<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-24796
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(Exact name of registrant as specified in its charter)
BERMUDA N/A
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Clarendon House, Church Street, Hamilton HM CX Bermuda
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 441-296-1431
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of May 8, 1998
----- -----------------------------
Class A Common Stock, par value $.01 17,226,098
Class B Common Stock, par value $.01 6,888,387
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Consolidated Balance Sheets as at
March 31, 1998 and December 31, 1997
($000s)
<TABLE>
<CAPTION>
ASSETS
------
December 31,
March 31, 1998 1997
---------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................................ $ 61,926 $ 106,188
Investments in marketable securities ..................................................... 70 69
Restricted cash .......................................................................... 1,292 800
Accounts receivable (net of allowances of $4,196, $3,698) ................................ 35,583 41,985
Program rights costs ..................................................................... 27,510 30,220
Value-added tax recoverable .............................................................. 7,372 5,229
Amount due from unconsolidated affiliates ................................................ 8,836 6,696
Advances to affiliates ................................................................... 7,750 7,979
Other short-term assets .................................................................. 2,903 3,273
Prepaid expenses ......................................................................... 13,319 7,018
---------------- ----------------
Total current assets ..................................................................... 166,561 209,457
Investments in unconsolidated affiliates ................................................. 56,187 58,552
Investments .............................................................................. 23,021 22,951
Loans to affiliates ...................................................................... 32,424 31,927
Property, plant & equipment (net of depreciation of $36,636, $31,517) .................... 68,154 68,090
Program rights costs ..................................................................... 15,296 12,851
Broadcast licence costs and other intangibles (net of amortization of $2,698, $2,381) ... 2,875 2,752
Licence acquisition costs (net of amortization of $2,109, $1,901) ........................ 3,248 3,456
Goodwill ................................................................................. 63,905 65,910
Organization costs (net of amortization of $1,308, $1,222) ............................... 472 541
Deferred taxes ........................................................................... 764 746
Other assets ............................................................................. 20,249 14,334
================ ================
Total assets ............................................................................. $ 453,156 $ 491,567
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable ......................................................................... $ 34,288 $ 30,929
Accrued liabilities ...................................................................... 19,610 22,929
Duties and other taxes payable ........................................................... 11,137 10,989
Income taxes payable ..................................................................... 1,324 2,308
Current portion of obligations under capital lease ....................................... 75 88
Current portion of credit facilities ..................................................... 9,090 11,722
Dividends payable ........................................................................ -- 996
Investments payable ...................................................................... 10,310 16,714
Advances from affiliates ................................................................. 27,564 25,508
---------------- ----------------
Total current liabilities .................................................... 113,398 122,183
Deferred income taxes .................................................................... 747 916
Long-term portion of obligations under capital leases .................................... 17 27
Long-term portion of credit facilities ................................................... 22,694 24,177
Investments payable ...................................................................... 5,188 7,875
$100,000,000 9 3/8 % Senior Notes due 2004 (net of discount of $141, $147) ............... 99,859 99,853
DM 140,000,000 8 1/8 % Senior Notes due 2004 (net of discount of $333, $347) ............. 75,457 77,513
Other liabilities ........................................................................ 241 199
Minority interest in consolidated subsidiaries ........................................... 541 1,241
COMMITMENTS AND CONTINGENCIES (Note 4)
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: 100,000,000 shares at March 31, 1998
and 100,000,000 at December 31, 1997; issued and outstanding; 17,022,819 at
March 31, 1998 and 16,934,894 at December 31, 1997 .................................... 170 169
Class B Common Stock, $0.01 par value: authorized: 15,000,000 shares at March 31, 1998
and December 31, 1997; issued and outstanding; 7,057,083 at March 31, 1998 and
7,064,475 at December 31, 1997 ........................................................ 71 71
Additional paid-in capital ............................................................... 333,199 332,386
Accumulated deficit ...................................................................... (188,134) (163,096)
Cumulative currency translation adjustment ............................................... (10,292) (11,947)
---------------- ----------------
Total shareholders' equity ............................................................... 135,014 157,583
---------------- ----------------
Total liabilities and shareholders' equity ............................................... $ 453,156 $ 491,567
================ ================
</TABLE>
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
($000s, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Gross revenues .................................................... $ 48,262 $ 37,480
Discounts and agency commissions .................................. (10,253) (8,315)
-------- --------
Net revenues ...................................................... 38,009 29,165
STATION EXPENSES:
Other operating costs and expenses ................................ 25,479 13,546
Amortization of programming rights .............................. 14,953 5,286
Depreciation of station fixed assets and other intangibles ...... 5,057 3,650
-------- --------
Total station operating costs and expenses ...................... 45,489 22,482
Selling, general and administrative expenses .................... 8,240 4,329
CORPORATE EXPENSES:
Corporate operating costs and development expenses .............. 7,190 4,575
Amortization of goodwill and allowance for development costs .... 2,529 1,997
-------- --------
9,719 6,572
Operating loss .................................................... (25,439) (4,218)
Equity in loss of unconsolidated affiliates (Note 3) .............. (1,027) (6,769)
Loss on impairment of investments in unconsolidated
affiliates (Note 3) ............................................... -- (20,707)
Interest and other income ......................................... 1,612 2,100
Interest expense .................................................. (5,737) (2,174)
Foreign currency exchange gain (loss) ............................. 139 (2,071)
-------- --------
Loss before provision for income taxes ............................ (30,452) (33,839)
Provision for income taxes ........................................ (2,107) (1,911)
-------- --------
Loss before minority interest ..................................... (32,559) (35,750)
Minority interest in loss of consolidated affiliates .............. 7,521 762
-------- --------
Net Loss .......................................................... $(25,038) $(34,988)
======== ========
PER SHARE DATA:
Net loss per share (Note 2):
Basic ........................................................... $ (1.04) $ (1.47)
Diluted ......................................................... $ (1.04) $ (1.47)
Weighted average number of common shares outstanding (000s):
Basic ........................................................... 24,001 23,857
Diluted ......................................................... 24,001 23,857
</TABLE>
Page 3
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Consolidated Statements of Shareholders' Equity / (Deficit)
For the three months ended March 31, 1998
($000s)
(Unaudited)
<TABLE>
<CAPTION>
Comprehensive Class A Class B
Income Common Common Capital
(loss) Stock Stock Surplus
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 ............. $ 169 $ 71 $ 332,386
Comprehensive income: (Note 2)
Net loss ............................ $ (25,038)
Other comprehensive income:
Unrealized translation adjustments $ 1,655 --
-------------
Comprehensive income ................ $ (23,383)
=============
Stock issued:
Stock option plans .................. $ 1 -- $ 813
--------- --------- ---------
BALANCE, March 31, 1998 ................ $ 170 $ 71 $ 333,199
========= ========= =========
<CAPTION>
Accumulated
Other Total
Accumulated comprehensive Shareholders'
Deficit(1) income(2) equity
----------- ------------- -------------
<S> <C> <C> <C>
BALANCE, December 31, 1997 ............. $ (163,096) $ (11,947) $ 157,583
Comprehensive income: (Note 2)
Net loss ............................ $ (25,038) $ (25,038)
Other comprehensive income:
Unrealized translation adjustments $ 1,655 $ 1,655
Comprehensive income ................
Stock issued:
Stock option plans .................. $ 814
----------- ------------- -------------
BALANCE, March 31, 1998 ................ $ (188,134) $ (10,292) $ 135,014
=========== ============= =============
</TABLE>
- ----------
(1) Of the accumulated deficit of $188,134,000 at March 31, 1998, $84,376,000
represents accumulated losses in unconsolidated affiliates.
(2) Represents foreign currency translation adjustments.
Page 4
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Consolidated Statements of Cash Flows
For the three months ended March 31, 1998 and 1997
($000s)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $ (25,038) $ (34,988)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in loss of unconsolidated affiliates .................................. 1,027 6,769
Loss on impairment of investments in unconsolidated affiliates ............... -- 20,707
Depreciation and amortization (excluding amortization of barter programs) .... 22,837 10,789
Minority interest in loss of consolidated affiliates ......................... (7,521) (762)
Valuation allowance for development costs .................................... -- 120
Changes in assets and liabilities:
Accounts receivable .......................................................... 7,089 4,711
Related party receivable ..................................................... (1,021) --
Program rights paid .......................................................... (13,780) (5,313)
Value-added tax recoverable .................................................. (2,049) (43)
Advances to affiliates ....................................................... 907 183
Prepaid expenses and other short-term assets ................................. (3,126) (981)
Accounts payable ............................................................. (148) (2,921)
Accrued liabilities .......................................................... (3,423) (3,233)
Income and other taxes payable ............................................... 26 2,302
------------- -------------
Net cash used in operating activities .................................... (24,220) (2,660)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Unconsolidated Affiliates ..................................... (1,153) (8,215)
Other investments ............................................................ (582) --
Investments in marketable securities ......................................... -- 38
Restricted cash .............................................................. (492) 951
Acquisition of fixed assets .................................................. (3,350) (2,667)
Acquisition of minority shareholder's interest ............................... (7,878) (74)
Loans and advances to affiliates ............................................. (427) (2,114)
Payments for broadcast license costs, other assets and intangibles ........... (361) --
Development costs ............................................................ -- (634)
------------- -------------
Net cash used in investing activities .................................... (14,243) (12,715)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Credit facilities ............................................................ (4,833) (2,689)
Payments under capital leases ................................................ -- (477)
Dividends paid to minority shareholders ...................................... (1,117) --
Capital contributed by shareholders .......................................... 814 157
Other long-term liabilities .................................................. (905) --
------------- -------------
Net cash provided by financing activities ................................ (6,041) (3,009)
------------- -------------
IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH ................................... 242 (570)
------------- -------------
Net increase (decrease) in cash and cash equivalents ......................... (44,262) (18,954)
CASH AND CASH EQUIVALENTS, beginning of period ................................. 106,188 78,507
============= =============
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 61,926 $ 59,553
============= =============
Supplemental information:
Cash paid for interest ....................................................... $ 9,058 $ 2,132
============= =============
Income taxes ................................................................. $ 3,279 $ 3,979
============= =============
</TABLE>
Page 5
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Notes to Consolidated Financial Statements
March 31, 1998
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 and
affiliates (CME and its subsidiaries and affiliates are collectively referred
to as the "Company"), invests in, develops, and operates national and regional
commercial television stations and networks in Central and Eastern Europe.
In the Czech Republic, the Company is entitled to 99% of the total
profits of and has 97% of the voting power in Ceska Nezavisla Televizni
Spolecnost s.r.o. ("CNTS"), which operates Nova TV, a private national
television station in the Czech Republic. In August 1996, when the Company
increased its economic interest in CNTS through the acquisition of a 22%
economic interest in CNTS from Ceska Sporitelna Bank ("CS Bank") (the
"Additional CNTS Purchase"), CS Bank granted the Company an option to acquire
CS Bank's remaining 2% voting interest for no additional consideration. On
December 9, 1997, the Company exercised its option and upon completion of
registration pursuant to Czech law of the 2% voting interest, the Company will
have 99% of the voting power in CNTS. CET 21 has a 1% equity interest in CNTS.
In March 1997, the Company acquired a 5.2% interest in CNTS (the "1997 CNTS
Purchase") and in August 1997, the Company acquired an additional 5.8%
interest in CNTS (the "Second 1997 CNTS Purchase").
The Company owns a 76% ownership interest in Radio Alfa a.s. ("Radio
Alfa"), one of two private national radio broadcasters in the Czech Republic.
In Romania, the Company and two local partners, Adrian Sarbu and Ion
Tiriac, operate PRO TV, a commercial television network, through Media Pro
International S.A. ("Media Pro International"). The Company owns a 66% equity
interest in Media Pro International. The Company owns 49% of the equity of PRO
TV, SRL, an affiliate station of Media Pro International. 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 comprising the PRO TV network. The
Company owns a 96% equity interest in Unimedia SRL ("Unimedia"), which owns a
10% equity interest in a consortium, MobilRom, which holds one of the two GSM
cellular telephone licenses in Romania. Mr. Sarbu owns the remaining 4% of
Unimedia.
In Slovenia, the Company operates POP TV, together with MMTV d.o.o.
Ljubljana ("MMTV") and Tele 59 d.o.o. Maribor ("Tele 59"), through Produkcija
Plus d.o.o. ("Pro Plus"). Under the names POP TV and Gajba TV, Pro Plus
provides programming to, and sells advertising for, affiliated stations. The
Company owns 78% of the equity of Pro Plus, but has an effective economic
interest of 85.3% as a result of a 33% economic interest in MMTV and a 33%
economic interest in Tele 59. Tele 59 owns a 21% equity interest in Pro Plus,
and the remaining 1% equity interest in Pro Plus is owned by MMTV.
Page 6
<PAGE>
Also in Slovenia, in July 1996, the Company, together with MMTV and
Tele 59, entered into an agreement to purchase a 66% equity interest in Kanal
A. Scandinavian Broadcasting System S.A. claims to have rights to such equity
interest. The Company instituted actions in Slovenian courts requesting
resolution of the dispute. See Part II, Item 1 "Legal Proceedings".
In the Slovak Republic, the Company owns an 80% non-controlling
economic interest and a 49% voting interest in Slovenska Televizna Spolocnost
s.r.o. ("STS") which launched Markiza TV as a national television station on
August 31, 1996.
In Hungary, the Company owns an 89% (increased from 71% in April 1998
for a purchase price of $700,000) equity interest in Budapesti Kommunikacios
Rt. ("TV3"), a television station operating in Budapest and distributing its
signal by satellite to cable systems throughout Hungary. The Company wholly
owns Videovox Studio Limited Liability Company ("Videovox"), a Hungarian
dubbing and duplication company acquired in May 1996 and owns 24.9% of the
equity of 2002 Tanacsado es Szolgaltato Korlatolt Felelosegu Tarsasag ("2002
Kft"), a broadcasting company.
In Germany, as of December 31, 1997, the Company terminated its
ownership interests in regional television operations in Nuremberg ("FFF") and
Dresden and Leipzig ("SFF"). Prior to these transactions, the Company owned
non-controlling voting interests in those entities. On May 13, 1997, the
Company announced its decision to discontinue funding of 1A TV
Beteiligungsgessellschaft GmbH & Co. Betriebs KG ("1A TV"), which operated
PULS, a regional television station operating in the Berlin - Brandenburg
area. On May 27, 1997, 1A TV initiated a bankruptcy proceeding in the
Bankruptcy Court of Berlin-Charlottenberg, which is pending.
In Poland, the Company owns a 50% direct interest in Federacja
Sp.zo.o. ("Federation"). The Company owns an additional 5% indirect interest
in Federation through its 10% equity interest in ITI Media Group N.V., which
owns the remainder of Federation. Such 10% equity interest is subject to put
and call options between the Company and ITI, which options are exerciseable
from August 2000 until August 2003. TVN Sp.zo.o., owned 67% by ITI and 33% by
the Company, holds broadcast licenses for northern Poland and the cities of
Warsaw and Lodz., and in addition, a private regional television station in
southern Poland. Federation provides programming and advertising services to
TVN Sp.zo.o. In December 1997, TVN Sp.zo.o. acquired 22% of Polskie Media
S.A., a private regional television station operating under the name "Nasza
TV" in central Poland. The remaining shareholders of Polskie Media S.A. have
instituted legal proceedings challenging TVN Sp.zo.o.'s acquisition. See Part
II, Item 1 "Legal Proceedings".
Also in Poland, the Company owns an indirect 12% interest in
Endemol-Neovision Sp.zo.o., a television program production company.
In Ukraine, the Company owns a 50% non-controlling interest in a
group of companies (collectively, the "Studio 1+1 Group"), which have the
right to broadcast programming and sell advertising on Ukrainian National
Channel 2 ("UT-2") through 2006.
Page 7
<PAGE>
2. Summary of Significant Accounting Policies
The accompanying financial statements have been prepared in
accordance with United States generally accepted accounting principles
("GAAP"). In the opinion of management, these consolidated financial
statements include all adjustments necessary to fairly state the Company's
financial position and results of operations. The results for the three months
ended March 31, 1998 are not necessarily indicative of the results expected
for the year.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company's wholly-owned subsidiaries and the results of CNTS
(which operates Nova TV), PRO TV, POP TV, Federation, TV3 and Radio Alfa (the
"Consolidated Affiliates"), as consolidated entities and reflect the interests
of the minority owners of these entities for the periods presented, as
applicable (Note 1). The results of Markiza TV, the Studio 1+1 Group, TVN
Sp.zo.o. and, for the first quarter of 1997 only, FFF, SFF and 1A TV (the
"Unconsolidated Affiliates"), in which the Company has, or during the periods
presented had, minority or non-controlling ownership interests, are included
in the accompanying Consolidated Financial Statements using the equity method.
1A TV initiated a bankruptcy proceeding in May 1997 and the Company terminated
its ownership interests in FFF and SFF as of December 31, 1997. The Company
records other investments at the lower of cost or market value.
Net Loss Per Share
Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
Basic net income (loss) per common share ("Basic EPS") is computed by dividing
net income (loss) by the weighted average number of common shares outstanding.
Diluted net income (loss) per common share ("Diluted EPS") is computed by
dividing net income (loss) by the weighted average number of common shares and
dilutive common share equivalents and convertible securities then outstanding.
SFAS No. 128 requires the presentation of both Basic EPS and Diluted EPS on
the face of the consolidated statements of operations. Diluted EPS is the same
as Basic EPS, as the inclusion of the impact of stock options, warrants and
convertible securities then outstanding would be anti-dilutive. Accordingly,
no reconciliation of those amounts has been presented herein.
Comprehensive Income (Loss)
In 1998, the Company adopted SFAS No.130, "Reporting Comprehensive
Income" ( "SFAS No. 130" ), which requires companies to report all changes in
equity during a period, except those resulting from investment by owners and
distribution to owners, in a financial statement for the period in which they
are recognized. The Company has chosen to disclose Comprehensive Income, which
encompasses net income (loss) and foreign currency translation adjustments, in
the accompanying Consolidated Statement of Shareholders' Equity.
Page 8
<PAGE>
Reclassifications
Certain reclassifications have been made to prior period amounts to
conform to current period classifications.
3. Summary Financial Information for Unconsolidated Affiliates.
<TABLE>
<CAPTION>
As of
------------------------------------------------------------------------------
March 31, 1998 December 31, 1997
------------------------------------------------------------------------------
$000s TVN Studio TVN Studio
----- Sp.zo.o. Markiza TV 1+1 Group Sp.zo.o. Markiza TV 1+1 Group
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets............... 29,271 17,986 5,147 27,106 18,385 7,744
Non-current assets........... 47,073 26,550 12,208 49,608 25,900 21,542
Current liabilities.......... (23,315) (13,157) (6,470) (21,884) (13,328) (5,976)
Non-current liabilities...... (42,724) (1,353) (10,381) (41,812) (998) (6,000)
------------------------------------------------------------------------------
Net assets................... 10,305 28,930 504 13,018 29,959 17,310
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the three months ended,
----------------------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
----------------------------------------------------------------------------------------------
$000s TVN Markiza Studio TVN Markiza Studio 1+1
----- Sp.zo.o. TV 1+1 Group Sp.zo.o. TV Group 1A TV FFF
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ 330 7,772 6,622 279 5,628 3,086 611 1,161
Operating (loss) income. (1,413) (337) 265 (1,555) (1,152) (1,481) (3,596) (808)
Net profit (loss)....... (1,892) 303 199 (1,847) (1,721) (1,481) (3,611) (915)
</TABLE>
The Company's share of losses in Unconsolidated Affiliates for the three
months ended March 31, 1998 (including goodwill amortization for Markiza TV
and the Studio 1+1 Group) was $1,027,000, including a profit of $350,000 in
Markiza TV, a loss of $1,106,000 in the Company's unconsolidated Poland
operations and a loss of $271,000 in the Studio 1+1 Group. On May 13, 1997,
the Company announced its decision to discontinue funding of 1A TV and the
Company terminated its ownership interests in FFF and SFF as of December 31,
1997. As a result, the Company has eliminated the carrying value of these
investments as of the year-end 1997.
