach their hand hereto.
------------------------- -------------------------
the Seller the Purchaser
-------------------------
the Seller
<PAGE>
A G R E E M E N T
ON ASSIGNMENT OF CLAIM
entered into pursuant to Section 524 and following of
Act No. 40/1964 Coll., the Civil Code
This Agreement on Assignment of Claim (hereinafter the Agreement") has been
entered into on December 12, 1996
between
1. Ceska spo0itelna, a. s., with its registered office at Na Prikope 29, Praha
1, PSC 113 98, IDN: 45 24 47 82, represented by JUDr. Karel Kotrba, the
Vice-chairman of the Board of Directors and the First Deputy to the General
Director, and JUDr. Rudolf Hanus, the member of the Board of Directors and
the Deputy to the General Director (hereinafter only "the Assignor")
and
2. CME Media Enterprises B.V., with its registered office at Leidseplein 29,
Amsterdam, the Netherlands, represented by JUDr. Martin Radvan, LL.M.,
advocate at the law office at Praha 1, Jind0isska 20, on the basis of the
power of attorney of July 17, 1996 (hereinafter only "the Assignee"),
(hereinafter independently only "the Party" and collectively only "the
Parties").
I.
Representations of the Assignor
1. The Assignor represents that he owns the claim towards the company Radio
Alfa, a. s., with its registered office at Praha 1, Na porici 12, IDN: 49
24 09 35 (hereinafter only "the Company"), of the balance (it means,
without non-paid accounted interests and fees) of the drawn long-term loan
No. 33320-159650-988/0800, based on a loan contract of June 10, 1996
concluded between the Assignor and the Company (hereinafter only "the
Loan") in the amount of 17,324,000 CZK (in words: seventeen million three
hundred twenty four thousand Czech crowns) at the date of signing
(hereinafter only "the Claim") on which the amount 17,324,000 CZK (in
words: seventeen million three hundred twenty four thousand Czech crowns)
remains due and owing.
2. The Assignor further represents, the Claim validly exists and has not been
expired by any agreement between the Assignor and the Company or between
the Assignor and any third party and that the Claim is not subject of any
legal relation
1
<PAGE>
between the Assignor and any third party, including, but not limited that
the Claim or any right connected with it has not been assigned to any third
party.
3. The Assignor further represents that at this time there is no pending or
threatened litigation at the court or any similar authority deciding the
disputes, which could suspend the Claim.
II.
Purpose of the Agreement
1. The Assignor as the creditor of the Company assignees to the Assignee the
Claim towards the Company - the balance of the Loan in the amount of
17,324,000 CZK (in words: seventeen million three hundred twenty-four
thousands Czech crowns).
2. Non-paid accounted interests of the Loan including fees in the amount of
515,791.80 CZK (in words: five hundred fifteen thousands seven hundred
ninety-one Czech Crowns eighty hellers) at the day of the signing of this
Agreement, which will remain the obligation of the Company to the Assignor
until they will be paid, however, they will not be increased.
III.
The Payment
1. The Payment of Assignment of the Claim has been agreed between the Parties
to be 11,260,600 CZK (in words: eleven million two hundred sixty thousand
six hundred Czech crowns) and shall be payable within 14 (in words:
fourteen) days after the signing of this Agreement.
2. The day on which the respective sum pursuant to the point 1. is credited to
the Assignor's Account No. 159650-988/0800, constant symbol (k. s.) No.:
298, variable symbol (v. s.) No.: 121296 in Ceska sporitelna, a. s., SWIFT
CODE: CSPO CZ PP, or to a different account the details of which the
Assignor shall provide to the Assignee no
later than at the time of signing of this Agreement.
3. If the Assignee is in delay with the payment of the Payment, the Assignee
would be obliged to pay an interest of 0.04 % for each day of delay.
2
<PAGE>
IV.
The Assignor's Obligations
1. The Assignor shall notify the Company of the Assignment of the Claim from
the Assignor to the Assignee within 3 (in words: three) days of the day on
which the payment pursuant to the Section III. is paid.
2. If the fulfilment of the assigned Claim is secured by the pledge, guarantee
or otherwise, the Assignor is obliged to inform about the assignment of the
Claim the person, who provided the security of the Claim.
3. If the Assignor was under the obligation to obtain any approval with the
assignment of the Claim, the Assignor hereby declares that all such
approvals have been obtained.
V.
The Assignee's Obligation
The Assignee is obliged to pay to the Assignor for the assignment the concluded
Payment in the amount and in the way defined in the Article III.
VI.
Final Provisions
1. A penalty of CZK 1,000,000 (in words: one million Czech crowns) has been
agreed between the Parties to be applicable should either of the Parties be
in breach of any of the arrangements hereunder, with the exception of
Article III. of this Agreement, which sanction in case of breach is defined
independently in the Article III. The Party in breach shall pay the penalty
to the other Party irrespective of whether in this connection, and if so to
what extent, the other Party has suffered any damage that may be claimed
separately.
2. This Agreement is valid and effective upon its signing.
3. This Agreement has been entered into subject to, and shall be governed by
the Czech law.
4. This Agreement has been made out in the Czech and English languages; in the
event of ambiguity the Czech language shall control.
5. This Agreement has been made out in four counterpart copies in each
language version. Each of the Parties shall receive two Czech copies and
two English copies of this Agreement.
3
<PAGE>
6. This Agreement may only be changed in written form of the amendments signed
by both Parties.
7. The Parties have agreed that all disputes, if any, arising from or in
connection with this Agreement shall first of all be settled in an amicable
manner. In the event no amicable solution is reached within 30 (in words:
thirty) days. All disputes arising from or in connection with this
Agreement finally decided in the arbitration proceedings at the Court of
Arbitration attached to the Chamber of Economy of the Czech Republic and
the Agrarian Chamber of the Czech Republic by three arbitrators designated
pursuant to the Rules. The proceedings shall be governed by the Rules of
the Court of Arbitration. The proceeding shall take place in Prague in
Czech and English languages.
8. If it is not stated in this Agreement otherwise, the relevant provisions of
the Civil Code is used.
This Agreement constitutes a proper and solemn expression of free will of both
Parties hereto. In witness whereof, the Parties attach their hand hereto.
------------------------- -------------------------
the Assignor the Assignee
-------------------------
the Assignor
<PAGE>
ASSIGNMENT OF SHARES AGREEMENT
Concluded between:
BALACLAVA B.V. - a limited liability company organized and existing under
the laws of the Netherlands with its registered office at 11 Johannes
Vermeerplein DV, Amsterdam, represented by Mr. Ion Dinicoiu, as "Assignor
Shareholder";
Adrian Sarbu - a citizen of Romania residing in Bucharest, 2-4
Turgheniev Str., Sector 1, Romania, as "Assignor Shareholder"
as shareholders of the company PRO TV LTD. registered under the no.
J40/24578/1992, following the decision of the General Assembly of the
Shareholders from ____________, and
CME Media Enterprises B.V. (CME) - a limited liability company organized
and existing under the laws of The Netherlands with its registered office at
29 Leidseplein, Amsterdam, represented by Theodore J. Fisher;
Grigoruta Roxana Dorina - a citizen of Romania residing in Bucharest, 2
Bozieni Str., Bl. 834, Sc. 2, Et. 10, Ap. 125, Sector 6;
Petrovici Liana - a citizen of Romania residing in Bucharest, 10 Radu
Boiangiu Str., Bl. 39 A, Sc. A, Et. 7, Ap. 30, Sector 1
as "Third Party Assignees"
which agreed the present "Assignment of Shares Agreement", following the
decision of The General Assembly of Shareholders of MPI S.A. from
12.07.1996 and of PRO TV Ltd. from ___________ as well as the
understandings included in the Cooperation Agreement signed on
04.08.1995, as follows:
I. BALACLAVA B.V. - assigns to the "Third Party Assignee" CME Media
Enterprises B.V. a number of 2,496 shares, numbered 1,909 to 4,404
inclusive, representing 24,960,000 lei, equivalent to USD 124,800 (at a
rate of 200 lei/USD) paid in USD, as contribution in kind, representing
34% of the registered capital.
II. ADRIAN SARBU - assigns to the "Third Party Assignees" a number of
1,468 shares, numbered 4,405 to 5,872 inclusive, representing 14,680,000
lei (equivalent to USD 73,400), as contribution in cash, representing
20% of the registered capital, as follows:
- - To CME Media Enterprise B.V. - a number of 1,101 shares, numbered
4,405 to 5,505 inclusive, representing 11,010,000 lei (equivalent to USD
55.050), paid in USD, representing 15% of the total registered capital;
<PAGE>
- - To Grigoruta Roxana Dorina - a number of 183 shares, numbered 5,506 to
5,688 inclusive, representing 1,830,000 lei (equivalent to USD 9,150),
paid in lei, representing 2.5% of the total registered capital;
- - To Petrovici Liana - a number of 184 shares, numbered 5,689 to 5,872
inclusive, representing 1,840,000 lei (equivalent to USD 9,200), paid in
lei, representing 2.5% of the total registered capital;
The shares were fully paid by the "Third Party Assignees" to their subscribed
and paid value, as follows:
CME Media Enterprises B.V. - paid for the assigned shares the amount of
USD 179,850 of which USD 124,800 was paid to BALACLAVA B.V. and USD
55,050 to Mr. Adrian Sarbu.
Grigoruta Roxana Dorina - paid for the assigned shares the amount of
1,830,000 lei to Mr. Adrian Sarbu.
Petrovici Liana - paid for the assigned shares the amount of 1,840,000
lei to Mr. Adrian Sarbu.
The "Third Party Assignees" become shareholders according to the
provisions of Law no. 31/1990 and they shall have the rights and
obligations of a shareholder.
The present Agreement was drafted by Petrovici Liana - Lawyer, in 6
copies, \n Bucharest, in Romanian and English languages and
authenticated by the Public Notary - Vladica Ratiu Gheorghe.
ASSIGNORS ASSIGNEES
BALACLAVA B.V. CME MEDIA ENTERPRISE B.V.
by ION DINICOIU by, THEODORE J. FISHER
/s/ Ion Dinicoiu /s/ Theodore J. Fisher
- -------------------- ---------------------------
SARBU ADRIAN ROXANA GRIGORUTA DORINA
/s/ Sarbu Adrian /s/ Roxana Grigoruta Dorina
- -------------------- ---------------------------
PETROVICI LIANA
/s/ Petrovici Liana
---------------------------
<PAGE>
AMENDMENT Nr. 6
to the Contract of Association and Statutes of
SC PRO TV LTD.
authenticated under the no. 12442/11.07.1991
Concluded between:
BALACLAVA B.V. - a limited liability company organized and existing under
the laws of the Netherlands with its registered office at 11 Johannes
Vermeerplein DV, Amsterdam, represented by Mr. Ion Dinicoiu;
Adrian Sarbu - a citizen of Romania residing in Bucharest, 2-4
Turgheniev Str., Sector 1, Romania;
CME Media Enterprises B.V. (CME) - a limited liability company organized and
existing under the laws of The Netherlands with its registered office at 29
Leidseplein, Amsterdam, represented by Theodore J. Fisher;
Grigoruta Roxana Dorina - a citizen of Romania residing in Bucharest, 2
Bozieni Str., Bl. 834, Sc. 2, Et. 10, Ap. 125, Sector 6;
Petrovici Liana - a citizen of Romania residing in Bucharest, 10 Radu
Boiangiu Str., Bl. 39 A, Sc. A, Et. 7, Ap. 30, Sector 1
The shareholders of the company PRO TV LTD. registered under the no.
J40/24578/1992, following the decision of the General Assembly of the
Shareholders from ____________, agreed to conclude the present Amendment, as
follows:
1. Change of capital structure of the Company as a consequence of the Shares
Assignment Agreement authenticated under the no._____________ on ______ by the
Public Notary - Vladica Ratiu Gheorghe.
"The company's registered capital and the book-keeping are expressed in lei.
The subscribed registered capital is of 73,400,000 lei (equivalent of 367,000
USD), of which USD 275,050 paid in USD (at a rate of 200 lei/USD) and
18,390,000 lei, paid in cash.
The subscribed social capital is composed of:
- - 44,000,000 lei, equivalent of USD 220,000, as contribution in kind
- - 29,400,000 lei, contribution in cash, of which USD 55.050 in cash was paid in
USD.
The subscribed registered capital is divided into 7,340 nominative shares of
10,000 lei each.
The shares are numbered 1 through 7,340 inclusive and they are
held by the shareholders as follows:
<PAGE>
BALACLAVA B.V. - 19,080,000 lei, equivalent of USD 95,400, holding 1,908
shares, numbered 1 to 1,908 inclusive, representing 26% of the registered
capital, paid as follows: 40,000 lei in cash and USD 95,200 contribution in
kind.
CME MEDIA ENTERPRISES B.V. - 35,970,000 lei (equivalent of USD 179,850),
holding 3,597 shares, numbered 1,909 to 5,505 inclusive, representing 49% of
the registered capital, paid as follows: USD 55,050 in cash and USD 124,800
contribution in kind.
ADRIAN SARBU - 14,680,000 lei (equivalent of USD 73,400) in cash, holding 1,468
shares, numbered 5,873 to 7,340 inclusive, representing 20% of the registered
capital.
GRIGORUTA ROXANA DORINA - 1,830,000 lei (equivalent of USD 9,150) in cash,
holding 183 shares, numbered 5,506 to 5,688 inclusive, representing 2.5% of the
registered capital.
PETROVICI LIANA - 1,840,000 lei (equivalent of USD 9,200), in cash, holding
184 shares, numbered 5,689 to 5,872 inclusive, representing 2.5% of the
registered capital.
The registered capital is entirely paid and is the property of the Company.
The contribution in kind was entirely transfered to the Company. It was
evaluated by the Technical Valuation Report no. 1987/14.02.1982. The
contribution in cash was fully paid by the shareholders".
Art. 5 of the Contract of Association and Art. 7 of the Statute shall be
altered accordingly.
The present Amendment was drafted by Liana Petrovici - Lawyer, in 6 copies in
English and Romanian languages and authenticated by the Public Notary - Lidia
Seceleanu.
Liana Petrovici - Lawyer
Acting by unanimous consent of
the General Assembly of Shareholders
of
---------------------------------
<PAGE>
DECISION
of the General Assembly of Shareholders
of PRO TV Ltd
----------
The General Assembly of Shareholders was convened for an ordinary meeting.
There were present :
BALACLAVA B.V. - owner of 60% of the registered capital, represented
by Mr. Dinicoiu Ion
Adrian Sarbu - owner of 40% of the registered capital.
The shareholders representing 100% of the registered capital of PRO TV
Ltd were present at the meeting.
Agenda
1. Finalizing and drafting of the documents in order to enforce
the option right of CME Media Enterprises B.V. set forth in the
Cooperation Agreement, signed on 04.08.1995, according to which CME
Media Enterprises B.V. intends to aquire 49% of the shares held by PRO
TV Ltd.
2. According to that purchasing option, the two shareholders,
BALACLAVA B.V. and Adrian Sarbu must to assign 49% of the registered
capital of PRO TV Ltd., as follows:
I. BALACLAVA B.V. - assigns to the "Third Party Assignee" CME
Media Enterprises B.V. a number of 2,496 shares, numbered 1,909 to 4,404
inclusive, representing 24,960,000 lei, equivalent of USD 124,800 (at a
rate of 200 lei/USD) paid in USD, as contribution in kind, representing
34% of the registered capital.
II. ADRIAN SARBU - assigns to the "Third Party Assignees" a number
of 1,468 shares, numbered 4,405 to 5,872 inclusive, representing
14,680,000 lei (equivalent of USD 73.400), contribution in cash,
representing 20% of the registered capital, as follows:
- - To CME Media Enterprise B.V. - a number of 1,101 shares, numbered
4,405 to 5,505 inclusive, representing 11,010,000 lei (equivalent to USD
55.050), paid in USD, representing 15% of the total registered capital;
<PAGE>
- - To Grigoruta Roxana Dorina - a number of 183 shares, numbered 5,506 to
5,688 inclusive, representing 1,830,000 lei (equivalent to USD 9,150),
paid in lei, representing 2.5% of the total registered capital;
- - To Petrovici Liana - a number of 184 shares, numbered 5,689 to 5,872
inclusive, representing 1,840,000 lei (equivalent to USD 9,200), paid in
lei, representing 2.5% of the total registered capital;
The shares shall be fully paid by the "Third Party Assignees" to their
subscribed and paid value, from the setting up of the company.
The "Third Party Assignees" become shareholders according to the
provisions of Law no. 31/1990 and they shall have the rights and
obligations of a shareholder.
III. The capital structure shall be modified by Amendment, as follows:
"The company's registered capital and the book-keeping are expressed in lei.
The subscribed registered capital is 73,400,000 lei (equivalent to
367,000 USD), of which USD 275,050 in USD (at a rate of 200 lei/USD)
and 18,390,000 lei, paid in cash.
The subscribed social capital is composed of:
- - 44,000,000 lei, equivalent to USD 220,000 as contribution in kind;
- -29,400,000 lei, contribution in cash, of which USD 55.050 in cash were paid in
USD.
The subscribed registered capital is divided in 7,340 nominative shares
of 10,000 lei each.
The shares are numbered 1 through 7,340 inclusive and they are held by
the shareholders as follows:
BALACLAVA B.V. - 19,080,000 lei, equivalent to USD 95,400, holding
1,908 shares, numbered 1 to 1,908 inclusive, representing 26% of the
registered capital, paid as follows: 40,000 lei in cash and USD 95,200
contribution in kind.
CME MEDIA ENTERPRISES B.V. - 35,970,000 lei (equivalent of USD 179,850),
holding 3,597 shares, numbered 1,909 to 5,505 inclusive, representing
49% of the registered capital, paid as follows: USD 55,050 in cash and
USD 124,800 contribution in kind.
ADRIAN SARBU - 14,680,000 lei (ecuivalent to USD 73,400) in cash,
holding 1,468 shares, numbered 5,873 to 7,340 inclusive, representing
20% of the registered capital.
<PAGE>
GRIGORUTA ROXANA DORINA - 1,830,000 lei (equivalent to USD 9,150) in
cash, holding 183 shares, numbered 5,506 to 5,688 inclusive,
representing 2.5% of the registered capital.
PETROVICI LIANA - 1,840,000 lei (ecquivalent of USD 9,200), in cash,
holding 184 shares, numbered 5,689 to 5,873 inclusive, representing 2.5%
of the registered capital.
The registered capital is entirely paid and is the property of the Company. The
contribution in kind was entirely transfered to the Company. It was evaluated by
the Technical Valuation Report no. 1987/14.02.1982. The contribution in cash was
fully paid by the shareholders".
Acting by unanimous consent, the Shareholders authorize Mrs. Petrovici
Liana - Lawyer to fulfil all the requirements of the Law and to sign the
Amendment in order to materialize the present decision and to register
the Amendment in the Register of Commerce.
Shareholders:
BALACLAVA B.V.
by ION DINICOIU ADRIAN SARBU
/s/ Ion Dinicoiu /s/ Adrian Sarbu
- ------------------ ----------------
<PAGE>
REPRESENTATIONS AND WARRANTIES
to the Assignment Agreement concluded between
the Assignor - Shareholders Adrian Sarbu and Balaclava B.V.
and the Third Party Assignee - CME Media Enterprises B.V.
I. The Sole Adminstrator of PRO TV Ltd. warrants and represents that:
1. PRO TV Ltd. is a Romanian legal person existing and functioning under
laws No. 31/1990 and No. 35/1991 as modified by the Law 57/1993.
2. The conclusion and execution of this agreement or any other documents by
the Assignors or execution of the transactions arising from this contract by
the parties:
a) do not violate any stipulations of the articles of the Company Agreement,
Statute, or any other documents of the Company;
b) do not violate or shall not cause the loss of any preemption or option
right from any other agreement;
c) do not require the authorization, agreement or approval, exemption or any
other actions of any other parties;
d) do not violate any law or order to which the company is a subject.
3. The company is not in liquidation or reorganization and it is not in
litigation with other persons nor has any litigation been threatened that may
affect in any way the company or its business. All litigation to which the
Company is a Party has been disclosed on the list appended hereto.
4. The Company presented all relevant financial information regarding its
activity and this information represents a correct description of the
financial situation of the Company as of the date of this Agreement.
5. The Sole Administrator of PRO TV Ltd. presented the accounting balance
dated 30.06.1996 to the Third Party Assignee, a copy of which is appended
hereto. From the patrimony situation of that date results a certain relationship
between the Company' debts and assets, respectively the Company' assets.
6. No assets of the Company have been pleged or otherwise encumbered.
7. The Company has disclosed in writing to Third Party Assignee all
significant issues relating to the assets or liabilities of the Company, as
well as all material contracts, and any other matter of financial or legal
significance.
II. The Third Party Assignee - CME Media Enterprises B.V. warrants that:
1. CME is a corporation duly organised, validly existing and it has all
requisite power and authority to buy the shares in PRO TV Ltd.
<PAGE>
2. As a majority Shareholder, CME shall not make any decision in the General
Assembly or in the Company's administration that could result in the
restriction, limitation or withdrawal of the Licenses held by PRO TV Ltd.
3. CME shall permanently act in accordance with the requirements of the
Romanian laws and shall not cause by any means the violation of the Romanian
laws.
4. CME is acquainted with the provisions of the Audio-visual Law, being
informed that PRO TV Ltd. is the owner of some TV Licenses, and CME shall not
commit any act that could conflict with the Licenses.
Executed in 2 copies, in Bucharest, 06.12.1996
We have enclosed the accounting balance of 30.06.1996 herewith.
The Sole Administrator of PRO TV Ltd. CME Media Enterprises B.V.
