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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998 Commission File Number: 0-24796
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
(Exact name of registrant as specified in its charter)
Bermuda Not Applicable
(State or other jurisdiction of incorporation) (IRS Employer
Identification No.)
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Clarendon House
Church Street
Hamilton HM CX
Bermuda
(Address of principal executive offices)
(441) 296-1431
(Registrant's telephone number)
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.01 par value
9.375% Notes Due 2004
8.125% Notes Due 2004
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for each shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO _______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting stock of registrant held by
non-affiliates of the registrant as of March 17, 1999 was approximately
$168,249,576
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Number of shares of Class A Common Stock outstanding as of March 17, 1999:
18,106,789
Number of shares of Class B Common Stock outstanding as of March 17, 1999:
7,577,329
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DOCUMENTS INCORPORATED BY REFERENCE
Document
-------- Location in Form 10-K in Which
Registrant's Proxy Statement Document is Incorporated
for the Annual Meeting of ------------------------
Shareholders to be held on June 8,1999 Part III
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business..........................................................3
Item 2. Properties.......................................................22
Item 3. Legal Proceedings................................................22
Item 4. Submission of Matters to a Vote of Security Holders..............24
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters..........................................................25
Item 6. Selected Financial Data..........................................25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................27
Item 8. Financial Statements and Supplementary data......................45
Item 9. Changes in and Disagreements with accountants on accounting and
financial disclosure.............................................98
PART III
Item 10. Directors and executive officers of the registrant...............98
Item 11. Executive compensation...........................................98
Item 12. Security Ownership Of Certain Beneficial Owners And Management...98
Item 13. Certain relationships and related transactions...................98
PART IV
Item 14. Exhibits, financial statement schedules and reports on Form 8-K..99
SIGNATURES
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PART I
Item 1. BUSINESS
General
Central European Media Enterprises Ltd. ("CME") is a Bermuda
corporation. All references to the "Company" include CME and its direct and
indirect Subsidiaries, and all references to "Subsidiaries" include each
corporation or partnership in which CME has a direct or indirect equity or
voting interest.
The Company is the leading commercial television company in Central and
Eastern Europe. The Company's national private television stations and networks
in the Czech Republic, the Slovak Republic, Slovenia and Ukraine had the leading
nationwide audience shares for 1998 and the Company's television network in
Romania had the leading average audience share within its area of broadcast
reach for 1998. The Company's television studios, production facilities and
editing suites at its national television stations produced approximately 14,000
hours of original programming in 1998 to support the Company's broadcasting
operations, making it the largest private producer of local television
programming in Central and Eastern Europe.
The Company's television stations and networks, which reach an
aggregate of approximately 84 million people in six countries, consist of the
following:
<TABLE>
<CAPTION>
Population
---------- Technical Economic Voting
Country (1) Stations and Networks Reach (2) Interest (3) Interest (3)
- ------- ------ --------------------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Czech Republic................ 10.3 Nova TV......................... 10.2 99.0% 99.0%
Romania....................... 22.3 PRO TV / Acasa.................. 15.8 66.0% 66.0%
Slovenia...................... 2.0 POP TV / Gajba TV............... 1.7 85.5% 78.0%
Slovak Republic............... 5.4 Markiza TV...................... 5.0 80.0% 49.0%
Ukraine....................... 49.8 Studio 1+1...................... 47.3 60.0% 60.0%
Hungary....................... 10.2 TV3............................. 4.2 99.0% 99.0%
-------------- -------------
Total..................... 100.0 84.2
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(1) Country population in millions. Source: United States Bureau of the Census,
February 1999.
(2) "Technical Reach" measures the number of people in millions who are able to
receive the signals of the indicated stations and networks. Source: CME
stations
(3) See discussion below under the heading "Corporate Structure".
The Company's first national television operation began in February
1994 with the launch of Nova TV in the Czech Republic. Since then, Nova TV has
consistently achieved an audience share in excess of 50%. The Company estimates
that television advertising expenditures in the Czech Republic grew from
approximately $67 million in 1993 to approximately $188 million in 1998. The
Company believes that Nova TV has achieved its success in large part by
providing a wide range of popular programming designed to appeal to a mass
market audience, including a mix of locally produced news and entertainment
formats and films and television series acquired from major international
distributors, and a format distinctly different from that offered by competing
stations in terms of image and local
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focus. The Company believes that broadcasting a significant amount of locally
produced programming and developing a distinctive independent news program gives
a strong local identity to its stations, increases audience share and is
desired by local regulatory authorities. The Company capitalized on its
successful launch of Nova TV by adopting similar programming and operating
strategies for PRO TV in Romania, POP TV in Slovenia, Markiza TV in the Slovak
Republic and Studio 1+1 in Ukraine.
Unless otherwise noted, all statistical and financial information
presented in this report has been converted into United States dollars using
exchange rates as of December 31, 1998. All references to '$' or 'dollars' are
to United States dollars, all references to 'Kc' are to Czech korunas, all
references to 'ROL' are to Romanian lei, all references to 'SIT' are to Slovenia
tolar, all references to 'Sk' are to Slovak korunas, all references to 'Hrn' are
to Ukrainian hryvna, all references to HUF are to Hungarian forints and all
references to 'DM' are to German marks. The exchange rates as of December 31,
1998 used in this report are 29.86 Kc/$; 10,983 ROL/$; 161.20 SIT/$; 36.91 Sk/$;
3.43 Hrn/$; 217 HUF/$; and 1.67 DM/$.
Corporate Structure
Central European Media Enterprises Ltd. was incorporated on June
15, 1994 under the laws of Bermuda. CME's assets are held through a series of
Dutch and Netherlands Antilles holding companies. See "Recent Developments" for
a description of the Reorganization Agreement entered into on March 29, 1999
with SBS Broadcasting S.A.
Laws, regulations and policies in CME's markets generally restrict the
level of direct or indirect interests that any non-local investor such as CME
may hold in companies holding broadcast licenses. As a result, broadcast
licenses are generally held by companies majority owned by CME's local partners
and CME owns controlling interests in service companies which provide
programming, advertising and other services to the licenseholding companies.
References to Nova TV, POP TV, Gajba TV, PRO TV, Acasa, Markiza TV and Studio
1+1 in this report may be to either the license company or the service companies
or both, as the case may be.
</TABLE>
<TABLE>
<CAPTION>
CME CME
License Voting TV Services Voting
Country Expiration TV License Company Interest Company Interest
- ------- ---------- ------------------- --------- ---------- --------
<S> <C> <C> <C> <C>
Czech Republic......... 2005 CET............................. 1.25% CNTS.................... 99%
Romania................ 2002 -2006 Pro TV S.R.L.................... 49% MPI .................... 66%
Media Pro S.R.L................. 0%
Slovenia............... 2003 -2007 Tele 59 ........................ 10% Pro Plus................ 78%
MMTV............................ 10%
Slovak Republic........ 2007 Markiza-Slovakia s.r.o.......... 0% STS..................... 49%
Ukraine................ 2007 Studio 1+1...................... 15% Innova, IMS, UAH........ 60%
Prioritet............... 50%(1)
</TABLE>
(1) 50% interest owned by UAH
Czech Republic
The Company currently owns a 99% voting and economic interest in Ceska
Nezavisla Televizni Spolecnost s.r.o. ("CNTS"), with the remaining 1% voting and
economic interest in CNTS held by CET 21 s.r.o. ("CET"). CET holds a terrestrial
television broadcast license in the Czech Republic that expires in January 2005.
Dr. Vladimir Zelezny, the General Director of both CET and CNTS, owns a
controlling 60% participation interest in CET. CNTS is governed by a Memorandum
of Association and Investment Agreement. The Company has the right to appoint
five of the seven members of CNTS's Committee of Representatives,
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which directs the affairs of CNTS. A representative of CET has certain delay and
veto rights on non-economic programming matters related directly to the
broadcast license.
CNTS provides television and related services to CET, which broadcasts
the Nova TV signal, pursuant to a Services Agreement with CET dated May 21, 1997
(the "Services Agreement"). In consideration for its activities under the
Services Agreement, CNTS is entitled to retain revenues from sales of
advertising on Nova TV less a monthly fee paid to CET.
On March 19, 1999, CET provided CNTS with a copy of a letter, dated
March 15, 1999 addressed to Dr. Zelezny as executive of CET and signed by the
Chairman of the Czech Media Council, in which the Czech Media Council takes
positions that appear inconsistent with the existing relationship between CNTS
and CET. Among other things, the Czech Media Council has questioned the
exclusive nature of the commercial relationship between CNTS and CET and the
manner in which CET enters into certain broadcasting-related contracts. CME
believes that the structure of Nova TV and the contracts and business dealings
between CET and CNTS are in compliance with all applicable Czech laws and
regulations. However, there can be no assurance that the Czech Media Council
will conclude, as it has in the past, that such dealings are in compliance and
there can be no assurance that the Czech Media Council will not require
modifications of the arrangements between CET and CNTS.