4. Commitments and Contingencies
Stock price protections
Pursuant to the terms of a severance agreement, dated as of March 25,
1998, with CME's former President and Chief Executive Officer Leonard M. Fertig,
the Company has agreed to certain stock price protection provisions with respect
to Mr. Fertig's CME Class A Common Stock. If the average per share selling
price (before deductions for commissions and other expenses of sale) for all
shares of CME Class A Common Stock sold by Mr. Fertig prior to August 1998 is
less than $27.625 per share, then the Company will pay Mr. Fertig per share
sold, up to 50,000 shares, an amount equal to the difference between $27.625 and
the higher of (a) $20 and (b) the average selling price (before deduction for
commissions and other expenses for sale) for shares sold. The Company's maximum
exposure pursuant to these stock price protection provisions is $600,000. Any
amounts paid to Mr. Fertig pursuant to such stock price protection provisions
will be recognized and accrued as an expense by the Company based on changes in
the price of the CME's Class A Common Stock during
Page 9
<PAGE>
the periods covered by the agreement. The severance agreement is filed as
Exhibit 10.3 to this Form 10-Q for the quarterly period ended March 31, 1998.
Subsidiary guarantee
Beginning in 1993, 1A TV received investment grants in an aggregate
amount of DM8,544,000 ($4,618,000) from a German public bank, to partially
finance the development of the station. The grants were guaranteed by a
wholly-owned German subsidiary of the Company. The grants were repayable if 1A
TV did not fulfill certain conditions, including maintaining specified levels
of employment for a five year period. As a result of the bankruptcy
proceedings initiated by 1A TV, the German public bank has demanded repayment
of the investment grants from 1A TV and the guarantor, plus interest at the
rate of 6.0% per annum. In January 1998, the Company filed an appeal of the
demand for repayment with the German public bank, which is pending. Management
believes that the Company's exposure is limited to a nominal settlement amount
or the value of its German assets, the value of which have been fully reserved
in the Consolidated Financial Statements of the Company.
5. Subsequent Events
Since March 31, 1998, 36,983 stock options for Class A Common Stock
were exercised at prices of $0.20 to $21.75.
Page 10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
Central European Media Enterprises Ltd. ("CME") is a Bermuda
corporation. All references to the "Company" include CME, its direct and
indirect Subsidiaries, and all references to "Subsidiaries" include each
corporation or partnership in which CME has a direct or indirect equity or
voting interest.
The Company is the leading commercial television company in Central
and Eastern Europe. The Company's national private television stations and
networks in the Czech Republic, Slovakia, Slovenia and Ukraine had the leading
nationwide audience shares for March 1998 and the Company's television network
in Romania had the leading average audience share within its area of broadcast
reach for March 1998. In October 1997, the Company launched television
broadcast operations in Poland and Hungary.
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, like other television operators, experiences
seasonality, with advertising sales tending to be lowest during the third
quarter of each calendar year, which includes the summer holiday period, and
highest during the fourth quarter of each calendar year. The primary expenses
incurred in 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. The Company has
incurred and might in the future incur 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 reorganizing existing affiliate entities
which hold the broadcast licenses.
The primary internal sources of cash available for corporate
operating costs and development expenses are dividends and other distributions
from Subsidiaries. The Company's ability to obtain dividends or other
distributions is subject to, among other things, restrictions on dividends
under applicable local laws and foreign currency exchange regulations of the
jurisdictions in which its Subsidiaries operate. The Subsidiaries' ability to
make distributions is also subject to the legal availability of sufficient
operating funds not needed for operations, obligations or other business plans
and, in some cases, the approval of the other partners, stockholders or
creditors of these entities. The laws under which the Company's operating
Subsidiaries are organized provide generally that dividends may be declared by
the partners or shareholders out of yearly profits subject to the maintenance
of registered capital and required reserves and after the recovery of
accumulated losses.
Page 11
<PAGE>
Selected Combined and Attributable Financial Information
The following tables are neither required by United States generally
accepted accounting principles ("GAAP") nor intended to replace the
Consolidated Financial Statements prepared in accordance with GAAP. The tables
set forth certain combined and attributable financial information for the
three months ended March 31, 1998 and 1997 for the Company's operating
entities. This financial information departs materially from GAAP.
In the table "Selected Combined Financial Information," revenues and
operating expenses of certain entities (Markiza TV, the Studio 1+1 Group and
TVN Sp.zo.o.) not consolidated in the Consolidated Financial Statements are
aggregated with those of the Company's consolidated operations. In the table
"Selected Attributable Financial Information", combined information is
adjusted for CME's economic interest in each entity, which economic interest
is the basis used for consolidation and equity method accounting in the
Company's GAAP Consolidated Financial Statements as of March 31, 1998. Both
tables separate the results of the new stations, TVN and TV3, from the results
of the "Continuing Stations".
The tables are presented solely for additional analysis and not as a
presentation of results of operations of each component, nor as combined or
consolidated financial data presented in accordance with GAAP. Intercompany
transactions such as management service charges are not reflected in the
tables. The Company believes that this unaudited combined and attributable
information provides useful disclosure. The Company's former operations in
Germany are not included in this analysis.
In the Consolidated Financial Statements, consolidated entities
include CNTS, PRO TV, POP TV, Federation, TV3, Radio Alfa and Videovox, and
entities reported using the equity method of accounting include Markiza TV,
the Studio 1+1 Group and TVN Sp.zo.o. Under the equity method of accounting,
the Company's interest in net earnings or losses of Markiza TV, the Studio 1+1
Group and TVN Sp.zo.o. 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 and attributable information includes certain financial information
of Markiza TV, the Studio 1+1 Group and TVN Sp.zo.o on a line-by-line basis,
similar to that of the Company's consolidated entities, CNTS, PRO TV, POP TV,
Federation, TV3, Radio Alfa and Videovox.
Of the Continuing Stations, CNTS, which operates Nova TV, began
operations in February 1994. PRO TV and POP TV began operations in December
1995, Markiza TV began operations in August 1996 and the Studio 1+1 Group
began to generate significant revenues during the second quarter of 1997.
Other operations consist of Videovox, a Hungarian dubbing studio and
duplication facility acquired by the Company in May 1996 and wholly-owned
since May 1997, and Radio Alfa, a national radio station in the Czech
Republic, a controlling interest of which was acquired in December 1996. Both
new stations, TVN and TV3, began operations in October 1997.
Page 12
<PAGE>
EBITDA consists of earnings before interest, income taxes,
depreciation and amortization of intangible assets (which do not include
programming rights). EBITDA is provided because it is a measure of operating
performance commonly used in the television industry. It is presented to
enhance an understanding of the Company's operating results and is not
intended to represent cash flow or results of operations in accordance with
GAAP for the periods indicated.
"Broadcast cash flow", a broadcasting industry measure of
performance, is defined as net broadcast revenues, less broadcast operating
expenses excluding depreciation and amortization of acquired programming and
of intangible assets, 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 GAAP. See the accompanying Consolidated Financial Statements.
Page 13
<PAGE>
SELECTED COMBINED FINANCIAL INFORMATION (1)
(unaudited)
($000s)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------------------------------------
Net Revenue EBITDA Broadcast Cash Flow
------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CNTS.......................... 20,080 20,665 8,141 8,263 6,828 7,181
PRO TV........................ 7,756 4,947 (2,461) (1,032) (2,289) (319)
Markiza TV.................... 7,772 5,628 729 (128) (392) (1,095)
POP TV........................ 3,684 2,671 (1,516) (1,046) (1,140) (704)
Studio 1+1 Group.............. 6,622 3,086 507 (1,275) (272) (1,244)
-------------- ------------- -------------- -------------- -------------- --------------
Total Continuing Stations.......... 45,914 36,997 5,400 4,782 2,735 3,819
TVN Sp.zo.o. / Federation.... 4,668 -- (12,248) -- (7,549) --
TV3.......................... 1,075 -- (2,529) -- (4,203) --
-------------- ------------- -------------- -------------- -------------- --------------
Total New Stations................ 5,743 -- (14,777) -- (11,752) --
Other Operations (2)......... 1,165 882 66 (183) 66 (183)
============== ============= ============== ============== ============== ==============
Total combined operations......... 52,822 37,879 (9,311) 4,599 (8,951) 3,636
============== ============= ============== ============== ============== ==============
</TABLE>
SELECTED ATTRIBUTABLE FINANCIAL INFORMATION (1)
(unaudited)
($000s)
<TABLE>
<CAPTION>
Three months Ended March 31,
----------------------------------------------------------------------------------------
Economic
Interest (3) Net Revenue EBITDA Broadcast Cash Flow
--------------------------- --------------------------- --------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
CNTS................... 99% 19,879 20,458 8,060 8,180 6,760 7,109
PRO TV................. 66% 5,119 3,265 (1,624) (681) (1,511) (211)
Markiza TV............. 80% 6,218 4,502 583 (102) (314) (876)
POP TV................. 85.3% 3,142 2,278 (1,293) (892) (972) (601)
Studio 1+1 Group....... 50% 3,311 1,543 254 (638) (136) (622)
------------- ------------- ------------- ------------- ------------- -------------
Total Continuing Stations... 37,669 32,046 5,980 5,867 3,827 4,799
TVN Sp.zo.o./Federation 50% 2,334 -- (6,124) -- (3,776) --
TV3.................... 89% 957 -- (2,251) -- (3,741) --
------------- ------------- ------------- ------------- ------------- -------------
Total New Stations.......... 3,291 -- (8,375) -- (7,517) --
Other operations (2) 1,165 882 66 (183) 66 (183)
============= ============= ============= ============= ============= =============
Total attributable operations 42,125 32,928 (2,329) 5,684 (3,624) 4,616
============= ============= ============= ============= ============= =============
</TABLE>
(1) Important information about these tables appears under the heading
"Selected Combined and Attributable Financial Information" immediately
preceding this table.
(2) Other operations include Radio Alfa and Videovox.
(3) Economic interest as of March 31, 1998. For comparison between the three
months ended March 31, 1998 and the same period in 1997, all results in this
table are pro forma as if such percentages had also been in place during the
three months ended March 31, 1997
Page 14
<PAGE>
EBITDA
The total combined EBITDA for the Continuing Stations increased by
$618,000 from $4,782,000 for the first quarter of 1997 to $5,400,000 for the
first quarter of 1998. The increase was attributable to improvements in EBITDA
at Markiza TV and the Studio 1+1 Group, offset in part by a higher negative
EBITDA at PRO TV and POP TV and to a decrease in CNTS's EBITDA due to the
devaluation of the Czech koruna.
The Studio 1+1 Group recorded EBITDA of $507,000 for the first
quarter of 1998 compared to negative EBITDA of $1,275,000 for the first
quarter of 1997. Net revenues more than doubled due to higher advertising
rates which were achieved, in part, because of an increase in Studio 1+1's
audience share. Studio 1+1 began operating as a CME station in January 1997
and, as a result, the first quarter 1997 results did not reflect full
production and staff levels.
Markiza TV recorded EBITDA of $729,000 for the first quarter of 1998,
compared to negative $128,000 in the first quarter of 1997. Net revenues
increased by $2,144,000, or 38%, reflecting Markiza TV's market leadership in
both ratings and advertising sales revenues. An increase in total operating
expenses of 22% is the result of increased production costs incurred to meet
relatively high original production requirements in the Slovak Republic. In
addition, Markiza TV commenced broadcasting in August 1996 and its financial
results for the first quarter of 1997 reflect its early phase of development.
PRO TV's EBITDA decreased by $1,429,000 to negative $2,461,000 for
the first quarter of 1998. Although net revenues increased by $2,809,000, or
57%, this increase was offset by increases in station expenses. Growth in net
revenues is a result of PRO TV's increased audience share and the growth of
the overall television advertising market in Romania. Increased demand for
locally produced programming resulted in higher production costs as PRO TV's
introduction of successful game shows and other entertainment formats
continued in the first quarter of 1998. Increased selling, general and
administrative expenses were the result of administrative and marketing expenses
related to the addition in February 1998 of the new second channel, Acasa TV,
expansion of network affiliates, and diversification into the production and
post-production businesses. In addition, programming rights amortization
increased as a result of increased competition, which has caused the price of
acquired programming to approximately double over the past year.
POP TV's EBITDA decreased by $470,000 to negative $1,516,000 for the
first quarter of 1998. An increase in net revenues of $1,013,000, or 38%, was
offset by increases in station expenses. Growth in net revenues is a result of
POP TV's increased audience share and the growth of the overall television
advertising market in Slovenia. Amortization of programming rights increased
as a result of higher prices for acquired programming in Slovenia and the
addition of the second channel, Gajba TV. Increased audience demand for
locally produced programming resulted in higher production costs. In addition,
POP TV's expenses increased due to technical expansion and the addition of
marketing costs related to the new second channel, Gajba TV, which was
launched in October 1997.
Page 15
<PAGE>
CNTS's EBITDA decreased by $122,000, or 2%, to $8,141,000 for the
first quarter of 1998 primarily as a result of the devaluation of the Czech
koruna against the United States dollar. The koruna devaluation was
particularly large in the second and third quarters of 1997. CNTS's EBITDA in
local currency increased 19% primarily due to a 17% increase in spot
advertising sales, offset in part by a 16% increase in costs. Cost increases
were mainly attributable to higher salary and production costs as a result of
increased local production in response to audience demand. CNTS's United
States dollar EBITDA was approximately $1,690,000 lower than it would have been
if the Czech koruna had maintained its value against the United States dollar
since the first quarter of 1997.
The new television operations, TVN in Poland and TV3 in Hungary,
which commenced broadcasting in October 1997, recorded negative EBITDA of
$12,248,000 and $2,529,000, respectively, for the first quarter of 1998
primarily as a result of these operations being in an early phase of
development.
Total combined EBITDA decreased by $13,910,000 from $4,599,000 for
the first quarter of 1997 to negative $9,311,000 for the first quarter of
1998. As described above, this decrease was primarily due to negative EBITDA
at the Company's new operations in Poland and Hungary, as well as EBITDA
decreases at PRO TV, POP TV and CNTS. These decreases were partially offset by
increases in EBITDA at the Studio 1+1 Group and Markiza TV.
Broadcast Cash Flow
Total combined broadcast cash flow from Continuing Stations decreased
by $1,084,000 from $3,819,000 for the first quarter 1997 to $2,735,000 for the
first quarter of 1998. Broadcast cash flow was negatively impacted by
significantly higher programming payments at PRO TV and POP TV for the first
quarter of 1998 compared to the same period in 1997. CNTS's broadcast cash
flow decreased by $353,000, or 5%, due to the devaluation of the Czech koruna
against the United States dollar. This decrease was partly offset by improved
broadcast cash flow at Markiza TV and the Studio 1+1 Group.
Total combined broadcast cash flow decreased by $12,587,000 from
$3,636,000 for the first quarter of 1997 to negative $8,951,000 for the first
quarter of 1998. The decrease was primarily due to negative broadcast cash
flow from the new television operations in Poland and Hungary, which together
recorded combined negative broadcast cash flow of $11,752,000.
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 wholly-owned subsidiaries and the results of
CNTS, which operates Nova TV, PRO TV, POP TV, Federation, TV3, Videovox
(wholly-owned since May 1997) and Radio Alfa, and separately set forth the
minority interests attributable to other owners of such companies . The
results of Markiza TV, the Studio 1+1 Group, TVN Sp.zo.o., FFF, SFF and 1A TV
are accounted for using the equity method, which reflects the
Page 16
<PAGE>
Company's share of the net income or losses in those operations. 1A TV
initiated a bankruptcy proceeding in May 1997. The Company terminated its
ownership interests in FFF and SFF as of December 31, 1997. The Company
records other investments at the lower of cost or market value.
Foreign Currency
The Company and its subsidiaries generate revenues primarily in Czech
korunas ("Kc"), Romanian lei ("ROL"), Slovenian tolar ("SIT"), Slovak korunas
("Sk"), Hungarian forints ("HUF"), Ukrainian hryvna ("Hrn"), Polish zloty
("ZI") and German marks ("DM"), and incur substantial operating expenses in
those currencies. The Romanian lei, Slovenian tolar, Ukrainian hryvna and
Slovak koruna are managed currencies with limited convertibility. The Company
also incurs operating expenses for acquired programming in United States
dollars and other foreign currencies. For entities operating in economies
considered non-highly inflationary, including CNTS, POP TV, Markiza TV,
Videovox, Radio Alfa, Federation, TVN Sp.zo.o., TV3 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, monetary assets are translated at
current exchange rates and translation adjustments are included in the
determination of net income. Currency translation adjustments relating to
transactions of the Company in currencies other than the functional currency
of the entity involved are reflected in the operating results of the Company.
The exchange rates at the end of and for the periods indicated are
shown in the table below.
<TABLE>
<CAPTION>
Balance Sheet Income Statement
------------------------------------- ---------------------------------
Average for the three months
At March 31, At December ending March 31,
1998 31, 1997 % Change 1998 1997 % Change
---- -------- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Czech koruna equivalent of $1.00 33.68 34.64 2.8 34.43 28.51 (20.8)
German mark equivalent of $1.00 1.85 1.80 (2.7) 1.82 1.66 (9.5)
Hungarian forint equivalent of $1.00 214 204 (4.9) 209 169 (23.7)
Polish zloty equivalent of $1.00 3.45 3.52 2.0 3.51 2.98 (17.8)
Romanian lei equivalent of $1.00 8,478 8,023 (5.7) 8,222 6,196 (32.7)
Slovak koruna equivalent of $1.00 35.06 34.78 (0.8) 35.13 32.78 (7.2)
Slovenian tolar equivalent of $1.00 172.67 169.18 (2.1) 171.94 152.12 (13.0)
Ukrainian hryvna equivalent of $1.00 2.04 1.90 (7.3) 1.97 1.86 (6.0)
</TABLE>
The Company's results of operations and financial position during the
first quarter of 1998 were impacted by changes in foreign currency exchange
rates since December 31, 1997.
Page 17
<PAGE>
In limited instances, the Company enters into forward foreign
exchange contracts and purchases foreign currency options to hedge foreign
currency transactions for periods consistent with its identified exposures.
Premiums on foreign currency options are amortized over the option period
being hedged. At March 31, 1998, there were eight forward exchange contracts
outstanding for the purchase, in aggregate, of $4,500,000 by CNTS and the sale
of Czech korunas. These contacts mature by August 1998. A foreign exchange
loss of Kc 5,439,000 ($161,000) resulting from the revaluation of these
contracts at the quarter end exchange rate was recorded in 1998 and is
reflected in the accompanying Consolidated Financial Statements. No material
exposure exists at March 31, 1998 as a result of these contracts.
Results of Operations
Quarter ended March 31, 1998 compared to Quarter ended March 31,1997
The Company's net revenues increased by $8,844,000, or 30%, to
$38,009,000 for the first quarter of 1998 from $29,165,000 for the first
quarter of 1997. The increase is attributable to the addition of revenues
generated by the Company's new operations in Poland and Hungary, as well as
increased revenues at PRO TV and POP TV. This increase was offset by a
$585,000 decrease in CNTS's revenues due to the devaluation of the Czech
koruna against the United States dollar.
Federation and TV3, which were not included in the Company's 1997
first quarter results, recorded net revenues of $4,249,000 and $1,075,000,
respectively, for the first quarter of 1998.
PRO TV's net revenues increased by 2,809,000, or 57%, to $7,756,000
and POP TV's net revenues increased by $1,013,000, or 38%, to $3,684,000. PRO
TV's and POP TV's net revenues improved due to the growth in their respective
television advertising markets and to increases in PRO TV's and POP TV's
audience shares.
CNTS's net revenues decreased by $585,000, or 3%, to $20,080,000 for
the first quarter of 1998 from $20,665,000 for the first quarter of 1997. The
decrease in CNTS's United States dollar net revenues is due to the 21%
devaluation of the Czech koruna against the United States dollar from the
first quarter of 1997 to the first quarter of 1998. Measured in local
currency, CNTS's net revenues increased by Kc 102,195,000, or 17%. CNTS's
United States dollar net revenues were approximately $3,585,000 lower than
they would have been if the Czech koruna had maintained its value against the
United States dollar since the first quarter 1997.