ADRIAN SARBU THEODORE J. FISHER
/s/ Adrian Sarbu /s/ Theodore J. Fisher
- ---------------------- ----------------------
<PAGE>
QUOTA PURCHASE AGREEMENT
concluded between and by Magyarhang Dubbing and Production Limited
Liability Company (1024 Budapest, Keleti Karoly u. 42/a reg.no:
01-09-464-033 repr.: Gyorgy Balo) - hereinafter refereed to as the Seller -
and
CME Media Enterprise B. V. (Leidseplein 29, 1017 PS Amsterdam, the
Netherlands, repr.: Leonard M. Fertig president-CEO) - hereinafter referred
to as the Buyer - on the date below, under the following conditions:
1. The Seller is the owner of a quota of Videovox Studio Limited Liability
Company (1021 Budapest, Huvosvolgyi ut 64. reg. no.: 01-09-365451) (the
"Company") the face value of which is HUF 631,340,000.00 ("Quota").
2. Upon the terms and subject to the conditions of this Agreement, the Seller
sells to the Buyer and the Buyer purchases from the Seller the Quota set forth
in Section 1 above.
3. In full consideration for the sale and transfer of the Quota described in
Section 1 above, the Buyer shall pay the Seller a purchase price which shall be
the US Dollar equivalent of HUF 639,641,000.00 via wire transfer to the
Seller's bank account after the execution of this Agreement. The Buyer shall
become the owner of the Quota and shall be entitled to exercise the owner's
rights attached to the Quota on and from the date of this Agreement.
4. The parties to this Agreement further agree that the Seller is entitled to
receive dividend, if any, for the 1996 business year proportionately to the
time that has elapsed until the date of this Agreement, if the General Meeting
of the Company decides to pay dividend to the members.
5. The Seller hereby declares that it has duly notified the managing director
of the Company about its intention to sell the Quota, and the members of the
Company have waived their pre-emptive rights attached to the sale of the Quota.
6. The Buyer hereby represents that it is familiar with the terms of the
Company's Articles of Association and the amendments thereof and undertakes to
be bound by them.
<PAGE>
7. This Agreement shall come into force on the date below and the ownership
title for the Quota shall be transferred to the Buyer on the same day.
8. This Agreement shall be governed by Hungarian law. For matters which are not
included in this Agreement the relevant provisions of Act no. VI. of 1988 on
business organizations shall be applicable.
December 23, 1996
................................... .....................................
on behalf of Magyarhang Ltd. on behalf of CME Media Enterprise B.V.
Gyorgy Balo managing director Leonard M. Fertig president-CEO
<PAGE>
SHAREHOLDERS AGREEMENT
On December 30,1996, in Warsaw
TVN Ltd. with its seat in Warsaw, hereinafter referred to as "TVN", represented
by the President of the Management Board Mariusz Walter and the Vice-President
of the Management Board Wojciech Prokofi
and
AMBRESA Ltd. with its seat in Warsaw, hereinafter referred to as "AMBRESA",
represented by the President of the Management Board Maciejewicz and the
Vice-President of the Management Board Anatol Nowik,
concluded the following agreement:
Whereas, pursuant to the intentions of TVN and the remaining shareholders of
Telewizja Wis_a Ltd. (hereinafter referred to as "Wis_a"), AMBRESA, constituting
in 100% the affiliate of BRE, shall purchase from PRiKB REALBUD 31 334 shares in
the share capital of Wis_a;
Whereas TVN, which can ensure respective staffing and financial resources,
pursuant to the suggestions of Krajowa Rada Radiofonii i Telewizji, undertakes
to establish the federation of regional broadcasters of television programs,
achieving this purpose by, among others, the acquisition of the shares in the
share capital of Wisla and providing Wisla with necessary program and financial
support;
Whereas, the realization of the process of establishing the federation of
regional broadcasters of television programs shall require strict cooperation of
TVN and AMBRESA as the shareholders holding the majority of participation in the
share capital of Wisla;
The Parties resolve as follows:
Article 1
1. The parties undertake to strictly cooperate in the matters which require
the adoption of resolutions by the shareholders of Wis_a. AMBRESA,
acknowledging that TVN is the only shareholder of Wis_a experienced in
the scope of emission of television programs, undertakes to take into
account the opinion of TVN in all the matters concerning Wis_a, in the
scope which does not infringe upon basic interests of AMBRESA.
2. With reference to the cooperation referred to in par. 1, the parties to
this agreement undertake to vote during the next assembly of
shareholders of Wis_a, for the adoption of the resolution on the
increase of the share capital of Wis_a, by the amount of 11,200,000
(eleven million two hundred thousand) zlotys and for covering the shares
and making full contribution in exchange for the shares, pursuant to the
following:
a) TVN shall acquire 54,880 (fifty four thousand eight hundred and
eighty) shares in the increased share capital, in the amount of
100 (one hundred) zlotys each, of the overall value of 5,488,000
(five million four hundred eighty eight thousand) zlotys;
b) AMBRESA shall acquire 30,520 (thirty thousand five hundred and
twenty) shares in the increased share capital, in the amount of
100 (one hundred) zlotys each, of the overall value of 3,052,000
(three million fifty two thousand) zlotys;
<PAGE>
Article 2
1. TVN undertakes to purchase or to indicate an entity that shall
purchase from AMBRESA on conditions stipulated below:
a) 31,334 (thirty one thousand three hundred thirty four) shares
in the share capital of Wis_a, which AMBRESA shall purchase from
PRiKB REALBUD;
b) 30,520 (thirty thousand five hundred and twenty) shares
covered pursuant to the provisions of art. 1 par. 2 item b) in
the increased share capital of Wis_a;
c) any other shares which may be covered or acquired by AMBRESA
in the scope of cooperation stipulated in the hereby agreement.
The shares referred to in items a) - c), shall be hereinafter
referred to jointly as the"Option Shares".
2. The sale price of the Option Shares shall be calculated on the basis
of the following formula: the purchase price or the price of covering
the shares by AMBRESA (including borne costs, such as stamp duties),
increased by 1 %.
3. The obligation on the part of TVN to purchase the Option Shares
referred to in par. 1, shall be an irrevocable offer of purchase of the
Option Shares. This offer may be accepted by AMBRESA starting from the
first day after the lapse of one year from the date of execution of the
hereby agreement, for the period of 3 months.
4. AMBRESA hereby grants an irrevocable power of attorney to
Altheimer & Gray Polska Ltd. , to accept for and on behalf of AMBRESA
the purchase offer regarding the Option Shares. The irrevocable form of
the power of attorneys is justified by the form of legal relationship
between the parties to the hereby agreement.
5. Should AMBRESA intend to sell or in any other way dispose of the
Option Shares, prior to the lapse of the period specified in par. 3, to
other entities than stipulated in par. 1, TVN, or the entity appointed
by TVN, shall be entitled to pre-emptive right with reference to the
Option Shares. Such right may be executed within 3 months from the date
of the receipt by TVN of the notification on the content of the
agreement on the sale of the Option Shares, or from the date of other
legal action on the basis of which the sale of the Option Shares shall
be executed. The price, at which TVN shall be entitled to execute its
pre-emptive right, shall be the lower amount from the following: (i) the
price payable for the Option Shares pursuant to par. 2; and (ii) the
price or an economic advantage gained by AMBRESA pursuant to the legal
action intending to dispose of the Option Shares.
6. Should, as a result of the acceptance by AMBRESA of the purchase
offer regarding the Option Shares within the period specified under par.
3, TVN or the entity appointed by TVN fail to fulfil their obligation to
purchase the Option Shares, then the pre-emptive right referred to in
par. 5 shall expire, and AMBRESA shall be entitled to dispose of the
Option Shares for the benefit of
2
<PAGE>
another entity, whereas TVN shall be obliged to pay to AMBRESA as
damages, the difference between the amount obtained from the sale of the
Option Shares to the third parties, and the price payable pursuant to
par. 2.
7. AMBRESA undertakes not to encumber the Option Shares with any
obligation or property rights established for the benefit of the third
parties.
Article 3
In order to ensure performance of the obligations by TVN referred to in art. 2
par. 1, TVN undertakes to make an irregular deposit, in the understanding of
art. 845 of the Civil Code, for the period of fifteen months, in form of the
amount of 11,409,895.00 zlotys.
Article 4
Any amendments to the hereby agreement shall be made in writing, in order to be
effective.
Article 5
Stamp duty relating to the sale of the Option Shares shall be borne by the
buyer.
Article 6
This Agreement has been executed in two counterparts, one for each party.
TVN Ltd. AMBRESA Ltd.
/illegible signatures/ /illegible signatures/
3
<PAGE>
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
First Amendment, dated as of December 31, 1996 (the
"Amendment"), to Stock Purchase Agreement, dated as of May 25, 1995 (the
"Neovision Purchase Agreement"), between ITI Media Group N.V., a corporation
organized under the laws of the Netherlands Antilles (the "Seller"), and CME
Media Enterprises B.V., a corporation organized under the laws of the
Netherlands (the "Buyer").
RECITALS
A. The Seller and the Buyer have executed and delivered the
Neovision Purchase Agreement and have completed the First Closing thereunder.
B. The Buyer has made two loans (the "Loans") to the Seller
in the aggregate principal amount, taken together, of US$ 4,355,000.
C. The Seller and the Buyer desire to amend their agreement
relating to the Second Closing under the Neovision Purchase Agreement and to
cause all or a portion of the funds delivered by the Buyer to the Seller in
connection with the Second Closing to be applied to the repayment in full of
the principal amount of the Loans, together with accrued and unpaid interest
thereon to the date of such repayment.
In consideration of the foregoing, the Seller and the Buyer
agree as follows:
1. Capitalized terms used in this Amendment without
definition shall have the meanings given to them in the Neovision Purchase
Agreement.
2. Section 1.2 of Article I of the Neovision Purchase
Agreement is hereby amended in its entirety to read as follows:
"1.2 Second Closing. At the second closing (the "Second Closing"),
Seller shall sell and transfer to Buyer such number of Shares as shall
constitute 24.5% of the aggregate outstanding Shares, and Buyer shall
purchase such number of Shares by, at its election, either (i) paying
US$ 5 million (the "Second Purchase Price") in immediately available
funds to the Seller, or as instructed by the Seller, or (ii) applying
a portion (the "Loan Amount") of the Second Purchase Price to the
repayment in full of the principal amount of loans extended by the
Buyer to the Seller, pursuant to agreements between the Buyer and the
Seller dated September 10, 1996 and November 7, 1996 (the "Loan
Agreements"), and the payment in full of accrued and unpaid interest
thereon up to the date of the Second Closing, and, subject to the
condition contained in Section 2.3, paying an amount equal to the
excess of (x) the Second Purchase Price over (y) the Loan Amount in
immediately available funds to the Seller, or as instructed by the
Seller. In the event that the Buyer elects to apply the Loan Amount
towards payment of the Second Purchase Price, the Buyer shall also
return to the Seller, or destroy, any promissory note or notes
relating to loans extended pursuant to the Loan Agreements and shall
provide the Seller with such receipt, certificate or other document
executed by the Buyer, indicating the release of the Seller from its
obligations under the Loan Agreements, as the Seller may reasonably
request."
3. Section 1.3 of Article I of the Neovision Purchase
Agreement is hereby amended by adding the following sentence to the end
thereof:
"In the case of the Second Closing, Buyer and Seller shall cause such
notarial deed applicable to the Shares purchased by the Buyer at the
Second Closing to be executed on Tuesday, December 31, 1996."
4. Section 2.2 of Article II of the Neovision Purchase
Agreement is hereby amended by (i) substituting the word "condition" for the
word "conditions" in the fourth line thereof, (ii) substituting a period for
the semi-colon in the fifth line of paragraph (a) thereof, (iii) deleting the
word "and" at the end of paragraph (a) thereof, and (iv) deleting paragraph (b)
thereof in its entirety.
5. Article II of the Neovision Purchase Agreement is hereby
amended by adding the following section immediately following the end thereof:
"2.3 Conditions Subsequent to Second Closing. The
obligation of the Buyer to pay any cash portion of the Second Purchase
Price is conditioned on the satisfaction or waiver, at or prior to the
date of payment thereof, of the following conditions:
(a) the representations and warranties of Seller
contained in this Agreement shall be true and correct in all
material respects as of the date of payment thereof and
Seller shall have delivered to Buyer a certificate dated such
date and to such effect; and
(b) ITI TV and CME shall have made the capital
contributions required under Section 4.2 of the TVN
Shareholder Agreement (the "Second TVN Closing").
6. Article VI of the Neovision Purchase Agreement is hereby
amended by adding the following section immediately following the end thereof:
"6.4 Additional Buyer Put. In the event that (a) the
Second TVN Closing does not occur on or before the second anniversary
of the date of the First Closing; and (b) Buyer has exercised its
rights under Section 8.1 of the TVN Shareholder Agreement; then Buyer
shall have the right, exercisable at any time during the 180-day
period following such second anniversary upon written notice (the
"Additional Put Notice") to Seller (which will be deemed validly given
if included as a part of the Put Notice), to cause Seller to purchase
all of the Shares purchased at the Second Closing at a purchase price,
net of applicable Dutch taxes, if any (the "Additional Put Price"),
equal to the sum of (i) US$ 5,000,000, less (ii) the amount of any
cash portion of the Second Closing Price remaining unpaid by the Buyer
as of the date of payment of the Additional Put Price, plus (iii)
interest on such aggregate amount at a rate per annum equal to 6% from
the date of the Second Closing to the date of payment of the
Additional Put Price. Seller shall pay the Additional Put Price in
immediately available funds to Buyer (or as directed by it) on the
date specified in the Additional Put Notice (which shall be not sooner
than five business days from the date of such notice)."
7. Except as amended, modified or waived herein, the
Neovision Purchase Agreement shall remain in full force and effect in
accordance with its terms.
8. This Amendment shall become effective when duly executed
and delivered by the Seller and the Buyer.
9. This Amendment may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
10. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
conflict of law rules thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered as of the date first above written.
ITI Media Group N.V.
By:________________________
Title:
CME Media Enterprises B.V.
By:________________________
Title:
<PAGE>
NET REIMBURSEMENT AGREEMENT
THIS NET REIMBURSEMENT AGREEMENT (this "Agreement"), dated as of
February 13, 1997, is entered into by and among INTERNATIONAL TELESERVICES
LIMITED, a limited liability company organized under the laws of Belize ("ITS"),
INTERNATIONAL MEDIA SERVICES LIMITED, a limited liability company organized
under the laws of Bermuda ("IMS"), and LIMITED LIABILITY COMPANY "PRIORITET," a
limited liability company organized under the laws of Ukraine ("Prioritet").
WHEREAS, pursuant to that certain Marketing, Advertising and Sales
Agreement, dated January 23, 1997, with an effective date of November 18, 1996,
by and between Innova Film GmbH, a limited liability company organized under the
laws of Germany ("Innova"), and IMS (the "IMS-Innova Agreement"), IMS is
obligated to reimburse Innova for certain program production and other costs
relating to broadcast operations on (a) the First National Television Channel of
Ukraine under an agreement between Innova and the National Television Company of
Ukraine (the "Innova-NTCU Agreement") and (b) the Second National Television
Channel of Ukraine under an agreement between Innova and Broadcasting Company
"Studio 1+1" in the Form of a Limited Liability Company, a limited liability
company organized under the laws of Ukraine (together with the Innova-NTCU
Agreement, the "Innova Agreements");
WHEREAS, pursuant to that certain Marketing and Sales Agreement, dated
January 23, 1997, with an effective date of November 18, 1996, by and between
Prioritet and IMS (the "IMS-Prioritet Agreement"), Prioritet is obligated to pay
or cause to be paid to IMS certain sums due under contracts entered into or
arranged or negotiated between Prioritet and third-party advertisers in
connection with the Innova Agreements and all other advertising activities of
Prioritet in Ukraine and abroad (including activities relating to non-television
media);
WHEREAS, by agreement among the parties, due to the initial
administrative limitations of IMS, from November 18, 1996 through the date of
this Agreement, Prioritet has payed or caused the payment to ITS rather than IMS
of the amounts due to IMS under the IMS-Prioritet Agreement; and
<PAGE>
WHEREAS, the parties wish to provide for ITS to reimburse IMS for the
above-referenced payments received and to be received by ITS instead of IMS;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Temporary Receipts and Payments. As used in this Agreement, the term
"Temporary Receipts" shall mean any amounts received by ITS that rightly would
have been payable to IMS under the terms of the IMS-Prioritet Agreement during
the period November 18, 1996 through January 30, 1997 (the "First Reimbursable
Period") and during the period January 31, 1997 through February 28, 1997 (the
"Second Reimbursable Period" and, together with the First Reimbursable Period,
the "Reimbursable Periods"). As used in this Agreement, the term "Temporary
Payments" shall mean any amounts paid by ITS to Innova, Enterprise Inter-Media,
a legal entity organized under the laws of Ukraine, or Broadcasting Company
"Studio 1+1", a limited liability company organized under the laws of Ukraine,
that rightly would have been payable by IMS under the terms of the IMS-Innova
Agreement during the Reimbursable Periods. It is understood and agreed by the
parties that ITS shall have no obligation to pay to IMS any income of ITS
received prior to the commencement of the First Reimbursable Period.
2. Temporary Receipts and Payments. The parties acknowledge and agree
that Temporary Receipts with respect to the First Reimbursable Period less
Temporary Payments with respect to the First Reimbursable Period (the "First Net
Reimbursement Amount") equal $810,482.90. The parties agree to determine, on or
before February 28, 1997, the amount equal to Temporary Receipts with respect to
the Second Reimbursable Period less Temporary Payments with respect to the
Second Reimbursable Period (the "Second Net Reimbursement Amount" and, together
with the First Net Reimbursement Amount, the "Net Reimbursement Amounts").
3. Net Reimbursement. Within ten days of the final day of the Second
Reimbursable Period, ITS shall pay the Net Reimbursement Amounts, in U.S.
dollars as instructed by IMS, to either (a) an account of IMS
<PAGE>
established at Union Bank of Switzerland in Zug or (b) an account of Innova at
such bank and location as IMS shall indicate.
4. Future Receipts and Payments. The parties agree that from the final
day of the Second Reimbursable Period, ITS will no longer accept payment, and
Prioritet will no longer pay or cause payment to ITS, of any funds rightfully
payable to IMS under the terms of the IMS-Prioritet Agreement.
5. Information and Additional Necessary Payments. ITS shall keep IMS
fully informed, including by providing such receipts, payment records and other
documentation as IMS reasonably may request, of the existence, amounts and dates
of any funds received after the last day of the Second Reimbursable Period that
are rightfully payable to IMS under the terms of the IMS-Prioritet Agreement.
Any such funds received shall be promptly paid over by ITS to IMS, in U.S.
dollars to the above-referenced account of IMS or Innova, at the instruction of
IMS.
6. Dispute Resolution. Subject to the following sentence, the parties
shall make a good faith effort to resolve by negotiation between themselves any
dispute, controversy or claim arising out of, relating to, or in connection
with, this Agreement, or the breach, termination or validity hereof (a
"Dispute"). Any Dispute which the parties shall not have been able to resolve in
accordance with the preceding sentence within thirty (30) days after such
Dispute has arisen shall be finally settled by arbitration in accordance with
(a) the Arbitration Agreement, dated September 30, 1996 (the "Arbitration
Agreement"), among ITS, Prioritet and the other parties thereto, until such date
as the Arbitration Agreement may be terminated or (b) any arbitration provisions
contained in any agreement entered into after September 30, 1996 to which each
of ITS, IMS and Prioritet is a party and that by its terms explicitly supersedes
the Arbitration Agreement.
7. Further Assurances. Each party hereto shall execute and deliver such
other documents and take such other actions as may reasonably be requested by
the other party hereto in order to consummate or implement the transactions and
arrangements contemplated by this Agreement.
8. Miscellaneous. This Agreement may be
<PAGE>
executed in several counterparts, each of which shall be deemed original and all
of which together shall constitute one and the same instrument. This Agreement
shall be governed by and construed and enforced in accordance with the laws of
Bermuda.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute this Net Reimbursement Agreement as of the
date first above written.
INTERNATIONAL TELESERVICES INTERNATIONAL MEDIA
LIMITED SERVICES LTD.
By: By:
------------------------ -------------------------
Name: Name:
Title: Title:
LIMITED LIABILITY COMPANY
"PRIORITET"
By:
------------------------
Name:
Title:
By:
------------------------
Name:
Title:
<PAGE>
THIS AGREEMENT is entered into as of January 23 1997, by and between
INTERNATIONAL MEDIA SERVICES LTD., a limited liability company organized under
the laws of Bermuda ( "IMS"), and INNOVA FILM GMBH, a limited liability company
organized under the laws of Germany ("INNOVA")
WHEREAS, pursuant to license no. 00280 dated November 11, 1996 (the
"UT-2 License"), the Ukrainian National Council for Television and Radio has
granted to Broadcasting Company Studio 1+1, a limited liability company
organized under the laws of Ukraine, the right to broadcast on the Second
National Television Channel of Ukraine;
WHEREAS, the grant of the UT-2 License was conditioned on the
termination of Innova's broadcast rights under that certain Agreement on
International Cooperation for the Organization of Television Broadcasting on the
First National Television Channel of Ukraine, dated July 26, 1995 ad amended,
between Innova and the National Television Company of Ukraine ( the "Innova-NTCU
Agreement"); and
WHEREAS, the parties are also parties to that certain Marketing,
Advertising and Sales Agreement, dated January 23, 1997 (the "IMS-Innova
Agreement");
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Previous Arrangements. In the event the UT-2 License shall be
declared invalid or otherwise become unenforceable and the Innnova-NTCU
Agreement shall be reinstated, the parties shall amend the IMS-Innova Agreement
promptly in a manner reflecting the economic and legal arrangements contemplated
by that certain Marketing, Advertising and Sales Agreement, dated as of
September 30, 1996, to which the parties hereto were signatory, adjusted as
reasonably necessary to reflect the particular facts and circumstances of such
reinstatement.