In this connection, CME has recently been engaged in discussions and
negotiations with Dr. Zelezny regarding the relationship between CNTS and CET,
including with respect to actions taken and proposed to be taken by CET
concerning the acquisition of programming for CET and other matters with which
CNTS disagrees. On behalf of CET, Dr. Zelezny has requested certain
modifications in the CNTS Memorandum of Association and Investment Agreement and
the Services Agreement, which modifications CME is resisting. CME has proposed
to Dr. Zelezny alternative arrangements that it believes would solidify CNTS's
contractual relationship with CET and satisfy Dr. Zelezny's concerns regarding
the existing arrangements. However, there can be no assurance that CME and CNTS
will be able to reach a satisfactory agreement with CET and Dr. Zelezny.
CME and CNTS intend to take all available actions to protect their
legal rights and financial interests in connection with Nova TV, and it is
possible that the current disagreements with Dr. Zelezny could result in
protracted litigation. If the Czech Media Council were to require significant
changes in the current arrangements between CNTS and CET, or if the differences
between CNTS and CET cannot be resolved, one or more material adverse affects on
the business and financial condition of CNTS and CME could result, including a
substantial reduction in the economic benefits currently enjoyed by CNTS and CME
and, potentially, a termination of the existing commercial relationship between
CNTS and CET.
The Company owns a 76% interest in Radio Alfa a.s. v likvidoci, ("Radio
Alfa"), formerly the service provider for a private national radio broadcaster
in the Czech Republic. The license to operate the radio station expired in
February 1999. Radio Alfa ceased to provide services as of December 31, 1998 and
is being liquidated.
Romania
The Company's interest in PRO TV is governed by a Cooperation Agreement
(the "Romanian Agreement") among the Company, Adrian Sarbu and Ion Tiriac,
forming Media Pro International S.A. ("MPI"), through which PRO TV and Acasa,
which was launched in February 1998, are operated. MPI provides programming to
and sells advertising for the stations which comprise the PRO TV and Acasa
network. Pursuant to the Romanian Agreement, the Company owns 66% of the equity
of MPI. Interests in profits of MPI are equal to the partners' equity interests.
The Company has the right to appoint three of the five members of the Council of
Administration which directs the affairs of MPI. Although the Company has
majority voting power in MPI, with respect to certain fundamental financial and
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corporate matters the affirmative vote of either Mr. Sarbu or Mr. Tiriac is
required. The Company owns 49% of the equity of PRO TV, SRL which holds 20 of
the 23 licenses for the stations which comprise the PRO TV and Acasa network.
Messrs. Sarbu and Tiriac own substantially all of the remainder of PRO TV, SRL.
The remaining three licenses for the PRO TV network together with the licenses
for the PRO FM and PRO AM radio networks are held by Media Pro SRL, a company
owned by Messrs. Sarbu and Tiriac. In addition, in Romania, the Company owns 70%
of each of Media Vision SRL ("Media Vision"), a production and dubbing company,
and Video Vision International SRL ("Video Vision"), a post-production company.
On March 18, 1999, the Company sold its 9.6% equity interest in
MobilRom S.A., a GSM telephone operator in Romania.
Slovenia
The Company's interest in POP TV and Gajba TV is governed by a
Partnership Agreement among the Company, MMTV 1 d.o.o. Ljubljana ("MMTV") and
Tele 59 d.o.o. Maribor ("Tele 59"), forming Produkcija Plus d.o.o. ("Pro Plus").
Pro Plus provides programming to and sells advertising for the broadcast
licenseholders MMTV and Tele 59 as well as additional affiliates. The Company
currently owns 78% of the equity in Pro Plus, but has an effective economic
interest of 85.5% as a result of its right to 33% of the profits of MMTV and 33%
of the profits of Tele 59. Tele 59 currently owns a 21% equity interest in Pro
Plus, and MMTV currently owns a 1% equity interest in Pro Plus. The Company owns
10% of the equity of each of Tele 59 and MMTV. Voting power and interests in
profits of Pro Plus are equal to the partners' equity interests. All major
decisions concerning the affairs of Pro Plus are made by the general meeting of
partners and require a 70% affirmative vote. Certain fundamental financial and
corporate matters require an 85% affirmative vote of the partners. The Company
also owns a 20% interest in Meglic Telecom d.o.o. ("MTC") a cable operator in
Ljubljana which owns a 67% economic interest in MMTV. In July 1996, the Company,
together with MMTV and Tele 59, entered into an agreement to purchase a 66%
equity interest in Kanal A, a privately owned television station in Slovenia,
which competes with POP TV (the "Kanal A Agreement"). There is currently an
injunction in effect preventing the completion of the Kanal A Agreement. See
Item 3 "Legal Proceedings".
Slovak Republic
The Company's interest in Markiza TV is governed by a Participants
Agreement dated September 28, 1995 (the "Slovak Agreement") between the Company
and Markiza-Slovakia s.r.o. ("Markiza") forming Slovenska Televizna Spolocnost,
s.r.o. ("STS"). Pursuant to the Slovak Agreement, the Company is required to
fund all of the capital requirements of, and holds a 49% voting interest and an
80% economic interest in STS. Markiza, which holds the television broadcast
license, and STS have entered into an agreement under which STS is entitled to
conduct television broadcast operations pursuant to the license. On an ongoing
basis, the Company is entitled to 80% of the profits of STS, except that until
the Company is repaid its capital contributions plus a priority return at the
rate of 6% per annum on such capital contributions, 90% of the profits will be
paid to the Company. A Board of Representatives directs the affairs of STS, the
composition of which includes two designees of the Company and three designees
(two of whom have been named) of Markiza; however, all significant financial and
operational decisions of the Board of Representatives require a vote of 80% of
its members. In addition, certain fundamental corporate matters are reserved for
decision by a general meeting of partners and require a 67% affirmative vote of
the
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partners. There is currently a litigation pending with respect to the ownership
of Markiza. See "Item 3, Legal Proceedings".
Ukraine
The Studio 1+1 Group consists of several entities in which the Company
holds direct or indirect interests. The Company owns a 60% (increased from 50%
in December 1998) equity interest in each of Innova Film GmbH ("Innova"),
Ukraine Advertising Holding B.V. ("UAH") and International Media Services
("IMS"). UAH holds a 50% equity interest in Prioritet, a Ukrainian company
engaged in advertising sales. Innova holds 100% of Intermedia, a Ukrainian
company ("Intermedia"), which in turn holds a 30% equity interest in a separate
Ukrainian company which holds the license to broadcast programming and sell
advertising on UT-2 (the "UT-2 License"). Innova, IMS, Intermedia and Prioritet
have entered into arrangements regarding the provision of programming and
advertising sales services to Studio 1+1. Interests in profits of each entity in
the Studio 1+1 Group are equal to equity interests held in such entities. All
significant decisions of the entities in the Studio 1+1 Group are reserved for
decision of the shareholders, requiring a majority vote (other than decisions of
the shareholders of the Ukrainian company which holds the UT-2 broadcast
license, which require a 75% vote). Certain fundamental corporate matters of
these entities require 61% shareholder approval.
Hungary
In Hungary, the Company owns a 99% (increased from 89% in December
1998) equity interest in Budapesti Kommunikacios Rt ("TV3"), a television
station distributing its signal via MMDS in Budapest and via satellite to cable
systems throughout Hungary. The Company has the right to appoint all of the five
members of the Board of Directors of TV3, all decisions of which require a
simple majority. See Item 3 "Legal Proceedings" regarding the Company's
consortium Irisz TV. The Company wholly owns Videovox Studio Limited Liability
Company ("Videovox"), a Hungarian dubbing and duplication company.
Corporate
CME Development Corporation, a wholly owned subsidiary of the Company,
provides financial, legal, marketing, business development and administrative
support services to the Company. CME Programming Services, Inc., a wholly owned
subsidiary of the Company, provides programming, production and satellite
transmission services to the Company's television broadcast operations in
Central and Eastern Europe. See "Corporate Operations."
The Company's registered offices are located at Clarendon House, Church
Street, Hamilton HM CX Bermuda, and its telephone number is 441-296-1431.
Certain of the Subsidiaries maintain offices at 18 D'Arblay Street, London W1V
3FP England, telephone number 44-171-292-7900.
Operating Environment
Private commercial television stations (those which derive the majority
of their revenues from the sale of advertising) generally began broadcasting in
the United States in the 1940s, in most parts of Western Europe in the 1980s,
but not until the 1990s in Central and Eastern Europe. Commercial television has
become an important medium for advertisers in the more developed advertising
markets. For example, in 1998 television advertising
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expenditures totaled $44 billion in the United States and an aggregate of $25
billion in the 15 countries in the European Union. The Company believes that,
over time, television advertising expenditures in Central and Eastern European
countries, which are currently relatively low, will follow a pattern of
development similar to that of Western Europe and the United States.
The following two tables set forth (i) the population, number of TV
households, per capita GDP and cable penetration for those countries of Central
and Eastern Europe where the Company has broadcast operations and (ii) the
recent growth in television advertising expenditures in those countries.
<TABLE>
<CAPTION>
TV Per Capita GDP % Cable
Country Population (1) Households (2) 1998 (3) Penetration (4)
- ------- -------------- ------------------ -------- ---------------
<S> <C> <C> <C> <C>
Czech Republic...................... 10.3 3.9 $5,490 17%
Romania............................. 22.3 6.7 $1,830 44%
Slovenia............................ 2.0 0.6 $9,240 40%
Slovak Republic..................... 5.4 1.8 $3,960 30%
Ukraine............................. 49.8 18.5 $810 12%
Hungary............................. 10.2 3.7 $4,610 41%
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Total........................... 100.0 35.2
==================== ===================
</TABLE>
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(1) Source: United States Bureau of the Census, February 1999.