Total station operating costs and expenses increased by $23,007,000,
to $45,489,000 for the first quarter of 1998 from $22,482,000 for the first
quarter of 1997. The increase in total station operating costs and expenses is
primarily attributable to the addition of station operating costs and expenses
(including amortization of program rights), of Federation and TV3 of
$16,855,000 and $2,955,000, respectively. The increase is also attributable to
increases in operating costs and expenses at PRO TV of $3,155,000 to
$8,274,000 for the first quarter of 1998. PRO TV's operating costs and
expenses rose primarily as a result of increased
Page 18
<PAGE>
expenses related to local production in response to increasing audience demand
for local programming and, to a lesser extent, as a result of increased
programming amortization costs, which reflect increased prices of acquired
programming and the launch of the second channel Acasa TV.
Station selling, general and administrative expenses increased by
$3,911,000 to $8,240,000 for first quarter of 1998 from $4,329,000 for the
first quarter of 1997. The increase in station selling, general and
administrative expenses is partly attributable to the addition of Federation's
and TV3's selling, general and administrative expenses of $1,232,000 and
$783,000, respectively. This increase was also attributable to an increase at
PRO TV of $1,726,000 as a result of administrative and marketing expenses
related to the addition of Acasa TV, expansion of network affiliates and
diversification into the production and post production businesses. To a lesser
extent, the increase in station selling, general and administrative expenses was
attributable to an increase at POP TV of $604,000 to $1,326,000 for the first
quarter of 1998 primarily as a result of higher marketing costs in a response to
stronger competition and promotion of the new second channel, Gajba TV.
Corporate operating costs and development expenses for the first
quarter of 1998 and 1997 were $7,190,000 and $4,575,000, respectively, an
increase of $2,615,000. The increase was attributable to expansion of operations
in Poland and Hungary, costs of a back-up satellite for certain of the
Company's stations and costs related to the Company's exit from Germany.
Amortization of goodwill and allowance for development costs was
$2,529,000 and $1,997,000 for the first quarter of 1998 and 1997,
respectively. This increase was primarily attributable to the amortization of
goodwill related to the Company's purchase of a 5.8% economic interest in CNTS
in August 1997 (the "Second 1997 CNTS Purchase").
As a result of the above factors, the Company generated an operating
loss of $25,439,000 for the first quarter of 1998 compared to an operating
loss of $4,218,000 for the first quarter of 1997.
Equity in loss of unconsolidated affiliates decreased by $5,742,000
to $1,027,000 for the first quarter of 1998 from $6,769,000 for the first
quarter of 1997. This is a result of the Company's decision to terminate its
ownership interests in German broadcast operations as of December 31, 1997, as
well as improvements in the operations of Markiza TV and the Studio 1+1 Group.
Loss on impairment of investments in unconsolidated affiliates of
$20,707,000 for the first quarter of 1997 was the result of the write-down of
the Company's investments in Germany. During the first quarter of 1998, the
Company did not record any loss on impairment of investments in unconsolidated
affiliates.
Interest and other income decreased by $488,000 to $1,612,000 for the
first quarter of 1998 from $2,100,000 for the first quarter of 1997 as a
result of lower interest earned on cash balances.
Interest expense increased by $3,563,000 to $5,737,000 for the first
quarter of 1998 from $2,174,000 for the first quarter of 1997. This increase
was primarily
Page 19
<PAGE>
attributable to interest expense related to CME's $100,000,000 principal
amount 9.375% Senior Notes and DM 140,000,000 principal amount 8.125% Senior
Notes, each due 2004, issued in August 1997 (collectively, the "Senior
Notes").
The net foreign currency exchange gain of $139,000 for the first
quarter of 1998 is primarily attributable to the effect of a weaker Deutsche
mark on the Senior Notes obligations. Local operating currencies devalued
considerably against the United States dollar during the first quarter of 1997
when the company recorded a net foreign currency exchange loss of $2,071,000.
Provision for income taxes was $2,107,000 for the first quarter of
1998 and $1,911,000 for the first quarter of 1997. The increase was due to an
increase in CNTS's taxable income.
Minority interest in loss of consolidated Subsidiaries was $7,521,000
for the first quarter of 1998 and $762,000 for the first quarter of 1997. This
increase was primarily the result of the addition to the Company's operations
of Federation, which incurred losses.
As a result of these factors, the net loss of the Company was
$25,038,000 for the first quarter of 1998 compared to $34,988,000 for the
first quarter of 1997.
Liquidity and Capital Resources
Net cash used in operating activities was $24,220,000 in the first
quarter of 1998 compared to $2,660,000 in the same period in 1997. The
increase in net cash used in operating activities of $21,560,000 was primarily
the result of increased programming payments and operating losses of the
Company's new television operations in Poland and Hungary.
Net cash used in investing activities was $14,243,000 in the first
quarter of 1998 compared to $12,715,000 in the same period in 1997. The
increase was primarily attributable to the Second 1997 CNTS Purchase,
described below, as well as the acquisition of fixed assets at PRO TV offset,
in part, by the cessation of funding of 1A TV in Germany in May 1997.
Net cash used in financing activities for the first quarter of 1998
was $6,041,000 compared to $3,009,000 for the same period in 1997. The
increase was primarily the result of principal payments made in connection
with the Additional CNTS Purchase, described below, as well as the timing of
CNTS's dividend payments to minority shareholders.
In August 1997, CME issued the Senior Notes, which raised net
proceeds of approximately $170,000,000 (the "Senior Notes Offering"). The
Senior Notes are denominated in United States dollars, in part, and in German
marks, in part. The United States dollar denominated Senior Notes bear
interest at a rate of 9.375% per annum, and the German mark denominated Senior
Notes bear interest at a rate of 8.125% per annum. The principal amount of the
Senior Notes is repayable on their maturity date, August 15, 2004. The
indentures governing the Senior Notes contain certain restrictions relating to
the ability of CME and its Subsidiaries and affiliates to
Page 20
<PAGE>
incur additional indebtedness, incur liens on assets, make investments in
unconsolidated companies, declare and pay dividends (in the case of CME), sell
assets and engage in extraordinary transactions.
In May 1997, CNTS declared a total dividend of Kc 495,000,000
($13,665,000), of which the Company was paid Kc 150,150,000 ($3,334,000) in
June 1997, Kc 115,500,000 ($3,522,000) in November 1997 and Kc 115,500,000
($3,313,000) in January 1998. The remainder of the total dividend was paid to
minority shareholders.
In May 1998, subject to the formal approval of CNTS's shareholders,
CNTS declared a total dividend of Kc 550,000,000 ($16,330,000), to be paid in
two installments during 1998. The Company's voting power is sufficient to
compel CNTS to make distributions.
As a result of the factors described above, the Company had cash and
cash equivalents of $61,926,000 at March 31, 1998 (compared to $106,188,000 at
December 31, 1997) and marketable securities of $70,000 at March 31, 1998
(compared to $69,000 at December 31, 1997).
The Company has executed a term sheet with ING Bank N.V. ("ING Bank")
for a $35 million secured revolving credit facility anticipated to have a term
of up to three and one-half years to fund working capital requirements, as
well as operating and capital expenditures (the "Proposed ING Credit
Facility"). The Proposed ING Credit Facility is expected to be incurred by a
subsidiary. The availability of the Proposed ING Credit Facility is subject to
definitive documentation and satisfaction of various conditions.
On August 11, 1997, the Company made the Second 1997 CNTS Purchase
when it purchased a 5.8% interest in CNTS from certain of the partners of CET
21 for a purchase price of $28,537,000, to be paid in installments through
February 15, 2000. As of March 31, 1998, the Company had paid $17,912,000 of the
purchase price and is obligated to make further payments of $2,750,000 during
1998, $5,313,000 during 1999, and $2,562,000 during 2000. Each further payment
is subject to increase to an amount equal to the value of such payment as if it
had been invested in CME's Class A Common Stock at a purchase price of $23.375
per share.
On August 1, 1996, the Company entered into the Additional CNTS
Purchase for the purchase of CS Bank's 22% economic interest and virtually all
of CS Bank's voting rights in CNTS for a purchase price of Kc 1 billion
($36,590,000). The Company also entered into a loan agreement with CS Bank to
finance 85% of the purchase price. The principal outstanding at March 31, 1998
was Kc 700,700,000 ($20,805,000). Quarterly repayments on the loan are
required in the amount of Kc 22,500,000 ($668,000) during the period from May
1998 through November 1998, Kc 42,500,000 ($1,262,000) during the period from
February 1999 through May 2002, and Kc 37,500,000 ($1,113,000) in August 2002.
The Company expects CNTS's future cash requirements to continue to be
satisfied through operating cash flows and available borrowing facilities.
CNTS has a line of credit with CS Bank for up to Kc 250,000,000 ($7,423,000)
bearing interest at a rate 0.5% over the Prague Interbank Offer Rate
("PRIBOR"). In October 1997,
Page 21
<PAGE>
CNTS entered into a Kc 500,000,000 ($14,846,000) line of credit with ING Bank.
The line of credit, which may be drawn in Czech koruna, German marks or United
States dollars, bears interest at a rate of 0.5% over the interbank offered
rate for the applicable currency and matures in October 1999. CNTS had no
borrowings under these facilities at March 31, 1998. The facilities are
secured by CNTS's equipment, vehicles and receivables.
In June 1997, CEDC Praha s.r.o. ("CEDC Praha"), which owned the
facility that Nova TV uses as its main studios and principal offices (the
"Nova Facility"), terminated the capital lease pursuant to which CEDC Praha
leased the Nova Facility to CNTS, and entered into an agreement with CNTS
pursuant to which (i) CEDC Praha assigned the Nova Facility to CNTS and (ii)
CNTS assumed CEDC Praha's obligations under a loan from CS Bank (the "CS
Loan") secured by a mortgage on the Nova Facility. The CS Loan provides for
quarterly principal payments of Kc 16,500,000 ($490,000), plus interest at
three-month PRIBOR plus 1.0%, to be paid through December 1999. As of March
31, 1998, the outstanding balance under the CS Loan was Kc 109,500,000
($3,251,000).
In February 1998, Markiza TV entered into two revolving credit
facilities. The first facility consists of a $3,000,000 line of credit from
Bank Austria which matures in March 2001 and bears interest at a rate of 1.5%
over LIBOR. The second facility consists of an Sk 100,000,000 ($2,852,000)
line of credit from Bank Austria which matures in September 2000 and bears
interest at a rate of 0.5% over the Bratislava Interbank Offer Rate. These
facilities are secured by Markiza TV's land and buildings. As of March 31,
1998, Markiza TV had no borrowings under these facilities.
PRO TV has two borrowing facilities with Tiriac Bank in Romania. The
first facility consists of a $2,000,000 line of credit and the second facility
consists of a $4,000,000 long-term loan. Beginning April 1998, both facilities
bear interest at 10% per annum. The line of credit will be repaid in monthly
installments through December 1999 and the long-term loan will be repaid in
monthly installments through February 2001. At March 31, 1998, $1,940,000 and
$3,854,000 were outstanding under the credit facility and the long-term loan,
respectively. These facilities are secured by PRO TV's equipment and vehicles.
TVN Sp.zo.o. has borrowings of $14,100,000 under four short-term
bridge loan agreements with three Polish banks. Three loans with $9,341,000 in
the aggregate outstanding at March 31, 1998 are guaranteed by the Company. The
fourth loan for $4,760,000 is guaranteed by the Company's partner in Poland,
ITI. These loans are drawn in Polish zloty and United States dollars and bear
interest at LIBOR and WIBOR (Warsaw Interbank Offer Rate) plus 2.15% per
annum. During the first quarter, Federation repaid a $3,500,000 short-term
bridge loan that was outstanding at December 31, 1997. It is anticipated that
the remaining loans will be repaid by TVN Sp.zo.o. and Federation from a
$30,500,000 revolving credit facility, currently being negotiated with a
syndicate of Polish banks. Since December 31, 1997, the Company has advanced
$12,000,000 to its operations in Poland. Future shareholder funding for the
Poland operations is expected to be shared by the Company and ITI and the
Company expects to fund approximately $30,000,000 before the end of 1998.
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TV3 has borrowings of HUF 279,000,000 ($1,304,000) from a local
Hungarian bank. The loan requires quarterly repayments from March 1999 until
December 2000 and is secured by pledges of certain fixed assets of TV3. The
Company has loaned $1,384,000 to TV3 since December 31, 1997 and expects to
loan an additional $1,000,000 during 1998. The Company has made approximately
$7,747,000 in programming payments on behalf of TV3 since December 31, 1997
and has additional programming commitments for TV3 in 1998 and 1999 of
approximately $14,191,000 and $6,034,000, respectively.
The laws under which CME's operating Subsidiaries are organized
provide generally that dividends may be declared by the partners or
shareholders out of yearly profits subject to the maintenance of registered
capital, required reserves and after the recovery of accumulated losses. In
the case of the Company's Dutch and Netherlands Antilles subsidiaries, the
Company's voting power is sufficient to compel the making of distributions.
The Company's voting power is sufficient to compel CNTS to make distributions.
In the case of PRO TV, distributions may be paid from the profits of PRO TV
subject to a reserve of 5% of annual profits until the aggregate reserves
equal 20% of PRO TV's registered capital. A majority vote can compel PRO TV to
make distributions. There are no legal reserve requirements in Slovenia. In
the case of Markiza TV, distributions may be paid from net profits subject to
an initial reserve requirement of 10% of net profits until the reserve fund
equals 5% of registered capital. Subsequently, the reserve requirement is
equal to 5% of net profits until the reserve fund equals 10% of registered
capital. The Company's voting power in Markiza TV is not sufficient to compel
the distribution of dividends. The Company's voting power in the Studio 1+1
Group is not sufficient to compel the distribution of dividends. In the case
of Federation and TVN Sp.zo.o. in Poland, there are no legal reserve
requirements with respect to distributions. The Company does not have
sufficient voting power in Federation or TVN to compel the making of
distributions. In the case of TV3, the Company's voting interest is sufficient
to compel the payment of dividends. There are no legal reserve requirements
in Hungary.
Except for the Company's working capital requirements, the Company's
future cash needs will depend on the Company's financial performance and its
future acquisition and development decisions. The Company is actively
investing in its existing broadcast operations and might engage in the
development of additional broadcast operations. The Company incurs certain
expenses in identifying and pursuing broadcast opportunities before any
investment decision is made. The Company believes that its current cash
balances, cash generated from CNTS and local financing of broadcast operations
should be adequate to satisfy the Company's operating and capital requirements
for its current operations through 1998. To acquire additional broadcast
rights or to fund other significant investments, the Company would require
significant additional financing.
Year 2000 Issue
The Company is conducting a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000 issue
and is developing an implementation plan to resolve the issue. The Year 2000
problem is the result of computer programs being written using two digits
rather than four to define the applicable year. The Company presently believes
that the Year 2000 problem will not
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pose significant operational problems for the Company's computer systems.
However, management has not yet assessed the Year 2000 compliance costs and
related effect on the Company's earnings. Accounting rules require such costs
to be expensed.
Forward-looking Statements
Statements made in "Liquidity and Capital Resources" regarding future
investments in existing television broadcast operations, 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 described
in or contemplated by the forward-looking statements. Important factors that
contribute to such risks include the ability to acquire programming, the
ability to attract audiences, the rate of development of advertising markets
in countries where the Company currently operates and may in the future
operate and general market and economic conditions in these countries.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On April 30, 1997, Perekhid Media Enterprises Ltd. ("Perekhid") filed
a complaint in the Supreme Court of New York County, State of New York,
against CME and Ronald S. Lauder, the non-Executive Chairman of the Company's
Board of Directors. Perekhid alleged that the issuance of a license to the
Studio 1+1 Group pursuant to which Studio 1+1 has been broadcasting
programming on Ukrainian National Channel 2 ("UT-2"), constitutes a tortious
interference by CME and Mr. Lauder with a Perekhid contract with the Ukrainian
authorities for Perekhid to provide programming for and sell advertising time
on UT-2. Perekhid's complaint sought compensatory damages of $250 million,
punitive damages of $500 million, and an injunction against the Company and
Mr. Lauder to prevent the continuation of the alleged conduct. On July 2,
1997, CME and Mr. Lauder filed a motion to dismiss the complaint. On April 8,
1998, the Court dismissed the complaint on grounds of forum non-conveniens.
On March 18, 1998, TV Studio Information Service Ltd. ("TV SIS"), a
Ukrainian television broadcaster, filed a complaint in the Supreme Court of
Arbitration, Kiev, against the National Council on Television and Radio of
Ukraine and Studio 1+1, as a third party defendant, seeking to invalidate the
award of the broadcast license to Studio 1+1. TV SIS alleged that (i) the
broadcast license granted to Studio 1+1 in October 1996 was awarded in
violation of law, (ii) a three-hour increase in airtime granted to Studio 1+1
under the broadcast license in November 1997 was granted illegally, (iii)
Studio 1+1 has failed to comply with local content programming requirements,
and (iv) Studio 1+1 has exceeded foreign investment
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<PAGE>
limitations. On April 22, 1998, the Court dismissed TV SIS's complaint on the
merits and TV SIS may appeal within two months of the dismissal.
In January 1997, the Hungarian National Radio and Television
Commission awarded two national television broadcast licenses to two
consortia. The Company's consortium, IRISZ TV, was an unsuccessful bidder in
the license tender process. On July 4, 1997, IRISZ TV filed a complaint in the
Budapest Capital Court against the Hungarian National Radio and Television
Commission and the two successful consortia, alleging that the Hungarian
National Radio and Television Commission (i) violated the tender procedures in
connection with the acceptance of bids; (ii) violated the integrity and
fairness of the tender; and (iii) breached its own published guidelines in the
bid evaluation process. On March 25, 1998, the Court denied IRISZ TV's claims.
On May 8, 1998, IRISZ TV filed a notice of appeal with the Court.
In December 1997, TVN Sp.zo.o. acquired 22% of the economic and 9.68%
of the voting interests of Polskie Media S.A. for a purchase price of $3.2
million. The remaining shareholders refused to enter TVN Sp.zo.o into the
Polskie Media S.A. shareholder register on the grounds that the transfer to
TVN Sp.zo.o. did not meet the applicable requirements for such a transfer. On
January 30, 1998, TVN Sp.zo.o. instituted proceedings at the Voivodship
Economic Court in Warsaw requesting that the Court invalidate attempts by the
shareholders of Polskie Media S.A. to block the TVN Sp.zo.o. purchase. TVN
Sp.zo.o. has also requested that the Court order Polskie Media to enter TVN
Sp.zo.o. into the share register. TVN Sp.zo.o. has not been notified of a
hearing date.
Certain unsuccessful bidders for the licenses of northern Poland and
the cities of Warsaw and Lodz have filed challenges to the awards of these
licenses to TVN Sp.zo.o. In addition, one unsuccessful bidder has challenged
the award of a regional license for central Poland to Polskie Media S.A. The
Supreme Administrative Court has joined all of these challenges into a single
proceeding, and scheduled a hearing for May 19, 1998.
In July 1996, the Company, together with MMTV and Tele 59, entered
into an agreement to purchase a 66% equity interest in Kanal A, a privately
owned television station in Slovenia (the "Kanal A Agreement"). Scandinavian
Broadcasting System SA ("SBS"), which claims to have certain rights to the
equity of Kanal A pursuant to various agreements, has challenged the validity
of the Kanal A Agreement in a United Kingdom court. The Court has enjoined
both SBS and the Company from taking certain actions either to enforce such
entity's claim to equity in Kanal A or to block the claim of the other entity
to equity in Kanal A. The Company has instituted an action in a Slovenian
court requesting that Slovenian courts resolve these claims. On April 6, 1998,
the Company filed a claim in the District Court in Koper, Slovenia against
Vladimir Polic to recover the purchase price paid to Mr. Polic for the Kanal A
shares, as well as lost revenues. The Court has not set a hearing date.