2. Dispute Resolution. Subject to the following sentence, the parties
shall make a good faith effort to resolve by negotiation among themselves any
dispute, controversy or claim arising out of, relating to, or in
<PAGE>
connection with, this Agreement, or the breach, termination or validity hereof
(a "Dispute"). Any Dispute which the parties shall not have been able to resolve
in accordance with the preceding sentence within thirty (30) days after such
Dispute has arisen shall be finally settled by arbitration in accordance with
such arbitration agreement as shall be currently in effect binding the parties
hereto.
3. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute this Agreement as of the date first above
written.
INNOVA FILM GMBH INTERNATIONAL MEDIA
SERVICES LTD.
By: By:
_______________ ---------------------
Name: Name:
Title: Title:
<PAGE>
EXECUTION COPY
"REGISTERED" APPROVED
in amended and restated form BY THE FOUNDER:
Executive Committee of the "INNOVA FILM GmbH"
Council of Peoples' Deputies as represented by
of the Shevchenko District Boris Fuchsmann,
City of Kyiv General Director
January 23, 1997
---------------------
Decision No.__________________
dated _____________, 199__
Certificate No. 7193
Registration No. 23389360
Deputy Head of the
Executive Committee
- -----------------------------
AMENDED AND RESTATED CHARTER
OF THE ENTERPRISE
"INTER-MEDIA"
Identification No. 23389360
Kyiv - 1997
<PAGE>
AMENDED AND RESTATED CHARTER
OF THE ENTERPRISE
"INTER-MEDIA"
ARTICLE 1 GENERAL PROVISIONS
1.1 The Enterprise "Inter-Media" ("Enterprise") has been established
pursuant to the Ukrainian Law on Enterprises and other applicable
Ukrainian legislation on August 6, 1995, and registered with the
Executive Committee of the Council of Peoples' Deputies of the
Shevchenko District of the City of Kyiv on August 9, 1995,
registration No. 23389360.
1.2 The full name of the Enterprise shall be:
in the Ukrainian language - " - "
in the English language - Enterprise "Inter-Media".
1.3 The legal address of the Enterprise shall be at 3 Dehtyarivska Street,
Kyiv, Ukraine.
1.4 The founder of the Enterprise is the firm "Innova Film GmbH", a legal
entity under the laws of Germany, with its legal address at
Friedreich-Ebert-Str. 31-33, 40210 Dusseldorf, settlement account No.
4708076 in Dresdener Bank ("Founder"). This Amended Charter
("Charter") amends and replaces in its entirety the charter executed
by the Founder on August 6, 1995.
1.5 The Enterprise shall be a legal entity under applicable Ukrainian
legislation. The Enterprise shall acquire the rights of a legal entity
as of the date of its State registration. The Enterprise shall be
created for an indefinite period. Such period may be shortened upon
the appropriate decision of the Founder.
1.6 The Enterprise shall have a seal bearing its name which shall be
approved by the Founder. The seal may be in the Ukrainian and/or
English languages. The Enterprise shall maintain an independent
balance sheet, possess trademarks and service marks, letterhead,
stamps and other requisites for its activities.
1.7 As a legal entity the Enterprise shall have its own property separate
and apart from the property of the Founder and separate and apart from
property belonging to any third party.
1.8 The Enterprise shall not be responsible for the obligations of the
Founder and the Founder shall only be responsible for obligations of
the Enterprise to the extent of the value of property transferred by
the Founder in contribution to the
<PAGE>
Charter Fund of the Enterprise or to the extent that additional
obligations are assumed by the Founder pursuant to a written
agreement.
1.9 The Enterprise is established for the purpose of facilitating the
objects of activity of the Founder and of obtaining profit by carrying
out business and other activities not prohibited by applicable
legislation. As a legal entity, the Enterprise shall have the
following powers:
1.9.1 in its own name and according to applicable Ukrainian
legislation, to enter into any agreements and to carry out
any business and other activities not specifically prohibited
by law;
1.9.2 to participate independently in foreign economic activity
necessary for the achievement of the statutory purposes of
the Enterprise;
1.9.3 within the limits of applicable Ukrainian legislation, to
build, acquire, alienate, sell, lease or rent any movable or
immovable property, including the rights to lease and acquire
plots of land, buildings and constructions;
1.9.4 to acquire, or to acquire the right to use, proprietary and
non-proprietary rights and to ensure legal protection of all
its rights and interests;
1.9.5 within the limits permitted by applicable legislation, to
open and maintain bank accounts in Ukraine and abroad in both
Ukrainian and convertible currency;
1.9.6 to sue and be sued in courts of law and arbitration tribunals
(including international arbitration) and to conclude
amicable settlements;
1.9.7 in accordance with applicable Ukrainian legislation, to incur
loan obligations in both Ukrainian and convertible currency,
to secure the repayment of any money borrowed or owing with
all or any part of the property or assets of the Enterprise
and to issue debentures, bonds and other securities within
the limits permitted by applicable Ukrainian legislation;
1.9.8 to purchase, acquire and hold stock, shares, debentures,
bonds, obligations and securities issued by any Ukrainian or
foreign legal or governmental entity;
1.9.9 to act as trustee in connection with any stocks,
2
<PAGE>
bonds, obligations or other securities;
1.9.10 in accordance with applicable Ukrainian legislation, to take
part in the formation and management of any company or legal
entity; to acquire fully or partially any legal entity or its
assets or merge with any other legal entity;
1.9.11 either with or without remuneration, to guarantee the payment
of monies or debts of any person or company and to guarantee
the performance of any contract or obligation of any person
or company;
1.9.12 to sell, improve, manage, develop, exchange, lease, mortgage
or dispose of all the property, assets and rights of the
Enterprise or any part thereof; to distribute to the Founder
in-kind any property of the Enteprise, including any stocks
or securities held by the Enterprise in other legal entities;
1.9.13 to appoint attorneys and/or commission agents with either
full or restricted powers for the purpose of carrying out and
completing all or any of the statutory objects of the
Enterprise or to act as an attorney and/or commission agent
for any person or company;
1.9.14 to select potential contracting parties and to organize
meetings and technical discussions with and between
representatives of such parties;
1.9.15 to advertise, organize or participate in exhibitions,
seminars or symposia or to participate in trade fairs both in
Ukraine and abroad;
1.9.16 to carry out the transmission of information within Ukraine
and overseas by means of written correspondence, telegraph,
telex, telefax, telephone and other means of communication;
and
1.9.17 to carry out any other acts and acquire any other rights and
obligations that fall within the authority of a legal entity
according to applicable Ukrainian legislation.
1.10 The Enterprise shall carry out its foreign economic activities
pursuant to the following guidelines:
1.10.1 foreign economic activities of the Enterprise shall be
performed on the basis of monetary self-sufficiency and
mutual benefit;
1.10.2 the Enterprise shall have the right independently
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to establish relationships with foreign legal entities and
individuals, and to enter into direct foreign economic
agreements with foreign partners;
1.10.3 the Enterprise shall be authorized to carry out any kind of
foreign economic transaction with regard to any property,
materials, products, works and services within the framework
of its principal activities contemplated by this Charter,
including its own production needs.
1.11 The Enterprise shall at all times carry out its activities in
accordance with the instructions of the Founder and the provisions of
this Charter and applicable Ukrainian legislation. Those activities
which are subject to licensing in Ukraine shall be carried out by the
Enterprise only after obtaining a required special permission
(license) pursuant to applicable Ukrainian legislation.
1.12 The Enterprise may form subsidiaries, representative offices and
branches on the territory of Ukraine and in other countries in
accordance with existing law. When creating a subsidiary, the Founder
shall determine all matters relating to the creation, activities and
liquidation of such subsidiary. Subsidiaries established as separate
legal entities shall not be liable for the obligations of the
Enterprise, and the Enterprise shall not be liable for the obligations
of such subsidiaries, unless such liability is expressly undertaken by
contract. Representative offices and branches established by the
Enteprise shall not be separate legal entities and shall operate in
the name of, and on behalf of, the Enterprise.
ARTICLE 2 PURPOSE AND SUBJECT MATTER OF THE ENTERPRISE
- --------- --------------------------------------------
2.1 The Enterprise shall have the following specific object of activities:
2.1.1 the production of movies, movie products, and the acquisition
and sale of rights to movies;
2.1.2 charitable activities;
2.1.3 manufacturing and the sale of folk and hand-made objects and
other souvenirs;
2.1.4 publishing, exhibition and advertising activities;
2.1.5 the provision of various services, including informational,
marketing and brokerage services;
2.1.6 the carrying out of intermediary, wholesale and retail trade;
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2.1.7 intermediary activities in advertising;
2.1.8 construction;
2.1.9 service maintenance of automobile machinery of various types;
2.1.10 automobile transportation services;
2.1.11 the establishment and operation of automobile enterprises; and
2.1.12 such other activities which are not expressly prohibited by
applicable Ukrainian legislation.
ARTICLE 3 PROPERTY; FUNDS; PROFIT
- --------- -----------------------
3.1 The property of the Enterprise ("Property") shall consist of:
3.1.1 funds and property transferred to the Enterprise as a
contribution to the Charter Fund;
3.1.2 products or services produced by the Enterprise as a result
of its economic activities;
3.1.3 income and profits; and
3.1.4 other property and proprietary rights legally obtained by the
Enterprise.
3.2 The Enterprise shall be the owner of the Property. Without restricting
the generality of the foregoing, the Property shall include all fixed
and current assets and other items as reflected in the independent
balance sheet of the Enterprise.
3.3 In order to ensure the operation of the Enterprise, a charter fund of
the Enterprise ("Charter Fund") has been established by and from the
Founder's contribution in the amount of fifty one thousand one hundred
thirty six ($51,136) U.S. dollars which equals eighty eight thousand
three hundred fifty (88,350.06) Ukrainian hrynvias and six kopecks
(eight billion eight hundred thirty five milliion sixty thousand one
hundred (8,835,060,100) Ukrainian karbovantsy) at the exchange rate of
the National Bank of Ukraine as of September 12, 1995. The Founder has
formed the Charter Fund by providing the Enterprise with the following
assets:
3.3.1 automobiles;
3.3.2 office equipment; and
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3.3.3 other technical equipment.
3.4 The amount of the Charter Fund may be increased or decreased as
determined by the Founder. Decisions regarding a change to the Charter
Fund shall enter into force from the moment of State registration of
the appropriate changes and additions to this Charter.
3.5 The increase of the Charter Fund may be carried out by making
additional contributions by the Founder or allocation of the
Enterprise's profit or income (or a portion of it) to the Charter
Fund. Additional contributions may be made in cash or in the form of
other tangible or intangible assets.
3.6 The Founder shall decide upon matters concerning the insurance of the
Enterprise's property, proprietary rights and property accountability.
3.7 In addition to the Charter Fund, the Founder may establish such other
funds of the Enterprise as it deems necessary. The procedure for the
formation of such other funds and their use shall be determined by the
Founder.
3.8 The net profits resulting from the Enterprise's activities may be
transferred to the Founder as dividends or reinvested in the
Enterprise, as determined by the Founder.
ARTICLE 4 CONTROL AND MANAGEMENT OF THE ENTERPRISE
- --------- ----------------------------------------
4.1 The Enterprise shall be governed by the Founder and the management
body of the Enterprise ("Directorate").
4.2 The Founder may from time to time designate those actions which will
be within its exclusive competence.
4.3 All decisions and resolutions of the Founder shall be binding upon the
Enterprise in the event they are in writing and comply with, and are
adopted pursuant to, applicable provisions of the Founder's foundation
documents.
4.4 The Founder may delegate any of its powers to either the General
Director or any other member of the Directorate. Such resolution shall
be in writing and include an express list of those powers transferred,
as well as the term for which such powers are transferred to either
the General Director or any other member of the Directorate.
4.5 The Founder shall appoint a Directorate comprised of a General
Director, Deputy General Director, Finance Director (Chief
Accountant), a Sales Director and such other positions as may from
time to time be determined by the Founder. The Founder shall appoint
and dismiss the individuals who shall serve on the Directorate.
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4.6 The Directorate shall be accountable to the Founder and shall ensure
that the decisions of the Founder are carried out. The Directorate
shall resolve all matters related to the Enterprise's activities,
excluding those within the exclusive competence of the Founder. In the
event of a controversy between members of the Directorate, the view or
position of the General Director shall prevail.
4.7 Subject to the limitations provided in this Charter, the General
Director shall be granted the following authority and
responsibilities:
4.7.1 overall authority over all decisions relating to the
day-to-day operations and management of the Enterprise and
the Enterprise's facilities;
4.7.2 hiring, supervising and dismissing personnel of the
Enterprise (except for members of the Directorate);
4.7.3 performance of all other duties which are assigned to the
General Director by the Founder.
4.8 The General Director may delegate any of its authority and
responsibilities to another member of the Directorate.
4.9 Other members of the Directorate shall have such powers and duties as
specified by the Founder.
4.10 The Founder may, from time to time, appoint an audit committee of
three members. The scope of powers and responsibilities of the audit
committee, as well as the procedures for convening and holding its
meetings, shall be determined from time to time by the Founder.
ARTICLE 5 ENTERING INTO AGREEMENTS AND OTHER DOCUMENTS
- --------- --------------------------------------------
5.1 Subject to Articles 5.2 and 5.3, the General Director alone (and only
the General Director) shall have the authority to enter into
documents, agreements and contracts which bind the Enterprise;
provided, however, that the General Director may issue written powers
of attorney to other members of the Directorate to act in his stead.
5.2 Notwithstanding the foregoing Article 5.1, the entering into,
amendment or termination of any agreement, contract or other document
(or series of agreements, contracts or documents) or the issuance of
any payment order having a value in excess of Ten Thousand ($10,000)
U.S. Dollars or which have a duration of more than one (1) calendar
year and any act of currency conversion must be signed by at least two
(2) members of the Directorate: (i) the General Director and (ii)
either the Deputy General Director or the Finance Director (Chief
Accountant); provided, however, that all
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<PAGE>
banking transactions with a value of more than $5,000 U.S. dollars
must be signed by both the General Director and the Finance Director
(Chief Accountant); and further provided, that any banking
transactions with a value of $5,000 U.S. dollars or less may be signed
by the Finance Director alone.
5.3 To the extent required by Ukrainian law, any foreign economic
agreements on behalf of the Enterprise must be signed by the General
Director and by a person authorized to sign by a power of attorney
issued under the signature of the General Director.
ARTICLE 6 FINANCIAL ACTIVITY OF THE ENTERPRISE
- --------- ------------------------------------
6.1 The fiscal year of the Enterprise shall correspond to the calendar
year and shall encompass the period from January 1 up to and including
December 31 of the current calendar year.
6.2 In accordance with applicable Ukrainian legislation, the Directorate
shall be responsible for implementing the procedures established for
maintaining and insuring the accuracy of the financial and accounting
records of the Enterprise.
6.3 To the extent required by applicable Ukrainian law and/or according to
the decision of the Founder, audits of the Founder's financial and
economic activities may be carried out by Ukrainian and/or foreign
auditing organizations as determined by the Founder.
ARTICLE 7 LABOR ISSUES
- --------- ------------
7.1 Issues relating to the Enterprise's employees shall be regulated in
accordance with the applicable provisions of the Ukrainian labor
legislation.
7.2 The Enterprise shall provide employees with the social guarantees and
privileges provided for under applicable legislation.
ARTICLE 8 REORGANIZATION AND LIQUIDATION OF THE ENTERPRISE
- --------- ------------------------------------------------
8.1 The Enterprise shall terminate its activity as a result of its
reorganization or liquidation. Reorganization of the Enterprise shall
result in transfer of all its property, rights and obligations to the
Enterprise's legal successor(s).
8.2 The Enterprise may be liquidated or reorganized (merged, acquired,
divided, spin-off, modified) upon the decision of the Founder and in
cases provided for by the legislation of Ukraine.
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8.3 In the event that the decision on liquidation is adopted by the
Founder, the Founder shall appoint a liquidation committee
("Liquidation Committee") which shall prepare and submit a liquidation
account balance to the Founder. Upon appointment of the Liquidation
Committee, the powers of the General Director and the Directorate of
the Enterprise shall be terminated and shall pass to the Liquidation
Committee.
8.4 Upon receiving and approving the liquidation account balance, the
Liquidation Committee shall take all measures necessary to satisfy all
of the Enterprise's liabilities pursuant to the requirements of
applicable Ukrainian legislation. Any remaining property of the
Enterprise (including any funds in cash) shall be returned to the
Founder.
8.5 The liquidation of the Enterprise shall be registered with the
appropriate governmental authority as required by Ukrainian
legislation. The Enterprise shall forfeit the rights of a legal entity
from the date of its removal from the State register or from such
other date as may be specified by applicable legislation.
ARTICLE 9 MISCELLANEOUS
- --------- -------------
9.1 This Charter shall enter into force on the date of its State
registration.
9.2 Any additions or amendments to this Charter mentioned herein shall
constitute an integral part of this Charter.
9.3 The headings in this Charter are for convenience only and shall not
govern the interpretation of any provisions of this Charter.
9.4 If any provision of this Charter is or becomes invalid, ineffective,
unenforceable or illegal for any reason, this fact shall not affect
the validity or enforceability of any or all of the remaining
provisions hereof.
9.5 This Charter shall be governed by and construed in accordance with the
laws of Ukraine.
[Signature page to follow]
<PAGE>
Executed by the sole Founder: INNOVA FILM GMBH:
---------------------
By: Boris Fuchsmann
Title: General Director
Date: January 23, 1997
<PAGE>
EXECUTION COPY
"REGISTERED" Approved by the
Participants' Assembly
in amended and restated form in amended and restated
District State Administration form on ____________, 1997
of the Pechersk District Protocol No. ___
City of Kyiv
Decision No. ____________ Chairman of the
Participants' Assembly
dated ______________, 1997
Certificate No. ___________ _____________________
Registration No. 23729809
Head of the District State
Administration
- --------------------------
AMENDED AND RESTATED CHARTER
OF THE BROADCASTING COMPANY
"STUDIO 1+1"
IN THE FORM OF A LIMITED LIABILITY COMPANY
("LLC")
Kyiv - 1997
<PAGE>
ARTICLE 1 GENERAL
1.1 This Amended and Restated Charter ("Charter") is hereby adopted by:
ALEXANDER RODNIANSKII, a citizen of Ukraine, passport No.AC037575;
German Residency A03762953 issued on 05.08.96; ("AR");
and
ENTERPRISE "INTER - MEDIA", a legal entity organized under the laws of
Ukraine, represented by its General Director, Serhiy Viktorovych
Chekanov ("Intermedia").
AR and Intermedia are hereinafter collectively referred to as the
"Participants" and individually as a "Participant".
1.2 All capitalized terms that are used and defined in this Charter shall
have the respective meanings ascribed to them in that certain Amended
Foundation Agreement on the Establishment and Operation of the
Broadcasting Company "Studio 1+1" in the form of a Limited Liability
Company ("Foundation Agreement") entered into by the Parties as of
January 23, 1997.
1.3 This Charter is entered into and approved in accordance with the
provisions of the Foundation Agreement. In the event of any
discrepancy between the provisions of the Foundation Agreement and
those of this Charter, the provisions of the Foundation Agreement
shall prevail, unless the Participants in each instance unanimously
agree to give prevailing force to the terms of this Charter. This
Charter amends and replaces in its entirety the Charter of the
Broadcasting Company "Studio 1+1" in the form of a Limited Liability
Company approved by the Participants' Assembly on June 28, 1996 (and
any amendments thereof).
1.4 The official full name of the LLC in Ukrainian shall be as follows:
"1+1" .
The official full name of the LLC in English shall be as follows:
Broadcasting Company "Studio 1+1" in the form of a Limited Liability
Company.
The abbreviated name of the LLC in Ukrainian shall be as follows:
T "1+1", or 1+1.
The abbreviated name of the LLC in English shall be as follows:
Studio 1+1.
1.5 The address of the LLC shall be: 1b Arsenalna Square, Kyiv, Ukraine.
<PAGE>
ARTICLE 2 PURPOSE AND SUBJECT MATTER OF THE LLC
2.1 The main purpose of the Company's activities shall be production and
commercial activities in accordance with the subject matter of the
LLC.
2.2 The subject matter of the LLC shall be as follows:
2.2.1 production of various television, movie, video and audio
products either in Ukraine or abroad;
2.2.2 acquisition and disposal of the rights for the use of national
and foreign television, movie, video and audio products in any
lawful manner either in Ukraine or abroad;
2.2.3 distribution of various television, movie, video and audio
products either in Ukraine or abroad;
2.2.4 carrying out television and radio broadcasting activities for
broadcasting of television, movie, video and audio products
which the LLC has produced or which the LLC has purchased or
leased or the rights to which were acquired in any other
lawful manner either in Ukraine or abroad;
2.2.5 provision, receipt or exchange of television, movie, video and
audio products with other television, movie, video and audio
producers in Ukraine or abroad and the re-transmission of news
releases, sport programs or other shows;
2.2.6 ownership, creation, maintenance and exploitation of
television, video and radio broadcasting facilities (including
aerial television and radio channels, cable and satellite
networks);
2.2.7 organization and carrying out of conferences, symposia,
exhibitions, auctions, competitions, concerts, radio, movie,
video and television markets, recitals, premiers, movie
concerts and movie presentations and movie shows;
2.2.8 provision of intermediary, agency, distributor, dealer,
marketing, manager, producer, training (including
internships), advertising and other services in the area of
television, movie, video and radio broadcasting, including
provision of services in the area of staging, production,
interpretation, adaptation, circulation, broadcasting,
distribution, licensing, assigning and sale of television,
video, movie and audio products either in Ukraine or abroad;
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2.2.9 charitable and sponsorship activities; and
2.2.10 such other types of activities which are not expressly
prohibited by applicable Ukrainian legislation.
ARTICLE 3 LEGAL STATUS OF THE LLC
3.1 The LLC shall be a legal entity under applicable Ukrainian
legislation. The LLC shall acquire the rights of a legal entity as of
the date of its State registration.