(2) Source: IP European Key Facts: Television '98. A TV household is a
residential dwelling with one or more television sets.
(3) Source: Economist Intelligence Unit (except Slovenia, Source: TV East Europe
January 1999).
(4) Source: IP European Key Facts: Television '98 (except Slovenia and Ukraine,
Source: CME stations).
Television Advertising Expenditures
<TABLE>
<CAPTION>
Country 1993 1994 1995 1996 1997 1998
------- ---- ---- ---- ---- ---- ----
US dollars (millions)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Czech Republic................................... $ 67 $ 96 $ 135 $ 165 $ 163 $ 188
Romania.......................................... N/A 9 25 44 74 87
Slovenia ........................................ 15 23 30 35 39 51
Slovak Republic.................................. 15 18 26 39 47 56
Ukraine.......................................... N/A N/A 9 21 53 65
Hungary.......................................... N/A 158 150 158 167 183
</TABLE>
Note: All figures are current Company estimates. "N/A" - estimates not
available.
European Regulations
Access to the available frequencies is controlled by regulatory
bodies in each country in which the Company operates. New awards of licenses to
use broadcast frequencies occur infrequently.
The European Union
If any Central or Eastern European country in which the Company
operates becomes a member of the European Union (the "EU"), the Company's
broadcast operations in such country would be subject to relevant legislation of
the EU, including programming content
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regulations. The Czech Republic, Hungary, Romania, the Slovak Republic and
Slovenia have entered into or signed Association Agreements with the EU and some
or all of these countries may be admitted to the EU as early as 2002.
The EU's Television Without Frontiers directive (the "EU Directive")
sets forth the legal framework for television broadcasting in the EU. It
requires broadcasters, where "practicable and by appropriate means," to
reserve a majority proportion of their broadcast time for "European
works." Such works are defined as originating from an EU member state or a
signatory to the Council of Europe's Convention on Transfrontier Television,
as well as written and produced mainly by residents of the EU or Council of
Europe member states. In addition, the EU Directive provides for a 10% quota
of either broadcast time or programming budget for programs made by European
producers who are independent of broadcasters. News, sports, games,
advertising, teletext services and teleshopping are excluded from the
calculation of these quotas. Further, the EU Directive provides for
regulations on advertising, including limits on the amount of time that may be
devoted to advertising spots, including direct sales advertising. Member
states are free to introduce stricter content requirements than those in the
EU Directive for broadcasters within their jurisdiction. The Company intends
to align its broadcast operations with any applicable EU legislation.
The Company believes that the EU Directive, as currently drafted, will not
have a material adverse effect on its operations.
Council of Europe
The Company's broadcast operations are all located in countries which
are members of the Council of Europe, a supranational body through which
international conventions are negotiated. In 1990, the Council of Europe adopted
a Convention on Transfrontier Television, which provides for European
programming content quotas similar to those in the EU Directive. This Convention
has been ratified by some of the countries in which the Company operates
(including Hungary and the Slovak Republic), but all countries in which the
Company operates have already implemented its principles into their national
media legislation.
Corporate Operations
The Company's London based central service organization provides
each television operation with a central resource, particularly in the
start-up or early development phase of any project. The service functions
provided include development, programming services and advertising sales.
Development
CME Development Corporation ("CME Development") provides services to
CME to assist it in managing the growth of its current operations, expanding its
operations into new strategic markets, forming potential joint ventures and
strategic alliances and executing acquisitions. CME Development also assists CME
in identifying attractive markets for expansion as well as local partners in
such markets, determines the vehicles through which, as well as the manner in
which, the Company will enter such markets and oversees the implementation of
these plans.
Programming Services
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Through CME Programming Services, Inc. ("CME Programming"), the Company
provides an array of program-related services to its television operations in
Central and Eastern Europe, including facilitating international contacts;
program acquisition; schedule advisory; coordination of viewer research;
exchange of best practices and expertise among the stations; various programming
related studies and analyses; and legal advice. The Company has begun to, and
intends to continue to, reduce overall program costs by co-ordinating the
purchase of rights to films and programming on a regional basis, which the
Company believes will provide it with significant advantages with international
studios relative to national competitors.
Advertising Sales
The Company's advertising sales department initiates, develops and
maintains relationships between individual stations and networks and
multinational advertisers and advertising agencies. The advertising sales
department also provides the Company's stations and networks with advertising
sales training and marketing, pricing and operational expertise.
Other
The Company provides technical expertise and support relating to
broadcasting and transmission for all of its operations. The Company also
provides certain centralized financial and legal services for its broadcast
operations, including financial planning and analysis, cost control and network
management.
As seen in the table below, the Company's stations have the leading
position in five out of six markets.
<TABLE>
<CAPTION>
Launch Date
----------- Technical 1998 Audience Rank in
CME Station (1) Reach (2) Share (3) market (3)
- --------------- --------- --------- ----------
<S> <C> <C> <C> <C>
Nova TV......................... February 1994 99% 51.7% 1
PRO TV.......................... December 1995 71% 38.0% 1
POP TV.......................... December 1995 84% 38.0% 1
Markiza TV...................... August 1996 92% 50.0% 1
Studio 1+1...................... January 1997 95% 32.2% 1
TV3............................. October 1997 41% 3.0% 4
</TABLE>
- ------------------
(1) Second channels in Romania (Acasa) and Slovenia (Gajba TV) are not included
in this table
(2) Source: CME stations
(3) Nationwide audience share and rank (except Romania, which is audience share
and rank within coverage area).Source: (Czech Republic: Taylor Nelson AGB,
Romania: CSOP Gallup, Slovenia: Gral Marketing, Slovak Republic:
Visio/MVK, Ukraine: SOCIS Gallup/Peoplemeter AGB Ukraine, Hungary: AGB
Hungary)
Operations in the Czech Republic: Nova TV
General
The Czech Republic is a parliamentary democracy of approximately 10.3
million people, which the Company believes has developed a stable market
economy. Per capita GDP was an estimated $5,490 in 1998. On March 12, 1999, the
Czech Republic formally joined NATO. Prior to 1992, television advertising in
the Czech Republic was limited to two
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public channels. Since the onset of privatization activities in 1992, the
Company estimates that the television advertising market in the Czech Republic
has expanded to approximately $188 million in 1998.
Nova TV is the leading commercial television station in the Czech
Republic. Nova TV broadcasts pursuant to a 12 year license awarded to CET, which
expires in January 2005. Nova TV reaches 99% of the Czech Republic's population.
By adopting a different programming strategy than that historically
followed by public television stations, including a mix of locally produced news
and entertainment formats and film and television series acquired from
international distributors, Nova TV has built and maintained significant market
share during its first five years of operations. According to surveys undertaken
by the independent polling agency Taylor Nelson AGB using Peoplemeter devices,
Nova TV achieved an average nationwide audience share of 52% in 1998. Audience
share represents the percentage of televisions turned on at a particular time
which are tuned to a particular television station.
Programming
Nova TV's programming strategy is to appeal to a mass market audience.
The station broadcasts for 20 hours daily, including locally produced news,
sports (including coverage of the Czech Republic's national soccer league),
variety shows and other programming, as well as a broad range of popular films
and series from international distributors. In 1998, Nova TV aired 3,275 hours
of original local programming, which primarily consisted of light entertainment
formats and game shows, a daily breakfast show, news broadcasts and news related
shows and current and public affairs programming. In 1998, such original local
programming comprised approximately 44% of Nova TV's broadcast time.
Nova TV has acquired exclusive broadcasting rights in the Czech
Republic or in the Czech language to a number of successful American and Western
European programs and films (e.g., "Beverly Hills 90210", "Melrose Place",
"Stargate", "Hercules" and "X-Files") produced by such companies as MGM, Warner
Bros., Columbia Tri-Star Television and Paramount. In addition, Nova TV has
recently entered into a three year exclusive deal for broadcasting the Ice
Hockey World Championships. Nova TV has agreements with CNN, Reuters and APTN to
receive foreign news reports and film footage to integrate into its news
programs. Nova TV produced and co-organized many special events in 1998
including the Music Academy Awards and Miss Czech Republic. All foreign language
programs and films are dubbed into the Czech language except for film musicals,
which are subtitled.
Advertising
Nova TV derives its revenues principally from the sale of commercial
advertising time. In the Czech Republic most television advertising is sold
through independent agencies and media buying groups. Nova TV currently serves
over 200 advertisers, including large multinational advertisers such as Procter
& Gamble, Unilever, Henkel and Nestle. In 1998, no single advertiser accounted
for more than 10% of Nova TV's revenues.
Nova TV is permitted to broadcast advertising for up to 10% of its
broadcast time. In addition, a further 10% of broadcast time may be used for
"direct sales" advertising. Its primary competitor, CT1, a public television
station, is restricted to 1% of daily broadcast time for advertising. The
Council for Radio and Television Broadcasting in the Czech Republic (the
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"Czech Radio and Television Council") and the Act on the Operation of Radio and
Television Broadcasting make certain distinctions between private and public
broadcasters. For example, private broadcasters, such as Nova TV, are permitted
to interrupt programming with advertising, while public broadcasters may not.