One of the owners of CET 21 has filed two claims against CET 21 in
the Regional Commercial Court in Prague. The claims, filed in December 1996
and May 1997, allege that CET 21 and the Czech Radio and Television Council
did not complete all required procedures for approving certain transfers of
CET 21 participation interests and request that such transfers and all general
meetings of CET
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21 following such transfers be invalidated. The claim filed in December 1996
was dismissed by the Court on April 27, 1998; the plaintiff has the right to
appeal. CET 21 has not been notified of a hearing date for the remaining
claim.
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 6. Exhibits and Reports on Form 8-K.
a) The following exhibits are attached:
10.1 Employment Agreement, dated as of March 23, 1998, between CME
Development Corporation and Michel Delloye.
10.2 Employment Agreement, dated as of March 23, 1998, between Central
European Media Enterprises Ltd. and Michel Delloye.
10.3 Agreement, dated as of March 25, 1998, among Central European Media
Enterprises Ltd., CME Development Corporation, CME Programming
Services Inc., The Acorn Consulting Group, Inc. and Leonard M.
Fertig.
27.01 Financial Data Schedule
b) No reports on Form 8-K were filed during the quarter ended March 31, 1998
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SIGNATURE
Pursuant to the requirements 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.
Date: May 15, 1998 /s/ Michel Delloye
------------------
Michel Delloye
Chief Executive Officer
(Duly Authorized Officer)
Date: May 15, 1998 /s/ John A. Schwallie
---------------------
John A. Schwallie
Chief Financial Officer
(Principal Financial Officer)
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<PAGE>
EXHIBIT INDEX
10.1 Employment Agreement, dated as of March 23, 1998, between CME
Development Corporation and Michel Delloye.
10.2 Employment Agreement, dated as of March 23, 1998, between Central
European Media Enterprises Ltd. and Michel Delloye.
10.3 Agreement, dated as of March 25, 1998, among Central European Media
Enterprises Ltd., CME Development Corporation, CME Programming
Services Inc., The Acorn Consulting Group, Inc. and Leonard M.
Fertig.
27.01 Financial Data Schedule
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EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of March 23, 1998 by and
between CME Development Corporation, a Delaware corporation (the "Company"), and
Michel Delloye ("Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to secure the services of
Executive as an employee, and Executive desires to accept such employment under
the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the Company and Executive hereby agree as follows:
1. Employment.
(a) Agreement to Employ. Upon the terms and subject to the conditions
of this Agreement, the Company hereby employs Executive, and Executive hereby
accepts employment by the Company.
(b) Term of Employment. The Company shall employ Executive for a term
commencing March 23, 1998 (the "Commencement Date") and ending March 23, 2003,
unless extended by a written agreement signed by both parties. The Company will
advise Executive at least six months prior to the end of the Term whether it
intends to extend the Term. The Term of this Agreement as extended as provided
herein is herein referred to as the "Term". The period commencing on the
Commencement Date and ending on the earlier of (i) the expiration of the Term,
or (ii) the date of Executive's termination of employment pursuant to Section
5(a) shall be referred to as the "Employment Period".
(c) No Conflict. Executive represents that he is entering into this
Agreement voluntarily and that his employment hereunder and compliance by him
with the terms and conditions of this Agreement will not conflict with or result
in the breach of any agreement to which he is a party or by which he may be
bound.
<PAGE>
2. Position and Duties.
(a) In general. Executive shall be employed as President and Chief
Executive Officer and shall perform such duties and services, consistent with
such position for the Company, as may be (i) specified in the By-Laws of the
Company or (ii) assigned to him from time to time by the Chairman of the Board
of Directors of Central European Media Enterprises Ltd. (the "Chairman"). The
duties of the Executive shall include serving as an officer or director or
otherwise performing services for any "Affiliate" of the Company as requested by
the Company. An "Affiliate" of any person means any entity that controls, is
controlled by or is under common control with such person.
(b) Full-time employment. During the Employment Period, and subject to
his obligations to Central European Media Enterprises Ltd., which is anticipated
to require two-thirds of his business time, Executive shall devote his full
business time to the services required of him hereunder, except for time devoted
to services required by him to be performed for any "Affiliate" of the Company,
5 weeks vacation time (but without duplication of any vacation time to which
Executive is entitled under any agreement with any Affiliate) and reasonable
periods of absence due to sickness, personal injury or other disability, and
shall use his best efforts, judgement, skill and energy to perform such services
in a manner consonant with the duties of his position and to improve and advance
the business and interests of the Company, provided, however, that Executive
shall perform such services under this Agreement exclusively within the United
Kingdom and the United States and Executive has entered into an employment
agreement with Central European Media Enterprises Ltd. for his services outside
of the United Kingdom and the United States. Executive shall not be engaged in
any other business activity which, in the reasonable judgment of the Chairman,
conflicts with the duties of the Executive under this Agreement. Executive shall
travel to such location or locations within the United Kingdom and the United
States as may be requested by the Company, or which Executive believes is
necessary or advisable, in the performance by Executive of his duties hereunder
or to the extent appropriate to improve and advance the interests of the Company
and its Affiliates.
3. Compensation.
(a) Base Salary. During the Employment Period, the Company shall pay
Executive a base salary at the annual rate of US$125,000 (the "Base Salary").
The Base Salary shall be payable in such installments (but not less frequent
than monthly) as the salaries of other executives of the Company are paid. The
Executive's base salary shall be reviewed annually by the Compensation Committee
of the Board of Directors of
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<PAGE>
Central European Media Enterprises Ltd. (the "Compensation Committee"), and
shall be increased by not less than $3,500 per annum, or such greater amount as
the Compensation Committee may determine in its sole discretion.
(b) Annual Bonus. The Company shall provide Executive with the
opportunity to earn an annual cash bonus at the level established for the Chief
Executive Officer under the Annual Bonus Plan for Executives and Officers
established under the Compensation Principles approved by the Board of Directors
of Central European Media Enterprises Ltd. (the "Board") on March 11, 1998.
Under the Annual Bonus Plan, Executive will be eligible to receive a bonus for
each full year of his employment equal to 75% % of his Base Salary if the
performance goals ("target") established by the Compensation Committee for such
year are met. Sixty percent (60%) of the annual bonus, if any, will be based on
the achievement of company-wide objectives established by the Compensation
Committee, and 40% on an evaluation of personal performance as determined by the
Compensation Committee. The actual bonus may range from zero (if 80% of the
established goals are not achieved) to 50% of Base Salary if performance is at
80% of target, 75% of Base Salary if performance is at 100% of target to a
maximum of 100% of Base Salary if performance is at or above 150% of target, in
each case interpolated for actual performance. Executive has been provided a
copy of the Compensation Principles.
4. Benefits, Perquisites and Expenses.
(a) Benefits. During the Employment Period, Executive shall be eligible
to participate in (i) each welfare benefit plan sponsored or maintained by the
Company, including, without limitation, each group life, hospitalization,
medical, dental, health, accident or disability insurance or similar plan or
program of the Company, provided that in any event Executive shall at the
Company's expense, be entitled to private medical insurance for himself, his
wife and dependent children, disability insurance and permanent health insurance
at the maximum permissible levels from time to time, and life insurance in an
amount commensurate with the life insurance offered to the other senior
executives of the Company, and (ii) each pension, profit sharing, retirement,
deferred compensation or savings plan sponsored or maintained by the Company, in
each case, whether now existing or established hereafter, to the extent that
Executive is eligible to participate in any such plan under the generally
applicable provisions thereof, provided that if Executive is also entitled to
any of such benefits under an agreement with an Affiliate, the benefits shall be
provided by the Company and its Affiliates to Executive in a manner that avoids
duplication. The Company may amend or terminate any such plan in its discretion.
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<PAGE>
(b) Perquisites. During the Employment Period, Executive shall be
entitled to home leave as specified in the Company's Employee Handbook, shall be
provided with a suitable car and driver, and shall also be entitled to receive
such perquisites as are generally provided to other senior officers of the
Company in accordance with the then current policies and practices of the
Company, provided that if Executive is also entitled to any of such benefits
under an agreement with an Affiliate, the benefits shall be provided by the
Company and its Affiliates to Executive in a manner that avoids duplication. For
each calendar month during the Employment Period that Executive maintains a
principal residence in the Greater London Metropolitan Area, Executive shall be
entitled to receive an annual expatriate premium of Pounds Sterling
(pound)67,500 to be paid in equal monthly installments, and subject to annual
increase based on the increase in the consumer price index (HICP) for the London
metropolitan area published by the Office of National Statistics for the
preceding year, or if such index is no longer available, such other generally
available index measuring changes in consumer purchasing power (in the London
metropolitan area or nationally) designated by the Compensation Committee, or
such other amount as may be agreed to by Executive and the Compensation
Committee. The Company shall pay, or reimburse Executive, for the actual and
reasonable costs of moving Executive, his family and their household goods from
Bruxelles, Belgium to London, England (including customary realty and legal fees
on the disposition of Executive's principal residence in Belgium); the actual
and reasonable relocation counseling for Executive's spouse; and the actual and
reasonable costs of moving Executive, his family and their household goods back
from London to Bruxelles, Belgium upon expiration of Executive's employment for
any reason, or to another location requested by Executive (or in the event of
his death, his surviving spouse), provided the cost of moving to such other
location does not exceed the reasonable cost of moving to Bruxelles, Belgium. In
addition, at the end of the Employment Period, the Company shall, if requested
by Executive, assume responsibility for the lease of Executive's residence in
greater metropolitan London, provided the Company shall not be obligated to
assume responsibility for such lease for a period greater than one year from the
end of the Employment Period or for any period during which such residence is
occupied. If Executive accepts employment in England following termination of
his employment with the Company, the Company shall not be responsible for the
costs of relocating Executive thereafter.
(c) Business Expenses. During the Employment Period, the Company shall
pay or reimburse Executive for all reasonable expenses incurred or paid by
Executive in the performance of Executive's duties hereunder, upon presentation
of expense statements or vouchers and such other information as the Company may
require and in accordance with the generally applicable policies and procedures
of the Company.
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<PAGE>
(d) Indemnification. The Company shall indemnify Executive and hold
Executive harmless from and against any claim, loss or cause of action arising
from or out of Executive's performance as an officer, director or employee of
the Company or any of its subsidiaries or in any other capacity, including any
fiduciary capacity, in which Executive serves at the request of the Company to
the maximum extent permitted by applicable law and the Company's Articles of
Incorporation and By-Laws. If any claim is asserted against Executive with
respect to which Executive reasonably believes in good faith he is entitled to
indemnification, the Company shall either defend Executive or, at its option,
pay Executive's legal expenses (or cause such expenses to be paid) on a
quarterly basis, provided that Executive shall reimburse the Company for such
amounts, plus simple interest thereon at the 90-day United States Treasury Bill
rate as in effect from time to time, compounded annually, if Executive shall be
found by a court of competent jurisdiction not to have been entitled to
indemnification.
(e) Withholding. Any payments provided for herein shall be reduced by
any amounts required to be withheld by the Company from time to time under any
applicable income tax or other law, rule or regulation.
(f) Currency of Payment. Payments provided for herein shall be in the
currency stated, or in such other mutually beneficial currency as the Company
and Executive shall agree from time to time sufficiently in advance of payment
to permit timely payment. Payment in a currency other than in the currency
stated shall be based at the current exchange rate at the time of payment.
Notwithstanding the foregoing, if a single European currency ("euro") replaces
the national currencies of participating members of The Treaty on European Union
and Final Act of Feb. 7, 1992, 31 I.L.M. 247 (entered into force Nov. 1, 1993),
or other similar or successor treaty, payments hereunder shall, at the election
of Executive, thereafter be made in such common currency (euro), based upon the
exchange rate at the time of such election.
(g) Right of Offset. If the Company makes any payment to a third party
on Executive's behalf or as guarantor of an obligation of Executive, the Company
shall be entitled to seek reimbursement from the Executive of any such amounts
and/or to offset any such amounts against any payments by the Company to
Executive hereunder.
5. Termination of Employment.
(a) Termination of the Employment Period. The Employment Period shall
end upon the earliest to occur of (i) a termination of Executive's employment on
account of Executive's death, (ii) a Termination due to Disability or
Retirement, (iii) a Termination for Cause, (iv) a Termination Without Cause, (v)
a Termination for Good
5
<PAGE>
Reason, (vi) a Termination Without Good Reason, or (vii) the expiration of the
Term. The Company or the Executive may initiate a termination in any manner
permitted hereunder by giving the other party written notice thereof (the
"Termination Notice"). The effective date (the "Termination Date") of any
termination shall be deemed to be the later of (i) in the case of a Termination
Notice from Executive, 45 days after the receipt by the Company of the
Termination Notice, (ii) the date on which the Termination Notice is given, or
(iii) the date specified in the Termination Notice; provided, however, that in
the case of the Executive's death, the Termination Date shall be the date of
death. Upon termination of his employment for any reason, Executive will
immediately resign from all positions that he holds with the Company and its
Affiliates.
(b) Payments Upon Certain Terminations.
(i) Termination for Good Reason or Termination Without Cause.
In the event that Executive's employment is terminated by Executive for Good
Reason or by the Company Without Cause, the Company shall pay Executive his
Earned Salary, Vested Benefits, and a Severance Benefit (as such terms are
hereinafter defined).
(ii) Termination due to Death. In the event of the termination
of Executive's employment due to Executive's death, the Company shall pay
Executive's estate Executive's Earned Salary, Vested Benefits, and shall provide
to Executive's surviving spouse and children Executive's Base Salary (at the
rate in effect on the date of his death) and the health insurance provided in
Section 4(a)(i) for a period of 12 months and the Relocation Payment.
(iii) Termination due to Disability or Retirement. In the
event of termination of Executive's employment by the Company due to Disability
or a Termination due to Retirement, the Company shall pay Executive his Earned
Salary and Vested Benefits as provided in Section 3(c), plus, in the event of
termination due to Disability, to the Executive or his estate his Base Salary at
the Termination Date on a monthly basis, the benefits provided in Section
4(a)(i) for 12 months and the Relocation Payment. In the event that Executive's
employment with the Company is terminated due to Disability, Executive's
entitlement to continuation of his Base Salary under this subsection (iii) shall
be reduced by the amount of any Company sponsored (and paid for) disability
benefits paid to Executive.
(iv) Termination Without Good Reason. In the event of a
termination of Executive's employment by Executive Without Good Reason, the
Company shall pay Executive his Earned Salary and Vested Benefits.
6
<PAGE>
(v) Termination for Cause. In the event of a termination of
Executive's employment by the Company for Cause, the Company shall pay Executive
his Earned Salary and Vested Benefits.
(c) Timing of Payments. Earned Salary shall be paid in a single lump
sum as soon as practicable, but in no event more than 60 days, following the end
of the Employment Period. Vested Benefits shall be payable in accordance with
the terms of the plan, policy, practice, program, contract or agreement under
which such benefits have accrued except as otherwise expressly modified by this
Agreement. Severance Benefits shall be paid in equal monthly installments.
(d) Definitions. The following capitalized terms have the following
meanings:
"Earned Salary" means any Base Salary earned, but unpaid, for
services rendered to the Company on or prior to the date on which the Employment
Period ends.
"Normal Retirement Age" means the first day of the month
following Executive attaining age 65.
"Relocation Payments" means an amount equal to the cost of
relocating Executive and his family from the United Kingdom as provided in
Section 4(b).
"Severance Benefit" means Executive's minimum Base Salary for
the remainder of the Term.
"Termination due to Disability" means a termination of
Executive's employment by the Company because Executive has been incapable of
substantially fulfilling the positions, duties, responsibilities and obligations
set forth in this Agreement because of physical, mental or emotional incapacity
resulting from injury, sickness or disease for a period of (i) at least six
consecutive months or (ii) a total of more than 183 days in any twelve month
period. Any question as to the existence, extent or potentiality of Executive's
disability upon which Executive and the Company cannot agree shall be determined
by a qualified, independent physician selected by the Company and reasonably
acceptable to Executive. The determination of any such physician shall be final
and conclusive for all purposes of this Agreement. Executive or his legal
representative or any adult member of his immediate family shall have the right
to present to such physician such information and arguments as to Executive's
disability as he, she or they deem appropriate, including the opinion of
Executive's personal physician.
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"Termination due to Retirement" means termination of
employment by Executive, or termination of Executive's employment by the Company
other than a Termination for Cause, on or after Executive's Normal Retirement
Age.
"Termination for Cause" means a determination by a majority of
the Board to terminate Executive's employment by the Company due to (i)
Executive's conviction of a felony or the entering by Executive of a plea of
nolo contendere with respect to a charged felony, (ii) Executive's gross
negligence, recklessness, dishonesty, fraud, willful malfeasance or willful
misconduct in the performance of the services con templated by this Agreement,
(iii) willful misrepresentation to shareholders or directors which is injurious
to the Company; (iv) a willful failure without reasonable justification to
comply with a reasonable written order of the Chairman; or (v) a willful and
material breach of Executive's duties or obligations under this Agreement.
Notwithstanding the foregoing, a termination shall not be treated as a
Termination for Cause unless the Company shall have delivered a written notice
to Executive stating that it intends to terminate his employment for Cause not
less than seven days following the giving of such notice and specifying the
factual basis for such termination, and the event or events that form the basis
for the notice, if capable of being cured, shall not have been cured within the
period stated in the receipt of such notice.
"Termination for Good Reason" means a termination of
Executive's employment by Executive within 30 days following (i) a reduction in
Executive's annual Base Salary or bonus opportunity contemplated by Sections
3(a) and (b), (ii) a material reduction in Executive's positions, duties,
responsibilities or reporting lines from those described in Section 2 hereof;
(iii) a material breach of this Agreement by the Company, (iv) a permanent
relocation of Executive's principal office outside of the London metropolitan
area or (v) any termination of the Executive's employment with Central European
Media Enterprises Ltd. due to a "Termination Without Cause" by Central European
Media Enterprises Ltd. or a "Termination With Good Reason by Executive", as
those terms are defined in the employment agreement between the Executive and
Central European Media Enterprises Ltd. Notwithstanding the foregoing, a
termination shall not be treated as a Termination for Good Reason (x) if
Executive shall have consented in writing to the occurrence of the event giving
rise to the claim of Termination for Good Reason or (y) unless Executive shall
have delivered a written notice to the Company within 30 days of his having
actual knowledge of the occurrence of one of such events stating that he intends
to terminate his employment for Good Reason and specifying the factual basis for
such termination, and such event, if capable of being cured, shall not have been
cured within 30 days of the receipt of such notice.
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"Termination Without Cause" means any termination by the
Company of Executive's employment hereunder other than (i) a Termination due to
Disability, (ii) a Termination due to Retirement or (iii) a Termination for
Cause.
"Termination Without Good Reason" means any termination by
Executive of Executive's employment hereunder upon not less than three month's
notice to the Company other than (i) a termination due to Executive's death,
(ii) a Termination due to Retirement, (iii) a Termination for Good Reason, or
(iv) a Termination due to Disability.
"Vested Benefits" means amounts which are vested or which
Executive is otherwise entitled to receive under the terms of or in accordance
with any plan, policy, practice or program of, or any contract or agreement
with, the Company, at or sub sequent to the date of his termination without
regard to the performance by Executive of further services or the resolution of
a contingency and expenses incurred prior to termination of employment that are
reimbursable under Section 4(c).
(e) Full Discharge of Company Obligations. The amounts payable to
Executive pursuant to this Section 5 following termination of his employment
(including amounts payable with respect to Vested Benefits) shall be in full and
complete satisfaction of Executive's rights under this Agreement and any other
claims he may have in respect of his employment by the Company or any of its
subsidiaries. Such amounts shall constitute liquidated damages with respect to
any and all such rights and claims and, upon Executive's receipt of such
amounts, the Company shall be released and discharged from any and all liability
to Executive in connection with this Agreement or otherwise in connection with
Executive's employment with the Company and its subsidiaries, other than
Executive's rights to indemnification under Section 4(d).