3.2 As a legal entity, the LLC shall have its own property separate from
the property of its Participants and from property belonging to any
third party. The LLC shall also have the right: to acquire on its own
behalf all proprietary and non-proprietary rights; to bear
responsibilities; and to sue and be sued in any court of law,
arbitration court or arbitration tribunal.
3.3 The LLC shall not be responsible for obligations of its Participants
and the Participants shall not be responsible for obligations of the
LLC (unless such obligations are assumed by a Participant pursuant to
a written agreement). A Participant that has not made its contribution
in full to the Charter Fund shall be responsible for the obligations
of the LLC only to the extent of the unpaid portion of such
contribution.
3.4 The LLC shall have a seal (in the Ukrainian and/or English languages)
bearing its name which shall be approved by the Participants'
Assembly. It shall maintain an independent balance sheet, open
accounts in banking institutions, possess trademarks and service
marks, and possess letterhead, stamps and other requisites for its
activity.
3.5 The LLC shall be created for an indefinite period. Such period may be
shortened upon unanimous decision of the Participants' Assembly.
3.6 The LLC, as a legal entity under applicable Ukrainian laws, shall have
the following powers:
3.6.1 in its own name and according to applicable Ukrainian
legislation, to enter into any agreements not specifically
prohibited by law;
3.6.2 to participate independently in foreign economic activity
necessary for the achievement of the statutory purposes of the
LLC;
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3.6.3 within the limits of applicable Ukrainian legislation, to
build, acquire, alienate, sell, lease or rent any movable or
immovable property, including the rights to lease and acquire
plots of land, buildings and constructions;
3.6.4 to acquire, or to acquire the right to use, proprietary and
non-proprietary rights and to ensure legal protection of all
its rights and interests;
3.6.5 within the limits permitted by applicable legislation, to open
and maintain bank accounts in Ukraine and abroad in both
Ukrainian and convertible currency;
3.6.6 to sue and be sued in courts of law and arbitration tribunals
(including international arbitration) and to conclude amicable
settlements;
3.6.7 in accordance with applicable Ukrainian legislation, to incur
loan obligations in both Ukrainian and convertible currency,
to secure the repayment of any money borrowed or owing with
all or any part of the property or assets of the LLC and to
issue debentures, bonds and other securities within the limits
permitted by applicable Ukrainian legislation;
3.6.8 to purchase, acquire and hold stock, shares, debentures,
bonds, obligations and securities issued by any Ukrainian or
foreign legal or governmental entity;
3.6.9 to act as trustee in connection with any stocks, bonds,
obligations or other securities;
3.6.10 in accordance with applicable Ukrainian legislation, to take
part in the formation and management of any company or legal
entity3; to acquire fully or partially any legal entity or its
assets or merge with any other legal entity;
3.6.11 either with or without remuneration, to guarantee the payment
of monies or debts of any person or company and to guarantee
the performance of any contract or obligation of any person or
company;
3.6.12 to sell, improve, manage, develop, exchange, lease, mortgage
or dispose of all the property, assets and rights of the LLC
or any part thereof; to allocate among Participants in-kind
any property of the LLC, including any stocks or
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<PAGE>
securities held by the LLC in other legal entities;
3.6.13 to appoint attorneys and/or commission agents with either full
or restricted powers for the purpose of carrying out and
completing all or any of the statutory objects of the LLC or
to act as an attorney and/or commission agent for any person
or company;
3.6.14 to select potential contracting parties and to organize
meetings and technical discussions with and between
representatives of such parties;
3.6.15 to advertise, organize or participate in exhibitions, seminars
or symposia or to participate in trade fairs both in Ukraine
and abroad;
3.6.16 to carry out the transmission of information within Ukraine
and overseas by means of written correspondence, telegraph,
telex, telefax, telephone and other means of communication;
and
3.6.17 to carry out any other acts and acquire any other rights and
obligations that fall within the authority of a legal entity
according to applicable Ukrainian legislation.
3.7 The LLC shall carry out its foreign economic activity pursuant to the
following guidelines:
3.7.1 foreign economic activities of the LLC shall be performed on
the basis of monetary self-sufficiency and mutual benefit;
3.7.2 the LLC shall have the right independently to establish
relationships with foreign legal entities and individuals, and
to enter into direct foreign economic agreements with foreign
partners;
3.7.3 the LLC shall be authorized to carry out any kind of foreign
economic transaction with regard to any property, materials,
products, works and services within the framework of its
principal activities contemplated by this Charter, including
its own production needs.
3.8 The LLC shall at all times carry out its activities in accordance with
the provisions of the Foundation Agreement, this Charter and applicable
Ukrainian legislation. Those activities which are subject to licensing
in Ukraine shall be carried out by the LLC only after obtaining a
required
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<PAGE>
special permission (license) pursuant to applicable Ukrainian
legislation.
3.9 The LLC may form subsidiaries, representative offices and branches on
the territory of Ukraine and in other countries in accordance with
existing law. When creating a subsidiary, the Participants' Assembly
shall determine all matters relating to the creation, activities and
liquidation of such subsidiary. Subsidiaries established as separate
legal entities shall not be liable for the obligations of the LLC, and
the LLC shall not be liable for the obligations of such subsidiaries,
unless such liability is expressly undertaken by contract.
Representative offices and branches established by the LLC shall not be
separate legal entities and shall operate in the name of, and on behalf
of, the LLC.
ARTICLE 4 PROPERTY OF THE LLC; CHARTER FUND OF THE LLC; CONTRIBUTIONS OF THE
PARTICIPANTS; INTERESTS OF THE PARTICIPANTS IN THE CHARTER FUND
4.1 The property of the LLC shall consist of:
4.1.1 funds and property transferred to the LLC as a contribution to
the Charter Fund;
4.1.2 products or services produced by the LLC as a result of its
economic activities;
4.1.3 income and profits; and
4.1.4 other property and proprietary rights legally obtained by the
LLC.
4.2 The LLC has established a charter fund ("Charter Fund") equal to Ten
Thousand (10,000) Ukrainian hryvnias and comprised of contributions
from the Participants. The shares of the Participants in the Charter
Fund, as well as the timing of each Participant's contribution, the
specific assets or amount of cash to be contributed by each Participant
and the valuation of such contributions shall be as specified in the
Foundation Agreement.
4.3 Contributions to the Charter Fund may be in cash and/or in the form of
licenses, permits, buildings, services, equipment, offices,
inventories, rights to use land, water and other natural resources,
property rights (including inventions and know-how) and other tangible
and intangible assets.
4.4 The amount of the Charter Fund may be increased or decreased as
determined by the unanimous decision of the Participants' Assembly.
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4.5 Any increase of the Charter Fund may be carried out either (i) through
additional contributions either from one or more of the Participants of
the LLC or from third parties, or (ii) through the transfer of
unallocated profits of the LLC to the Charter Fund. Additional
contributions may be made in cash or in the form of other tangible or
intangible assets. In the event that either (i) the Charter Fund is
increased through additional contributions of one or more Participants
which contribute(s) unequally or (ii) new participants are added to the
LLC as provided in this Charter, then the Participants' shares in the
Charter Fund and the LLC shall be adjusted in order to reflect such
changes.
4.6 The LLC may not decrease the Charter Fund in the event of any
creditors' objections.
4.7 All contributions made to the Charter Fund pursuant to the provisions
of this Article 4 shall become the exclusive property of the LLC and
shall constitute the property or proprietary rights of the LLC. Any
surplus of property or proprietary rights of the LLC resulting from the
LLC's economic activity shall be the exclusive property of the LLC. The
Participants' Assembly shall decide upon matters concerning insurance
of the LLC's property, proprietary rights and property accountability.
ARTICLE 5 OTHER FUNDS OF THE LLC
5.1 The LLC shall establish a reserve fund ("Reserve Fund") by way of
annual deductions from the net profits in the amount of five percent
(5%) until the Reserve Fund reaches the amount of twenty-five percent
(25%) of the Charter Fund.
5.2 From its profits or income, the LLC may establish such other funds as
the Participants' Assembly may from time to time determine necessary.
The amount of these funds and the procedure for allocating sums to them
shall be as established by the Participants' Assembly.
ARTICLE 6 FINANCIAL DOCUMENTS AND PROFITS
6.1 Not later than January 15 of each fiscal year, copies of the annual
financial statement, the profit and loss statement of the LLC for the
prior fiscal year, tax calculations for the prior fiscal year and any
other reports concerning the LLC required by applicable Ukrainian
legislation shall be submitted by the Directorate to the Participants'
Assembly. All such documents shall be prepared in Ukrainian and English
and shall be subject to the approval of the
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Participants' Assembly.
6.2 At the first regular meeting of the Participants' Assembly in each
fiscal year, on the basis of the documents referenced in Article 6.1
hereof, the Participants' Assembly shall determine all allocations to
be made from the profits or revenues of the LLC to the funds referred
to in Article 5 of this Charter.
6.3 If the Participants' Assembly decides to distribute profits to the
Participants, such profits shall be distributed to the Participants in
proportion to their shares in the Charter Fund pursuant to the
procedures as determined by the Participants' Assembly. The
Participants' Assembly may determine that profits are to be distributed
in one or more installments during any given financial year.
ARTICLE 7 THE PARTICIPANTS ASSEMBLY OF THE LLC
7.1 The highest decision-making body of the LLC shall be the Participants'
Assembly. The Participants' Assembly shall be responsible for
establishing the overall direction and strategy of the LLC, for making
major policy decisions and for reviewing the financial performance and
operational achievements of the LLC. The Participants' Assembly shall
bear ultimate responsibility for the operations of the LLC.
7.2 The Participants' Assembly shall consist of each Participant who is a
physical person and a representative appointed by each Participant
which is a legal entity (each a "Representative").
7.3 Except as provided otherwise in this Charter or the Foundation
Agreement, the following powers shall be within the exclusive
competence of the Participants' Assembly and shall be subject to and
adopted by 75% of all of the outstanding participation interest votes:
7.3.1 the authorization for the acquisition, sale or other
disposition of any fixed asset or real property (including any
tangible or intangible assets or any kind whatsoever) if the
consideration or book value for the same exceeds Twenty Five
Thousand ($25,000) U.S. Dollars;
7.3.2 the approval of any capital investment or other capital
expenditure or commitment in excess of (when aggregated with
any related investment or expenditure or commitment in the
same financial period) Ten Thousand ($10,000) U.S. Dollars;
7.3.3 the approval of the granting or issuance of any
<PAGE>
loans, credit, guarantee, indemnity or similar obligation to,
or in respect of, any person, except for any undertaking of
such nature which is made or given in the ordinary course of
business and does not exceed or involve an obligation of more
than Ten Thousand ($10,000) U.S. Dollars;
7.3.4 the raising of loans or credits exceeding Ten Thousand
($10,000) U.S. Dollars;
7.3.5 the approval of any joint venture, partnership (including
silent partnership) or consortium with any third party;
7.3.6 the approval of any contract or other business relationship
with any related party or affiliate;
7.3.7 determination of the formation, contributions to, and usage of
the funds of the LLC as described in Article 5 of this
Charter;
7.3.8 the approval of the annual financial report and statement of
account, the distribution of profits, interim payments of
anticipated profits, and auditor's reports;
7.3.9 determination of the procedure for covering losses incurred by
the LLC;
7.3.10 the approval of any material change to the basis of accounting
or the accounting principles and policies of the LLC, except
as required by law or accounting standards;
7.3.11 determination of a general employment policy for the LLC's
personnel;
7.3.12 approval or amendment of any procedures governing the
activities of the Directorate or its staff structure and the
responsibilities of the Directorate or the expansion of the
Directorate;
7.3.13 the decision to issue bonds or other types of securities;
7.3.14 the approval of any decision to license, sell or otherwise
dispose of any of the LLC's trade or services marks, logos,
trade names, designs or other such requisites to any third
party;
7.3.15 the decisions listed in Articles 7.6, 7.7 and 10.2 below.
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The Participants' Assembly may from time to time adopt resolutions
indicating those powers which shall be within the exclusive competence
of the Participants' Assembly and the percentage vote to which such
decisions shall be subject.
7.4 The following powers shall be within the exclusive competence of the
Participants' Assembly and shall be subject to and adopted by the
unanimous vote of all of the Participants:
7.4.1 the adoption of changes to the scope of business activities of
the LLC;
7.4.2 the adoption of any changes in the Charter Fund or in the
shares of the Participants of the LLC in the Charter Fund, as
well as approval of any additional contributions by the
Participants of the LLC to the Charter Fund;
7.4.3 the establishment, acquisition, transfer or termination of the
LLC's subsidiaries, branches and representative offices within
Ukraine and abroad, including the modification of their
capital and organizational structure;
7.4.4 the decision voluntarily to liquidate or wind-up the LLC;
determination of procedures regarding the liquidation of the
LLC and all questions arising from such liquidation or
winding-up; appointment of a Liquidation Committee, approval
of its report and approval of the final liquidation balance of
the LLC;
7.4.5 the decision to admit any new Participant to the LLC or,
subject to Article 14.2 below, to remove any existing
Participant from the LLC;
7.4.6 the appointment of any member of the Directorate;
7.4.7 the decisions listed in Article 9.6 below.
7.5 All decisions of the Participants' Assembly (other than those referred
to in Articles 7.3 and 7.4 above) shall be adopted upon a decision of a
simple majority of the votes present at a validly convened meeting of
the Participants' Assembly; provided, however, that a member of the
Directorate may be removed by the vote of 30 percent of all of the
ownership interest votes.
7.6 By adoption of a resolution approved by 75% of all of the outstanding
participation interest votes, the Participants'
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Assembly may delegate any of its powers to either the General Director
or other members of the Directorate. Such resolution shall be in
writing and include an express list of those powers transferred, as
well as the term for which such powers are transferred to either the
Directorate or the General Director.
7.7 The Representative appointed by Intermedia shall act as the Chairman of
the Participants' Assembly. The Participants' Assembly shall also
appoint a Secretary of the Participants' Assembly. The term of office
for the Secretary of the Participants' Assembly, as well as the
procedures for his re-election shall be established by the
Participants' Assembly by a resolution approved by 75% of all of the
outstanding participation interest votes.
7.8 Notwithstanding any provision herein to the contrary, Intermedia shall
nominate, appoint or dismiss legal counsel to the LLC at its sole
discretion, and such nomination, appointment or dismissal shall not be
within the competence of either the Participants' Assembly or the
Directorate. The Participants agree to carry out all actions as may be
required in order to implement any such nomination, appointment or
dismissal.
ARTICLE 8 MEETINGS OF THE PARTICIPANTS' ASSEMBLY
8.1 Regular meetings of the Participants' Assembly shall be held not less
than once each fiscal year. The first regular meeting of any fiscal
year shall be held not prior to January 20 and not later than January
31 of a current year. Extraordinary meetings of the Participants'
Assembly shall be called when the need arises. All costs related to the
calling and holding of the regular and extraordinary meetings of the
Participants' Assembly shall be borne by the LLC. The meetings of the
Participants' Assembly may be held in Ukraine and other countries as
determined by the Participants' Assembly.
8.2 Regular and extraordinary meetings of the Participants' Assembly shall
be called by the Chairman of the Participants' Assembly. Notice of such
meeting must be given in writing to each Participant and Representative
not less than thirty (30) days prior to the meeting; provided, however,
that in urgent cases and with the unanimous consent of the Participants
and Representatives, notification of the convening of the Participants'
Assembly shall be permitted without adherence to the designated time
period. A notice shall state the day, time, agenda and address of the
location of the meeting. The contents of the notice shall be determined
by the Chairman. Any Participant or Representative shall have the right
to add a matter to the
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<PAGE>
agenda of the Participants' Assembly up to twenty five (25) days prior
to that Participants' Assembly. The Chairman shall mail the final
agenda to the Participants and Representatives at least seven (7) days
prior to the Participants' Meeting; provided, however, that the agenda
may be modified by a majority vote of the votes present at a duly
convened meeting of the Participants' Assembly. Meetings of the
Participants' Assembly may be held by means of a telephone conference
call.
8.3 Extraordinary meetings of the Participants' Assembly may be held at any
time as the need arises. Such meetings may be called at the request of
any Participants or Representatives who hold in aggregate at least 20%
of the votes at the Participants' Assembly ("Proposing Group"). The
General Director or the Audit Committee may also call such meetings;
provided, however, that the Audit Committee may request an
extraordinary meeting if the material interests of the LLC are in
jeopardy or if any abuse by the LLC's officers is revealed. Such
extraordinary meetings may be convened in order to consider any matter
proposed by the Proposing Group, the General Director or Audit
Committee and related to the LLC's activities. If the Chairman of the
Participants' Assembly fails to comply with the request of the
Proposing Group, the General Director or the Audit Committee regarding
the convening of an extraordinary meeting of the Participants' Assembly
within 25 days of the date of such request, then the Proposing Group,
the General Director or Audit Committee shall have the right to convene
the extraordinary meeting of the Participants' Assembly on its own
initiative.
8.4 A Representative or Participant may appoint another person by power of
attorney to participate in a meeting in his place, to vote on his
behalf and to exercise all other rights and powers of the absent
Participant or Representative. A power of attorney may be in the form
of a signed letter (or facsimile copy of such a letter) or telex from
the delegating Representative or Participant.
8.5 Each Participant of the LLC shall be entitled to a number of votes in
proportion to its share in the Charter Fund. In order for a meeting of
the Participants' Assembly to be deemed valid and effective, the
presence of Participants (either in person or through their
Representatives) holding in aggregate more than 71 percent of the votes
shall be required; provided, however, that the presence of the
Participants (either in person or through their Representatives)
representing all 100 percent of the votes shall be required in the
event that decisions are to be taken on those matters specified in
Article 7.4 hereof.
8.6 Decisions of the Participants' Assembly shall be considered
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<PAGE>
valid and effective only if (i) approved at a valid and effective
meeting of the Participants' Assembly and (ii) approved by the
requisite vote as required in Article 7 above; provided, however, that
a Participant may not participate in the voting of its own expulsion in
the event it systematically and materially fails to fulfil its
obligations under the Foundation Agreement and this Charter as
determined in Article 14.2 below.
8.7 The minutes of a meeting of the Participants' Assembly shall be in
Ukrainian and English and shall be signed by all of the Representatives
in the meeting. The Ukrainian and English originals shall be kept at
the office of the LLC and copies shall promptly be sent to each
Representative and Participant.
8.8 A decision signed or approved in writing by all the Representatives and
Participants (or their designated appointee(s) pursuant to a power of
attorney) shall be as valid and effective as if the same had been made
at a meeting of the Participants' Assembly duly called and held. Such a
decision may consist of one or more documents in identical form each
signed or approved by all the Representatives and Participants.
8.9 Decisions of the Participants' Assembly can only be revoked or amended
by means of a separate decision of the Participants' Assembly made in
accordance with the provisions of this Charter and the Foundation
Agreement.
ARTICLE 9 DIRECTORATE
9.1 The day-to-day business operations of the LLC and the fulfilment of the
decisions of the Participants' Assembly shall be carried out by a
Directorate appointed by the Participants' Assembly as provided herein
("Directorate"). The Directorate shall consist of the General Director,
the Deputy General Director, the Financial Director (Chief Accountant),
the Sales Director and such other persons as the Participants' Assembly
may from time to time appoint. The Directorate shall be headed by the
General Director.
9.2 The General Director, the Deputy General Director, the Financial
Director (Chief Accountant) and the Sales Director shall be appointed
or dismissed by the decision of the Participants' Assembly. Intermedia,
and only Intermedia, shall have the right in its sole discretion to
nominate individuals for the position of Deputy General Director and
Financial Director (Chief Accountant) ("Intermedia Nominees"). AR shall
have the right in his sole discretion to nominate individuals for the
position of General Director and Sales Director ("AR Nominees").
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<PAGE>
9.3 The Directorate shall be accountable to the Participants' Assembly and
shall ensure that the decisions of the Participants' Assembly are
carried out. The Directorate shall resolve all matters related to the
LLC's activities, excluding those within the exclusive competence of
the Participants' Assembly. In the event of a controversy between
members of the Directorate, the view or position of the General
Director shall prevail.
9.4 Subject to the limitations provided in this Charter and the Foundation
Agreement, the General Director shall be granted the following
authority and responsibilities:
9.4.1 overall authority over all decisions relating to the
day-to-day operations and management of the LLC and the LLC's
facilities;
9.4.2 hiring, supervising and dismissing personnel of the LLC
(except for members of the Directorate);
9.4.3 performance of all other duties which are assigned to the
General Director by the Participants' Assembly.
9.5 The General Director may delegate any of its authority and
responsibilities to another member of the Directorate.
9.6 The General Director shall be employed for a term of two (2) years from
the date of its appointment unless otherwise extended by the unanimous
vote of the interests present at a duly convened Participants'
Assembly.
9.7 Other members of the Directorate shall have such powers and duties as
specified by the Participants' Assembly.
ARTICLE 10 THE AUDIT COMMITTEE
10.1 The Audit Committee shall be established by the Participants' Assembly
and shall consist of three (3) persons elected for such period as
determined by the Participants' Assembly. Members of the Directorate
may not be members of the Audit Committee. Members of the Audit
Committee shall be appointed or dismissed by the decision of the
Participants' Assembly. Intermedia, and only Intermedia, shall be
entitled to nominate and call for the removal of the members of the
Audit Committee. AR shall vote for all individuals nominated by
Intermedia for the Audit Committee and shall vote for the dismissal of
any member of the Audit Committee as indicated by Intermedia.
10.2 The scope of powers and responsibilities of the Audit
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<PAGE>
Committee, as well as the procedures for convening and holding its
meetings, shall be determined from time to time by the Participants'
Assembly by means of a 75% vote of the participation interest votes;
provided, however, that all decisions of the Audit Committee must be
approved by two of the three members of the Audit Committee.
ARTICLE 11 FINANCIAL ACTIVITY OF THE LLC
11.1 The fiscal year of the LLC shall correspond to the calendar year and
shall encompass the period from January 1 up to and including December
31 of the current calendar year.