Competition
Nova TV competes principally with CT1, which reaches 100% of the
population, for audience, programming and advertising. Nova TV competes on a
more limited basis with CT2, a public network of regional frequencies which
reaches approximately 95% of the Czech Republic's population and Prima TV, a
privately owned and operated television station serving approximately 75% of the
country's population. There are no other significant television stations
broadcasting Czech language programming to the Czech Republic.
Limited competition for viewers also comes from local and foreign
stations transmitted through cable and satellite television. Approximately 17%
of all Czech Republic households currently have cable television and
approximately 15% receive direct-to-home satellite television. The media
authorities in the Czech Republic have licensed several companies to provide
cable television services to the Czech Republic. The largest is Kabel Plus, with
over 440,000 subscribers in the Czech and Slovak Republics. Czech authorities
require cable operators to carry all over-the-air broadcasting within their
areas free of charge.
Nova TV competes for revenues with other media, such as newspapers,
radio, magazines, outdoor advertising, transit advertising, telephone directory
advertising and direct mail.
Regulation
Nova TV and the terms of the license granted to CET are regulated by
the Czech Radio and Television Council pursuant to recently amended legislation.
The license was granted to CET by the Czech Radio and Television Council until
January 2005. See "Corporate Structure--Czech Republic" for a description of
certain potential disputes regarding Nova TV.
Under Czech legislation and license terms, Nova TV is required to
comply with certain restrictions on programming and advertising. In addition to
the restrictions discussed above under "--Advertising," advertising is not
permitted during children's programming or the evening news. Restrictions on
advertising content include that (i) tobacco advertising is prohibited, (ii)
advertising targeted at children before or after children's programming is
prohibited if such advertising promotes behavior that would endanger the health,
physical or moral development of children, (iii) advertising of alcoholic
beverages is restricted but not prohibited and (iv) members of the news
department of Nova TV are prohibited from appearing in advertisements. There are
also restrictions on the frequency of advertising breaks within a program.
Operations in Romania: PRO TV and Acasa
General
Romania is a parliamentary democracy of approximately 22.3 million
people. Per capita GDP was an estimated $1,830 in 1998. Approximately 86% of
Romanian households have one or more television sets, and cable penetration is
approximately 44%. According to the Company's estimates, television advertising
totalled approximately $87 million in 1998.
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PRO TV is a national television broadcast network in Romania which was
launched in December 1995. PRO TV reaches approximately 71% of the Romanian
population of 22.3 million, including 94% of the urban population. PRO TV
broadcasts from studios located in Bucharest via digitally encoded satellite
signals which deliver programming to terrestrial broadcast facilities and to
approximately 250 cable systems throughout Romania. The Company anticipates that
PRO TV will be able to continue to increase its reach from current levels
through utilizing additional regional licenses which have been granted to
entities currently controlled by PRO TV, SRL and through affiliations with other
local broadcasters and agreements with cable carriers. Independent research from
CSOP Gallup International in Romania shows that PRO TV is currently the
top-rated television station in its broadcast area, with an average television
viewer share of approximately 38% for 1998.
In February 1998, MPI launched Acasa, a station reaching approximately
54% of the Romanian population, including approximately 86% of the urban
population via satellite and cable distribution. From February to December 1998
Acasa had an average television viewer share in its broadcast area of
approximately 7%.
The Company has a controlling interest in Media Vision and Video
Vision. Media Vision is the leading television production company in Romania and
produces a significant portion of PRO TV's entertainment programming, including
gameshows, concerts, music videos and live special events, and performs dubbing.
Media Vision produces advertising spots for third party clients such as Coca
Cola, Colgate-Palmolive and L'Oreal. Video Vision, Romania's leading provider of
television post-production and graphics, provides a significant portion of PRO
TV's and Acasa's graphics.
MPI also operates PRO FM, a radio network which is broadcast through
owned and affiliate stations to approximately 9 million people in Romania. In
1998, PRO FM had an average audience share of 14.8% in the Bucharest area.
Programming
PRO TV's programming strategy is to appeal to a mass market audience
through a wide range of programming, including movies and series, news, sitcoms,
telenovellas, soap operas and game shows. PRO TV broadcasts 24 hours of
programming daily. Approximately 40% of PRO TV's programming is comprised of
locally produced programming, including, news and news related programs, sports,
a breakfast show, game shows and talk shows.
PRO TV has secured exclusive broadcast rights in Romania to a large
number of quality American and Western European programs and films (e.g., "Ally
McBeal", "NYPD Blue", "Seinfeld", "E.R.", "Soldier of Fortune" and "Melrose
Place") produced by such companies as Warner Bros. and Fox. PRO TV also receives
foreign news reports and film footage from Reuters, APTN and ENEX to integrate
into its news programs. In 1998 PRO TV aired such special events as the MTV
European Music Awards and the MTV Movie Awards, and provided coverage of the
NBA. All foreign language programs and films are subtitled in Romanian.
Acasa's programming strategy is to target a female audience on weekdays
through programming including telenovellas, films and soap operas. Sunday
programming consists mostly of sports events targeted to male viewers, including
coverage of the United States Open tennis tournament. Acasa's viewer
demographics are complementary to PRO TV's,
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providing an attractive advertising medium for small to medium sized companies
that would not otherwise advertise on television. There are two hours of local
programming per week, including a cookery show and interviews. The most popular
shows in 1998 were "The Bold and the Beautiful", "Sisters" and "Days of our
Lives".
Advertising
PRO TV derives revenues principally from the sale of commercial
advertising time, sold both through independent agencies and media buying
groups. PRO TV currently serves approximately 450 advertisers, including
multinational companies such as Unilever, Coca Cola, Henkel, Colgate and Procter
& Gamble. No single advertiser dominates the market.
PRO TV is permitted to broadcast advertising for up to 20% of its
broadcast time in any hour, subject to an overall daily limit of 15% of
broadcast time. An additional 5% of broadcast time may be used for direct sales
advertising. There are also restrictions on the frequency of advertising breaks
(for example, news and children's programs shorter than 30 minutes cannot be
interrupted). These restrictions are the same for public and private
broadcasters.
Competition
Prior to the launch of PRO TV, TVR 1, a public station, was the
dominant broadcaster in Romania. In 1998, PRO TV achieved an average audience
share of 38% in its coverage area, while TVR 1's 1998 average audience share in
PRO TV's coverage area was approximately 17%. TVR 1 reaches 99% of the Romanian
population. Other competitors include the second public national station, TVR 2,
with a 70% broadcast reach, and privately owned Antena 1, Tele 7 ABC and Prima
TV, which reach approximately 50%, 35% and 35% of the population, respectively.
Additional competitors include cable and satellite stations. Cable and
satellite currently penetrate approximately 44% and 9%, respectively, of the
Romanian market respectively. PRO TV competes for advertising revenues with
other media such as newspapers, radio, magazines, outdoor advertising, telephone
directory advertising and direct mail.
Regulation
Licenses for the television stations which show programming provided by
PRO TV and which broadcast advertising sold by PRO TV are regulated by Romania's
National Audio-Visual Commission. PRO TV's television licenses have been granted
for seven-year periods. Licenses which cover 17% of the Romanian population,
including the license for Bucharest expire in 2001. The remaining licenses
expire on dates ranging from 2002 to 2006. Under regulations established by the
National Audio-Visual Commission and the various licenses of stations which
broadcast PRO TV, programming and advertising provided by PRO TV is required to
comply with certain restrictions. These restrictions include a requirement that
at least 40% of programming be "own" produced.
Regulations related to advertising content include (i) a ban on tobacco
and restrictions on alcohol advertising, (ii) advertising targeted at children
or during children's programming must account for the overall sensitivity of
that age group and (iii) members of the news department of PRO TV are prohibited
from appearing in advertisements.
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Operations in Slovenia: POP TV and Gajba TV
General
Slovenia, a parliamentary democracy of 2.0 million people, had an
estimated per capita GDP of approximately $9,240 in 1998, the highest among the
former Eastern bloc countries. Approximately 97% of Slovenian households have
one or more televisions. According to the Company's estimates, television
advertising totalled $51 million in 1998.
The national television broadcast network POP TV reaches approximately
84% of the population of Slovenia, including Ljubljana, the capital of Slovenia,
and Maribor, Slovenia's second largest city. Independent research shows that in
the areas of Slovenia in which POP TV can be seen, the network had an average
television viewer share of approximately 45% for 1998, the largest share of
television viewers in Slovenia.
In October 1997, the Company launched Gajba TV, the Company's second
television broadcast network in Slovenia. Gajba TV is operated through Pro Plus
and provides programming to, and sells advertising for, its affiliate
broadcasters. The Gajba TV signal is also carried by a cable channel operated by
Tele 59 in Maribor. Gajba TV reaches approximately 49% of the population of
Slovenia. In 1998 it had an average television viewer share of approximately
3.6% in its coverage area.
Programming
POP TV's programming strategy is to appeal to a mass market audience
through a wide variety of programming including movies, news, variety shows,
features and dramatic series. POP TV broadcasts for 19 hours of programming
daily, of which approximately 28% is locally produced programming, including
news, game shows, music shows and variety shows.