6. Agreement Not to Compete With Company
(a) During the Employment Period and for a period of two years
thereafter, Executive shall not directly or indirectly own, manage, operate,
finance, join, control, advise, consult, render services to, have an interest or
future interest or participate in the ownership, management, operation,
financing or control of, or be employed by or connected in any manner with any
Competing Business (other than as a holder of common stock of the Company, and
not in excess of 1% of the outstanding voting shares of any other publicly
traded company). "Competing Business" means the business of licensing of
television or radio stations and provision of programming engaged in by the
Company or any Affiliate in any Russia, the former states of the U.S.S.R., or
any country in Central and Eastern Europe where the Company or an Affiliate
conducts such business at any time during the Term, provided that Competing
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Business shall not include any such business the consolidated revenues of which
are less than 5% of the Central European Media Enterprises Ltd.'s consolidated
revenues (in each case determined at the time Executive commences such
affiliation). Any opportunity directly or indirectly related to any business
engaged in by the Company, its subsidiaries and Affiliates of which Executive
becomes aware during the Term shall be deemed a corporate opportunity of the
Company, and Executive shall promptly make such opportunity available to the
Company.
(b) If, during the period of two years after expiration of the
Term, Executive or an Affiliate of Executive proposes to engage in what may be a
Competing Business, Executive shall so notify the Company in a writing which
shall fully set forth and describe in detail the nature of the activity which
may be a competitive Business, the names of the companies or other entities with
or for whom such activity is proposed to be engaged in by Executive or by an
Affiliate of Executive (the "Section 6 Notice"). If, within 30 days after
receipt by the Company of a Section 6 Notice, the Company shall fail to notify
Executive that it deems the proposed activity to be a Competitive Business, then
Executive shall be free to engage in the activities described in the Section 6
Notice without violation of Section 6(a). If, however, the Company notifies
Executive that the proposed activities constitute a Competitive Business, then
(i) Executive shall not engage in such Competitive Business during the two-year
period following expiration of the Term, and (ii) the Company shall pay
Executive, during such two-year period, in equal monthly installments, an amount
equal to his highest Base Salary; provided that the amount payable under this
Section 6(b) shall be reduced by the amount of Severance Benefit that Executive
is receiving for such period.
7. Confidential Information
(a) Without the prior written consent of the Company, Executive shall
not disclose at any time during the Employment Period or any time thereafter any
Confidential Information (as defined below) to any third person other than in
the course of fulfilling Executive's responsibilities under this Agreement
unless such Confidential Information has been previously disclosed to the public
by the Company or an Affiliate or is in the public domain (other than by reason
of Executive's breach of the provisions of this paragraph).
(b) "Confidential Information" is any non-public information pertaining
to the Company or an Affiliate, any of their businesses or the business or
personal affairs of Ronald S. Lauder ("Lauder") or his family and how any of
them conducts its or his business or affairs. "Confidential Information"
includes not only information disclosed by the Company or an Affiliate to
Executive, but information developed, created or
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learned by Executive during the course of or as a result of Executive's
employment with the Company. "Confidential Information" specifically includes
information and documents concerning the Company's and its Affiliates' methods
of doing business; research, telecommunications technology, its actual and
potential clients, transactions and suppliers (including the Company's or an
Affiliate's terms, conditions and other business arrangements with them); client
or potential client or transaction lists and billing; advertising, marketing and
business plans and strategies (including prospective or pending licensing
applications or investments in license holders or applicants); profit margins,
goals, objectives and projections; compilations, analyses and projections
regarding the Company, its Affiliates or any of its clients or potential clients
or their businesses; trade secrets; salary, staffing, management organization or
employment information; information relating to members of the Board and
management of the Company or an Affiliate; files, drawings or designs;
information regarding product development, marketing plans, sales plans or
manufacturing plans; operating policies or manuals, business plans, financial
records or packaging design; or any other financial, commercial, business or
technical information relating to the Company, an Affiliate, Lauder or his
family or information designated as confidential or proprietary that the
Company, an Affiliate or Lauder may receive belonging to others who do business
with any of them.
(c) Nothing herein shall prevent the disclosure by Executive of any
information required by an order of a court having competent jurisdiction or
under subpoena from a government agency, provided that, if Executive receives a
request for the disclosure of any Confidential Information pursuant to court
process or by a government agency, Executive shall immediately (and at the
latest within two business days) notify the Company of that request and
cooperate to the maximum extent authorized by law with the Company in protecting
the Company's and it Affiliates' interest in maintaining the confidentiality of
any Confidential Information.
8. No Disparaging Comments
Each of the parties hereto agrees not to make disparaging or derogatory comments
about the other party, members of the Board or Affiliates, except to the extent
required by law, and then only after consultation with the other party to the
maximum extent possible in order to maintain goodwill for each of the parties.
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9. Return of Company Property
Promptly (and at the latest within ten business days) following Executive's
termination of services, Executive shall:
(i) return to the Company all documents, records, notebooks,
computer diskettes and tapes and anything else containing the
Company's Confidential Information (as defined above), and any
other property or Confidential Information of the Company or
its Affiliates, including all copies thereof in Executive's
possession, custody or control, and
(ii) delete from any computer or other electronic storage medium
owned by Executive any of the proprietary or Confidential
Information of the Company or its Affiliates.
10. No Soliciting or Hiring Company Employees
During the Employment Period and for a two-year period thereafter, Executive
shall not directly or indirectly induce any employee of the Company or any
Affiliate, other than Executive's secretary or personal assistant, to terminate
employment with such entity, and during the Employment Period and for a one-year
period thereafter, shall not directly or indirectly, either individually or as
owner, agent, employee, consultant or otherwise, employ or offer employment to
any person who is or was within 9 months prior to the end of the Employment
Period employed by the Company or any Affiliate as an em ployee, other than
Executive's secretary or personal assistant.
11. Continuing Obligations Following Termination
Executive agrees that his obligations and restrictions with respect to noncom
petition, confidentiality, Company property, nondisparagement and
nonsolicitation, and the Company obligations to indemnify Executive under
Section 4(d), will continue to apply following the termination of Executive's
relationship regardless of the manner in which his relationship with the Company
is terminated, whether voluntarily, for Cause, for Good Reason, without Cause or
otherwise.
12. Arbitration of All Disputes
(a) Any dispute, controversy or claim between the Executive and the
Company or any of its officers, directors, employees or shareholders (who are
expressly made third-party beneficiaries of this agreement) arising out of,
relating to or in connection
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with this agreement, or the breach, termination or validity thereof, shall be
finally resolved by binding and non-appealable arbitration, before a single
arbitrator selected by the procedure set forth below, conducted in New York, New
York. To the extent practicable, any such arbitration shall be consolidated with
any other arbitration proceeding between Executive and any Affiliate of the
Company (if any).
(b) Either party may commence an arbitration proceeding by giving
written notice to the other party of its desire to arbitrate.
(c) The single arbitrator (the "Arbitrator") shall be selected from
among the New York City members of the New York Regional Panel of Distinguished
Neutrals (the "Panel") of the Center for Public Resources ("CPR") by mutual
agreement of the parties, or if the parties are unable to agree, by the
following means:
(A) The Company, on one hand, and Executive
on the other hand, shall simultaneously exchange lists each
containing the names of five members of their choice of the
Panel who have indicated a willingness to serve.
(B) If a single name appears on both lists,
that individual shall be appointed.
(C) If more than one name appears on both
parties' lists, the Arbitrator shall be selected from the
common names by mutual agreement of the parties or by the toss
of a coin.
(D) If the lists contain no names in common,
each party shall strike four names from the other party's list
and the Arbitrator shall be selected from the remaining two
names by mutual agreement of the parties or by the toss of a
coin.
(E) If the CPR ceases to have a Panel or it
is otherwise impossible to select the Arbitrator from the
Panel as contemplated by this Agreement, the Arbitrator shall
be selected by the President of the CPR in the manner that the
President deems closest to satisfying the purposes of this
Section, or, if such person is unable to do so, by the
President of the Association of the Bar of the City of New
York.
(d) The Arbitrator, after appropriate consultation with the parties,
shall (i) determine, in his or her sole discretion, the rules governing the
arbitration proceeding,
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including whether and to what extent the parties shall have any right to
pre-hearing discovery or other forms of disclosure, the manner of presentation
of arguments and/or evidence before or at any hearing, whether and to what
extent formal rules of evidence shall govern the proceeding and the parties'
rights following the proceeding, and (ii) be governed in exercising such
discretion by the goal of reaching a fair and reasonable decision in an
expeditious and efficient manner while endeavoring to streamline the process and
avoid undue litigation costs.
(e) The Arbitrator shall assess the costs of the proceeding (including
the prevailing party's reasonable attorney's fees) on any unsuccessful party to
the extent the Arbitrator concludes that such party is unsuccessful, unless he
or she concludes that matters of equity or important considerations of fairness
dictate otherwise.
(f) The Arbitrator shall be required to state his or her decision in
writing and may, but shall not be required to, elaborate on the reasons for such
decision.
(g) The arbitrator(s) shall have the authority upon application by a
party to direct specific performance, including preliminary or interim specific
performance pending the final resolution of the arbitration, of any portion of
this agreement. The parties expressly consent to the jurisdiction and power of
any federal or state court in New York to enforce the terms of such a direction
upon application by a party. If the arbitrator(s) have not yet been appointed,
the parties may obtain injunctive or other appropriate relief from a court to
enforce the terms of this agreement pending the appointment of the arbitrator(s)
who shall thereafter have full power to continue, modify or vacate the terms of
any injunctive relief ordered by the court.
(h) Notwithstanding the terms of this agreement that provide that New
York law shall govern, the arbitration and the provisions in this agreement
dealing with arbitration shall be governed exclusively by the United States
(Federal) Arbitration Act, 9 U.S.C. ss.ss. 1-16, and judgment on or enforcement
of the award or any direction for specific performance rendered by the
arbitrators may be entered by any court having jurisdiction thereof or having
jurisdiction over the relevant party or assets of such party.
(i) If, notwithstanding the parties' agreement to arbitrate, any issue
is presented to a court for decision, the parties hereby waive any right to
trial by jury.
(j) The parties agree that any dispute between the parties and the
arbitration itself shall be kept confidential and that the existence of the
arbitration and any element of it (including but not limited to any pleading,
brief or other document submitted or exchanged, any testimony or other oral
submission, and any award) shall not be disclosed
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except to the arbitrator(s), the CPR Institute for Dispute Resolution, the
parties, their counsel and any person necessary to the conduct of the
proceeding, except as may be lawfully required in judicial proceedings relating
to the arbitration or otherwise.
13. No Punitive or Emotional Damages
The parties hereto agree that neither the Executive nor the Company will be
entitled to seek or obtain punitive, exemplary or similar damages of any kind
from the other or, in the case of Executive, from the Company's officers,
directors, employees or shareholders, or to seek or obtain damages or
compensation for emotional distress, as a result of any dispute, controversy or
claim arising out of, relating to or in connection with this Agreement, or the
performance, breach, termination or validity thereof. Nothing herein shall
preclude an award of compensatory or punitive damages against any other third
party.
14. Injunctive Relief to Avoid Irreparable Injury
(a) Executive acknowledges and agrees that the individualized services
and capabilities that he will provide to the Company under this Agreement are of
a personal, special, unique, unusual, extraordinary and intellectual character.
(b) Executive acknowledges and agrees that the restrictions in this
agreement are reasonable to protect the Company's rights under this Agreement
and to safeguard the Company's and it Affiliates' Confidential Information.
(c) Executive acknowledges and agrees that the covenants and
obligations of Executive with respect to noncompetition, nonsolicitation,
confidentiality and Company property relate to special, unique and extraordinary
matters and that a violation of any of the terms of such covenants and
obligations will cause the Company and its Affiliates irreparable injury for
which adequate remedies are not available at law. Executive therefore agrees
that the Company shall be entitled to an order of specific performance,
injunction, restraining order or such other interim or permanent equitable
relief (without the requirement to post bond) restraining Executive from
committing any violation of the covenants and obligations contained in this
Agreement
(d) These injunctive remedies are cumulative and are in addition to any
other rights and remedies the Company may have at law or in equity.
(e) Executive represents that his economic means and circumstances are
such that the provisions of this Agreement, including the noncompetition,
nonsolicitation,
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confidentiality and Company property provisions, will not prevent him from
providing for himself and his family on a basis satisfactory to him and them.
15. Automatic Amendment by Arbitral Award or Court Order
and Interim Enforcement
(a) If the Arbitrator(s) or a court determines that, but for the
provisions of this paragraph, any part of this agreement is illegal, void as
against public policy or otherwise unenforceable, the relevant part will
automatically be amended to the extent necessary to make it sufficiently narrow
in scope, time and geographic area to be legally enforceable.
All other terms will remain in full force and effect.
(b) If the Executive raises any question as to the enforceability of
any part or terms of this agreement, including, without limitation, the
provisions relating to noncompetition, nonsolicitation, confidentiality and
Company property, the Executive specifically agrees that he will comply fully
with this Agreement unless and until the entry of an arbitral award to the
contrary.
16. Notices
All notices and other communications required or permitted hereunder shall be
sufficiently given if (a) delivered personally, (b) sent by facsimile
transmission (with confirmation received), (c) sent by a nationally-recognized
air courier assuring overnight delivery, or (d) mailed (by registered or
certified mail, return receipt requested and postage prepaid) as follows:
if to the Executive, to the Executive at:
18 D'Arblay Street
London W1V 3FP, England
with a copy to Executive at:
Michel Delloye
Avenue des Cytises No. 6
B1180 Bruxelles, Belgium
Fax: 011-322-375-2807
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if to the Company, to the Company at
Legal Department
18 D'Arblay Street
London W1V 2FP, England
with a copy to each of:
Hon. Ronald S. Lauder
Suite 4200
767 Fifth Avenue
New York, New York 10153
Fax: (212) 572-4046
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attention: Louis Begley, Esq.
or to such other address as shall be furnished by notice from time to time by
one party hereto to the other party. Any such communication shall be deemed to
have been given, (i) in the case of personal delivery, on the date of delivery,
(ii) in the case of delivery by air courier, on the first business day following
the day on which such communication was posted, and (iii) in the case of
mailing, on the third business day following the day on which such notice was
posted.
17. Sole and Entire Understanding; Amendments
The entire understanding and agreement between the Company and Executive have
been incorporated into this Agreement. There are no other promises,
representations, understandings or inducements by the Company to Executive or
Executive to the Company other than those specifically set forth in this
Agreement. This Agreement may not be altered, amended or added to except in a
single writing signed by the Company and the Executive. Coincident herewith,
Executive and Central European Media Enterprises Ltd. are entering into an
Employment Agreement covering Executive's services to Central European Media
Enterprises Ltd. and its subsidiaries (other than the Company).
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18. Waiver of Breach
A waiver or breach of any provision of this Agreement shall not constitute or
operate as a waiver of any other breach of such provision or of any other
provision, and any failure to enforce any provision hereof shall not operate as
a waiver of such provision or of any other provision.
19. Headings
The headings of sections in this Agreement are for convenience only, are not a
part of this Agreement and shall not affect the construction of the provisions
of this Agreement.
20. Arm's Length
(a) This Agreement was entered into at arm's length, without duress or
coercion, and is to be interpreted as an agreement between parties of equal
bargaining strength. Both the Company and the Executive agree that this
Agreement is clear and unambiguous as to its terms, and that no parol or other
evidence will be used or admitted to alter or explain the terms of this
Agreement, but that it will be interpreted based on the language within its four
corners in accordance with the purposes for which it is entered into.
(b) The parties hereto expressly agree that any rule or contractual
interpretation, as applied under California law or anywhere else, that would
allow parol or extrinsic evidence to attempt to show fraud in the inducement or
duress to contradict the plain, unambiguous terms of this Agreement shall not
apply to this Agreement and its performance and enforcement. This provision is a
material part of this Agreement and, should any party try to introduce evidence
contrary to this provision, any other party shall be entitle to consider it a
breach and to rescind this contract in full.
21. Successors and Assigns
(a) This Agreement will inure to the benefit of, and will be binding
upon, the Company, its successors and assigns and upon the Executive and his
heirs, successors and assigns; provided, however, that, because this is an
Agreement for personal services, the Executive cannot assign any of his
obligations under this Agreement to anyone else.
(b) This Agreement may be executed in counterparts, in which case each
of the two counterparts will be deemed to be an original and the final
counterpart shall be deemed to have been executed in New York, New York.
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22. No Third Party Beneficiaries
This Agreement does not create, and shall not be construed as creating, any
rights enforceable by any person not a party to this Agreement, except as
provided in Sections 4(d) and 5(b).
23. New York Law Governs
Any questions or other matters arising under this Agreement, whether of
validity, interpretation, performance or otherwise, will therefore be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be wholly performed in New York, without reference to
principles of conflicts or choice of law under which the law of any other
jurisdiction would apply.
IN WITNESS WHEREOF, this Agreement has been executed by
Executive and then by the Company in New York, New York, on the dates shown
below, but effective as of the date and year first above written.
Date: March 24, 1998 /s/ Michel Delloye
------------------------ ---------------------------
Michel Delloye
CME DEVELOPMENT CORPORATION
Date: BY: /s/ Ronald S. Lauder
------------------------ ------------------------
Title:
---------------------
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of March 23, 1998 by and
between Central European Media Enterprises Ltd., a Bermuda corporation (the
"Company"), and Michel Delloye ("Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to secure the services of
Executive as an employee, and Executive desires to accept such employment under
the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the Company and Executive hereby agree as follows:
1. Employment.
(a) Agreement to Employ. Upon the terms and subject to the conditions
of this Agreement, the Company hereby employs Executive, and Executive hereby
accepts employment by the Company.
(b) Term of Employment. The Company shall employ Executive for a term
commencing March 23, 1998 (the "Commencement Date") and ending March 23, 2003,
unless extended by a written agreement signed by both parties. The Company will
advise Executive at least six months prior to the end of the Term whether it
intends to extend the Term. The Term of this Agreement as extended as provided
herein is herein referred to as the "Term." The period commencing on the
Commencement Date and ending on the earlier of (i) the expiration of the Term,
or (ii) the date of Executive's termination of employment pursuant to Section
5(a) shall be referred to as the "Employment Period".
(c) No Conflict. Executive represents that he is entering into this
Agreement voluntarily and that his employment hereunder and compliance by him
with the terms and conditions of this Agreement will not conflict with or result
in the breach of any agreement to which he is a party or by which he may be
bound.
<PAGE>
2. Position and Duties.
(a) In general. Executive shall be employed as President and Chief
Executive Officer, with overall responsibility for the Company's business and
operations, and shall perform such duties and services, consistent with such
position for the Company, as may be (i) specified in the Bye-Laws of the Company
or (ii) assigned to him from time to time by the Chairman of the Board of
Directors of the Company (the "Chairman"). On or promptly following the
Commencement Date, Executive shall be named to the Company's Board of Directors
and the Board of Directors will propose Executive for election and re-election
to the Board of Directors during the remainder of the Employment Period. The
duties of the Executive shall include serving as an officer or director or
otherwise performing services for any "Affiliate" of the Company as requested by
the Company. An "Affiliate" of any person means any entity that controls, is
controlled by or is under common control with such person. Executive shall
report to the Chairman.
(b) Full-time employment. During the Employment Period, and subject to
his obligations to CME Development Corporation, which is anticipated to require
one-third of his business time, Executive shall devote his full business time to
the services required of him hereunder, except for time devoted to services
required by him to be performed for any "Affiliate" of the Company, 5 weeks
annual vacation time (but without duplication of any vacation time to which
Executive is entitled under any agreement with any Affiliate) and reasonable
periods of absence due to sickness, personal injury or other disability, and
shall use his best efforts, judgement, skill and energy to perform such services
in a manner consonant with the duties of his position and to improve and advance
the business and interests of the Company, provided, however, that Executive
shall perform such services under this Agreement exclusively outside of the
United Kingdom and the United States and Executive has entered into an
employment agreement with CME Development Corporation for his services within
the United Kingdom and the United States. Executive shall not be engaged in any
other business activity which, in the reasonable judgment of the Chairman,
conflicts with the duties of the Executive under this Agreement. Executive shall
travel to, and may be stationed on a short-term basis (not to exceed one month
at any time) in, such location or locations outside of the United Kingdom and
the United States as may be requested by the Com pany, or which Executive
believes is necessary or advisable, in the performance by Executive of his
duties hereunder or to the extent appropriate to improve and advance the
interests of the Company and its Affiliates.