11.2 In accordance with applicable Ukrainian legislation, the Directorate
shall be responsible for implementing the procedures established for
maintaining and insuring the accuracy of the financial and accounting
records of the LLC.
11.3 To the extent required by applicable Ukrainian law and/or according to
the decision of the Participants' Assembly, audits of the LLC's
financial and economic activities may be carried out by Ukrainian
and/or foreign auditing organizations.
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<PAGE>
ARTICLE 12 ENTERING INTO AGREEMENTS AND OTHER DOCUMENTS
12.1 Subject to Articles 12.2 and 12.3, the General Director alone (and only
the General Director) shall have the authority to enter into documents,
agreements and contracts which bind the LLC; provided, however, that
the General Director may issue written powers of attorney to other
members of the Directorate to act in his stead.
12.2 Notwithstanding the foregoing Article 12.1, the entering into,
amendment or termination of any agreement, contract or other document
(or series of agreements, contracts or documents) or the issuance of
any payment order having a value in excess of Ten Thousand ($10,000)
U.S. Dollars or which have a duration of more than one (1) calendar
year (irrespective of their value) and (except for any compulsory
conversion as may be required by Ukrainian law) any act of currency
conversion in an amount over $10,000 U.S. dollars must be signed by at
least two (2) members of the Directorate: (i) the General Director and
(ii) either the Deputy General Director or the Financial Director
(Chief Accountant); provided, however, that all banking transactions
with a value of more than $5,000 U.S. dollars must be signed by both
the General Director and the Financial Director (Chief Accountant); and
further provided, that any banking transactions with a value of $5,000
U.S. dollars or less may be signed by the Financial Director alone.
12.3 To the extent required by Ukrainian law, any foreign economic
agreements on behalf of the LLC must be signed by the General Director
and by a person authorized to sign by a power of attorney issued under
the signature of the General Director.
ARTICLE 13 TERMINATION OF THE LLC
13.1 The LLC shall terminate its activity as a result of its reorganization
or liquidation. Reorganization of the LLC shall result in transfer of
all its property, rights and obligations to the LLC's legal successor.
13.2 The LLC shall be liquidated on the following grounds:
13.2.1 upon the termination of the Foundation Agreement as provided
in the Foundation Agreement;
13.2.2 as a result of expiration of the LLC's term;
13.2.3 by a unanimous decision of all Participants at the
Participants' Assembly; and/or
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<PAGE>
13.2.4 by a valid court decision or arbitration award.
13.3 Liquidation of the LLC shall be carried out pursuant to applicable
Ukrainian legislation and the provisions of this Article 13.
13.4 In the event that the decision on liquidation is adopted, the
Participants' Assembly shall appoint a liquidation committee
("Liquidation Committee") which shall prepare and submit a liquidation
account balance to the Participants' Assembly. Upon appointment of the
Liquidation Committee, the powers of the General Director and the
Directorate shall be terminated and shall pass to the Liquidation
Committee.
13.5 Upon receiving and approving the liquidation account balance, the
Liquidation Committee shall take all measures necessary to satisfy all
of the LLC's liabilities. Any remaining property of the LLC (including
any funds in cash) shall be distributed to the Participants in
proportion to their shares in the Charter Fund.
13.6 The liquidation of the LLC shall be registered with the appropriate
governmental authority as required by then-existing legislation. The
LLC shall forfeit the rights of a legal entity from the date of its
removal from the state register or from such other date as may be
specified by applicable legislation.
ARTICLE 14 TERMINATION OF PARTICIPATION IN THE LLC AND LEGAL SUCCESSION
14.1 Any Participant shall be deemed to have terminated its participation in
the LLC if it (i) withdraws from the LLC or (ii) disposes of its share
in the Charter Fund in its entirety or (iii) for any other reason
ceases to be a Party to the Foundation Agreement and/or a Participant
in the LLC.
14.2 A Participant may not be expelled from the LLC. In the event that this
provision becomes ineffective or unenforceable pursuant to applicable
Ukrainian legislation, the Participants shall be able to expel a
Participant from the LLC under Article 64 of the Ukrainian Law on
Business Associations only if an applicable arbitration panel or court
has determined that the Participant to be expelled has systematically
and materially failed to fulfil its obligations under the Foundation
Agreement and this Charter.
14.3 Transfers, pledges or other dispositions of participation interests in
the LLC shall be subject to the transfer provisions as specified in the
Foundation Agreement. Subject to the transfer provisions of the
Foundation Agreement, a successor or heir to a Participant shall become
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a participant in the LLC and a party to the Foundation Agreement.
ARTICLE 15 NOTICES AND MODIFICATIONS
15.1 All modifications to this Charter, and all notices sent pursuant to the
provisions of this Charter, except as otherwise provided in this
Charter, shall be given in the manner provided in the Foundation
Agreement.
ARTICLE 16 MISCELLANEOUS
16.1 This Charter shall enter into force on the date of its state
registration.
16.2 All disputes arising between the Participants with respect to the
interpretation of this Charter and the performance by the LLC or any of
the Participants of any obligations specified in this Charter shall be
resolved in the manner provided in the Foundation Agreement.
16.3 Any additions to this Charter mentioned herein shall constitute an
integral part of this Charter.
Signed on January 23, 1997 by the following Participants:
[signed]
/s/ Alexander Rodnianskii
---------------------------
Alexander Rodnianskii
ENTERPRISE "INTER - MEDIA"
as represented by the
Director, Chekanov S.V.
[signed]
---------------------------
By:
Position:
[seal]
Ky-
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<PAGE>
iv
[January 23, 1997,
I, Oleksyuk Y.E., a private notary of the Kyiv city notary district, hereby
certify the authenticity of the signatures of the director of the Enterprise
"Inter - Media", Serhiy Viktorovych Chekanov and the citizen, Alexander
Youkhimovich Rodnianskii, which have been made in my presence. The identity of
the citizen Rodnianskii A.Y and a representative who have signed the document
has been verified. The powers of the representative have been examined. The word
"General" which is struck out should not be read. Registered in the register
under No. 157-163 Payments have been collected according to an arrangement,
including state duty in the amount of 0.68 UAH.
PRIVATE NOTARY]
[signed]
[seal]
[seal]
[This document contains in total 18 (eighteen) sewn, numbered and sealed pages.
Private notary] [signed]
, , _ 880071, . .. 7 1991 .
19
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"REGISTERED" EXECUTION COPY
in amended and restated form
by the Executive Committee of the
Pechersk District State Administration,
in the City of Kyiv, Ukraine.
Resolution No.
as of _________________, 199__
Certificate No. ______________
Registration No. 23729809
Head of the State Administration
(name)
AMENDED AND RESTATED FOUNDATION AGREEMENT
ON
THE ESTABLISHMENT AND OPERATION OF
THE BROADCASTING COMPANY
"STUDIO 1+1"
IN THE FORM OF A LIMITED LIABILITY COMPANY
Kyiv - 1997
<PAGE>
AMENDED AND RESTATED FOUNDATION AGREEMENT
ON
THE ESTABLISHMENT AND OPERATION OF
THE BROADCASTING COMPANY
"STUDIO 1+1"
IN THE FORM OF A LIMITED LIABILITY COMPANY
This Amended and Restated Foundation Agreement on the Establishment and
Operation of the Broadcasting Company "Studio 1+1" in the Form of a Limited
Liability Company ("Agreement") is entered into as of January 23, 1997
("Effective Date") by and between:
(1) ALEXANDER RODNIANSKII, a citizen of Ukraine, passport 21 No. AC037575;
German Residency AO3762953 ("AR");
and
(2) ENTERPRISE "INTER - MEDIA", a legal entity organized under the laws of
Ukraine, represented by its General Director, Serhiy Viktorovych
Chekanov ("Intermedia").
AR and Intermedia are hereinafter collectively referred to as the "Parties" and
individually as a "Party".
WHEREAS:
(A) AR and Intermedia on June 28, 1996 entered into that certain Foundation
Agreement on the Establishment and Operation of the Broadcasting
Company "Studio 1+1" in the form of a Limited Liability Company
("Original Agreement").
(B) The Broadcasting Company "Studio 1+1" in the form of a Limited
Liability Compay was established pursuant to the Original Agreement and
registered by the State Administration of the Pechersk District of the
City of Kyiv on July 11, 1996, registration number 23729809.
(C) The Parties wish to amend the Original Agreement and replace it in its
entirety with this Agreement.
NOW THEREFORE, the Parties hereby agree as follows:
ARTICLE 1 DEFINITION OF TERMS
The following terms, as used in this Agreement, shall have the following
respective meanings:
1.1 The term "LLC" shall mean the Broadcasting Company "Studio 1+1" in the
form of a Limited Liability Company established herein, which shall be
a legal entity under Ukrainian legislation, and which shall be
established pursuant to the terms and conditions of this Agreement.
1.2 The term "Charter" shall mean the Amended Charter of the
<PAGE>
LLC.
1.3 The term "CME" shall mean CME Media Enterprises B.V., a company
organized under the laws of the Netherlands.
ARTICLE 2 SUBJECT MATTER OF THE AGREEMENT
2.1 The Parties hereby agree to establish a limited liability company which
shall be a legal entity under Ukrainian legislation.
2.2 The official full name of the LLC in Ukrainian shall be as follows:
" 1+1" .
The official full name of the LLC in English shall be as follows:
Broadcasting Company "Studio 1+1" in the form of a Limited Liability
Company.
The abbreviated names of the LLC in Ukrainian shall be as follows:
" 1+1", or 1+1.
The abbreviated names of the LLC in English shall be as follows:
Studio 1+1.
2.3 The address of the LLC shall be: 1b Arsenalna Square, Kyiv, Ukraine.
2.4 This Agreement hereby amends the Original Agreement and replaces the
Original Agreement in its entirety.
ARTICLE 3 LEGAL STATUS OF THE LLC
3.1 The LLC shall be a legal entity under applicable Ukrainian legislation.
The LLC shall acquire the rights of a legal entity as of the date of
its State registration.
3.2 The activities of the LLC shall be governed by this Agreement, the
Charter and applicable Ukrainian legislation. The provisions of this
Agreement shall prevail in the event the provisions of this Agreement
and the Charter are in conflict, unless the Parties in each instance
unanimously agree to give prevailing force to the terms of the Charter.
ARTICLE 4 PURPOSE AND SUBJECT MATTER OF THE LLC
4.1 The Parties hereby agree that the purposes and subjects of the LLC's
activity shall be those listed in the Charter.
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<PAGE>
ARTICLE 5 CHARTER FUND OF THE LLC; INTEREST OF THE PARTIES; CONTRIBUTIONS OF
THE PARTIES
5.1 The charter fund of the LLC ("Charter Fund") shall be formed by way of
contributions from each Party and shall amount to 10,000 hryvnias.
5.2 The value of the contribution of each of the Parties to the Charter
Fund and the interest share of each of the Parties in the Charter Fund
shall be as follows:
AR: 7,000 hryvnias, which constitutes 70% of the Charter Fund;
Intermedia: 3,000 hryvnias, which constitutes 30% of the Charter Fund.
5.3 The type of contributions to the Charter Fund made by the Parties is as
follows:
<TABLE>
<S> <C>
============================================================================ ===================================
Contributor Evaluation of contribution
and type of contribution
============================================================================ ===================================
Rodnianskii: seven thousand (7,000) hryvnias.
Data base regarding the distributors of audio and visual products (motion
picture films and television movies, and television programs) on the territory
of the CIS and in the countries of Eastern and Western Europe.
============================================================================ ===================================
Intermedia: three thousand (3,000) hrynias.
Data base regarding the owners and volume (limits) of proprietary rights
for the use of one thousand audio-visual works (motion picture films and
television movies, and television programs) produced by the television
studios and cinema companies of Germany, France, Italy, Poland, United
States, Great Britain, Russia and Ukraine.
============================================================================ ===================================
</TABLE>
5.4 The LLC shall have the right to increase or decrease the amount of the
Charter Fund. The Charter Fund may be increased only after all Parties
have made their contributions in full. The Charter Fund may not be
decreased if there are objections by the LLC's creditors.
ARTICLE 6 GOVERNING AND CONTROLLING BODIES OF THE LLC
6.1 The highest decision-making body of the LLC shall be the
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<PAGE>
Participants' Assembly ("Participants' Assembly"). The Participants'
Assembly shall consist of each Party who is a physical person and a
representative appointed by each Party which is a legal entity (each a
"Representative").
6.2 The day-to-day business operations of the LLC and the fulfilment of the
decisions of the Participants' Assembly shall be carried out by a
Directorate appointed by the Participants' Assembly as provided herein
("Directorate"). The Directorate shall consist of the General Director,
the Deputy General Director, the Financial Director (Chief Accountant),
the Sales Director and such other persons as the Participants' Assembly
may from time to time appoint. The Directorate shall be headed by the
General Director.
6.3 The procedure for convening and holding meetings, the scope of
authority of the Participants' Assembly, its structure, and the scope
of authority and the procedure for carrying out the functions of the
Directorate and of each of its members shall, to the extent not
specifically provided for in this Agreement, be as specified in the
Charter.
6.4 The Representative appointed by Intermedia shall act as the Chairman of
the Participants' Assembly.
6.5 The General Director, the Deputy General Director, the Financial
Director (Chief Accountant) and the Sales Director shall be appointed
or dismissed by the decision of the Participants' Assembly. Intermedia,
and only Intermedia, shall have the right in its sole discretion to
nominate individuals for the position of Deputy General Director and
Financial Director (Chief Accountant) ("Intermedia Nominees"). AR shall
have the right in his sole discretion to nominate individuals for the
position of General Director and Sales Director ("AR Nominees").
6.6 Notwithstanding any provision herein to the contrary, Intermedia shall
nominate, appoint or dismiss legal counsel to the LLC at its sole
discretion, and such nomination, appointment or dismissal shall not be
within the competence of either the Participants' Assembly or the
Directorate. The Parties agree to carry out all actions as may be
required in order to implement any such nomination, appointment or
dismissal.
6.7 The Audit Committee shall be established by the Participants' Assembly
in accordance with the provisions of the Charter. Intermedia, and only
Intermedia, shall be entitled to nominate and call for the removal of
the members of the Audit Committee. AR shall vote for all individuals
nominated by Intermedia for the Audit Committee and shall vote for the
dismissal of any member of the Audit Committee as indicated by
Intermedia.
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ARTICLE 7 DISTRIBUTION OF PROFITS AND LOSSES OF THE LLC
7.1 Upon the decision of the Participants' Assembly, the net annual profit
received based upon the activity of the LLC during the previous fiscal
year which remains after payment of taxes and other mandatory payments
to the state budget, payment for the labor of the LLC's employees,
deductions for the LLC's funds and other deductions and payments
("Profit") may be subject to distribution among the Parties in full or
in part thereof. The Participants' Assembly shall determine the use of
the Profit.
7.2 In the event that the Participants' Assembly approves a decision
regarding the distribution of the Profit or any part thereof, the
Profit shall be distributed among the Parties in proportion to their
shares in the Charter Fund within thirty (30) calendar days after the
day of approval by the Participants' Assembly of both the financial
statements of the LLC for the previous fiscal year and the decision
regarding distribution of the Profit.
7.3 The losses of the LLC shall be subject to compensation from the capital
of the reserve fund of the LLC ("Reserve Fund"). The Reserve Fund shall
be established as provided in the Charter.
ARTICLE 8 RESTRICTIONS ON ASSIGNMENT AND EXPULSION
8.1 AR hereby agrees that during the term of this Agreement he shall not
sell, transfer, dispose of, pledge or in any way encumber his
participation interests in the Charter Fund and the LLC without having
obtained the prior written consent of Intermedia, which consent may be
withheld in Intermedia's sole discretion.
8.2 A Party shall cease to be a party to this Agreement if it (i) withdraws
from the LLC or (ii) disposes of its share in the Charter Fund in its
entirety.
8.3 Intermedia may transfer, pledge, encumber, sell or otherwise dispose of
its participation interests in the LLC to a third party in its own
discretion and without the approval of AR. AR hereby (i) grants his
approval to Intermedia for any such transfer, pledge, encumbrance, sale
or other disposition by Intermedia of its participation interests in
the LLC and (ii) agrees to execute such documents or adopt such
resolutions at the Participants' Assembly as may be
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<PAGE>
necessary in order to carry out any such Intermedia transfer, pledge,
encumbrance, sale or other disposition.
8.4 AR agrees that, before offering all or a portion of his participation
interests in the LLC to a third party ("Target Participation
Interest"), he must first offer such Target Participation Interest to a
Ukrainian person or entity designated by Intermedia (by means of a
written notice to Intermedia) for purchase at a price equal to its fair
market value as determined by an international accounting firm
designated by Intermedia ("Accounting Firm"), provided that the
designee of Intermedia may not purchase the Target Participation
Interest if to do so would result in a violation of any media or other
law. In the event that a Target Participation Interest is offered to
Intermedia as provided in the previous sentence and Intermedia does not
accept such offer within 30 calendar days of receiving (i) such offer
and (ii) a fair market value quotation from the Accounting Firm, it may
be offered (subject to the restrictions in Article 8.1) to a third
party; provided, however, that in such event Intermedia must be
notified in writing of the sale terms which have been agreed upon with
such third party ("Offered Terms") and Intermedia shall have a right of
first refusal to purchase such Target Participation Interest in
accordance with the Offered Terms. In the event Intermedia fails to
exercise the right of first refusal with respect to the Offered Terms
within 15 calendar days of receiving a written notification of such
Offered Terms, such Target Participation Interest may be transferred or
sold (subject to the restrictions in Article 8.1) to such third party
in accordance with the Offered Terms.
8.5 Any assignment or transfer of any portion of any Party's participation
interest in the LLC under the terms and conditions hereof shall enter
into force only upon performance of all of the following acts, and only
after performance of the last of such acts: (i) the person to which a
Party assigns or transfers a portion of its participation interest in
the LLC ("Transferee") shall become a party to this Agreement and
assume all the obligations of the assigning or transferring Party under
this Agreement and the Charter on the date of such transfer, (ii) the
Transferee shall assume the respective portion of the liabilities which
the assigning or transferring Party had assumed in relation to the LLC
and other Parties and (iii) appropriate changes to the Agreement and
the Charter are entered into the appropriate State register.
8.6 The Parties agree that, upon the unanimous decision of the
Participants' Assembly, a third party may make a contribution to the
Charter Fund and, upon entering into this Agreement or an amended form
of this Agreement agreed
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<PAGE>
by all Parties, become a Party to this Agreement and the LLC.
8.7 The Parties hereby agree that the LLC and/or any appropriate body of
state power or management shall be obligated to reject any registration
of the transfer of any participation interest in the LLC (or any
attempted transfer of any participation interest) in the event such
transfer has been carried out with breach of all or any of the
provisions of this Article 8 hereof. Any agreement of any Party with
any third party shall be deemed null and void ab initio unless
requirements of this Article 8 hereof are adhered to.
8.8 A Party may not be expelled from the LLC. In the event that this
provision becomes ineffective or unenforceable pursuant to applicable
Ukrainian legislation, the Parties shall be able to expel a Party from
the LLC under Article 64 of the Ukrainian Law on Business Associations
only if an applicable arbitration panel or court has determined that
the Party to be expelled has systematically and materially failed to
fulfil its obligations under this Agreement and the Charter.
ARTICLE 9 MODIFICATION AND AMENDMENTS
9.1 The Parties may at any time modify this Agreement and/or the Charter in
a manner consistent with applicable Ukrainian legislation. No
modification or amendment of this Agreement or the Charter shall be
effective unless it is in writing and signed either by all the Parties
or by authorized representatives of each of the Parties.
9.2 In the event appropriate applicable Ukrainian legislation requires the
LLC to be re-registered with a new governmental entity or to be
restructured into a legal form other than a limited liability company,
the Parties agree to carry out such re-registration and restructuring
and to ensure that, to the maximum extent possible, such re-registered
or restructured entity is able to carry out the same activities and is
governed by the same terms and conditions as provided in this Agreement
and the Charter.
ARTICLE 10 TERM OF THIS AGREEMENT
10.1 This Agreement shall come into force on the Effective Date.
10.2 This Agreement shall remain valid and binding for an unlimited period,
but shall be deemed to have expired upon termination of this Agreement
as provided in Article 11 of this Agreement. The Parties may agree at
any time to shorten the term of this Agreement pursuant to written
amendment as specified in Article 9.1 above.
7
<PAGE>
ARTICLE 11 TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall be terminated upon the expiration of the term of
this Agreement, upon the earlier written mutual agreement of all of the
Parties to terminate this Agreement or upon the liquidation of the LLC
as provided in the Charter.
11.2 Termination of this Agreement shall result in the liquidation of the
LLC pursuant to the provisions of the Charter.
ARTICLE 12 PROTECTION OF "KNOW-HOW" AND OTHER PROPRIETARY RIGHTS
12.1 For the purposes of this Article, "know-how" shall mean all written or
oral information having technical or commercial value and provided by
any of the Parties to the LLC pursuant to this Agreement and any other
agreements which are entered into by the Parties and the LLC during the
term of this Agreement.
12.2 The LLC may not transfer any know-how to third parties without the
prior written consent of the Party supplying such know-how.
12.3 The Parties shall not use or disclose to third parties any know-how
without the prior written consent of the Party supplying such know-how.
12.4 The rights of the LLC to intellectual property shall be protected by
applicable Ukrainian legislation, including exclusive ownership right
to patents, trademarks, service marks and licenses.
12.5 Issues relating to the transfer of rights to intellectual property
shall be addressed by the Parties and the LLC through the conclusion of
special agreements governing the issue.
12.6 Article 12 of this Agreement shall survive the termination of this
Agreement.