POP TV has secured exclusive program rights in Slovenia to a number of
successful American and Western European programs and films (e.g., "E.R.",
"X-Files", "Friends", "Beverly Hills 90210", "Melrose Place") produced by
studios such as Warner Bros., Fox and Worldvision. Special events aired in 1998
included the Academy Awards, Miss World and Formula One racing. Pro Plus has
agreements with CNN, Reuters and APTN to receive foreign news reports and film
footage to integrate into news programs. All foreign language programs and films
are subtitled in Slovenian.
Gajba TV's programming strategy is to complement the POP TV profile
with a variety of series and features including sci-fi, adventure and youth
series as well as hourly local community shows. Gajba TV broadcasts for 10 hours
per day, and features movies and series from international distributors as well
as locally produced news, variety shows and other programs.
Advertising
POP TV derives revenues principally from the sale of commercial
advertising time. Current multinational advertisers include firms such as Master
Foods, Henkel, Procter & Gamble, Wrigley and Colgate, though no one advertiser
dominates the market. During 1998 "Peoplemeter" devices were placed in a number
of television homes, although they are not yet the primary source for POP TV's
rating information. POP TV is permitted to broadcast advertising for up to 15%
of its daily broadcast time and there are also restrictions on the
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frequency of advertising breaks during films and other programs. The same rules
apply to its competitors.
Competition
Historically, the television market in Slovenia has been dominated by
SLO 1, a national public television station. The other national public station,
SLO 2 provides programming which is complementary to SLO 1. SLO 1 reaches nearly
all of Slovenia's TV households, and SLO 2 reaches 95% of Slovenia's TV
households. No national private television frequency has been made available in
Slovenia. Two private television stations which compete with POP TV in Slovenia,
Kanal A and TV3, have achieved a relatively small audience share, together less
than 14%, due primarily to their low budget programming and lack of extensive
news programming.
POP TV also competes with foreign television stations, particularly
Croatian, Italian, German and Austrian stations. Cable penetration at 40% is
relatively high compared with other countries in Central and Eastern Europe and
approximately 21% of households have satellite dishes. In addition, POP TV
competes for revenues with other media, such as newspapers, radio, magazines,
outdoor advertising, telephone directory advertising and direct mail.
In July 1996, the Company, together with MMTV and Tele 59, entered into
an agreement to purchase a 66% equity interest in Kanal A, a privately owned
television station in Slovenia which competes with POP TV. There is currently an
injunction in effect preventing the implementation of the Kanal A Agreement. See
Item 3 "Legal Proceedings."
Regulation
The POP TV and Gajba TV network stations operate under licenses
regulated pursuant to the Law on Public Media adopted in 1994 and pursuant to
the Law on Telecommunications adopted in 1997. The licenses granted to POP TV's
affiliate stations have been granted for 10-year terms expiring in 2003 with
respect to licenses reaching 53% of the population and in 2006 and 2007 with
respect to the remaining licenses. Under Slovenian television regulations, POP
TV and its affiliate stations are required to comply with a number of
restrictions on programming and advertising. These restrictions include that 10%
of the station's broadcast time must be internally produced programming, certain
films and other programs may only be broadcast between 11:00 p.m. and 6:00 am,
and POP TV news editors, journalists and correspondents must not reflect a
biased approach toward news reporting.
In addition to the restrictions discussed above under "--Advertising,"
advertising is not permitted during news, documentary or children's programming
under 30 minutes in duration, or during religious programming. Restrictions on
advertising content include a prohibition on tobacco advertising and on the
advertising of alcoholic beverages other than low alcohol
content beer.
Operations in the Slovak Republic: Markiza TV
General
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The Slovak Republic is a parliamentary democracy with a population of
5.4 million where nearly 100% of households have television. Per capita GDP was
an estimated $3,960 in 1998. Television advertising increased approximately 19%
in 1998 to $56 million, according to the Company's estimates, yet television
advertising spending per capita in the Slovak Republic in 1998 was still only
approximately 55% of that of the Czech Republic.
Markiza TV was launched as a national television station in the Slovak
Republic in August 1996. Markiza TV reaches approximately 92% of the Slovak
Republic's population of 5.4 million, including virtually all of its major
cities. According to independent research, Markiza TV had an average national
television viewer share for 1998 of approximately 50% versus 18% for its nearest
competitor, STV 1. See Item 3 "Legal Proceedings".
Programming
Markiza TV's programming strategy is to appeal to a broad audience with
specific groups targeted in marginal broadcasting hours. Markiza TV provides an
average of 19.5 hours of programming daily, including news, movies,
entertainment programmes and sport (including coverage of European Champion's
League soccer, Formula One racing and ice hockey). Approximately 38% of Markiza
TV's programming is locally produced, including a daily breakfast show, game
shows, talks shows and news.
Markiza TV has secured exclusive broadcast rights in the Slovak
Republic to a large number of popular United States and European programs and
films (e.g., "E.R.", "Savannah", "Baywatch", "Love Boat", "Scarlet", "JAG")
produced by major international studios including Warner Bros., Columbia Tri
Star, Polygram, Paramount Pictures and Twentieth Century Fox. All foreign
language programming is dubbed into the Slovak language. Markiza TV also
receives foreign news reports and film footage from CNN, Reuters and APTN, which
it integrates into news programs.
Advertising
Markiza TV derives revenues principally from the sale of commercial
advertising time through media buying groups and independent agencies.
Advertisers include large multinational firms such as Procter & Gamble, Henkel,
Unilever, Wrigley and Benckiser. Television stations are permitted to broadcast
advertising for up to 10% of total daily broadcast time and up to 20% of
broadcast time in any single hour.
Currently, approximately 60% of Markiza TV's advertising revenues are
sourced from agencies based in the Czech Republic. The Company expects that a
greater proportion of advertising revenues will be sourced from the Slovak
Republic as the local advertising market develops.
Competition
The Slovak Republic is served by two national public television
stations, STV1 and STV2, which dominated the ratings until Nova TV and Markiza
TV began broadcasting in 1994 and 1996, respectively. STV1 and STV2 reach nearly
all of the Slovak population. Nova TV's signal reaches approximately one-third
of the Slovak Republic's population and its launch provided the first
alternative in the country to public television. Nova TV has maintained its
popularity in the Slovak Republic, with an approximately 10% audience share for
1998. Markiza TV also competes with VTV, a private satellite broadcaster
reaching 47% of
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the population; public television stations located in Austria, the Czech
Republic and Hungary with signals that reach the Slovak Republic; additional
foreign private television stations; and foreign satellite stations.
Regulation
Markiza TV's broadcast operations are subject to regulations imposed by
the Act on Radio and Television Broadcasting, the Act on Advertising and
conditions contained in the license granted by the Council of the Slovak
Republic for Broadcasting and Television Transmission (the "Slovak Television
Council"). The Slovak Television Council granted the license to operate Markiza
TV to the Company's local partner in STS for a period of 12 years, expiring in
September 2007, under terms requiring the Company's local partner to enter into
a partnership with the Company to found STS.
Under the license pursuant to which Markiza TV operates, Markiza TV is
required to comply with several restrictions on programming. These restrictions
include the following broadcast time rules: 40% must be Slovak production
(increasing to a minimum of 51% in September 1999); 10% must be programming for
children or youth; broadcasts of first run films and series must have a minimum
of 47% European production (of which there must be a minimum of 8% Slovak
production) and no more than 45% United States production; and no more than 40%
of foreign first run films and series may be in the Czech language (decreasing
to 20% by the fourth year of broadcasting). Markiza TV's programming is required
to be consistent with the Slovak Constitution and not promote violence, hate,
intolerance, or immoral behavior or intentionally use indecent language.
Programming endangering the psychological or moral growth of children and youth
cannot be broadcast between 6:00 am and 10:00 p.m., and Markiza TV's news
broadcasts must be objective and balanced and clearly differentiate between
opinion and news.
In addition to the restrictions discussed above under "--Advertising",
regulations relating to advertising content include that (a) the news may not be
sponsored and news staff may not appear in advertisements (b) tobacco
advertising is prohibited, (c) advertising for children or in which children
perform and which promotes behavior endangering the health, psychological or
moral development of children is prohibited, and (d) advertising which endangers
the viewer's morality, health, safety and environmental protection is
prohibited. The advertisement of beer is permitted; however, advertisement of
other alcoholic beverage is prohibited. There are also restrictions on the
frequency of advertising breaks within a program.
Operations in Ukraine: Studio 1+1 Group
General
Ukraine, a parliamentary democracy of 49.8 million people, is the most
populous market served by the Company. Nearly 100% of Ukrainian households have
television, cable penetration is approximately 12% and satellite penetration is
negligible. Per capita GDP of $810 for 1998 is the lowest of all the Company's
markets, though television advertising in Ukraine grew by over 20% from $53
million in 1997 to $65 million in 1998.
Studio 1+1 broadcasts programming and sells advertising on Ukrainian
National Channel Two ("UT-2"), one of Ukraine's state-owned television channels.
UT-2 reaches approximately 95% of Ukraine's population. Television advertising
in Ukraine was $65 million
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in 1998 ($1.30 per capita). According to independent research, average national
audience share in 1998 was 32% for Studio 1+1, 29% for Inter and 10% for UT-1.
Studio 1+1 began broadcasting on UT-2 in January 1997.
Programming
Studio 1+1's programming strategy is to appeal to a mass market
audience. The station broadcasts for 12 hours per day, including locally
produced news, variety shows, game shows and magazine programmes as well as a
broad range of popular and high quality films from international distributors.