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3. Compensation.
(a) Base Salary. During the Employment Period, the Company shall pay
Executive a base salary at the annual rate of US$225,000 (the "Base Salary").
The Base Salary shall be payable in such installments (but not less frequent
than monthly) as the salaries of other executives of the Company are paid. The
Executive's base salary shall be reviewed annually by the Compensation Committee
of the Board of Directors of the Company (the "Compensation Committee"), and
shall be increased by not less than $6,500 per annum, or such greater amount as
the Compensation Committee may determine in its sole discretion.
(b) Annual Bonus. The Company shall provide Executive with the
opportunity to earn an annual cash bonus at the level established for the Chief
Executive Officer under the Annual Bonus Plan for Executives and Officers
established under the Compensation Principles approved by the Board on March 11,
1998. Under the Annual Bonus Plan, Executive will be eligible to receive a bonus
for each full year of his employment equal to 75% % of his Base Salary if the
performance goals ("target") established by the Compensation Committee for such
year are met. Sixty percent (60%) of the annual bonus, if any, will be based on
the achievement of company-wide objectives established by the Compensation
Committee, and 40% on an evaluation of personal performance as determined by the
Compensation Committee. The actual bonus may range from zero (if 80% of the
established goals are not achieved) to 50% of Base Salary if performance is at
80% of target, 75% of Base Salary if performance is at 100% of target to a
maximum of 100% of Base Salary if performance is at or above 150% of target, in
each case interpolated for actual performance. Executive has been provided a
copy of the Compensation Principles.
(c) Special Long-Term Incentive Bonus. Given that the share price of
the Company is largely dependent on the performance of the individual television
stations, if Executive is employed by the Company on March 23, 2003, and if the
Fair Market Value of a Class A Share of Company Stock on March 23, 2003 has
increased from $24 9/16, the Fair Market Value of such Share on March 23, 1998,
and the percentage increase is greater that the percentage increase in the
Nasdaq Composite Average during the same period, Executive will receive a
special one-time bonus of US$1,000,000.
(d) Equity Participation.
(i) Initial Option Grant. The Company granted Executive an
option on March 23, 1998 to purchase, in the aggregate, 225,000 shares of the
Class A Common
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Stock of the Company (the "Initial Option") under the Company's 1995 Stock
Option Plan, as amended.
(ii) Certain Terms With Respect to 175,000 Shares Subject to
Initial Option. With respect to 175,000 shares out of the total 225,000 shares
subject to the Initial Option, the Initial Option shall have the following
terms: (A) the Initial Option shall become exercisable in two equal installments
on each of the first two anniversaries of March 23, 1998, the date on which the
Compensation Committee approved the grant of such Initial Option (the "Grant
Date"), provided that Executive is employed by the Company on such anniversary;
(B) the Initial Option shall, except as otherwise provided herein, remain
exercisable on a cumulative basis for 10 years from the Grant Date; and (C) the
purchase price per share of Class A Common Stock shall equal $24 9/16, the mean
between the high and low prices of the Company's Class A Common Stock as
reported by Nasdaq for the Grant Date.
(iii) Certain Terms With Respect to 50,000 Shares Subject to
Initial Option. With respect to 50,000 shares out of the total 225,000 shares
subject to the Initial Option, the Initial Option shall have the following
terms: (A) the Initial Option shall become exercisable in three equal
installments on each of the third, fourth and fifth two anniversaries of the
Grant Date, provided that Executive is employed by the Company on such
anniversary; (B) the Initial Option shall, except as otherwise provided herein,
remain exercisable on a cumulative basis for 7 years from the Grant Date; and
(C) the initial purchase price per share of Class A Common Stock shall equal $24
9/16, the mean between the high and low prices of the Company's Class A Common
Stock as reported by Nasdaq for the Grant Date, and such per share purchase
price shall increase on the first day of each calendar quarter by one-quarter of
5.63% (the yield, as of the Grant Date, of U.S. Treasury Securities having a
remaining maturity of approximately 7 years from the Grant Date as reported in
the Wall Street Journal), compounded annually.
(iv) Certain Other Terms of the Initial Option. The Initial
Option shall become immediately exercisable in full in the event that
Executive's employment with the Company is terminated (i) by the Company other
than for Cause, (ii) by the Executive for Good Reason, (iii) by reason of the
death or Disability of the Executive or (iv) by the Company following a Change
in Control (as these terms are hereinafter defined). Once exercisable, the
option shall remain exercisable for the specified term, except that (i) if
Executive's employment is terminated for Cause the Option shall immediately
terminate and (iii) if Executive's employment terminates for any other reason,
the Option shall remain exercisable for the lesser of the remaining term of
Option and one year following termination of employment.
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(v) Subsequent Option Awards. The timing and amount of any
subsequent option awards (if any), shall be at the discretion of the
Compensation Committee and approved by the Board of Directors, but will be
generally commensurate with Executive's position with the Company and taking
into account option awards made to the other senior executives of the Company.
(vi) Change in Control Defined. As used herein, "Change in
Control" means the occurrence of (i) a sale or other disposition of stock of the
Company, or an issuance of stock of the Company as a result of which any
"person" (as such term is used in section 13(d) and 14(d) of the Securities
Exchange Act of 1934), other than Ronald S. Lauder ("Lauder") is or becomes the
beneficial owner of more than 25% of the total voting power of the Company, and
Lauder (x) beneficially owns a lesser percentage of the total voting power of
the Company and (y) does not have the right or ability by voting power, contract
or otherwise to elect or designate a majority of the Board of Directors or (ii)
more than 50% of the total value of the assets of the Company and its
consolidated subsidiaries are sold and the acquirer of such assets is not Lauder
or a company controlled by Lauder.
(vii) Additional Bonus Payment. If Executive exercises any
portion of the Initial Option, the Company shall pay Executive within 30 days of
each such exercise an additional bonus payment equal to the product of (x) the
number of shares subject to such Initial Option being so exercised and (y)
$2.41. In the event of any adjustment to the number of shares subject to the
Initial Option or the exercise price thereof, the dollar payment provided for in
this subparagraph shall be equitably adjusted to prevent any diminution or
enlargement of Executive's rights hereunder.
(e) Stock Purchase and Special Option Grant.
(i) Stock Purchase By Executive. If within 120 days of
commencing employment with the Company, Executive desires to purchase Class A
Common Stock of the Company, Executive shall so notify the Company. If the
Company determines that applicable securities and other laws, rules and
regulations, or the rules or regulations of Nasdaq, would not permit Executive
to purchase such shares in the open market, the Company shall permit Executive
to purchase such shares directly from the Company (if such a purchase is
permitted under such laws, rules and regulations) under the Company's Director,
Officer and Senior Executive Co-Investment Plan (submitted for shareholder
approval at the Company's annual meeting), at a per share price equal to the
average of the means between the high and low prices of the Company's Class A
Common Stock as reported by Nasdaq for the 10 days following the effective date
of Executive's notice to purchase such shares. Any shares purchased from the
Company shall bear such legends
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and restrictions on transfer as the Company determines necessary or appropriate
to comply with applicable securities or other laws.
(ii) Loan to Purchase Additional Shares. For each $1 of
Company stock that Executive purchases within such 120 period, up to a maximum
of $500,000, the Company will lend $1 on a non-recourse basis to purchase
additional Company stock pursuant to a loan and pledge agreement to be entered
into by Executive and the Company (the "Note") under the Company's Director,
Officer and Senior Executive Co-Investment Plan (submitted for shareholder
approval at the Company's annual meeting). (Under this provision the maximum
loan is $500,000 and the maximum purchase is $1 million). The financed shares
shall be pledged as security for the loan and may not be sold until Executive's
employment is terminated or after seven years, whichever occurs first. The loan
will bear interest at the seven-year Treasury Note rate in effect at the time of
the loan. Interest will compound annually and is due at the time the Note is
due. The Note is due at the earlier of (a) the expiration of seven years, (b)
termination of employment for any reason other than death or disability, (c) one
year after termination of employment by reason of death or disability and (d)
sale of the non-financed shares (on a pro rata basis). Executive will be
required to apply 25% of his annual bonus to pay accrued interest and prepay
principal on the Note. Financed shares will be released from pledge on a pro
rata basis as the Note is paid.
(iii) Special Option Grant. For each share of Company stock
Executive purchases within 120 days of commencing employment with the Company,
the Company shall grant Executive an option under the Company's 1995 Stock
Option Plan, as amended, to purchase two additional shares, up to a maximum of
options to acquire 50,000 shares (the "Special Option"). The Special Option
shall be granted to Executive by the Compensation Committee as soon as
practicable following the expiration of such 120 period. The Special Option
shall have the same terms and conditions as the Option (as set forth in Section
3(d)(iii) and (iv) above), except that (i) the initial exercise price per share
of the Special Option shall be equal to the mean between the high and low prices
of the Company's Class A Common Stock as reported by Nasdaq for the date of
grant, which exercise price shall increase on the first day of each calendar
quarter by one-quarter of the yield, as of the date of grant of the Special
Option, of U.S. Treasury Securities having a remaining maturity of approximately
7 years from the date of grant of the Special Options as reported in the Wall
Street Journal, compounded annually, and (ii) the dates on which the Special
Option shall become exercisable shall be determined by reference to the date of
the grant of such Special Option.
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4. Benefits, Perquisites and Expenses.
(a) Benefits. During the Employment Period, Executive shall be eligible
to participate in (i) each welfare benefit plan sponsored or maintained by the
Company, including, without limitation, each group life, hospitalization,
medical, dental, health, accident or disability insurance or similar plan or
program of the Company, provided that in any event Executive shall at the
Company's expense, be entitled to private medical insurance for himself, his
wife and dependent children, disability insurance and permanent health insurance
at the maximum permissible levels from time to time, and life insurance in an
amount commensurate with the life insurance offered to the other senior
executives of the Company, and (ii) each pension, profit sharing, retirement,
deferred compensation or savings plan sponsored or maintained by the Company, in
each case, whether now existing or established hereafter, to the extent that
Executive is eligible to participate in any such plan under the generally
applicable provisions thereof, provided that if Executive is also entitled to
any of such benefits under an agreement with an Affiliate, the benefits shall be
provided by the Company and its Affiliates to Executive in a manner that avoids
duplication. The Company may amend or terminate any such plan in its discretion.
(b) Perquisites. During the Employment Period, Executive shall be
entitled to home leave as specified in the Company's Employee Handbook, shall be
provided for his use a suitable car and driver, and shall also be entitled to
receive such perquisites as are generally provided to other senior officers of
the Company in accordance with the then current policies and practices of the
Company, provided that if Executive is also entitled to any of such benefits
under an agreement with an Affiliate, the benefits shall be provided by the
Company and its Affiliates to Executive in a manner that avoids duplication. For
each calendar month during the Employment Period, Executive shall be entitled to
receive an annual expatriate premium of Pounds Sterling (pound)135,000 to be
paid in equal monthly installments, and subject to annual increase based on the
increase in the consumer price index (HICP) for the London metropolitan area
published by the Office of National Statistics for the preceding year, or if
such index is no longer available, such other generally available index
measuring changes in consumer purchasing power (in the London metropolitan area
or nationally) designated by the Compensation Committee, or such other amount as
may be agreed to by Executive and the Compensation Committee.
(c) Business Expenses. During the Employment Period, the Company shall
pay or reimburse Executive for all reasonable expenses incurred or paid by
Executive in the performance of Executive's duties hereunder, upon presentation
of expense statements or vouchers and such other information as the Company may
require and in accordance with the generally applicable policies and procedures
of the Company.
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(d) Indemnification. The Company shall indemnify Executive and hold
Executive harmless from and against any claim, loss or cause of action arising
from or out of Executive's performance as an officer, director or employee of
the Company or any of its subsidiaries or in any other capacity, including any
fiduciary capacity, in which Executive serves at the request of the Company to
the maximum extent permitted by applicable law and the Company's Memorandum of
Association and Bye-Laws. If any claim is asserted against Executive with
respect to which Executive reasonably believes in good faith he is entitled to
indemnification, the Company shall either defend Executive or, at its option,
pay Executive's legal expenses (or cause such expenses to be paid) on a
quarterly basis, provided that Executive shall reimburse the Company for such
amounts, plus simple interest thereon at the 90-day United States Treasury Bill
rate as in effect from time to time, compounded annually, if Executive shall be
found by a court of competent jurisdiction not to have been entitled to
indemnification.
(e) Withholding. Any payments provided for herein shall be reduced by
any amounts required to be withheld by the Company from time to time under any
applicable income tax or other law, rule or regulation.
(f) Currency of Payment. Payments provided for herein shall be in the
currency stated, or in such other mutually beneficial currency as the Company
and Executive shall agree from time to time sufficiently in advance of payment
to permit timely payment. Payment in a currency other than in the currency
stated shall be based at the current exchange rate at the time of payment.
Notwithstanding the foregoing, if a single European currency ("euro") replaces
the national currencies of participating members of The Treaty on European Union
and Final Act of Feb. 7, 1992, 31 I.L.M. 247 (entered into force Nov. 1, 1993),
or other similar or successor treaty, payments hereunder shall, at the election
of Executive, thereafter be made in such common currency (euro), based upon the
exchange rate at the time of such election.
(g) Right of Offset. If the Company makes any payment to a third party
on Executive's behalf or as guarantor of an obligation of Executive, the Company
shall be entitled to seek reimbursement from the Executive of any such amounts
and/or to offset any such amounts against any payments by the Company to
Executive hereunder.
5. Termination of Employment.
(a) Termination of the Employment Period. The Employment Period shall
end upon the earliest to occur of (i) a termination of Executive's employment on
account of Executive's death, (ii) a Termination due to Disability or
Retirement, (iii) a Termination for Cause, (iv) a Termination Without Cause, (v)
a Termination for Good
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Reason, (vi) a Termination Without Good Reason, or (vii) the expiration of the
Term. The Company or the Executive may initiate a termination in any manner
permitted hereunder by giving the other party written notice thereof (the
"Termination Notice"). The effective date (the "Termination Date") of any
termination shall be deemed to be the later of (i) in the case of a Termination
Notice from Executive, 45 days after the receipt by the Company of the
Termination Notice, (ii) the date on which the Termination Notice is given, or
(iii) the date specified in the Termination Notice; provided, however, that in
the case of the Executive's death, the Termination Date shall be the date of
death. Upon termination of his employment for any reason, Executive will
immediately resign from all positions that he holds with the Company and its
Affiliates.
(b) Payments Upon Certain Terminations.
(i) Termination for Good Reason or Termination Without Cause.
In the event that Executive's employment is terminated by Executive for Good
Reason or by the Company Without Cause, the Company shall pay Executive his
Earned Salary, Vested Benefits, and a Severance Benefit (as such terms are
hereinafter defined).
(ii) Termination due to Death. In the event of the termination
of Executive's employment due to Executive's death, the Company shall pay
Executive's estate Executive's Earned Salary, Vested Benefits, and shall provide
to Executive's surviving spouse and children Executive's Base Salary (at the
rate in effect on the date of his death) and the health insurance provided in
Section 4(a)(i) for a period of 12 months.
(iii) Termination due to Disability or Retirement. In the
event of termination of Executive's employment by the Company due to Disability
or a Termination due to Retirement, the Company shall pay Executive his Earned
Salary and Vested Benefits as provided in Section 3(c), plus, in the event of
termination due to Disability, to the Executive or his estate his Base Salary at
the Termination Date on a monthly basis, the benefits provided in Section
4(a)(i) for 12 months. In the event that Executive's employment with the Company
is terminated due to Disability, Executive's entitlement to continuation of his
Base Salary under this subsection (iii) shall be reduced by the amount of any
Company sponsored (and paid for) disability benefits paid to Executive.
(iv) Termination Without Good Reason. In the event of a
termination of Executive's employment by Executive Without Good Reason, the
Company shall pay Executive his Earned Salary and Vested Benefits.
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(v) Termination for Cause. In the event of a termination of
Executive's employment by the Company for Cause, the Company shall pay Executive
his Earned Salary and Vested Benefits.
(c) Timing of Payments. Earned Salary shall be paid in a single lump
sum as soon as practicable, but in no event more than 60 days, following the end
of the Employment Period. Vested Benefits shall be payable in accordance with
the terms of the plan, policy, practice, program, contract or agreement under
which such benefits have accrued except as otherwise expressly modified by this
Agreement. Severance Benefits shall be paid in equal monthly installments.
(d) Definitions. The following capitalized terms have the following
meanings:
"Earned Salary" means any Base Salary earned, but unpaid, for
services rendered to the Company on or prior to the date on which the Employment
Period ends.
"Normal Retirement Age" means the first day of the month
following Executive attaining age 65.
"Severance Benefit" means Executive's minimum Base Salary for
the remainder of the Term.
"Termination due to Disability" means a termination of
Executive's employment by the Company because Executive has been incapable of
substantially fulfilling the positions, duties, responsibilities and obligations
set forth in this Agreement because of physical, mental or emotional incapacity
resulting from injury, sickness or disease for a period of (i) at least six
consecutive months or (ii) a total of more than 183 days in any twelve month
period. Any question as to the existence, extent or potentiality of Executive's
disability upon which Executive and the Company cannot agree shall be determined
by a qualified, independent physician selected by the Company and reasonably
acceptable to Executive. The determination of any such physician shall be final
and conclusive for all purposes of this Agreement. Executive or his legal
representative or any adult member of his immediate family shall have the right
to present to such physician such information and arguments as to Executive's
disability as he, she or they deem appropriate, including the opinion of
Executive's personal physician.
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"Termination due to Retirement" means termination of
employment by Executive, or termination of Executive's employment by the Company
other than a Termination for Cause, on or after Executive's Normal Retirement
Age.
"Termination for Cause" means a determination by a majority of
the Board to terminate Executive's employment by the Company due to (i)
Executive's conviction of a felony or the entering by Executive of a plea of
nolo contendere with respect to a charged felony, (ii) Executive's gross
negligence, recklessness, dishonesty, fraud, willful malfeasance or willful
misconduct in the performance of the services con templated by this Agreement,
(iii) willful misrepresentation to shareholders or directors which is injurious
to the Company; (iv) a willful failure without reasonable justification to
comply with a reasonable written order of the Chairman or the Board of
Directors; or (v) a willful and material breach of Executive's duties or
obligations under this Agreement. Notwithstanding the foregoing, a termination
shall not be treated as a Termination for Cause unless the Company shall have
delivered a written notice to Executive stating that it intends to terminate his
employment for Cause not less than seven days following the giving of such
notice and specifying the factual basis for such termination, and the event or
events that form the basis for the notice, if capable of being cured, shall not
have been cured within the period stated in the receipt of such notice.
"Termination for Good Reason" means a termination of
Executive's employment by Executive within 30 days following (i) a reduction in
Executive's annual Base Salary or bonus opportunity contemplated by Sections
3(a) and (b), (ii) a material reduction in Executive's positions, duties,
responsibilities or reporting lines from those described in Section 2 hereof;
(iii) a material breach of this Agreement by the Company, or (iv) any
termination of the Executive's employment with CME Development Corporation due
to a "Termination Without Cause" by CME Development Corporation or a
"Termination With Good Reason by Executive", as those terms are defined in the
employment agreement between the Executive and CME Development Corporation.
Notwithstanding the foregoing, a termination shall not be treated as a
Termination for Good Reason (x) if Executive shall have consented in writing to
the occurrence of the event giving rise to the claim of Termination for Good
Reason or (y) unless Executive shall have delivered a written notice to the
Company within 30 days of his having actual knowledge of the occurrence of one
of such events stating that he intends to terminate his employment for Good
Reason and specifying the factual basis for such termination, and such event, if
capable of being cured, shall not have been cured within 30 days of the receipt
of such notice.
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"Termination Without Cause" means any termination by the
Company of Executive's employment hereunder other than (i) a Termination due to
Disability, (ii) a Termination due to Retirement or (iii) a Termination for
Cause.
"Termination Without Good Reason" means any termination by
Executive of Executive's employment hereunder upon not less than three month's
notice to the Company other than (i) a termination due to Executive's death,
(ii) a Termination due to Retirement, (iii) a Termination for Good Reason, or
(iv) a Termination due to Disability.