ARTICLE 13 DISPUTE RESOLUTION
13.1 Notwithstanding any other provision hereof (except for Article 13.2
herein), any dispute, controversy or claim arising out of, relating to,
or in connection with, this Agreement, or the breach, termination or
validity hereof,
8
<PAGE>
shall be finally settled by arbitration in accordance with (a) the
Arbitration Agreement, dated September 30, 1996 (the "Arbitration
Agreement"), among Innova Film GmbH, International Teleservices
Limited, Prioritet, Ltd., the Intermedia, CME Media Enterprises, B.V.,
Studio 1+1, International Advertising Services Limited, Boris
Fuchsmann, Alexander Rodnianskii, Vadim Rabinovich and Irina
Shevchenko, until such date as the Arbitration Agreement may be
terminated or (b) any arbitration provisions contained in any agreement
entered into after September 30, 1996 to which each party hereto is a
party that by its terms explicitly supersedes the Arbitration
Agreement.
13.2 If any applicable law requires that the seat of the arbitration
referred to above in Article 13.1 be Ukraine or any other jurisdiction,
the seat of arbitration shall be such jurisdiction.
13.3 The provisions of this Article 13 shall survive the expiration or
termination of this Agreement.
ARTICLE 14 MISCELLANEOUS PROVISIONS
14.1 The Charter and any appendices to this Agreement shall constitute
integral parts of this Agreement.
14.2 The headings in this Agreement are for convenience only and shall not
govern the interpretation of any provisions of this Agreement.
14.3 Each Party hereby represents and warrants that:
14.3.1 with respect to Intermedia, it is a duly organized and validly
existing legal entity under the laws of Ukraine;
14.3.2 he or she has taken all legal steps required under applicable
law to enter into this Agreement;
14.3.3 he or she has the full right, power and authority to sign this
Agreement and to perform its terms, and that this Agreement is
a valid and binding Agreement enforceable against it in
accordance with its terms;
14.3.4 with respect to Intermedia, the persons signing this Agreement
on its behalf are duly authorized and empowered to do so;
14.3.5 he or she has the full right and power to contribute to the
Charter Fund as provided in this Agreement; and
9
<PAGE>
14.3.6 he or she has not entered into, or is not aware of, any
similar agreement or arrangement which would materially
interfere in the operation or financial viability of the LLC.
A breach of any of the representations and warranties in this Article
14.3 shall be considered a material breach of this Agreement.
14.4 If any provision of this Agreement is or becomes invalid, ineffective,
unenforceable or illegal for any reason, this fact shall not affect the
validity or enforceability of any or all of the remaining provisions
hereof. In such case, the Parties shall forthwith enter into good-faith
negotiations to amend such provision in such a way that, as amended,
they are valid and legal and to the maximum extent possible, and so
that they carry out the original intent of the Parties as reflected
herein with respect to the matter in question.
14.5 Any notice required or permitted by this Agreement shall be in writing.
Such notices shall be deemed to have been given (i) when delivered
personally, (ii) twenty-four hours after being transmitted by telecopy
(facsimile), or (iii) seven days after being sent by air courier.
Notices sent to the Parties shall be to the addresses or numbers
specified in Article 15 hereof. Any Party may change its address and
numbers stipulated for giving notice in accordance with the terms of
this Article 14.5 hereof.
14.6 The failure of any Party to exercise any right or power given to it
under this Agreement, or to insist upon strict compliance with the
terms of this Agreement by any other Party, shall not constitute a
waiver of the terms and conditions of this Agreement with respect to
any subsequent breach thereof, nor a waiver by each of the Parties of
its rights at any time thereafter to require strict compliance with all
the terms of this Agreement.
14.7 This Agreement shall be governed and construed in accordance with the
laws of Ukraine.
14.8 The Parties shall not be liable for any failure to perform their
obligations under this Agreement to the extent that such failure will
be due to circumstances of force majeure. The deadlines for performance
under this Agreement shall be adjusted for a time period equal to the
duration of such circumstances excusing performance.
14.9 This Agreement is drawn up and certified in seven copies in the
Ukrainian language, one of which shall be kept in the files of a notary
and the remaining copies be delivered to
10
<PAGE>
the Parties.
ARTICLE 15 LEGAL ADDRESSES OF THE PARTIES
15.1 The Legal addresses of the Parties are as follows:
AR: Kyiv, Institutska Street, Building 22/7, Appartment 77.
Intermedia: Kyiv, Dehtyarivska Street, Building 3.
Signed on the Effective Date by the following Parties:
[signed]
/s/ Alexander Rodnianskii
-------------------------
Alexander Rodnianskii
Enterprise "INTER - MEDIA"
as represented by the
Director, Chekanov S.V.
[signed]
-------------------------
By:
Position:
[seal]
Ky-
11
<PAGE>
iv
[January 23, 1997,
this agreement has been certified by me, Oleksyuk Y.E., a private notary of the
Kyiv city notary district. The agreement has been signed by the parties in my
presence. The identity of the citizens who have signed the agreement has been
verified, their capacity, and the legal capacity of the Enterprise "Inter -
Media", and the powers of its representative have been examined. The inserted
Article 14.9 and the addresses should be read, the word "General" which is
struck out should not be read. Registered in the register under No. 156
Payments have been collected according to an arrangement, including state duty
in the amount of 0.85 UAH.
PRIVATE NOTARY]
[signed]
[seal]
[seal]
[This document contains in total 11 (eleven) sewn, numbered and sealed pages.
Private notary] [signed]
, , _ 880071, . .. 7 1991
12
<PAGE>
EXECUTION COPY
PROTOCOL No. __
of the Participants' Assembly
of the Broadcasting Company
"Studio 1+1"
(the "Company")
Date of the meeting of the Participants' Assembly: January 23, 1997.
The following Participants, representing 100% of the participation interests in
the Company, were present at the meeting and waived any requirement to receive
notice of the meeting:
1. Alexander Rodnianskii (70%);
2. Enterprise "Inter - Media" (30%)
The Participants' Assembly unanimously approved and considered the following
agenda:
1. The designation of certain decisions of the Company as being within the
exclusive competence of the Participants' Assembly.
Having considered agenda item 1, the Participants unanimously RESOLVED:
1. That the following powers shall be within the exclusive competence of the
Participants' Assembly and shall be subject to and adopted by 75% of all of the
outstanding participation interest votes:
(a) the determination of the general business policies and the approval of all
financial plans and operating budgets of the Company, including, without
limitation, annual financial plans, annual budgets, and any transaction
that falls outside an approved plan or budget;
(b) the approval of any business transaction or commitment which has not been
provided for in the relevant budget or which exceeds the amount allocated
to the prospective field of business activity in the relevant budget;
(c) the approval of the amendment or termination of agreements, contracts and
other documents which require two signatures;
<PAGE>
(d) the approval of any transaction which is not within the ordinary scope
of the Company's business;
(e) the approval of the commencement or defence of any litigation or
arbitration, or the entering into of any settlement agreement, with a
value of more than Ten Thousand ($10,000) U.S. Dollars;
(f) the determination of salary, bonuses and other remuneration of any
member of the Directorate of the Company;
(g) subject to the provisions of Article 10.1 of the Company's Charter, the
appointment and dismissal of members of the Audit Committee and the
approval of the Audit Committee's reports;
(h) designation of those persons authorized to sign any financial documents
and to enter into agreements on behalf of the Company;
(i) the approval or revocation of any and all powers of attorney to act on
behalf of the Company.
There being no further business of the Participants' Assembly, the meeting was
adjourned.
Signatures of the Participants:
---------------------------
Alexander Rodnianskii
Enterprise "Inter - Media"
--------------------------
By:
Title:
<PAGE>
MARKETING, ADVERTISING AND SALES AGREEMENT
THIS MARKETING, ADVERTISING AND SALES AGREEMENT (this "Agreement") is
entered into on January 23, 1997, to have effect from and as of November 18,
1996 (the "Effective Date"), by and between INTERNATIONAL MEDIA SERVICES LTD.,
a limited liability company organized under the laws of Bermuda ("IMS"), and
INNOVA FILM GMBH, a limited liability company organized under the laws of
Germany ("Innova").
WHEREAS:
A. Pursuant to license no. 00280 dated November 11, 1996 (the "UT-2
License"), the Ukrainian National Council for Television and Radio (the
"NKTB") has granted to Broadcasting Company "Studio 1+1" in the Form of a
Limited Liability Company, a limited liability company organized under the
laws of Ukraine ("Studio 1+1"), the right to broadcast on the Second National
Television Channel of Ukraine ("UT-2").
B. The grant of the UT-2 License was conditioned on the termination of
Innova's broadcast rights under that certain Agreement on International
Cooperation for the Organization of Television Broadcasting on the First
National Television Channel of Ukraine, dated July 26, 1995, as amended,
between Innova and the National Television Company of Ukraine (the
"Innova-NTCU Agreement").
C. Pursuant to that certain Contract for International Cooperation
between Tele Radiogesellschaft Studio 1+1 and Innova Film GmbH to Produce
Programmes for Ukrainian Television, entered into in November, 1996 (the
"Innova-Studio 1+1 Agreement"; and, together with the UT-2 License, the "UT-2
Documents"), Studio 1+1 has granted to Innova, inter alia, the exclusive right
for the broadcasting of advertising within the television programming produced
by Studio 1+1 and transmitted via UT-2.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the
<PAGE>
receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
Article 1
1.1 IMS confirms that it is aware of the contents of the UT-2
Documents and agrees not to take any action which would threaten Innova's
rights thereunder.
Article 2
2.1 Innova hereby assigns to IMS the exclusive right to market and
sell broadcasting time for advertising which has been allocated to Innova
pursuant to the UT-2 Documents, under the following conditions:
2.1.1 marketing and sales activities may be carried out with
advertising partners with no restriction as to their nationality;
2.1.2 advertising for political parties or advertising promoting the
ideological objectives of any group, association, country or religious
community, other than in compliance with Ukraine law, is not permitted;
2.1.3 the images in graphic form should not be offensive; and
2.1.4 the guidelines of Studio 1+1 shall apply in the assignment of
broadcasting times.
2.2 In return for receiving the rights specified in Article 2.1, IMS
hereby undertakes:
2.2.1 to reimburse Innova and its Ukrainian subsidiary Enterprise
Inter-Media for costs incurred in connection with (i) purchasing and producing
program material and (ii) adapting program material; provided, however, that
such costs must be approved quarterly in advance by IMS in order to be
eligible for reimbursement. Innova shall be required to submit a proposed
quarterly budget (the "Innova Quarterly Budget") to IMS at least one month in
advance of each new quarter. IMS and Innova shall jointly approve and finalize
each Innova Quarterly Budget within two weeks of IMS' receipt thereof;
2.2.2 to reimburse costs incurred by Innova in
<PAGE>
connection with the purchasing of material and the employment of the
services of outside individuals and institutes for specific purposes.
Such costs may include:
(a) staff costs;
(b) rental of premises in Kiev and additional
costs for power, heating, cleaning and maintenance;
(c) costs of transportation, vehicles and
freight;
(d) travel and insurance costs;
(e) administration costs, including office
supplies, postage, telephone, legal, advisory and
tax-advisory services;
(f) other expenses not specifically listed
which Innova incurs in carrying out its obligations
under the UT-2 Documents; and
(g) expenses connected with the adaptation of a variety of
audio-visual programs (e.g., cinema and video films, series, shows, sport
and music programs and news reports) that can be transmitted on
television. For purposes of this Agreement, the term "adapt" shall mean
the reworking of broadcasting material to make it suitable for the
Ukrainian viewing audience (e.g., translation into Ukrainian commentary);
provided, however, that all such costs must be included in the Innova
Quarterly Budget in order to be eligible for reimbursement by IMS.
2.3.1 IMS shall bear the cost of all obligations and liabilities of
Innova relating to the television operations of Innova in Ukraine that are (a)
outstanding at the Effective Date or (b) incurred during the period from the
Effective Date through December 31, 1996 ("Ukraine Television Obligations").
The parties agree that Ukraine Television Obligations shall not include any
fines, interest, penalty payments or similar assessments levied by any court
or fiscal authority against Innova in connection with any tax practices of
Innova, or tax return or similar filing made or omitted to be made by Innova
with respect to any period, prior to January 1, 1997. IMS shall not bear the
cost of or be
<PAGE>
liable in any way for any obligations or liabilities of Innova through
December 31, 1996 other than Ukraine Television Obligations.
2.3.2 IMS shall bear the cost of all obligations and liabilities
incurred by Innova from January 1, 1997. IMS shall make promptly such payments
to Innova as shall be necessary to meet Ukraine Television Obligations
incurred subsequent to such date, including, without limitation, payments due
from Innova pursuant to the terms of the Innova-Studio 1+1 Agreement.
Article 3
3.1 Throughout the financial year, Innova shall make available to IMS
all accounting information and documentation relating to reimbursable expenses
incurred by Innova in connection with the UT-2 Documents.
3.2 In addition to the reimbursement of expenses as specified in
Articles 2.2 and 2.3 above, Innova shall receive from IMS the following
monthly payments (to be paid at the beginning of every month to such account
as designated by Innova):
3.2.1 from the Effective Date through December 31, 1996
- $5,000 per month;
3.2.2 from January 1, 1997 - $6,000 per month;
3.2.3 from January 1, 1998 - $7,000 per month;
3.2.4 from January 1, 1999 - $8,000 per month;
3.2.5 from January 1, 2000 - $9,000 per month;
3.2.6 from January 1, 2001 - $9,500 per month;
and
3.2.7 from January 1, 2002 - $10,000 per month
until the termination of this Agreement.
Article 4
4.1 This Agreement shall terminate upon the earlier of (i) the mutual
agreement of the parties and (ii) the expiry of the UT-2 License or the
Innova-Studio
<PAGE>
1+1 Agreement.
Article 5
5.1 This Agreement shall be governed by and construed in accordance
with the laws of Bermuda.
5.2 Subject to Section 5.3, the parties shall make a good faith effort
to resolve by negotiation among themselves any dispute, controversy or claim
arising out of, relating to, or in connection with, this Agreement, or the
breach, termination or validity hereof (a "Dispute").
5.3 Any Dispute which the parties shall not have been able to resolve
in accordance with Section 5.2 within thirty (30) days after such Dispute has
arisen shall be finally settled by arbitration in accordance with such
arbitration agreement as shall be currently in effect binding the parties
hereto.
5.4 The provisions of this Article 5 shall survive the termination of
this Agreement.
Article 6
6.1 Any notice required or permitted by this Agreement shall be in
writing. Such notices shall be written (i) in English when given to IMS and
(ii) in English or German when given to Innova. Such notices shall be deemed
to have been given (i) when delivered personally, (ii) twenty-four hours after
being transmitted by telecopy (facsimile) or (iii) seven days after being sent
by air courier, subject to confirmation of receipt. Notices sent to the
parties shall be to the addresses or numbers specified in Article 7.
6.2 If any provision of this Agreement is invalid, ineffective,
unenforceable or illegal for any reason, such decision shall not affect the
validity or enforceability of any or all of the remaining provisions. The
parties agree that should any provision of this Agreement be invalid or
unenforceable, they shall promptly enter into good faith negotiations to amend
such provision in such a way that, as amended, it is valid and legal and to
the maximum extent possible carries out the original intent of the parties as
to the issue or issues
<PAGE>
in question.
6.3 The failure of a party to exercise any right given to it under
this Agreement, or to insist upon strict compliance with the terms of this
Agreement by the other party, shall not constitute a waiver of the terms and
conditions of this Agreement with respect to any subsequent breach thereof,
nor a waiver by either of the parties of its rights at any time thereafter to
require strict compliance with all the terms of this Agreement.
6.4 This Agreement may be executed in several counterparts, each of
which shall be deemed an original and all of which together shall constitute
one and the same instrument.
6.5 This Agreement contains the entire agreement between the parties
with respect to the subject matter hereof and cancels and invalidates all
prior commitments or representations which may have been made by the parties
either orally or in writing with respect to the subject matter hereof.
6.6 This Agreement may be amended, modified or supplemented only by a
written instrument authorized and executed on behalf of the parties. Neither
IMS nor Innova may assign or transfer any of its rights or obligations under
this Agreement without the prior consent of the other party.
6.7 The terms and provisions of this Agreement shall be binding on the
legal successors and permitted assigns, transferees and delegates of each
party hereto.
6.8 Each party hereto shall execute and deliver such other documents
and take such other actions as may reasonably be requested by the other party
hereto in order to consummate or implement the transactions contemplated
hereby.
Article 7
7.1 The addresses of the parties are as
follows:
IMS: International Media Services
Ltd.
Clarendon House
Church Street
<PAGE>
Hamilton HM CX
Bermuda
Tel: 1 441 295 1422
Fax: 1 441 292 4720
Innova: Innova Film GmbH
Friederich-Ebert St. 31-33
40210 Dusseldorf, Germany
Fax: 49 211 175 1222
Tel: 49 211 175 102
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute this Marketing, Advertising and Sales
Agreement on the date first above written.
INNOVA FILM GMBH INTERNATIONAL MEDIA
SERVICES LTD.
By:_______________ By:____________________
Name: Name:
Title: Title:
<PAGE>
MARKETING AND SALES AGREEMENT
THIS MARKETING AND SALES AGREEMENT (this "Agreement") is entered into on
January , 1997, to have effect from and as of November 18, 1996 (the
"Effective Date"), by and between INTERNATIONAL MEDIA SERVICES LTD., a
limited liability company organized under the laws of Bermuda ("IMS"),
and LIMITED LIABILITY COMPANY "PRIORITET", a limited liability company
organized under the laws of Ukraine ("Prioritet").
WHEREAS:
A. Pursuant to license no. 00280 dated November 11, 1996 (the "UT-2
License"), the Ukrainian National Council for Television and Radio has
granted to Broadcasting Company "Studio 1+1" in the Form of a Limited
Liability Company, a limited liability company organized under the laws
of Ukraine ("Studio 1+1"), the right to broadcast on the Second National
Television Channel of Ukraine (the "Television Channel").
B. The grant of the UT-2 License was conditioned on the termination of
Innova's broadcast rights under that certain Agreement on International
Cooperation for the Organization of Television Broadcasting on the First
National Television Channel of Ukraine, dated July 26, 1995, as amended,
between Innova and the National Television Company of Ukraine (the
"Innova-NTCU Agreement").
C. Pursuant to that certain Contract for International Cooperation
between Tele Radiogesellschaft Studio 1+1 and Innova Film GmbH to
Produce Programmes for Ukrainian Television, entered into in November,
1996 (the"Innova-Studio 1+1 Agreement"; and, together with the UT-2
License, the "UT-2 Documents"), Studio 1+1 has granted to Innova, inter
alia, the exclusive right for the broadcasting of advertising within the
television programming produced by Studio 1+1 and transmitted via the
Television Channel.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
<PAGE>
Article 1
1.1 IMS hereby assigns to Prioritet the exclusive right to carry out the
marketing and sales of advertising time within the territory of Ukraine
(the "Territory") in any form (including, subject to the terms hereof,
sponsorship and barter transactions) within the time allotments made
available to Innova pursuant to the UT-2 Documents.
1.2 Prioritet shall be fully responsible for (i) the acceptance and
execution of advertising orders of domestic and foreign advertisers,
(ii) the issuance of invoices and (iii) the production of documents
evidencing payments made by all agencies and customers. Prioritet shall
bear all costs related to the marketing and sales of advertising time
and all salaries, costs and expenses of individuals who carry out the
Prioritet activities contemplated in this Agreement, including any
activities intended to expand and increase contacts in the international
market.
1.3 Prioritet may assign, delegate or otherwise transfer any of its
rights and obligations hereunder only with the prior written consent of
IMS (which consent may be granted or withheld in IMS' sole discretion).
In the event of such assignment, delegation or other transfer, Prioritet
shall continue to be liable for the obligations which have been
assigned, delegated or transferred and for the actions of its assignee,
delegate or transferee.
1.4 In the event the UT-2 License shall be declared invalid or otherwise
become unenforceable and the Innova-NTCU Agreement shall be reinstated,
the parties shall amend this Agreement promptly in a manner reflecting
the economic and legal arrangements contemplated by the Marketing and
Sales Agreement, dated as of September 30, 1996, to which the parties
hereto were signatory, adjusted as reasonably necessary to reflect the
particular facts and circumstances of such reinstatement.
Article 2
2.1 Prioritet shall provide the following services to IMS:
<PAGE>
2.1.1 Commercial services consisting of:
(a) development of business and pricing proposals which will result in
the maximum cooperation possible between the Television Channel and
advertisers in the Territory through the marketing and sale of
advertising time on the Television Channel;
(b) carrying out of activities designed to maximize turnover from the
sale of advertising time on the Television Channel; and
(c) development of proposals regarding the marketing policy of the
Television Channel (subject to the requirements of the professional
advertising market in the Territory);
2.1.2 Marketing services consisting of:
(a) application of Prioritet's marketing experience in the sales of
advertising time in the mass-media;
(b) carrying out of short- and long-term marketing research with respect
to the Television Channel, its programs and their potential audience,
including selection of appropriate methods for the performance of
qualitative and quantitative research; and
(c) the introduction of the Television Channel to potential
professional partners who are active in advertising markets within and
without the Territory;
2.1.3 Organizational and technical services consisting of:
(a) entering into contracts with advertisers as a commission agent of
IMS (that is, in Prioritet's own name but on behalf of IMS) and the
carrying out of all preliminary and ancillary activities related to such
contracts, including acceptance, distribution and confirmation of
orders, correspondence with customers, placement of advertisements on
the air and the issuance of invoices (including payment orders).
<PAGE>
2.2 Prioritet shall:
2.2.1 prepare advertisements to be broadcast on the Television
Channel, taking into account their specific features and the customers'
wishes;
2.2.2 conduct contingency planning for the
placement of customer's advertisements;
2.3 ensure that all advertisements which it prepares for broadcast on
the Television Channel comply with all applicable Ukrainian laws; and
2.4 be responsible for the receipt, confirmation and final review of
advertising notices, and for ensuring that the advertisements are broadcast as
agreed.