In 1998, Studio 1+1 produced and co-produced approximately 1,200 hours of
programming (or approximately 35% of total programming hours), which primarily
consists of a daily breakfast show, news broadcasts and news related programmes,
talk shows, karaoke, game shows, a sport magazine, lifestyle magazine and comedy
shows. In 1998, such original local programming together with other Ukrainian
programming considered local programming by Ukrainian laws comprised
approximately 49% of Studio 1+1's total broadcast time.
Studio 1+1 has secured exclusive territorial or local language
broadcast rights in Ukraine to a large number of successful high quality
American, Russian and Western European programs and films (e.g. "X-Files",
"Beverly Hills 90210", "Chicago Hope", "Melrose Place", "E.R.", "Dr. Quinn",
"Pretender", "Baywatch") from many of the major studios, including Twentieth
Century Fox, Warner Bros., Paramount Pictures, Walt Disney, Universal Pictures,
CBS International, Worldvision Enterprises and PolyGram. Special events aired
include the Academy Awards ceremony, the soccer World Cup and Miss Europe '98.
Studio 1+1 has agreements with Reuters, CNN and SNTV for foreign news packages
and other footage to be integrated into its programming. All foreign language
programs and films (other than those in the Russian language) are dubbed into
the Ukrainian language. Studio 1+1 broadcasts more than 80% of its total air
time in the Ukrainian language.
Advertising
Studio 1+1 derives revenues principally from the sale of commercial
advertising time through both media buying groups and independent agencies.
Advertisers include large multinational firms such as Procter & Gamble,
Coca-Cola, Unilever, Nestle and Dandy. In 1998 Procter & Gamble accounted for
12% of advertising sales. Studio 1+1 is permitted to sell 15% of its overall
broadcast time for advertising and is subject to restrictions on the frequency
of advertising breaks. The advertising restrictions are the same for public and
private broadcasters.
Competition
Ukraine is served by four television channels: UT-1, UT-2 (on which
Studio 1+1 broadcasts) and UT-3, which are state owned, and ICTV, a private
broadcaster. Studio 1+1, through UT-2, has a broadcast reach of 95% of the
Ukrainian population. The state run station UT-1 has a broadcast reach of
approximately 98% of the Ukrainian population. ICTV, a private station, reaches
32% of Ukraine's population. The private station Inter, through UT-3, has a
broadcast reach of approximately 78% of the Ukrainian population. Inter's
program schedule consists primarily of rebroadcasts of the Russian-language ORT
network.
Regulation
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Studio 1+1 provides programming to UT-2 pursuant to a ten-year
television broadcast license contract expiring in January 2007. Broadcasts of
Studio 1+1's programming and advertising on UT-2 are regulated by the State
Committee on Television and Radio of Ukraine and the National Council on
Television and Radio of Ukraine. These agencies enforce Ukraine's media laws,
which include restrictions on the content of programming and advertising and
limitations on the amount and placement of advertising in programs. All
advertising of alcohol and tobacco on TV is banned in Ukraine. Programming
produced in Ukraine must account for at least 70% of all programming and
programming produced by Studio 1+1 must account for 49% of all programming.
Operations in Hungary: TV3
General
Hungary is a parliamentary democracy of 10.2 million people and had an
estimated per capita GDP of $4,610 in 1998. On March 12, 1999 Hungary formally
joined NATO. According to the Company's estimates television advertising
totalled $183 million in 1998. Cable and satellite penetration are currently at
41% and 24% respectively. The 41% of the Hungarian population reached by TV3 are
predominately in urban areas, including Budapest, and represent approximately
66% of the country's purchasing power.
TV3 is distributed via MMDS in Budapest and via satellite to cable
systems throughout Hungary. TV3 reaches approximately 41% of Hungary's
population. In 1998, TV3 had an average viewer share of approximately 6% in its
coverage area.
Programming
TV3's programming strategy is to target a young urban audience. TV3
broadcasts for 16 hours per day, including four hours per day of the music
channel VH1, locally produced news, magazines, sport (including soccer coverage
of the English Premier League and Spanish Soccer League) and popular American
films and series. TV3 produces original local programming, which primarily
consists of news and news-related shows, a breakfast show and magazines on
cinema, culture, science and music. Such local programming currently comprises
30% of total broadcast time.
TV3 has exclusive broadcast rights in Hungary to a number of successful
American and Western European programs and films (e.g. "Frasier", "Police
Academy", "Beverly Hills 90210", "Melrose Place", "Dynasty", "Married with
Children", "The Simpsons", "MASH"), produced or distributed by such companies as
Warner Bros., Fox, Columbia, MGM, Paramount, Orion, Canal + and Polygram.
Special events aired in 1998 include coverage of the NBA. TV3 has agreements
with Reuters and APTN to receive international news footage. All acquired
programming is dubbed into the Hungarian language.
Advertising
TV3 derives revenues principally from the sale of commercial
advertising time through independent agencies and media buying groups.
Advertisers include Procter & Gamble, Unilever, Henkel and Master Foods. As a
commercial television station, TV3 is allowed to advertise for 20% of every hour
of broadcast time with a maximum of 15% of daily broadcast time, compared to the
public TV stations, which may only advertise for 10% of every hour of
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broadcast time. There are restrictions on advertising breaks related to the
length of program being broadcast.
Competition
The national public channels, MTV1 and MTV2, reach 98% and 55%,
respectively, of the Hungarian population. The commercial national stations TV2
and RTL Klub, were launched in October 1997. TV2 reaches 93% of the population
and is on the air for 19 hours per day. RTL Klub reaches 88% of the population
and is on air for 18 hours per day. TV3 competes for revenue with other media,
such as newspapers, radio, magazines, outdoor advertising, transit advertising,
telephone directory advertising and direct mail.
Regulation
TV3 is distributed by MMDS (multi channel multipoint distribution
service) and satellite and is not required to operate pursuant to a broadcast
license. However, TV3 is recognized as a national broadcaster by the Hungarian
National Radio and Television Commission and is therefore subject to the
Hungarian Radio and Television Act. Advertisements on TV3 may not exceed 15% of
daily broadcast time and 12 minutes per hour. At least 20% of total annual
broadcast time (not including feature films, advertisements, news, live sports
and game shows) must be Hungarian produced. At least 15% of total annual
broadcast time must be programming commissioned or purchased from an independent
Hungarian production company that is not more than five years old. Six percent
of total annual advertising revenues must be used for the creation of new
Hungarian films or, in the alternative, 3% of annual advertising revenues may be
donated to a Hungarian film production fund. Advertising of tobacco and alcohol
is forbidden.
Hungary - IRISZ TV
In 1997, the Company formed a consortium, MKTV Rt. ("IRISZ TV"),
which submitted an application for a national television broadcast licenses
in a license tender competition. Following the award of these licenses to
other consortia, IRISZ TV filed a complaint in the Budapest Capital Court
challenging the license awards. See Item 3 "Legal Proceedings."
Seasonality
The Company, like other television operators, experiences seasonality,
with advertising sales tending to be lowest during the third quarter of each
calendar year, which includes the summer holiday period (typically July and
August), and highest during the fourth quarter of each calendar year.
Employees
As of March 12, 1999, CME had a corporate operations staff of 39
employees (versus 70 as of December 31, 1997) and its Subsidiaries had a total
of approximately 2,900 employees (versus 2,500 as of December 31, 1997). None of
CME's employees or the employees of any of its Subsidiaries are covered by a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
Recent Developments
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On March 18, 1999, the Company sold its equity interest in MobilRom
S.A., a GSM cellular telephone network in Romania.
On March 24, 1999, Frederic T. Klinkhammer was elected President and
Chief Executive Officer of CME, effective as of such date. Mr. Klinkhammer
also was appointed to CME's Board of Directors. Mr. Klinkhammer was
previously Chief Operating Officer and Executive Vice President of the
Company. Mr. Klinkhammer succeeds Michel Delloye who is leaving CME to
pursue other business opportunities.
On March 29, 1999, the Company entered into a Reorganization Agreement
with SBS Broadcasting S.A. ("SBS"), which provides, among other things, for (a)
the sale by the Company to SBS of all of the assets, business, properties and
rights of the Company (consisting primarily of the stock of CME Media
Enterprises B.V., an intermediate holding company wholly owned by CME); (b) the
assumption by SBS of, and indemnification of the Company with respect to, all
liabilities, obligations and commitments of the Company; (c) the issuance by SBS
to the Company of a number of shares of SBS common stock, par value $1.50 per
share ("SBS Stock"), equal to 0.5 times the total number of shares of the
Company's Class A Common Stock and Class B Common Stock outstanding immediately
prior to the closing of such transaction; and (d) the immediate commencement of
the winding up of the Company and distribution of the SBS Stock so received by
the Company to the shareholders of the Company (followed as soon as practical
thereafter by the final dissolution of the Company). Accordingly, upon the
closing of the transactions contemplated by the Reorganization Agreement, each
shareholder of the Company would receive 0.5 shares of SBS Stock for each share
of Common Stock of the Company owned by such shareholder.