"Vested Benefits" means amounts which are vested or which
Executive is otherwise entitled to receive under the terms of or in accordance
with any plan, policy, practice or program of, or any contract or agreement
with, the Company, at or sub sequent to the date of his termination without
regard to the performance by Executive of further services or the resolution of
a contingency and expenses incurred prior to termination of employment that are
reimbursable under Section 4(c).
(e) Full Discharge of Company Obligations. The amounts payable to
Executive pursuant to this Section 5 following termination of his employment
(including amounts payable with respect to Vested Benefits) shall be in full and
complete satisfaction of Executive's rights under this Agreement and any other
claims he may have in respect of his employment by the Company or any of its
subsidiaries. Such amounts shall constitute liquidated damages with respect to
any and all such rights and claims and, upon Executive's receipt of such
amounts, the Company shall be released and discharged from any and all liability
to Executive in connection with this Agreement or otherwise in connection with
Executive's employment with the Company and its subsidiaries, other than
Executive's rights to indemnification under Section 4(d).
6. Agreement Not to Compete With Company
(a) During the Employment Period and for a period of two years
thereafter, Executive shall not directly or indirectly own, manage, operate,
finance, join, control, advise, consult, render services to, have an interest or
future interest or participate in the ownership, management, operation,
financing or control of, or be employed by or connected in any manner with any
Competing Business (other than as a holder of common stock of the Company, and
not in excess of 1% of the outstanding voting shares of any other publicly
traded company). "Competing Business" means the business of licensing of
television or radio stations and provision of programming engaged in by the
Company or any Affiliate in Russia, the former states of the U.S.S.R., or any
country in Central and Eastern Europe where the Company or an Affiliate conducts
such business at any time during the Term, provided that Competing Business
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shall not include any such business the consolidated revenues of which are less
than 5% of the Company's consolidated revenues (in each case determined at the
time Executive commences such affiliation). Any opportunity directly or
indirectly related to any business engaged in by the Company, its subsidiaries
and Affiliates of which Executive becomes aware during the Term shall be deemed
a corporate opportunity of the Company, and Executive shall promptly make such
opportunity available to the Company.
(b) If, during the period of two years after expiration of the
Term, Executive or an Affiliate of Executive proposes to engage in what may be a
Competing Business, Executive shall so notify the Company in a writing which
shall fully set forth and describe in detail the nature of the activity which
may be a competitive Business, the names of the companies or other entities with
or for whom such activity is proposed to be engaged in by Executive or by an
Affiliate of Executive (the "Section 6 Notice"). If, within 30 days after
receipt by the Company of a Section 6 Notice, the Company shall fail to notify
Executive that it deems the proposed activity to be a Competitive Business, then
Executive shall be free to engage in the activities described in the Section 6
Notice without violation of Section 6(a). If, however, the Company notifies
Executive that the proposed activities constitute a Competitive Business, then
(i) Executive shall not engage in such Competitive Business during the two-year
period following expiration of the Term, and (ii) the Company shall pay
Executive, during such two-year period, in equal monthly installments, an amount
equal to his highest Base Salary; provided that the amount payable under this
Section 6(b) shall be reduced by the amount of Severance Benefit that Executive
is receiving for such period.
7. Confidential Information
(a) Without the prior written consent of the Company, Executive shall
not disclose at any time during the Employment Period or any time thereafter any
Confidential Information (as defined below) to any third person other than in
the course of fulfilling Executive's responsibilities under this Agreement
unless such Confidential Information has been previously disclosed to the public
by the Company or an Affiliate or is in the public domain (other than by reason
of Executive's breach of the provisions of this paragraph).
(b) "Confidential Information" is any non-public information pertaining
to the Company or an Affiliate, any of their businesses or the business or
personal affairs of Ronald S. Lauder ("Lauder") or his family and how any of
them conducts its or his business or affairs. "Confidential Information"
includes not only information disclosed by the Company or an Affiliate to
Executive, but information developed, created or
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learned by Executive during the course of or as a result of Executive's
employment with the Company. "Confidential Information" specifically includes
information and documents concerning the Company's and its Affiliates' methods
of doing business; research, telecommunications technology, its actual and
potential clients, transactions and suppliers (including the Company's or an
Affiliate's terms, conditions and other business arrangements with them); client
or potential client or transaction lists and billing; advertising, marketing and
business plans and strategies (including prospective or pending licensing
applications or investments in license holders or applicants); profit margins,
goals, objectives and projections; compilations, analyses and projections
regarding the Company, its Affiliates or any of its clients or potential clients
or their businesses; trade secrets; salary, staffing, management organization or
employment information; information relating to members of the Board of
Directors and management of the Company or an Affiliate; files, drawings or
designs; information regarding product development, marketing plans, sales plans
or manufacturing plans; operating policies or manuals, business plans, financial
records or packaging design; or any other financial, commercial, business or
technical information relating to the Company, an Affiliate, Lauder or his
family or information designated as confidential or proprietary that the
Company, an Affiliate or Lauder may receive belonging to others who do business
with any of them.
(c) Nothing herein shall prevent the disclosure by Executive of any
information required by an order of a court having competent jurisdiction or
under subpoena from a government agency, provided that, if Executive receives a
request for the disclosure of any Confidential Information pursuant to court
process or by a government agency, Executive shall immediately (and at the
latest within two business days) notify the Company of that request and
cooperate to the maximum extent authorized by law with the Company in protecting
the Company's and it Affiliates' interest in maintaining the confidentiality of
any Confidential Information.
8. No Disparaging Comments
Each of the parties hereto agrees not to make disparaging or derogatory comments
about the other party, members of the Board or Affiliates, except to the extent
required by law, and then only after consultation with the other party to the
maximum extent possible in order to maintain goodwill for each of the parties.
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9. Return of Company Property
Promptly (and at the latest within ten business days) following Executive's
termination of services, Executive shall:
(i) return to the Company all documents, records, notebooks,
computer diskettes and tapes and anything else containing the
Company's Confidential Information (as defined above), and any
other property or Confidential Information of the Company or
its Affiliates, including all copies thereof in Executive's
possession, custody or control, and
(ii) delete from any computer or other electronic storage medium
owned by Executive any of the proprietary or Confidential
Information of the Company or its Affiliates.
10. No Soliciting or Hiring Company Employees
During the Employment Period and for a two-year period thereafter, Executive
shall not directly or indirectly induce any employee of the Company or any
Affiliate, other than Executive's secretary or personal assistant, to terminate
employment with such entity, and during the Employment Period and for a one-year
period thereafter, shall not directly or indirectly, either individually or as
owner, agent, employee, consultant or otherwise, employ or offer employment to
any person who is or was within 9 months prior to the end of the Employment
Period employed by the Company or any Affiliate as an em ployee, other than
Executive's secretary or personal assistant.
11. Continuing Obligations Following Termination
Executive agrees that his obligations and restrictions with respect to noncom
petition, confidentiality, Company property, nondisparagement and
nonsolicitation, and the Company obligations to indemnify Executive under
Section 4(d), will continue to apply following the termination of Executive's
relationship regardless of the manner in which his relationship with the Company
is terminated, whether voluntarily, for Cause, for Good Reason, without Cause or
otherwise.
12. Arbitration of All Disputes
(a) Any dispute, controversy or claim between the Executive and the
Company or any of its officers, directors, employees or shareholders (who are
expressly made third-party beneficiaries of this agreement) arising out of,
relating to or in connection
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with this agreement, or the breach, termination or validity thereof, shall be
finally resolved by binding and non-appealable arbitration, before a single
arbitrator selected by the procedure set forth below, conducted in New York, New
York. To the extent practicable, any such arbitration shall be consolidated with
any other arbitration proceeding between Executive and any Affiliate of the
Company (if any).
(b) Either party may commence an arbitration proceeding by giving
written notice to the other party of its desire to arbitrate.
(c) The single arbitrator (the "Arbitrator") shall be selected from
among the New York City members of the New York Regional Panel of Distinguished
Neutrals (the "Panel") of the Center for Public Resources ("CPR") by mutual
agreement of the parties, or if the parties are unable to agree, by the
following means:
(A) The Company, on one hand, and Executive
on the other hand, shall simultaneously exchange lists each
containing the names of five members of their choice of the
Panel who have indicated a willingness to serve.
(B) If a single name appears on both lists,
that individual shall be appointed.
(C) If more than one name appears on both
parties' lists, the Arbitrator shall be selected from the
common names by mutual agreement of the parties or by the toss
of a coin.
(D) If the lists contain no names in common,
each party shall strike four names from the other party's list
and the Arbitrator shall be selected from the remaining two
names by mutual agreement of the parties or by the toss of a
coin.
(E) If the CPR ceases to have a Panel or it
is otherwise impossible to select the Arbitrator from the
Panel as contemplated by this Agreement, the Arbitrator shall
be selected by the President of the CPR in the manner that the
President deems closest to satisfying the purposes of this
Section, or, if such person is unable to do so, by the
President of the Association of the Bar of the City of New
York.
(d) The Arbitrator, after appropriate consultation with the parties,
shall (i) determine, in his or her sole discretion, the rules governing the
arbitration proceeding,
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including whether and to what extent the parties shall have any right to
pre-hearing discovery or other forms of disclosure, the manner of presentation
of arguments and/or evidence before or at any hearing, whether and to what
extent formal rules of evidence shall govern the proceeding and the parties'
rights following the proceeding, and (ii) be governed in exercising such
discretion by the goal of reaching a fair and reasonable decision in an
expeditious and efficient manner while endeavoring to streamline the process and
avoid undue litigation costs.
(e) The Arbitrator shall assess the costs of the proceeding (including
the prevailing party's reasonable attorney's fees) on any unsuccessful party to
the extent the Arbitrator concludes that such party is unsuccessful, unless he
or she concludes that matters of equity or important considerations of fairness
dictate otherwise.
(f) The Arbitrator shall be required to state his or her decision in
writing and may, but shall not be required to, elaborate on the reasons for such
decision.
(g) The arbitrator(s) shall have the authority upon application by a
party to direct specific performance, including preliminary or interim specific
performance pending the final resolution of the arbitration, of any portion of
this agreement. The parties expressly consent to the jurisdiction and power of
any federal or state court in New York to enforce the terms of such a direction
upon application by a party. If the arbitrator(s) have not yet been appointed,
the parties may obtain injunctive or other appropriate relief from a court to
enforce the terms of this agreement pending the appointment of the arbitrator(s)
who shall thereafter have full power to continue, modify or vacate the terms of
any injunctive relief ordered by the court.
(h) Notwithstanding the terms of this agreement that provide that New
York law shall govern, the arbitration and the provisions in this agreement
dealing with arbitration shall be governed exclusively by the United States
(Federal) Arbitration Act, 9 U.S.C. ss.ss. 1-16, and judgment on or enforcement
of the award or any direction for specific performance rendered by the
arbitrators may be entered by any court having jurisdiction thereof or having
jurisdiction over the relevant party or assets of such party.
(i) If, notwithstanding the parties' agreement to arbitrate, any issue
is presented to a court for decision, the parties hereby waive any right to
trial by jury.
(j) The parties agree that any dispute between the parties and the
arbitration itself shall be kept confidential and that the existence of the
arbitration and any element of it (including but not limited to any pleading,
brief or other document submitted or exchanged, any testimony or other oral
submission, and any award) shall not be disclosed
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except to the arbitrator(s), the CPR Institute for Dispute Resolution, the
parties, their counsel and any person necessary to the conduct of the
proceeding, except as may be lawfully required in judicial proceedings relating
to the arbitration or otherwise.
13. No Punitive or Emotional Damages
The parties hereto agree that neither the Executive nor the Company will be
entitled to seek or obtain punitive, exemplary or similar damages of any kind
from the other or, in the case of Executive, from the Company's officers,
directors, employees or shareholders, or to seek or obtain damages or
compensation for emotional distress, as a result of any dispute, controversy or
claim arising out of, relating to or in connection with this Agreement, or the
performance, breach, termination or validity thereof. Nothing herein shall
preclude an award of compensatory or punitive damages against any other third
party.
14. Injunctive Relief to Avoid Irreparable Injury
(a) Executive acknowledges and agrees that the individualized services
and capabilities that he will provide to the Company under this Agreement are of
a personal, special, unique, unusual, extraordinary and intellectual character.
(b) Executive acknowledges and agrees that the restrictions in this
agreement are reasonable to protect the Company's rights under this Agreement
and to safeguard the Company's and its Affiliates' Confidential Information.
(c) Executive acknowledges and agrees that the covenants and
obligations of Executive with respect to noncompetition, nonsolicitation,
confidentiality and Company property relate to special, unique and extraordinary
matters and that a violation of any of the terms of such covenants and
obligations will cause the Company and its Affiliates irreparable injury for
which adequate remedies are not available at law. Executive therefore agrees
that the Company shall be entitled to an order of specific performance,
injunction, restraining order or such other interim or permanent equitable
relief (without the requirement to post bond) restraining Executive from
committing any violation of the covenants and obligations contained in this
Agreement
(d) These injunctive remedies are cumulative and are in addition to any
other rights and remedies the Company may have at law or in equity.
(e) Executive represents that his economic means and circumstances are
such that the provisions of this Agreement, including the noncompetition,
nonsolicitation,
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confidentiality and Company property provisions, will not prevent him from
providing for himself and his family on a basis satisfactory to him and them.
15. Automatic Amendment by Arbitral Awards or Court Order
and Interim Enforcement
(a) If the Arbitrator(s) or a court determines that, but for the
provisions of this paragraph, any part of this agreement is illegal, void as
against public policy or otherwise unenforceable, the relevant part will
automatically be amended to the extent necessary to make it sufficiently narrow
in scope, time and geographic area to be legally enforceable.
All other terms will remain in full force and effect.
(b) If the Executive raises any question as to the enforceability of
any part or terms of this agreement, including, without limitation, the
provisions relating to noncompetition, nonsolicitation, confidentiality and
Company property, the Executive specifically agrees that he will comply fully
with this Agreement unless and until the entry of an arbitral award to the
contrary.
16. Notices
All notices and other communications required or permitted hereunder shall be
sufficiently given if (a) delivered personally, (b) sent by facsimile
transmission (with confirmation received), (c) sent by a nationally-recognized
air courier assuring overnight delivery, or (d) mailed (by registered or
certified mail, return receipt requested and postage prepaid) as follows:
if to the Executive, to the Executive at:
18 D'Arblay Street
London W1V 3FP, England
with a copy to Executive at:
Michel Delloye
Avenue des Cytises No. 6
B1180 Bruxelles, Belgium
Fax: 011-322-375-2807
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if to the Company, to the Company at
18 D'Arblay Street
London W1V 2FP , England
Attention: Legal Department
with a copy to each of:
Hon. Ronald S. Lauder
Suite 4200
767 Fifth Avenue
New York, New York 10153
Fax: (212) 572-4046
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attention: Louis Begley, Esq.
or to such other address as shall be furnished by notice from time to time by
one party hereto to the other party. Any such communication shall be deemed to
have been given, (i) in the case of personal delivery, on the date of delivery,
(ii) in the case of delivery by air courier, on the first business day following
the day on which such communication was posted, and (iii) in the case of
mailing, on the third business day following the day on which such notice was
posted.
17. Sole and Entire Understanding; Amendments
The entire understanding and agreement between the Company and Executive have
been incorporated into this Agreement. There are no other promises,
representations, understandings or inducements by the Company to Executive or
Executive to the Company other than those specifically set forth in this
Agreement. This Agreement may not be altered, amended or added to except in a
single writing signed by the Company and the Executive. Coincident herewith,
Executive and CME Development Corporation are entering into an Employment
Agreement covering Executive's services to CME Development Corporation and its
subsidiaries.
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18. Waiver of Breach
A waiver or breach of any provision of this Agreement shall not constitute or
operate as a waiver of any other breach of such provision or of any other
provision, and any failure to enforce any provision hereof shall not operate as
a waiver of such provision or of any other provision.
19. Headings
The headings of sections in this Agreement are for convenience only, are not a
part of this Agreement and shall not affect the construction of the provisions
of this Agreement.
20. Arm's Length
(a) This Agreement was entered into at arm's length, without duress or
coercion, and is to be interpreted as an agreement between parties of equal
bargaining strength. Both the Company and the Executive agree that this
Agreement is clear and unambiguous as to its terms, and that no parol or other
evidence will be used or admitted to alter or explain the terms of this
Agreement, but that it will be interpreted based on the language within its four
corners in accordance with the purposes for which it is entered into.
(b) The parties hereto expressly agree that any rule or contractual
interpretation, as applied under California law or anywhere else, that would
allow parol or extrinsic evidence to attempt to show fraud in the inducement or
duress to contradict the plain, unambiguous terms of this Agreement shall not
apply to this Agreement and its performance and enforcement. This provision is a
material part of this Agreement and, should any party try to introduce evidence
contrary to this provision, any other party shall be entitle to consider it a
breach and to rescind this contract in full.
21. Successors and Assigns
(a) This Agreement will inure to the benefit of, and will be binding
upon, the Company, its successors and assigns and upon the Executive and his
heirs, successors and assigns; provided, however, that, because this is an
Agreement for personal services, the Executive cannot assign any of his
obligations under this Agreement to anyone else.
(b) This Agreement may be executed in counterparts, in which case each
of the two counterparts will be deemed to be an original and the final
counterpart shall be deemed to have been executed in New York, New York.
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22. No Third Party Beneficiaries
This Agreement does not create, and shall not be construed as creating, any
rights enforceable by any person not a party to this Agreement, except as
provided in Sections 4(d) and 5(b).
23. New York Law Governs
Any questions or other matters arising under this Agreement, whether of
validity, interpretation, performance or otherwise, will therefore be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be wholly performed in New York, without reference to
principles of conflicts or choice of law under which the law of any other
jurisdiction would apply.
IN WITNESS WHEREOF, this Agreement has been executed by
Executive and then by the Company in New York, New York, on the dates shown
below, but effective as of the date and year first above written.
Date: March 24, 1998 /s/ Michel Delloye
------------------------- ---------------------------
Michel Delloye
CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
Date: BY: /s/ Ronald S. Lauder
------------------------- -----------------------
Ronald S. Lauder
Chairman
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AGREEMENT dated as of March 25, 1998, among Central European
Media Enterprises Ltd., a Bermuda corporation ("CME" or the "Company"), CME
Development Corporation, a Delaware corporation ("Development"), CME
Programming Services, Inc., a Delaware corporation ("Programming"), The Acorn
Consulting Group, Inc., a New York corporation ("Acorn"), and Leonard M.
Fertig ("Executive").
WHEREAS, Executive and CME are parties to an Employment
Agreement dated as of August 10, 1995 (the "CME Employment Agreement"),
pursuant to which Executive has been employed by CME as President and Chief
Executive Officer and that sets forth specific obligations for both during and
after the term of the CME Employment Agreement;
WHEREAS, Executive and Development are parties to an
Employment Agreement dated as of August 10, 1995 (the "Development Employment
Agreement" and, together with the CME Employment Agreement, the "Employment
Agreements"), pursuant to which Executive has been employed by Development as
President and Chief Executive Officer and that sets forth specific obligations
for both during and after the term of the Development Employment Agreement;
WHEREAS, Executive, Acorn and Programming are parties to a
Consulting Agreement dated as of August 10, 1995 (the "Consulting Agreement"
and, together with the Employment Agreements, the "Prior Agreements"),
pursuant to which Programming appointed Acorn its agent and pursuant to which
Executive, as an employee of Acorn, performed the functions of President and
Chief Executive of Programming and that sets forth specific obligations for
both during and after the term of the Consulting Agreement; and
WHEREAS, Executive, CME, Development, Programming and Acorn
have determined that it is in their collective interests for the Prior
Agreements to be terminated upon the terms and subject to the agreements and
mutual releases set forth herein;
NOW, THEREFORE, in consideration of their mutual promises
herein contained, the parties do hereby agree as follows:
1. Termination of Prior Agreements
Effective as of the date hereof, all rights and obligations
of the parties hereto contained in the Prior Agreements will cease, except to
the extent they are expressly continued pursuant to Sections 11
("Confidentiality") and 12 ("Noncompetition") hereof. In that regard, this
Agreement will constitute a written
<PAGE>
instrument of amendment and cancellation with respect to each of the Prior
Agreements, pursuant to Section 14 of the CME Employment Agreement, Section 13
of the Development Employment Agreement and Section 12 of the Consulting
Agreement, respectively.