Article 3
3.1 Prioritet shall ensure that all amounts payable by customers under
contracts entered into by Prioritet as provided hereunder are paid, and
shall be liable to IMS for the amount of any payment due and not
remitted to IMS (either directly or by Prioritet, in accordance with the
terms of this Article 3.1) by the payment due date provided in such
contract. Subject to the following sentence, all such contracts shall
provide that all payments thereunder are to be made directly to IMS in
U.S. dollars (or other freely convertible currency acceptable to IMS)
and shall not, without the prior consent of IMS, contain payment terms
more lenient than those customary to the industry for similar contracts
within the Territory. In the event that such payments cannot reasonably
be made by customers directly to IMS, they shall be made directly to
Prioritet; provided, however, that Prioritet shall forward any payments
so received to IMS in U.S. dollars (or other freely convertible currency
acceptable to IMS) no later than 7 calendar days after such payments are
received by Prioritet.
3.2 Prioritet shall provide IMS with monthly written reports accounting
in reasonable detail for (i) all contracts entered into by Prioritet as
provided hereunder, (ii) all advertisements placed by Prioritet on the
Television Channel, (iii) all monies received by Prioritet and (iv) any
other information which IMS may
<PAGE>
from time to time reasonably request.
Article 4
4.1 Price-lists and rules for the broadcast of advertising which are
provided to customers shall be established jointly by Prioritet and IMS
with a view to obtaining the most favourable business results for IMS.
Article 5
5.1 Remuneration paid to Prioritet for carrying out the services
contemplated in this Agreement shall equal (i) five percent (5%) of the
foreign currency revenues actually received directly by IMS from the
sale of broadcast advertising time on the Television Channel through
Prioritet, plus (ii) five percent (5%) of the foreign currency revenues
actually received by Prioritet on behalf of IMS from the sale of
broadcast advertising time on the Television Channel through Prioritet,
plus (iii) five percent (5%) of the local currency revenues actually
received by Prioritet on behalf of IMS from the sale of broadcast
advertising time on the Television Channel through Prioritet. Such
remuneration may be modified by IMS and Prioritet from time to time by
means of separate written agreements.
5.2 All local currency revenues received by Prioritet (other than the
portion of any local currency corresponding to Prioritet's remuneration
under Article 5.1) shall be converted by Prioritet into U.S. dollars (at
a rate no less favorable to IMS than the best rate commercially
available to Prioritet on the date of Prioritet's receipt of such
revenues) and transferred to IMS as provided in Article 3.1 above. The
cost of such conversion (including, without limitation, any fees,
commissions or other costs imposed by any financial institution in
connection with the purchase of units of one currency in exchange for
units of another currency and the transfer or credit of such converted
amounts to an account of IMS) shall be borne by Prioritet.
5.3 IMS shall forward to Prioritet the amount owed to Prioritet as set
out in 5.1 above on a quarterly basis and no later than 30 days after
receiving the report required under Article 3.2 for the last month of
such business quarter.
<PAGE>
Article 6
6.1 Prioritet may enter into advertising contracts hereunder that
include provisions for the barter of goods and services only upon the
prior agreement of IMS. Any such barter transactions shall be carried
out on a case-by-case and exceptional basis only.
Article 7
7.1 This Agreement shall terminate upon the earlier of (i) the mutual
agreement of the parties and (ii) the expiry of the UT-2 License or the
Innova-Studio 1+1 Agreement.
7.2 IMS may terminate this Agreement upon two months' written notice to
Prioritet. Prioritet may not terminate this Agreement prior to the
completion of the term specified in Article 7.1 above.
Article 8
8.1 This Agreement shall be governed by and construed in accordance with
the laws of Bermuda.
8.2 Subject to Section 8.3, the parties shall make a good faith effort
to resolve by negotiation among themselves any dispute, controversy or
claim arising out of, relating to, or in connection with, this
Agreement, or the breach, termination or validity hereof (a "Dispute").
8.3 Any Dispute which the parties shall not have been able to resolve in
accordance with Section 8.2 within thirty (30) days after such Dispute
has arisen shall be finally settled by arbitration in accordance with
such arbitration agreement as shall be currently in effect binding the
parties hereto.
8.4 The provisions of this Article 8 shall survive the termination of
this Agreement.
Article 9
<PAGE>
9.1 Any notice required or permitted by this Agreement shall be in
writing. Such notices shall be written in English when given to IMS and
in English or Ukrainian when given to Prioritet. Notices shall be deemed
to have been given (i) when delivered personally, (ii) twenty-four hours
after being transmitted by telecopy (facsimile) or (iii) seven days
after being sent by air courier, subject to confirmation of receipt.
Notices sent to the parties shall be to the addresses or numbers
specified in Article 10.
9.2 If any provision of this Agreement is invalid, ineffective,
unenforceable or illegal for any reason, such decision shall not affect
the validity or enforceability of any or all of the remaining
provisions. The parties agree that should any provision of this
Agreement be invalid or unenforceable, they shall promptly enter into
good faith negotiations to amend such provision in such a way that, as
amended, it is valid and legal and to the maximum extent possible
carries out the original intent of the parties as to the issue or issues
in question.
9.3 The failure of a party to exercise any right or power given to it
under this Agreement, or to insist upon strict compliance with the terms
of this Agreement by the other party, shall not constitute a waiver of
the terms and conditions of this Agreement with respect to any
subsequent breach thereof, nor a waiver by either of the parties of its
rights at any time thereafter to require strict compliance with all the
terms of this Agreement.
9.4 This Agreement may be executed in several counterparts, each of
which shall be deemed an original and all of which together shall
constitute one and the same instrument.
9.5 This Agreement contains the entire agreement between the parties
with respect to the subject matter hereof and cancels and invalidates
all prior commitments or representations which may have been made by the
parties either orally or in writing with respect to the subject matter
hereof.
9.6 This Agreement may be amended, modified or supplemented only by a
written instrument authorized and executed on behalf of each party
hereto. IMS may assign, delegate or transfer any of its rights or
obligations
<PAGE>
under this Agreement without the prior consent of Prioritet.
9.7 The terms and provisions of this Agreement shall be binding on the
legal successors and permitted assigns, transferees and delegatees of
each party hereto.
9.8 Each party hereto shall execute and deliver such other documents and
take such other actions as may reasonably be requested by the other
party hereto in order to consummate or implement the transactions
contemplated hereby.
Article 10
10.1 The addresses of the parties are as follows:
IMS: International Media Services
Ltd.
Clarendon House
Church Street
Hamilton HM CX
Bermuda
Attn: President
Tel: 1 441 295 1422
Fax: 1 441 292 4720
Prioritet: Limited Liability Company
"Prioritet"
2 Mezhiva Street
Kiev, Ukraine
Attn: General Director
Tel:
Fax:
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Marketing and Sales Agreement on the
date first above written.
LIMITED LIABILITY COMPANY INTERNATIONAL MEDIA
"PRIORITET" SERVICES LTD.
By: By:
Name: Name:
Title: Title:
By:
Name:
Title:
<PAGE>
COUNTERPART
LEASE
of offices situate on
7th Floor
13 Great Marlborough Street
London W1
PARTIES:
SONY MUSIC ENTERTAINMENT (UK) LIMITED (1)
CME DEVELOPMENT CORPORATION (2)
Lawrence Graham
190 Strand
London
WC2R 1JN
0171-379 0000
AGW-411331-B
19.12.1996
<PAGE>
AGW
<PAGE>
LEASE PARTICULARS
- ----------------- ----- -------------------------------------------------------
DATE : the 15th day of January 1997
- ----------------- ----- -------------------------------------------------------
PARTIES:
LANDLORD : SONY MUSIC ENTERTAINMENT (UK) LIMITED (Company
registration number 4622257) of 10 Great Marlborough
Street London W1V2LP
TENANT : CME DEVELOPMENT CORPORATION c/o 18 D'Arblay Street
London W1V 3FP
- ----------------- ----- -------------------------------------------------------
PREMISES : offices on Seventh Floor 13 Great Marlborough Street
London W1 as more particularly described in PartI of
the First Schedule
- ----------------- ----- -------------------------------------------------------
TERM : A term commencing from and including the Term
Commencement Date and expiring on the 9th day of
September 1998
TERM COMMENCEMENT
DATE : the 4th day of January 1997
- ----------------- ----- -------------------------------------------------------
RENT : ONE HUNDRED AND TEN THOUSAND FIVE HUNDRED POUNDS
(Pounds 110,500) per annum
RENT COMMENCEMENT
DATE : the 4th day of January 1997
- ----------------- ----- -------------------------------------------------------
PERMITTED USE : offices
- ----------------- ----- -------------------------------------------------------
PRESCRIBED RATE : 4% per annum above the Base Rate
- ----------------- ----- -------------------------------------------------------
<PAGE>
- ----------------- ----- -------------------------------------------------------
COURT ORDER : an order of The Mayor's and City of London Court
(No. MY672546) dated the 31st day of December 1996 in
relation to the Premises pursuant to Section 38(4) of
the Landlord and Tenant Act 1954
- ----------------- ----- -------------------------------------------------------
<PAGE>
THIS LEASE made on the date stated in the Particulars BETWEEN the
Parties specified in the Particulars WITNESSES in consideration of the
rents and covenants hereinafter reserved and contained as follows:-
1. DEFINITIONS AND INTERPRETATION
1.1 In this lease unless the context otherwise requires the terms defined
in this clause and in the Particulars shall have the meanings
specified:-
"Associated Company" means any company being in relation to the Tenant a
member of the same "group" as defined in Section 42(1) of the Landlord
and Tenant Act 1954
"Authorised Hours" means the hours between 7.00 a.m. and 11.00 p.m. on
Mondays to Fridays (public holidays excepted)
"Base Rate" means the base rate of Barclays Bank plc or such other
London Clearing Bank as the Landlord may from time to time nominate
"Building" means the Landlord's building (of which the Premises form
part) known as 13 Great Marlborough Street London W1
"Common Parts" means the entrance hall at ground floor level the lobby
and toilets on the seventh floor the stairs shown hatched green on the
plan the rear stairs shown hatched yellow on the plan and the lifts of
the Building
"Landlord" means the party named as "Landlord" in the Particulars and
includes the person for the time being entitled to the reversion
immediately expectant on the determination of the Term
"Particulars" means the descriptions and terms appearing on the
preceding pages headed "Lease Particulars" which comprise part of this
lease
"Quarter Days" means 25th March 24th June 29th September and 25th
December in each year
"Rent" means the Rent specified in the Particulars
"Superior Landlord" means any person or persons for the time being
entitled to any estate or estates in the Premises which are reversionary
(whether immediate or mediate) upon the Landlord's estate
"Superior Lease" means the lease dated 16th September 1993 and made
between Sun Alliance and London Assurance Company Limited (1) and Sony
Music Entertainment (UK) Limited (2)
"Tenant" means the party named as "Tenant" in the Particulars
"Term" means the term of years stated in the Particulars
"VAT" means value added tax and any other tax of a similar nature
<PAGE>
1.2 Where two or more persons are included in the expression "the Tenant"
or (where relevant) "the Surety" covenants which are expressed to be
made by the Tenant or the Surety shall be deemed to be made by such
persons jointly and severally
1.3 The expression "conducting media" shall where the context so requires
means all or any sewers drains conduits gutters channels watercourses
pipes cables wires ducts and mains and apparatus associated therewith
and all equipment and fittings ancillary thereto
1.4 Words importing persons shall include firms companies and
corporations and vice versa
1.5 Any covenant by the Tenant not to do any act or thing shall include
an obligation not to permit or suffer such act or thing to be done
1.6 Reference to any right of the Landlord to have access to or entry
upon the Premises shall be construed as extending to any Superior
Landlord and all persons authorised by the Landlord or any Superior
Landlord including agents professional advisers contractors workmen
and others
1.7 Any provision in this lease requiring the consent or approval of the
Landlord shall be deemed to be conditional upon the consent or
approval of the Superior Landlord being obtained so far as may be
required under the terms of the Superior Lease and the Landlord shall
at the request and cost of the Tenant use reasonable endeavours to
obtain any such consent or approval as soon as practicable whenever
so required
1.8 Any reference to a statute (whether specifically named or not) shall
include any amendment or re-enactment of such statute for the time
being in force and all instruments orders notices regulations
directions bye-laws permissions and plans for the time being made
issued or given thereunder or deriving validity therefrom
1.9 The title headings appearing in this lease are for reference only and
shall not affect its construction
1.10 Any reference to a clause or schedule shall mean a clause or schedule
of this lease
2. DEMISE
The Landlord HEREBY DEMISES to the Tenant the Premises TOGETHER WITH the
rights specified in Part II of the First Schedule but EXCEPTING AND
RESERVING to the Landlord the Superior Landlord and their respective
successors in title and assigns and the tenants and occupiers of other
parts of the Building and all other persons entitled thereto the
easements and rights specified in Part III of the First Schedule TO HOLD
the same unto the Tenant SUBJECT to and with the benefit of the matters
specified in the Fourth Schedule for the Term YIELDING AND PAYING
therefor together with any VAT payable thereon from time to time:-
2.1 during the period (if any) beginning on the Term
Commencement Date and ending on the day before the Rent
Commencement Date the rent of a peppercorn if demanded and
thereafter the Rent payable without
<PAGE>
deduction by equal quarterly payments in advance on the
Quarter Days the first such payment being a proportionate
sum in respect of the period beginning on the Rent
Commencement Date and ending on the day before the Quarter
Day next after the Rent Commencement Date to be paid on the
date hereof
2.2 throughout the Term on demand by way of further rent a sum
equal to fourteen point two nine per centum (14.29%) of (i)
every sum which the Landlord shall from time to time pay to
the Superior Landlord as Insurance Rent pursuant to the
Superior Lease and (ii) (to the extent that the Landlord
may effect the same) every sum which the Landlord may from
time to time pay by way of premium (including any increased
or additional premium payable by reason of any act or
omission of the Tenant or any of the Tenant's servants or
agents or by reason of the user of the Premises) for
keeping the Building fees rent and property owner's
liability risks of the Landlord and the Superior Landlord
insured
3. TENANT'S COVENANTS
The Tenant HEREBY COVENANTS with the Landlord as follows:
3.1 Payment of rent
To pay the reserved rents at the times and in manner aforesaid
without deduction or set off
3.2 Payment of outgoings
To defray (or in the absence of direct assessment on the Premises to
pay to the Landlord on demand (save in so far as the same are paid by
way of the service charge) a fair proportion (to be determined by the
surveyor for the time being of the Landlord whose decision shall be
binding upon the Tenant) of) all existing and future taxes duties
assessments charges and impositions levies and outgoings whatsoever
whether parliamentary local or otherwise now or hereafter payable by
law in respect of the Premises or any part thereof by the owner
landlord tenant or occupier thereof other than:
3.2.1 any tax in respect of rents and other payments under this
lease (other than VAT or other tax thereon intended by
statute to be payable by the Tenant)
3.2.2 any tax or levy in respect of the grant of and arising
solely by reason of this lease (and not by reason of the
combined effect of the grant of this lease and of some
other act or omission on the part of the Tenant) and
3.2.3 any tax in respect of any dealing with the reversion
expectant on the Term not arising by reason of some act
or omission on the part of the Tenant
3.2.4 business rates in respect of the Premises
<PAGE>
3.3 To pay VAT
All payments to be made pursuant to this lease shall (save where
otherwise specifically provided) be taken to be exclusive of VAT (or any
other tax of similar nature that may be substituted for it or levied in
addition to it) properly chargeable in respect of the supply or supplies
giving rise to such payment and in addition to any moneys due from the
Tenant under the terms and provisions of this lease the Tenant shall pay
at the respective times when such moneys are due such VAT (or any other
tax aforesaid) at the rate for the time being in force as shall be
chargeable in respect of any such moneys
3.4 Interest on overdue payments
If and so often as any rent (whether formally demanded or not) or any
other money due from the Tenant under the provisions of this lease shall
be unpaid after the due date on demand by the Landlord to pay interest
on such unpaid rent and other unpaid moneys (other than on interest
payable under this sub-clause) from the due date until payment (whether
before or after judgment) at the Prescribed Rate PROVIDED that if
payment shall be received after 2.30 p.m. on any day the same shall be
deemed to have been received on the next working day on which the London
clearing banks are open for business
3.5 Repairs etcetera
3.5.1 Throughout the Term (damage by fire and such other risks against
which the Superior Landlord shall have insured excepted save where
the insurance moneys or any part thereof shall be irrecoverable in
consequence of any act or default of the Tenant or any person
deriving title under the Tenant or any of the servants or agents of
the Tenant or of any such person) well and substantially to repair
and keep in good and substantial repair and condition the Premises
3.5.2 Not to carry out repairs to any
3.5.2.1 heating cooling and ventilating apparatus
3.5.2.2 sprinkler system
3.5.2.3 fire hoses
3.5.2.4 emergency lighting system
3.5.2.5 fire alarm system and/or
3.5.2.6 other fire prevention and detection system or any equipment
belonging thereto
within but not exclusively serving the Premises
<PAGE>
3.6 Redecoration
In the last three months of the Term (howsoever determined) in a proper
and workmanlike manner with good quality materials and to the
satisfaction in all respects of the Landlord to prepare and paint (with
three coats) grain varnish polish wash stop whiten colour or otherwise
treat all such parts of the interior of the Premises (including the
interior of the window frames) as have been previously or are usually so
dealt with and re-paper re-cover or re-line the parts usually papered
covered or lined with good quality suitable paper vinyl covering or
fabric or other covering PROVIDED ALWAYS that such painting and
redecorating (unless determined by forfeiture) shall be carried out in
colours tints and patterns first approved in writing by the Landlord
3.7 Yielding up
To yield up the Premises (but not with trade and other tenant's
fixtures) with vacant possession at the determination of the tenancy
hereby created in good and substantial repair and condition in
accordance with the covenants herein contained
3.8 Alterations and additions
Not to injure cut or maim or permit to be injured cut or maimed any of
the timbers walls or partitions or any other part of the Premises or the
Building nor make or permit to be made any alteration or addition to the
Premises or to the voice data or power wiring or cabling thereof
3.9 Aerials and similar apparatus and interference
3.9.1 Not without the consent in writing of the Landlord to affix or permit
to be affixed to the Premises or any part thereof any wireless radio
or television aerial or similar apparatus and not to make any claim
against the Landlord in respect of interference to reception of
wireless radio or television transmissions or to the operation of any
appliance in or upon the Premises suffered or alleged to be suffered
by reason of the use of electrical or other apparatus on any
adjoining or neighbouring property of the Landlord
3.9.2 Not to cause or permit or suffer to be caused interference to others
by any radio or electromagnetic signal emitted by the use of
apparatus operated or installed in or upon the Premises
3.10 Advertisements
Not without the previous written consent of the Landlord to set up or
exhibit upon any part of the Premises any placard poster signboard
notice or advertisement which shall be visible from outside the
Premises
3.11 Permitted Use
Not to use or permit or suffer to be used the Premises or any part
thereof for any purpose except the Permitted Use
<PAGE>
3.12 Nuisance or damage
3.12.1 Not to play or permit to be played in the Premises any musical
instrument gramophone radio radiogram television set tape recorder or
similar apparatus so as to be audible outside the Premises
3.12.2 Not to do or permit or suffer anything in or upon the Premises or any
part thereof or in or upon any other part of the Building or in or
upon any other area which the Tenant is by virtue of this lease
authorised to use (whether in common with others or not) which may be
or become a nuisance or annoyance or cause damage or inconvenience to
the Landlord or the tenants and occupiers of any other part of the
Building or of other property in the neighbourhood or to the public
local or any other authority
3.13 Regulations
To observe and cause to be observed at all times (a) regulations
imposed by the Landlord in respect of the lifts in the Building and
for the general running security orderliness and management of the
Building and the services thereof and the curtilage thereof as
already or from time to time hereafter notified in writing by the
Landlord to the Tenant and (b) the regulations set out in the Third
Schedule or as they shall be altered or added to from time to time by
notice in writing by the Landlord to the Tenant and this clause 3.13
shall be without prejudice to the generality of any other provision
contained in these presents which shall touch and concern the same
subjects
3.14 Prohibited alienation
Not to assign underlet charge part with or share possession or
occupation of the whole or any part or parts of the Premises
3.15 Sharing occupation
Notwithstanding the provisions of clause 3.14 if the Tenant is a
company the Tenant shall be permitted to share occupation of the
Premises with an Associated Company on condition that no tenancy is
thereby created
3.16 Notice of re-letting
To permit the Landlord at any time after a date six months before the
expiration of the Term to affix and retain without interference upon
any part of the Premises a notice for re-letting the same PROVIDED
ALWAYS that such notice for re-letting shall not obstruct the access
of light to the windows of the Premises AND to permit persons with
written authority from the Landlord or the agent of the Landlord at
reasonable times of the day to view the Premises
3.17 Covenants in Superior Lease
To perform and observe the covenants on the part of the tenant contained
in the Superior Lease in so far as they relate to the Premises as if the
same were incorporated herein except only Clauses 4(1)(a) (2) (3) (4)
(5) (6) (12) (13) (15) (16) and (17) of the
<PAGE>
Superior Lease and the covenant for insurance therein contained and to
keep the Landlord indemnified against all claims damages costs and
expenses in any way relating thereto PROVIDED ALWAYS that in the event
of any inconsistency the covenants on the part of the Tenant contained
in the preceding sub-clauses of this clause 3 shall prevail over the
tenant's covenants contained in the Superior Lease
4. LANDLORD'S COVENANTS
The Landlord HEREBY COVENANTS with the Tenant (but so that the Landlord