The foregoing transaction is intended to be accounted for as a
purchase, and to qualify as a reorganization under Section 268(a) of the
Internal Revenue Code (and thus to be tax-free for US tax purposes to the
shareholders of CME). The closing of the transaction is subject to a number of
conditions precedent, some of which are beyond the control of the Company,
including the approval of the shareholders of SBS. Ronald S. Lauder, who
controls approximately 69% of the vote of the Company, has entered into a
Shareholders Agreement with SBS whereby he commits to vote his shares of Class A
and Class B Common Stock in favor of the transaction. In the event that the
transaction is not consummated, the Reorganization Agreement provides various
rights to the Company and to SBS, depending upon the circumstances.
Item 2. PROPERTIES
CME Development Corporation leases office space in London in two
locations. One lease covers approximately 4,347 square feet of space and expires
in 2004, except that the Company can terminate the lease at its option in 1999,
subject to penalty. The second lease, for 2,205 square feet of office space in a
nearby building, expires in 2006.
Nova TV occupies approximately 65,000 square feet, and modern studios
have been constructed in the building, which is owned by CNTS. The Company has
entered into an agreement on behalf of MPI which gives the Company the option to
acquire the facility in Bucharest which contains PRO TV's studios for a purchase
price of approximately $1.8 million. The Company owns a portion of a building in
Ljubljana which contains POP TV's studios and offices. Videovox owns the
building in Budapest in which its studios are located. STS owns its principal
office facility near Bratislava. Studio 1+1 and TV3 both lease office and studio
space.
Item 3. LEGAL PROCEEDINGS
The Company has been informed by CET that in May 1997, one of the
owners of CET filed a claim against CET in the Regional Commercial Court of
Prague alleging that CET did not satisfy all required procedures for approving
certain transfers of CET ownership interests and requesting that such transfers
be invalidated on the grounds that CET approved such transfers at procedurally
deficient general meetings. The Court ruled in favor of the plaintiff. CET
appealed the decision. The Company believes that the outcome of this action will
not have an impact on the ownership structure of CET, as the transfers at issue
were reconfirmed at subsequent general meetings of CET which have not been
challenged.
The Company has been informed by CET that on July 31, 1998, the Czech
Radio and Television Council notified CET that the Council had initiated an
administrative proceeding to investigate allegedly unbalanced reporting of
information on Nova TV in violation of Czech broadcasting regulations. Under
applicable Czech media laws, such a proceeding could result in fines, withdrawal
of the Nova TV broadcast license from CET or both. The Company has been informed
that the proceeding has been terminated and that the written decision of the
Council will be issued during the second quarter of 1999.
See Item 1 "Business--Corporate Structure--Czech Republic" for a
description of certain potential disputes regarding Nova TV, CNTS and CET.
In August 1998, Gamatex Ltd., a Slovak company, asserted that it had
obtained 100% ownership of Markiza-Slovakia s.r.o. through an auction process
arising out of an unsatisfied claim against Markiza-Slovakia s.r.o.
Markiza-Slovakia s.r.o. holds the Markiza TV broadcast license and owns a 51%
voting interest in STS. A number of legal proceedings are pending in the
District Court of Bratislava and Regional Court of Bratislava in which the
original owners of Markiza-Slovakia s.r.o. have claimed that Gamatex's ownership
claims are not legally valid.
22
<PAGE>
STS has joined Markiza-Slovakia s.r.o. in a number of such proceedings, in
particular proceedings to (i) confirm the interests of the original owners of
Markiza-Slovakia s.r.o.; (ii) declare invalid Markiza-Slovakia s.r.o. and STS
shareholders' meetings called by Gamatex without proper notice; and (iii)
declare invalid Gamatex's claim to ownership in Markiza-Slovakia s.r.o.
In July 1996, the Company, together with MMTV and Tele 59, entered into
an agreement to purchase a 66% equity interest in Kanal A, a privately owned
television station in Slovenia (the "Kanal A Agreement"). Scandinavian
Broadcasting System SA ("SBS"), which claims to have certain rights to the
equity of Kanal A pursuant to various agreements, has challenged the validity of
the CME-Kanal A Agreement in a United Kingdom court. The Court has enjoined both
SBS and the Company from taking certain actions either to enforce such entity's
claim to equity in Kanal A or to block the claim of the other entity to equity
in Kanal A. The Company has instituted a number of actions in Slovene courts to
resolve these claims.
On April 30, 1997, Perekhid Media Enterprise Ltd. ("Perekhid") filed a
complaint in the Supreme Court of New York County, State of New York, against
CME and Ronald S. Lauder, the non-Executive Chairman of the Company's Board of
Directors. Perekhid alleged that the issuance of a license to the Studio 1+1
Group pursuant to which Studio 1+1 has been broadcasting programming on
Ukrainian National Channel 2 ("UT-2"), constitutes a tortious interference by
CME and Mr. Lauder with a Perekhid contract with the Ukrainian authorities for
Perekhid to provide programming for and sell advertising time on UT-2.
Perekhid's complaint sought compensatory damages of $250 million, punitive
damages of $500 million, and an injunction against the Company and Mr. Lauder to
prevent the continuation of the alleged conduct. On July 2, 1997, CME and Mr.
Lauder filed a motion to dismiss the complaint. On April 8, 1998, the Court
dismissed the complaint on grounds of forum non-conveniens. In June 1998,
Perekhid filed a notice of appeal with the Court. Perekhid failed to proceed
with such appeal within nine months from the date it filed the notice of appeal
and as a result the appeal lapsed automatically in March 1999. On February 19,
1999, Atlantic Group Limited (formerly known as Perekhid Media Enterprise Ltd.)
initiated proceedings against CME in the High Court in London, seeking
$81,772,759 in damages. Atlantic Group Limited alleges that CME conspired with
others to use unlawful means to procure the termination of Atlantic Group
Limited's right to provide programming and advertising sales on UT-2. On March
17, 1999, CME issued a summons to dismiss the London proceedings. The summons is
expected to be heard later in 1999.
In mid 1997, the Hungarian National Radio and Television Commission
awarded two national television broadcast licenses to two consortia. The
Company's consortium, IRISZ TV, was an unsuccessful bidder in the license tender
process. On July 4, 1997, IRISZ TV filed a complaint in the Budapest Capital
Court against the Hungarian National Radio and Television Commission and the two
successful consortia, alleging that the Hungarian National Radio and Television
Commission and the two successful consortia (i) violated the tender procedures
in connection with the acceptance of bids; (ii) violated the integrity and
fairness of the tender; and (iii) breached its own published guidelines in the
bid evaluation process. On March 25, 1998, the Court denied IRISZ TV's claims.
On May 8, 1998, IRISZ TV filed a notice of appeal with the Supreme Court of
Hungary. In a decision released on February 22, 1999, the Supreme Court of
Hungary reversed in part the decision of the trial court and ruled that the
Hungarian National Radio and Television Commission acted illegally by (i)
failing to exclude the bid of the consortium Magyar RTL Televizio Rt. ("RTL")
which operates the channel RTL Klub, on grounds of invalidity arising from
formal defects in the bid; (ii) entering
23
<PAGE>
into an agreement with RTL; and (iii) deviating from its own published
guidelines in the bid evaluation process. The Supreme Court stated that the
Hungarian Media Act requires the Hungarian National Radio and Television
Commission to terminate RTL's license agreements as a result of the Commission's
illegal acts but stated that the Supreme Court could not issue a termination
order because of the Commission's status as an administrative body of the state
and that the legal consequences of the Commission's failure to abide by the
Media Act are for the Hungarian Parliament to determine. The Hungarian National
Radio and Television Commission recently publicly announced that it intends to
request that the Constitutional Court of Hungary declare unconstitutional
a provision of the Hungarian Media Act which the Supreme Court relied upon in
part in its decision.
The Company is, from time to time, a party to litigation that arises in
the normal course of its business operations. The Company is not presently a
party to any such litigation which could reasonably be expected to have a
material adverse effect on its business or operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
24
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
CME's Class A Common Stock began trading on the Nasdaq National Market
on October 13, 1994 under the trading symbol "CETV." On March 17, 1999, the last
reported sales price for the Class A Common Stock was $8.75. The following table
sets forth the high and low sales prices for the Class A Common Stock for each
quarterly period during the last two fiscal years of the Company and for the
first quarter of 1999, as reported by the Nasdaq National Market:
Price Period High Low
- ------------ ---- ---
1997
First Quarter........................................... 37.125 31.250
Second Quarter.......................................... 32.750 23.500
Third Quarter........................................... 26.750 22.375
Fourth Quarter.......................................... 32.875 23.438
1998
First Quarter........................................... 29.125 21.375
Second Quarter.......................................... 29.313 20.000
Third Quarter........................................... 22.125 9.625
Fourth Quarter.......................................... 9.625 4.750
1999
First Quarter (through March 17, 1999).................. 10.125 6.875
At March 17, 1999, there were 34 holders of record (including brokerage
firms and other nominees) and approximately 597 beneficial shareholders of the
Class A Common Stock and seven holders of record of the Class B Common Stock.
There is no established public trading market for the Class B Common Stock.
DIVIDEND POLICY
The Company has not declared or paid and has no present intention to
declare or pay in the foreseeable future any cash dividends in respect to any
class of its Common Stock. The Company's ability to pay cash dividends is
primarily dependent upon receipt of dividends or distributions from its
Subsidiaries over which it has limited control. In addition, the indentures
which govern the Company's 9.375% Senior Notes Due 2004 and 8.125% Senior
Notes Due 2004 restrict the ability of CME to declare and pay cash dividends.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Item 6 SELECTED FINANCIAL DATA
(Selected Financial Data begins on the following page and ends on
the page immediately preceding Item 7).