2. Resignation of Corporate Positions
Effective as of the date hereof, Executive hereby resigns
from all offices, board memberships and other corporate positions with CME,
Development, and Programming and will, as soon as possible, resign from all
offices, board memberships and other corporate positions with their respective
subsidiaries and affiliates, other than as a member of the Board of Directors
of CME. Effective as of the date hereof, Programming hereby revokes and
terminates its appointment of Acorn as its agent and Acorn accepts and
acknowledges such revocation and termination. Executive agrees that he will
not stand for reelection to the Board of Directors of CME.
3. Conversion of Class B Common Stock
Executive will promptly and in any event prior to the
issuance of the 1998 Proxy Statement convert all shares of the Class B Common
Stock of the Company he owns into Class A Common Stock. Executive will
promptly upon request execute such documents as CME may reasonably require to
effect such conversion.
4. Continuation of Employment; Post-Employment Consulting Services
(a) Continuation of Employment. Executive's full time
employment with CME and Development will continue, and Acorn's engagement as a
consultant to Programming will continue, from the date hereof (the
"Commencement Date") through May 1, 1998, and thereafter on a part time
employment basis through August 10, 1998 or such earlier date on which
Executive's employment (and Acorn's consultancy) terminates pursuant to
Section 6 below (the "Employment Termination Date"). The period from the
Commencement Date through the Employment Termination Date is referred to
herein as the "Employment Continuation Period." During the Employment
Continuation Period, Executive will provide services to CME and Development,
and Acorn shall provide consulting services to Programming, on an as requested
basis by their respective Chairmen or chief executive officers; provided that
such services after May 1, 1998 will not (i) unreasonably interfere with
Executive's ability to seek other employment or consulting opportunities or
(ii) exceed 20 hours per calendar month. Such consulting services may be with
respect to, but need not be limited to, the Perekhid litigation and any
matters relating thereto (including being available to the Company and its
legal and other advisors for debriefing and to assist in establishing the
factual record relating to such
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litigation). In connection with such consulting services, the Executive shall
travel to such location or locations as may be requested by the Company.
(b) Consulting Services. Executive will make himself
available as a consultant to CME and Development, and Acorn will make itself
available as a consultant to Programming, on an as requested basis by their
respective chairmen and chief executive officers from the end of the
Employment Continuation Period through August 10, 1999 (such date the
"Termination Date" and such period the "Consulting Period"), unless earlier
terminated in accordance with Section 6; provided that such services will not
(i) unreasonably interfere with Executive's ability to seek other employment
or consulting opportunities or (ii) exceed 20 hours per calendar month. Such
consulting services may be with respect to, but need not be limited to, the
Perekhid litigation and any matters relating thereto (including being
available to the Company and its legal and other advisors for debriefing and
to assist in establishing the factual record relating to such litigation). In
connection with such consulting services, the Executive shall travel to such
location or locations as may be requested by the Company. The period from the
Commencement Date through the end of the Consulting Period is referred to
herein as the "Services Continuation Period."
(c) Services Following the Services Continuation Period.
Following the end of the Services Continuation Period (regardless of whether
earlier terminated by the Company or Executive), Executive will make himself
available on a per diem basis with respect to the Perekhid litigation and any
matters relating thereto (including being available to the Company and its
legal and other advisors for debriefing and to assist in establishing the
factual record relating to such litigation) (the "Per Diem Services").
5. Compensation, Benefits and Expenses, Etc.
(a) Base Salary. During the Employment Continuation Period,
Executive shall be paid a base salary of $180,000 per annum by CME and
$120,000 per annum by Development and Acorn shall be paid a consulting fee of
$50,000 per annum, in each case payable in equal monthly installments.
(b) Consulting Fees. During the Consulting Period, if any,
Executive shall be paid a consulting fee of $180,000 per annum by CME and
$120,000 per annum by Development and Acorn shall be paid a consulting fee of
$50,000 per annum, in each case payable in equal monthly installments.
(c) Benefit Continuation. During the Service Continuation
Period, Executive will continue to participate in CME and Development's
welfare benefit plans under substantially the same terms as Executive was
entitled to participate in such benefit
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plans prior to the Commencement Date, including reimbursement for medical
insurance costs on the same basis as is now provided.
(d) Expatriate Premium; Relocation. From the Commencement
Date through the end of the Service Continuation Period, or, if earlier, the
date Executive moves his principal residence from the U.K., Development shall
pay Executive an expatriate premium of UK(pound)3,000 per month. In the event
that Executive relocates his residence to the United States on or prior to the
Termination Date, Development will reimburse Executive for the actual and
reasonable costs of moving Executive and his belongings back to the United
States. Such payment will be made as soon as practicable following
Development's receipt of a proper invoice from Executive with documentation
supporting such relocation costs.
(e) Bonus. Executive shall be paid a bonus of $150,000 with
respect to 1997, such payment to be made no later than March 31, 1998.
(f) Stock Options. All CME stock options granted to
Executive pursuant to various stock option agreements, including the stock
option granted to Executive on August 1, 1997 which has not yet been executed
(the "Stock Option Agreements") will vest on May 1, 1998, provided that
Executive shall have satisfied his obligations under this Agreement to be
performed through such date. Pursuant to Section 4(a)(ii) of the Stock Option
Agreements, all of Executive's stock options will remain exercisable for one
year following his Termination Date. Notwithstanding any other provision
contained in this Section or in the Stock Option Agreements, all of
Executive's outstanding stock options (whether or not previously vested) will
be forfeited in the event he (or his estate) declines to execute a final
release of claims pursuant to Section 10 below. In the event that Executive is
furnished notice that he has committed a material breach of this Agreement and
such breach, if capable of being cured, shall not have been cured within 30
days of receipt of such notice, any outstanding stock options remaining
unexercised following the Termination Date will be forfeited.
(g) Per Diems. For each day (or portion thereof) that
Executive is providing Per Diem Services to the Company, the Company shall pay
Executive a per diem of $1,500, which shall be prorated on the basis of an
8-hour day for services of less than 6 hours in any one day.
(h) Expense Reimbursement. Development will reimburse
Executive for all out-of-pocket expenses (which shall be at the same class of
service to which Executive was heretofore entitled) necessary for his
performance of services requested pursuant to Section 4 above during or
following the Employment Continuation Period; provided that the Executive
obtains prior written authorization from the Chief Executive Officer (the
"CEO") of CME to incur such expenses. Such reimbursement will be paid as
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<PAGE>
soon as practicable following Development's receipt of proper documentation
from Executive related to such expenses.
(i) Miscellaneous. Executive will be permitted to buy the
Series 3 BMW that has previously been available for Executive's use in The
Netherlands for the book value thereof. During the period from the
Commencement Date through May 1, 1998, Development will furnish Executive with
office space and secretarial assistance, or provide Executive with an
allowance to permit Executive to secure office space and secretarial
assistance. Development will reimburse Executive for up to $10,000 of the
reasonable and actual costs and disbursements of Executive's legal counsel
incurred in connection with the negotiations leading to and the execution of
this Agreement.
6. Stock Depreciation Protection
(a) Sales During the Initial Period. Executive currently
owns 223,805 shares of Common Stock of CME (the "Owned Shares"). Executive
agrees that he will not sell more than 50,000 shares of CME Common Stock prior
to the expiration of the later of (i) May 1, 1998 and (ii) three months after
the date on which Executive ceases to be a member of the Board of Directors of
CME (the "Initial Period").
(b) Payment with Respect to Sales During the Initial Period.
If Executive makes a permitted sale of shares of CME Common Stock in one or
more arm's length transactions during the Initial Period, and the average per
share selling price (before deduction for commissions and other expenses of
sale) for all shares of CME Common Stock sold during the Initial Period is
less than $27.625 per share, then CME will pay Executive an amount equal to
the difference between $27.625 and the higher of (i) $20.00 and (b) the
average selling price (before deduction for commissions and other expenses of
sale) for the shares sold.
(c) Sales After the Initial Period and on or Before April
30, 1999. On the earliest of April 30, 1999, the date that Executive shall
have disposed of all of the Owned Shares and the $30.00 Date, CME will pay
Executive an amount equal to the lesser of (x) $600,000 minus the amount, if
any paid pursuant to Section 6(b), and (y) the number of Owned Shares not
disposed of during the Initial Period multiplied by the excess, if any, of A
over B, where
A = $23.48, and
B = the sum of (1) the selling price (before
commissions and other expenses of sale) for all of
the Owned Shares that have been disposed of in an
arm's length transaction after the end of the
Initial Period and on or before the earlier of
April 30, 1999 and the
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<PAGE>
$30.00 Date plus (2) the average of the closing
prices for a share of CME Class A Common Stock for
the 20 consecutive trading days ending on April 30,
1999 multiplied by the number of Owned Shares not
disposed of during the Initial Period or taken into
account in clause (1), divided by (3) the number of
Owned Shares not disposed of during the Initial
Period;
provided that if the average between the high and low prices for a share of
CME Class A Common Stock for any 20 consecutive trading days commencing after
the expiration of the Initial Period is $30.00 or more, the determination of
the payment due to Executive under this Section 6(c) shall be made as of the
last day of such 20-day period (the "$30.00 Date"), and $30.00 shall be the
amount used in Clause (2) of this Section 6(c).
(d) Time of Payment. Payments under this Section 6 will be
made within 30 days after each payment is determined. Notwithstanding the
foregoing, CME shall not be obligated to make any payment provided for in this
Section 6 if CME notifies Executive in writing that Executive has materially
breached this Agreement, and Executive has not cured such breach within 30
days after receiving such notice.
(e) Capital Adjustments; Effect of Stock Options . In the
event that on before April 30, 1999, CME shall have effected one or more stock
dividends, stock splits, reorganizations, recapitalizations, combination of
shares, mergers, consolidations, or other changes on the corporate structure
or stock of CME, the number of shares and the per share prices set forth in
this Section 6 shall be equitably adjusted to prevent a diminution or
enlargement of Executive's rights hereunder. If Executive disposes of any
shares of CME Common Stock acquired upon exercise of a stock option on or
before April 30, 1999, such sale shall be deemed to be a sale of Owned Shares
if made prior to the disposition of all of the Owned Shares.
7. Early Termination Provisions
The Employment Continuation Period, or, following the
Employment Continuation Period, the Consulting Period, shall earlier terminate
(i) by written notice of Executive to so terminate the Employment Continuation
Period or the Consulting Period, as the case may be, such notice to be
delivered not more than 15 and not less than 10 days prior to the effective
date thereof or (ii) by the Company for "cause," which shall mean a material
breach of this Agreement and such breach, if capable of being cured, shall not
have been cured within 30 days of receipt of such notice.
8. Release of Claims Against Development and Media Enterprises
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In consideration of the commitments and payments set forth
in this Agreement, Executive, for himself and his heirs and personal
representatives, and Acorn, for itself, any of its successors, or any person
who might claim through Acorn, hereby fully and forever release CME,
Development, Programming, Media Enterprises and their respective subsidiaries,
shareholders (including indirect shareholders), affiliates, officers,
directors, employees, agents and representatives, from any and all claims,
liabilities, promises, contracts, and suits which have been or could have been
asserted by Executive or Acorn, or on his or its behalf, in any forum by
reason of matters arising prior to the date of this Agreement.
9. Release of Claims Against Executive and Acorn
CME, Development and Programming hereby fully and forever
release Executive and Acorn from any and all claims, liabilities, promises,
contracts, and suits which have been or could have been asserted by any or all
of them or on their behalf in any forum by reason of matters arising prior to
the date of this Agreement, other than any claim, liability, promise, contract
or suit based in material part on a state of facts or matter of which CME,
Development and Programming do not currently have actual knowledge and for
which Executive could have been dismissed for "Cause" under the CME Employment
Agreement or the Development Employment Agreement.
10. Final Release of Claims
Notwithstanding any other provisions of this Agreement,
Executive (or his estate) and Acorn will be required, as a condition precedent
to Executive's right to receive any amounts payable pursuant to Sections 4
hereof upon his termination of employment, to execute a final release of
claims dated as of the Termination Date and substantially in the form attached
hereto as Exhibit A.
11. Confidentiality
(a) The parties to this Agreement agree not to disclose the
terms of this Agreement except to their legal counsel, tax advisors and
accountants, and to maintain its confidentiality, except as required by law
(including, but not limited to, any securities laws pertaining to disclosure);
provided that nothing herein will be deemed to prohibit the parties from
disclosing the same as may be required in the conduct of their respective
businesses.
(b) Notwithstanding any other provision of this Agreement,
Executive and Acorn will continue to be bound by the confidentiality
provisions contained in Sections 5.3 or each of the Employment Agreements and
Section 4.1 of the Consulting Agreement.
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12. Noncompetition
Notwithstanding any other provision of this Agreement and
except as otherwise agreed by CME or CME Development in writing, from the
Commencement Date through the earlier of (x) the Termination Date and (y) the
effective date of a termination by Executive pursuant to clause (i) of Section
6, Executive will continue to be bound by the covenants related to
noncompetition that are contained in section 5.2 of each of the Employment
Agreements with the following modifications to such sections: (A) the words
"licensing of television or radio stations and provision of programming or
telecommunications services" in the first sentence of Section 5.2 of the CME
Employment Agreement shall be and hereby are replaced by the words "licensing
and operation of television or radio stations and providing broadcast
programming services of the type heretofore provided by CME or any member of
the CME Group", and (B) the phrase "at any time in the Term" in the first
sentence of section 5.2 of each of the Employment Agreements shall be and
hereby is replaced by the phrase "at any time in the Term or, as of March 25,
1998, plans to seek to conduct such business."
13. No Disparaging Comments
Executive, Acorn, CME, Development and Programming, for
themselves and on behalf of their subsidiaries, each agrees not to make
disparaging or derogatory comments about the other party or parties (including
such party's officers, directors, shareholders (including indirect
shareholders) or family members, as applicable), except to the extent required
by law, and then only after consultation with the other party to the maximum
extent possible in order to maintain goodwill for each of the parties.
14. Return of Property
As soon as practicable after May 1, 1998, Executive and
Acorn will (i) return to CME, Development and Programming all documents,
records, notebooks, computer diskettes and tapes and anything else containing
Confidential Information (as defined in Section 5.3 of the Employment
Agreements and Section 4.1 of the Consulting Agreement), and any other
property or Confidential Information of CME, Development or Programming,
including all copies thereof in Executive's or Acorn's possession, custody or
control, and (ii) delete from any computer or other electronic storage medium
owned by Executive or Acorn any of the proprietary or Confidential Information
of CME, Development and/or Programming.
15. Withholding Taxes; etc.
Any amounts payable hereunder shall be subject to any
required withholding taxes and employment-related or other similar taxes.
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16. Arbitration of All Disputes
All disputes and controversies related to this Agreement
will be fully and finally resolved by binding and non-appealable arbitration,
before a single arbitrator selected by the procedure set forth below, held in
New York City.
(a) The single arbitrator (the "Arbitrator") will be
selected from among the New York City members of the New York Regional Panel
of Distinguished Neutrals (the "Panel") of the Center for Public Resources
("CPR") by mutual agreement of the parties, or if the parties are unable to
agree, by the following means:
(i) CME, Development and Programming together, on
one hand, and Executive and Acorn, on the other hand, will
simultaneously exchange lists each containing the names of
five members of their choice of the Panel who have indicated
a willingness to serve.
(ii) If a single name appears on both lists, that
individual will be appointed.
(iii) If more than one name appears on both
parties' lists, the Arbitrator will be selected from the
common names by mutual agreement of the parties or by the
toss of a coin.
(iv) If the lists contain no names in common, each
party will strike four names from the other party's list and
the Arbitrator will be selected from the remaining two names
by mutual agreement of the parties or by the toss of a coin.
(v) If the CPR ceases to have a Panel or it is
otherwise impossible to select the Arbitrator from the Panel
as contemplated by this Agreement, the Arbitrator will be
selected by the President of the CPR in the manner that the
President deems closest to satisfying the purposes of this
Section, or, if such person is unable to do so, by the
President of the Association of the Bar of the City of New
York.
(b) The Arbitrator, after appropriate consultation with the
parties, will (i) determine, in his or her sole discretion, the rules
governing the arbitration proceeding, including whether and to what extent the
parties will have any right to pre-hearing discovery or other forms of
disclosure, the manner of presentation of arguments and/or evidence before or
at any hearing, whether and to what extent formal rules of evidence will
govern the proceeding and the parties' rights following the proceeding, and
(ii) be governed in exercising such discretion by the goal of reaching a fair
and reasonable
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decision in an expeditious and efficient manner while endeavoring to
streamline the process and avoid undue litigation costs.
(c) The Arbitrator will assess the costs of the proceeding
(including the prevailing party's reasonable attorney's fees) on any
unsuccessful party to the extent the Arbitrator concludes that such party is
unsuccessful, unless he or she concludes that matters of equity or important
considerations of fairness dictate otherwise.
(d) The Arbitrator will be required to state his or her
decision in writing and may, but will not be required to, elaborate on the
reasons for such decision.
(e) All proceedings in connection with any arbitration,
including its existence, the content of the proceedings and any decision, will
be kept confidential to the maximum extent possible consistent with the law.
17. Executive's Consultation With Counsel
Executive acknowledges that he has consulted with his own
legal counsel in connection with this Agreement and the matters contemplated
herein, and understands the terms and consequences to him of this Agreement.
18. Governing Law
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
19. Notices.
All notices under this Agreement shall be in writing and
shall be deemed to have been given at the time when mailed by registered or
certified mail or when delivered by hand or recognized overnight courier
service, addressed to the address below stated of the party to which notice is
given, or to such changed address as such party may have fixed by notice:
To CME at:
Central European Media Enterprises Ltd.
Clarendon House
Church Street
Hamilton HM CX Bermuda
10
<PAGE>
To CME Development and Programming at:
18 D'Arblay Street
London W1V 3FP England
Attention: John Schwallie
with a copy to each of:
Central European Media Enterprises Ltd.
18 D'Arblay Street
London W1V 3FP England
Attention: Legal Department
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Louis Begley, Esq.
To Executive and Acorn:
50 Central Park West - Apt. 2A
New York, New York 10023
with a copy to:
Edmonds & Co., P.C.
420 Fifth Avenue - 25th Floor
New York, New York 10018
Attention: Robert C. Edmonds, Esq.
20. Separate Agreements
If any of the parties request that a separate agreement be
executed relating only to his or its rights and obligations with respect to
any other party, the parties shall cooperate to have such separate agreement
prepared and executed. The preparation of such separate agreements shall not
enlarge or diminish the rights of any of the parties hereunder.
21. Miscellaneous
11
<PAGE>
This Agreement constitutes the entire Agreement and
understanding among the parties hereto concerning the subject matter hereof
and supersedes and replaces all prior negotiations, proposed agreements and
agreements, written or oral. The parties agree that neither they nor any of
their representatives, agents or attorneys have made any promises,
representations or warranties whatsoever, expressed or implied, which are not
specifically set forth herein, and neither party has executed this Agreement
in reliance upon any such promises, representations or warranties. This
Agreement may not be amended or modified except in a writing signed by the
parties hereto.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first set forth above.
CENTRAL EUROPEAN MEDIA ENTERPRISES
LTD.
By: /s/ Ronald S. Lauder
--------------------------------
Name: Ronald S. Lauder
Title:
CME DEVELOPMENT CORPORATION
By: /s/ Michel Delloye
--------------------------------
Name: Michel Delloye
Title:
CME PROGRAMMING SERVICES, INC.
By: /s/ Michel Delloye
--------------------------------
Name: Michel Delloye
Title:
THE ACORN CONSULTING GROUP, INC.
By: /s/ Leonard M. Fertig
--------------------------------
Name: Leonard M. Fertig
Title:
LEONARD M. FERTIG
/s/ Leonard M. Fertig
------------------------------------
13
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