shall not remain personally liable hereunder after it shall have parted
with the reversion to this lease) as follows:
4.1 Quiet enjoyment
That the Tenant paying the said rents hereby reserved and performing
and observing the covenants on the Tenant's part herein contained
shall quietly hold and enjoy the Premises during the Term without
interruption by the Landlord or any person rightfully claiming under
the Landlord
4.2 To insure
To use reasonable endeavours to procure that the Superior Landlord
observes and performs the obligations on its part contained in
clauses 5(1) 5(2) and 5(3) of the Superior Lease
4.3 Services
To use all reasonable endeavours to provide the services specified in
the Second Schedule hereto in accordance with the principles of good
estate management
4.4 Payment of Superior Lease rents
To pay the rents reserved by the Superior Lease in accordance with the
provisions thereof
5. PROVISOS
PROVIDED ALWAYS AND IT IS HEREBY AGREED by and between the parties
hereto as follows:
5.1 Re-entry
5.1.1 If the rents hereby reserved or any part thereof shall at any time be
unpaid for twenty one days after becoming payable (whether formally
demanded or not) or if any of the covenants on the part of the
Tenant herein contained shall not be performed or observed or if
there occurs in relation to the Tenant (or where the Tenant
comprises more than one person there occurs in relation to any of
such persons) a Terminating Event (as hereinafter defined) then and
in any such case it shall be lawful for the Landlord at any time
thereafter to re-enter upon the Premises or any part thereof in the
name of the whole and thereupon this demise shall absolutely
determine but without prejudice to the right of action of the
Landlord in
<PAGE>
respect of any antecedent breach of any of the covenants on the part
of the Tenant herein contained
5.1.2 For the purposes hereof "Terminating Event" means any of the
following:
5.1.2.1 in relation to an individual:
5.1.2.1.1 the individual failing to pay a debt or debts
which is or are in the aggregate equal to or
in excess of the bankruptcy level from time
to time and a statutory demand in respect
thereof having been neither complied with nor
set aside
5.1.2.1.2 the presentation of a bankruptcy petition
in respect of the individual
5.1.2.1.3 the appointment of an interim receiver in
respect of the individual's property or any
of it
5.1.2.1.4 the making of a bankruptcy order in respect
of the individual
5.1.2.2 in relation to a company:
5.1.2.2.1 the presentation of a petition for the
winding up of the company
5.1.2.2.2 the passing of a resolution to wind up the
company
5.1.2.2.3 the making of a winding up order in
relation to the company
5.1.2.2.4 any person becoming entitled to appoint an
administrative receiver of the undertaking
of the company or any part of it
5.1.2.2.5 the appointment of such an administrative
receiver
5.1.2.2.6 the presentation of a petition for the
making of an administration order in
respect of the company
5.1.2.2.7 the making of an administration order in
respect of the company
5.1.2.2.8 the directors of the company proposing a
voluntary arrangement
5.1.2.3 in relation to any person (whether an individual or a
company):
5.1.2.3.1 the person entering into any agreement or
making any arrangement with creditors for
liquidation of the person's debts by
composition or otherwise
<PAGE>
5.1.2.3.2 the appointment of a receiver in respect of
any of the person's assets
5.1.2.3.3 any steps being taken to enforce any
security over the person's property or to
repossess goods in the person's possession
under any hire purchase agreement
5.1.2.3.4 any distress or execution being levied on
any of the person's assets
5.2 Suspension of rent
If the Premises or any part thereof shall at any time during the Term be
rendered incapable of or unfit for occupation or use as the result of a
peril against which the Building is insured pursuant to the covenant on
the part of the Superior Landlord contained in the Superior Lease the
rents reserved and for the time being payable hereunder or a fair
proportion of the said rents according to the nature and extent of the
damage sustained shall be suspended until the Premises shall again be
rendered fit for occupation or use PROVIDED that there shall be no
cesser of rents if or to such extent as any insurance policy effected by
the Superior Landlord or the Landlord shall have been rendered void or
voidable or payment of any insurance moneys shall be properly withheld
by the insurers due to some act or failure of the Tenant or any person
deriving title under the Tenant or any of the servants or agents of the
Tenant or of any such person PROVIDED FURTHER that if the Building shall
be so damaged as to necessitate demolition and reconstruction the
Landlord shall be entitled on giving to the Tenant not less than six
months' previous notice in writing to determine the Term and at the
expiration of such notice this lease and everything herein contained
shall cease and be void and the Tenant shall not be liable for any
dilapidations and shall not be entitled to any compensation but without
prejudice to the rights and remedies of the Landlord for any arrears of
rent PROVIDED ALSO that any dispute as to the proportion (if any) of
rent which should be suspended or as to the period of such suspension
which may arise under this clause 5.2 shall be referred to the decision
of some competent person (acting as an expert and not as an arbitrator)
to be agreed upon by the Landlord and by the Tenant or (in the event of
failure so to agree) to be nominated on the application of the Landlord
or the Tenant by the President for the time being of the Royal
Institution of Chartered Surveyors and the decision of such person
(including any determination as to the costs of such decision) shall
accordingly be final and binding
5.3 Landlord's disclaimer
Notwithstanding anything herein contained and unless due to the
negligence or default of the Landlord or its servants and save to the
extent that the Landlord may be liable under the provisions of the
Defective Premises Act 1972 the Landlord shall not be responsible to
the Tenant or the Tenant's licensees servants agents or other persons
in the Premises or calling upon the Tenant or the Premises for any
accident or happening or damage to or loss of any chattel or property
sustained in the Building or on any property over which the Tenant
exercises rights nor for any loss or inconvenience occasioned by (a)
the closing for repairs or other purposes of the lifts or the Common
Parts or any part thereof (b) any defects or failure in the
<PAGE>
said lifts or in the sprinkler system (if any) or in the hot and cold
water supply the heating cooling or ventilating apparatus (if any) or
in the lighting or in the conducting media (whether of or in the
Premises or otherwise) (c) suitable fuel or power not being
obtainable through the Landlord's usual sources of supply (owing to
strikes lock-outs or other causes)
5.4 Landlord does not warrant permitted user
Notwithstanding the covenant as to user on the part of the Tenant
herein contained the Landlord does not hereby or in any other way
give nor has the Landlord given at any other time any representation
or warranty that such or any other user is or will be or will remain
a permitted user within the provisions of the Planning Acts and
notwithstanding that such user is not a permitted user within such
provisions as aforesaid the Tenant shall remain fully bound and
liable to the Landlord in respect of the several covenants and
conditions herein on the part of the Tenant contained without being
entitled to any compensation of any kind whatsoever from the Landlord
5.5 Alterations by Landlord
The Landlord may from time to time make such alterations additions or
substitutions in or to the Building or any part thereof (excluding
the Premises) or any plant or apparatus in the Building or the
conducting media or the Common Parts as it shall think fit PROVIDED
that in respect of any plant or apparatus or conducting media or the
Common Parts remaining available for use by the Tenant or in respect
of any new plant apparatus conducting media and the Common Parts
provided for such use in substitution for those previously available
the same shall be suitable for the enjoyment of the Premises AND
PROVIDED that the works of alteration addition or substitution shall
during the Authorised Hours be carried out in such manner as to cause
to the Tenant as little inconvenience as is reasonably practicable
BUT PROVIDED FURTHER that no objection whatsoever may be raised to
the manner in which the Landlord may carry out such works outside the
Authorised Hours
5.6 Settlement of disputes
That in case any dispute or controversy shall arise between the
Tenant and any other tenant of the Landlord relating to any party or
other wall conducting media or to any other right easement or
privilege whatsoever affecting or relating to the Premises or any
other part of the Building the same may (if the Landlord so elects)
be settled or determined by the Landlord in such manner as it by
writing shall direct to which the Tenant shall submit
5.7 Landlord's servants or workmen
The servants or workmen of the Landlord shall be under no obligation
to furnish attendance or other use of his or their services to the
Tenant for the Tenant's private convenience or to accept delivery of
any letters telegrams telephone calls messages or parcels addressed
to the Tenant and any such furnishing of attendance or other use of
services or the acceptance of such letters telegrams telephone calls
messages
<PAGE>
or parcels is to be considered as rendered and accepted by any
employee of the Landlord as the servant of the Tenant and the
Landlord shall not be liable for and no claim shall be made against
it for any loss or damage arising out of or in consequence of such
furnishing of attendance or other use of services or acceptance of
any such letters telegrams telephone calls messages or parcels as
aforesaid
5.8 Landlord free to deal with adjoining or neighbouring property
The Tenant shall not be entitled to any right of light or air which will
interfere with the free use of any land or buildings adjoining or
neighbouring the Premises
5.9 Tenant unable to enforce similar covenants in adjoining property
etcetera
5.9.1 Nothing herein contained shall confer on the Tenant any right to the
benefit of or to enforce any covenant or agreement contained in any
lease or other instrument relating to any other property belonging to
the Landlord
5.9.2 Each of the Tenant's covenants herein contained shall remain in full
force both at law and in equity notwithstanding that the Landlord
shall have waived or released temporarily or permanently revocably or
irrevocably or otherwise howsoever a similar covenant or similar
covenants affecting adjoining or neighbouring premises of the
Landlord
5.10 Landlord can charge for work done by it
If and so often as the Tenant shall be obliged under the terms hereof
to reimburse the Landlord any costs charges and expenses incurred by
it including solicitors' costs and surveyors' fees and other
professional costs and fees then in respect of any work done by the
Landlord or by any person connected with it or by any person employed
by it the Landlord shall be deemed to have incurred or suffered in
respect thereof a reasonable fee cost or expense not exceeding that
which might properly have been charged or incurred for the same work
by an independent person competent to deal with that work in the
ordinary course of his business
5.11 Service of notices
This deed incorporates the regulations respecting notices contained
in Section 196 of the Law of Property Act 1925 as amended by the
Recorded Delivery Service Act 1962 Provided Always that any notice to
be served on the Tenant shall be served on it at 18 D'Arblay Street
London W1V 3FP
6. LANDLORD AND TENANT ACT 1954
Having been authorised to do so by the Court Order the parties hereto
agree that the provisions of Sections 24 to 28 (inclusive) of the
Landlord and Tenant Act 1954 shall be excluded in relation to the
tenancy hereby created
7. The Tenant irrevocably submits to the jurisdiction of the High Court
of Justice in England in relation to matters arising in respect of
this Lease
8. CERTIFICATE AS TO AGREEMENT
<PAGE>
It is hereby certified that there is no agreement for lease to which
this lease gives effect
IN WITNESS whereof this lease has been executed by the parties as a
deed the day and year first above written
FIRST SCHEDULE
Part I
Premises
ALL THAT suite of offices situate on the seventh floor of the Building which
said suite of offices is for the purpose of identification edged with the colour
red on the plan annexed hereto and includes:-
(i) all non load-bearing walls within the Premises (and the plaster and
finishes thereof)
(ii) the plaster and finishes on the internal faces of the boundary walls
and on the structure enclosing the Premises
(iii) the plaster and finishes on all structural parts of the Building
within the Premises
(iv) all floors in the Premises (including all false or raised floors (and
the joists and/or supports thereof) and all floor boards all wood
block flooring and all other floor finishes down to but excluding
joists (other than the joists and/or supports aforesaid) or
structural slabs)
(v) all ceilings of the Premises (up to but excluding joists or
structural slabs)
(vi) the interior window frames (including for the avoidance of doubt the
interior of all window frames which face the exterior) and the glass
in all windows of the Premises
(vii) all doors and the glass in all doors of the Premises
(viii) all fixtures and fittings of the nature of landlord's fixtures or
fittings and all sanitary and water apparatus and all conducting
media forming part of the Premises and
(ix) all other parts of the interior of the Premises other than:-
(A) all structural parts of the Building within the Premises
(save for the plaster and finishes thereof aforesaid)
(B) the heating cooling and ventilating apparatus and the
sprinkler system forming part of the Premises
together with all fixtures and fittings listed on the Inventory annexed hereto
which fixtures and fittings are included wherever reference is hereinafter made
to such fixtures and fittings
Part II
Rights granted to the Tenant
<PAGE>
The right for the Tenant and persons authorised by the Tenant (in common with
others having a like right and so far as necessary for the enjoyment of the
Premises):
1. of passage and running of water soil gas electricity and of all other
services or supplies as are now used by the Premises through the
conducting media passing through or under the adjoining or
neighbouring property of the Landlord
2. during the Authorised Hours save where alternative arrangements are
made with the approval of the Landlord such approval to be on
reasonable terms and not to be unreasonably withheld (and without
prejudice to the generality thereof such terms shall include an
obligation to give the Landlord not less than forty eight hours
notice on each occasion that the Tenant wishes to exercise such
rights and to pay the additional security and other proper costs to
the Landlord incurred as a result of the exercise of such rights)
to use the entrance hall at ground floor level the stairs shown
hatched green on the plan and the rear stairs shown hatched yellow
on the plan (save that the rear stairs shown hatched yellow on the
plan shall be used only in the case of fire or other emergency)
3. during the Authorised Hours save where alternative arrangements are
made with the approval of the Landlord such approval to be on
reasonable terms and not to be unreasonably withheld (and without
prejudice to the generality thereof such terms shall include an
obligation to give the Landlord not less than forty eight hours
notice on each occasion that the Tenant wishes to exercise such
rights and to pay the additional security and other proper costs to
the Landlord incurred as a result of the exercise of such rights)
to use the lavatories and toilet facilities on the seventh floor of
the Building
4. during the Authorised Hours save where alternative arrangements are
made with the approval of the Landlord such approval to be on
reasonable terms and not to be unreasonably withheld (and without
prejudice to the generality thereof such terms shall include an
obligation to give the Landlord not less than forty eight hours
notice on each occasion that the Tenant wishes to exercise such
rights and to pay the additional security and other proper costs to
the Landlord incurred as a result of the exercise of such rights)
to use the lifts at such times as the same shall be working
Part III
Exceptions and reservations to the Landlord and others
1. The right of free and uninterrupted passage and running of water soil
gas electricity and of all other services or supplies as are now or
hereafter to be used from and to adjoining or neighbouring property
through such of the conducting media serving such adjoining or
neighbouring property now or which may not later than whichever shall
be the earlier of (a) the expiration of the Term and (b) the
expiration of a period of eighty years from the date hereof hereafter
be in or upon the Premises
2. The rights and liberties of entry upon the Premises mentioned in the
covenants by the Tenant herein contained and those mentioned in the
covenants on the part of the Landlord (as tenant) contained in the
Superior Lease
<PAGE>
3. The right to let any adjoining or neighbouring property for any
purpose
4. The full right of support and shelter and all other easements and
rights now or hereafter belonging to or enjoyed by adjacent or
neighbouring property
5. The right at any time and from time to time to close temporarily for
repairs or any other necessary purposes the lifts in the Building
the service roads and footpaths (if any) and any other areas within
the curtilage of the Building and any other part of the Building
(other than the Premises) which the Tenant is by virtue of this
lease authorised to use (whether in common with others or not)
6. The right (on giving the Tenant at least forty eight hours prior
notice save in emergency) of access to the Premises in order to
maintain service and adjust the air conditioning of access to the
riser cupboard and of access to the Premises for all reasonable
purposes in connection with the management and maintenance of the
Building
SECOND SCHEDULE
The service charge
1. Comfort cooling and heating to the Premises during the Authorised
Hours or outside those hours where agreed with the Landlord
2. Staffed reception on the ground floor of the Building during the
Authorised Hours or outside those hours where agreed with the
Landlord
3. Lighting and cleaning the Common Parts (including the male and female
toilets off the seventh floor lobby) during the Authorised Hours or
outside those hours where agreed with the Landlord
4. Cleaning of the exterior windows of the Building whenever reasonably
necessary
THIRD SCHEDULE
Regulations of the Building
1.1 The requirements of the Fire Precautions Act 1971 and the Health and
Safety at Work, etc. Act 1974 and all rules and regulations
thereunder shall be strictly complied with
1.2 In particular tenants shall
1.2.1 cause sufficient fire officers to be appointed
1.2.2 regularly test inspect and maintain fire detection
prevention and fighting equipment within and exclusively
serving the Premises and keep and produce to the relevant
authorities and to the Landlord and whomsoever the Landlord
may direct records in writing of such tests inspections and
maintenance
1.2.3 at all times maintain clear access through escape routes
<PAGE>
1.2.4 fully participate in fire evacuation drills organised in
respect of the Building or parts thereof
2.2 The Landlord shall have sole discretion in considering whether work
may be carried out or continued or in deciding what additional
safeguards it requires to be taken in addition to those which may be
imposed under statute building or other rules regulations or bye-laws
3. Only the lavatories and toilet facilities allocated shall be used
4. There shall be no interference with the heating cooling and
ventilating appliances and installations apart from the normal
switching on or off of the appliances in the Premises for the
comfort of the occupants thereof
5. Apart from any self-operating lifts installed in the Building no
person other than the person employed by the Landlord for such
purpose shall operate lifts
6. Overloading or permitting of overloading of any of the lifts in the
Building is strictly prohibited
7. No goods or merchandise shall (without the consent in writing of the
Landlord) be brought into the passenger lifts
8. No goods or merchandise shall be brought into the Building by means
of the main entrances to the Building except between the hours of
7.00 a.m. and 8.30 a.m. or 7.00 p.m. and 11.00 p.m. on Mondays to
Fridays inclusive and no goods or merchandise shall be brought into
the Building in such manner as will damage the Building or any part
thereof
9. No tenant or occupier shall use any Common Parts or permit the same
to be used for the parking of vehicles
10. Tenants or occupiers shall ensure (so far as they are reasonably able
so to do) that no rubbish or litter is left on the Common Parts
11. Tenants or occupiers shall not place or permit or suffer to be placed
or remain in or upon the Common Parts any obstruction whatsoever
FOURTH SCHEDULE
The entries in the Property and Charges Registers of H.M. Land Registry
Title Number NGL 711243
SIGNED as a Deed by SONY MUSIC )
ENTERTAINMENT (UK) LIMITED )
acting by:- )
<PAGE>
Director
Director/Secretary
<PAGE>
SIGNED as a Deed by CME )
DEVELOPMENT CORPORATION )
acting by:- )
Director
<PAGE>
DATED 1996
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT 21.01
Subsidiaries of the Registrant
1. CME Development Corporation, Inc.
State of Incorporation--Delaware
2. CME Programming Services, Inc.
State of Incorporation--Delaware
3. Central European Media Enterprises N.V.
Jurisdiction of Incorporation--Netherlands Antilles
4. CME Media Enterprises B.V.
Jurisdiction of Incorporation--Netherlands
5. CME Medienbeteiligungen GmbH
Jurisdiction of Incorporation--Germany
6. CME Medienbeteiligungen GmbH and Co. Media Enterprises KG
Jurisdiction of Incorporation--Germany
7. Ceska Nezavisla Televizini Spolecnost s.r.o.
Jurisdiction of Incorporation--Czech Republic
8. CME Medienbeteiligungen GmbH and Co. Zweite Medienprojekte
Berlin KG
Jurisdiction of Formation--Germany
9. CME Medienbeteiligungen GmbH and Co. Erste Medienprojekte Berlin KG
Jurisdiction of Formation--Germany
10. 1A TV Beteiligungsgesellschaft GmbH & Co. Betriebs KG
Jurisdiction of Formation--Germany
11. Franken Funk & Fernsehen GmbH
Jurisdiction of Corporation--Germany
12. NMF Neue Medien Franken GmbH & Co. KG
Jurisdiction of Incorporation--Germany
13. Tele 59 d.o.o. Maribor
Jurisdiction of Formation--Slovenia
14. Boutique MMTV d.o.o. Ljubljana
Jurisdiction of Formation--Slovenia
15. Produkcija Plus d.o.o. Ljubljana
Jurisdiction of Formation--Slovenia
16. Radio Alfa a.s.
Jurisdiction of Formation--the Czech Republic
<PAGE>
17. 2002 Tanacsado es Szolgaltato Korlatolt
Felelossegu Tarsasag
Jurisdiction of Formation--Hungary
18. Media Pro International S.A.
Jurisdiction of Formation--Romania
19. CME Ukraine Holding GmbH
Jurisdiction of Formation--Austria
20. International Media Services Ltd.
Jurisdiction of Formation--Bermuda
21. Innova Film GmbH
Jurisdiction of Formation--Germany
22. Intermedia
Jurisdiction of Formation--Ukraine
23. Studio 1+1
Jurisdiction of Formation--Ukraine
24. Videovox Kft
Jurisdiction of Formation--Hungary
25. Unimedia SRL
Jurisdiction of Formation--Romania
26. Mobil Rom SA
Jurisdiction of Formation--Romania
27. STS s.r.o.
Jurisdiction of Formation--Slovakia
28. Sachsen Fund and Fernsehen GmbH
Jurisdiction of Formation--Germany
29. TVN Limited
Jurisdiction of Formation--Poland
30. TV Wisla Limited
Jurisdiction of Formation--Poland
31. BIS Ballungsraumfernsehen in Sachsen GmbH
Jurisdiction of Formation--Germany
32. Sachsen Fernsehen GmbH and Co. Frenseh-Beteriebs KG
Jurisdiction of Formation--Germany
33. Sachsen Fernsehen Vewaltungs GmbH
Jurisdiction of Formation--Germany
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-1560.
ARTHUR ANDERSEN & CO.
Hamilton, Bermuda
March 24, 1997
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 78,507
<SECURITIES> 2,896
<RECEIVABLES> 37,342
<ALLOWANCES> 3,200
<INVENTORY> 0
<CURRENT-ASSETS> 146,159
<PP&E> 58,982
<DEPRECIATION> 22,317
<TOTAL-ASSETS> 365,130
<CURRENT-LIABILITIES> 60,506
<BONDS> 0
0
0
<COMMON> 239
<OTHER-SE> 249,081
<TOTAL-LIABILITY-AND-EQUITY> 365,130
<SALES> 135,085
<TOTAL-REVENUES> 135,085
<CGS> 0
<TOTAL-COSTS> 126,069
<OTHER-EXPENSES> 17,845
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,670
<INCOME-PRETAX> (12,526)
<INCOME-TAX> (16,405)
<INCOME-CONTINUING> (30,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,003)
<EPS-PRIMARY> (1.55)
<EPS-DILUTED> 0.000
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