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share data)
The selected financial information presented below for the five years
ended December 31, 1998 is derived from the audited Consolidated Financial
Statements of the Company. The following selected financial information should
be read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto for the years ended December 31, 1998, 1997 and 1996, included
elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Operating Data: (dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues................................... $182,367 $150,265 $135,985 $98,919 $53,566
Total station operating costs and expenses..... 146,275 98,651 85,101 52,542 36,083
Selling, general and administrative expenses... 28,806 22,953 21,357 7,725 6,009
Corporate operating costs and development
expenses................................... 22,670 25,467 15,782 10,669 3,699
-------- -------- -------- ------- -------
Amortization of goodwill and allowance for
development costs.......................... 16,809 14,845 2,940 3,442 985
Non-cash stock compensation charge............. -- -- -- 858 5,833
Capital registration tax....................... -- -- 809 1,375 --
Restructuring charge........................... 2,552 -- -- -- --
-------- -------- -------- ------- -------
Total operating expenses....................... 217,112 161,916 125,989 76,611 52,609
-------- -------- -------- ------- -------
Operating (loss) income........................ (34,745) (11,651) 9,996 22,308 957
Equity in loss of unconsolidated
affiliates................................. (3,398) (10,340) (17,867) (14,816) (13,677)
Loss on impairment of investments in
unconsolidated affiliates (1).............. -- (20,707) -- -- --
Interest and other income...................... 7,624 10,113 2,876 1,238 179
Interest expense............................... (26,215) (16,122) (4,670) (4,959) (1,992)
Foreign currency exchange (losses) gains ...... (8,412) (5,857) (2,861) 324 (245)
-------- -------- -------- ------- -------
(Loss) income before provision for income
taxes...................................... (65,146) (54,564) (12,526) 4,095 (14,778)
Provision for income taxes..................... (15,856) (14,608) (16,405) (16,340) (3,331)
-------- -------- -------- ------- -------
Loss before minority interest in consolidated
subsidiaries............................... (81,002) (69,172) (28,931) (12,245) (18,109)
Minority interest in loss (income) of
consolidated subsidiaries.................. (156) 1,066 (1,072) (6,491) (2,396)
-------- -------- -------- ------- -------
Net loss from continuing operations............ (81,158) (68,106) (30,003) (18,736) (20,505)
Discontinued operations (2):
Operating loss of discontinued operations...... (15,289) (16,986) -- -- --
Loss on disposal of discontinued operations.... (28,805) -- -- -- --
-------- -------- -------- ------- -------
Net loss....................................... $ (125,252) $ (85,092) $ (30,003) $(18,736) $(20,505)
========== ========= ========== ======== ========
Net loss per common share from:
Continuing operations - basic and diluted.... $ (3.36) $ (2.85) $ (1.55) $ (1.28)
Discontinued operations - basic and diluted.. (1.83) (0.71) -- --
-------- -------- -------- -------
$ (5.19) $ (3.56) $ (1.55) $ (1.28)
========== ======== ======== ========
Common shares used in computing per share
amounts (000s)
Basic and diluted.......................... 24,134 23,911 19,373 14,678
========== ======== ======== ========
Other Data:
Broadcast cash flow (3)........................ $27,048 $31,609 $ 41,444 $ 38,182 $ 12,233
Cash flow from operations...................... (28,380) (27,744) (3,044) 2,555 (1,532)
Balance Sheet Data:
Current assets....................... $ 155,108 $ 184,878 $ 146,159 $116,728 $ 71,447
Total assets......................... 385,466 451,683 365,130 222,027 115,332
Total debt........................... 232,057 231,937 55,096 20,285 32,592
Shareholders' equity................. 65,707 157,583 249,320 138,936 62,631
</TABLE>
- ----------------------
26
<PAGE>
(1) On May 13, 1997, the Company announced its decision to discontinue funding
of 1A TV Beteiligungsgessellschaft GmbH & Co. Betriebs KG ("1A TV"), which
operated PULS, a regional television station in the Berlin-Brandenburg
area of Germany. In May 1997, 1A TV declared bankruptcy. The Company wrote
down its investments in Germany by $20,707,000 in 1997, thereby fully
eliminating the carrying value of such investments.
(2) During the fourth quarter of 1998, the Company sold its interests in the
TVN television operations in Poland at a loss, resulting in the treatment
of these interests and related operations as discontinued operations for
all periods presented. The Company's financial statements have been
restated for all periods presented in order to reflect the operations of
Poland as discontinued operations.
(3) "Broadcast cash flow", a broadcasting industry measure of performance, is
defined as net broadcast revenues, less (i) station operating costs and
expenses (excluding depreciation and amortization of acquired programming
and of intangible assets), (ii) broadcast selling, general and
administrative expenses, and (iii) cash program rights costs. Cash program
rights costs are included in the period in which payment is made, which
may not necessarily correspond to the timing of program use or
amortization. Broadcast cash flow should not be considered as a substitute
measure of operating performance or liquidity prepared in accordance with
GAAP (see the accompanying Consolidated Financial Statements).
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The Company's revenues are derived principally from the sale of
television advertising to local, national and international advertisers. To a
limited extent, the Company engages in barter transactions in which its stations
exchange commercial advertising time for goods and services. The Company, like
other television operators, experiences seasonality, with advertising sales
tending to be lowest during the third quarter of each calendar year, which
includes the summer holiday period, and highest during the fourth quarter of
each calendar year. The primary expenses incurred in television operations are
programming and production costs, employee salaries, broadcast transmission
expenses and selling, general and administrative expenses. The Company has
incurred and might in the future incur significant development expenses,
including finding and negotiating with local partners, researching and preparing
license applications, preparing business plans and conducting pre-operating
activities, as well as reorganizing existing affiliate entities which hold the
broadcast licenses.
The primary internal sources of cash available for corporate operating
costs and development expenses are dividends and other distributions from
Subsidiaries. The Company's ability to obtain dividends or other distributions
is subject to, among other things, restrictions on dividends under applicable
local laws and foreign currency exchange regulations of the jurisdictions in
which its Subsidiaries operate. The Subsidiaries' ability to make distributions
is also subject to the legal availability of sufficient operating funds not
needed for operations, obligations or other business plans and, in some cases,
the approval of the other partners, shareholders or creditors of these entities.
The laws under which the Company's operating Subsidiaries are organized provide
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital and required
reserves and after the recovery of accumulated losses.
Selected Combined and Attributable Financial Information
The following two tables are neither required by United States
generally accepted accounting principles ("GAAP") nor intended to replace the
Consolidated Financial Statements prepared in accordance with GAAP. The tables
set forth certain combined and
27
<PAGE>
attributable financial information for the years ended December 31, 1998, 1997
and 1996 for the Company's operating entities. This financial information
departs materially from GAAP.
In the table "Selected Combined Financial Information," revenues and
operating expenses of certain entities (Markiza TV and Studio 1+1) not
consolidated in the Consolidated Statements of Operations during the periods
shown, are aggregated with those of the Company's consolidated operations. In
the table "Selected Attributable Financial Information", combined information is
adjusted for CME's economic interest in each entity, which economic interest is
the basis used for consolidation and equity method accounting in the Company's
GAAP Consolidated Financial Statements as of December 31, 1998. The tables
separate the results of the "Established Stations", which have national or
nearly national coverage, from TV3, the Company's newest operation which reaches
41% of the Hungarian population.
The tables are presented solely for additional analysis and not as a
presentation of results of operations of each component, nor as combined or
consolidated financial data presented in accordance with GAAP. See "Application
of Accounting Principles". The following supplementary unaudited combined and
attributable information includes certain financial information of Markiza TV
and Studio 1+1 on a line-by-line basis, similar to that of the Company's
consolidated entities.
The 1998 $21,289,000 write-down of the TV3 program library, taken to
reduce TV3's program library to the estimated net realizable value, is not
reflected in the tables in order to provide a better indication of the
underlying performance of TV3. In addition, intercompany transactions such as
management service charges are not reflected in the tables. The Company believes
that this unaudited combined and attributable information provides useful
disclosure.
The Established Stations refer to Nova TV, PRO TV, POP TV, Markiza TV
and Studio 1+1. Nova TV began operations in February 1994. PRO TV and POP TV
began operations in December 1995, Markiza TV began operations in August 1996
and Studio 1+1 began to generate significant revenues during the second quarter
of 1997. Other Operations consist of Videovox, a Hungarian dubbing studio and
duplication facility acquired by the Company in May 1996 and wholly-owned since
May 1997, and Radio Alfa in the Czech Republic in which CME acquired a
controlling interest in December 1996 and which ceased to provide services on
December 31, 1998 and is being liquidated. TV3 began operations in October 1997.
EBITDA consists of earnings before interest, income taxes, depreciation
and amortization of intangible assets (which does not include programming
rights). EBITDA is provided because it is a measure of operating performance
commonly used in the television industry. It is presented to enhance an
understanding of the Company's operating results and is not intended to
represent cash flow or results of operations in accordance with GAAP for the
periods indicated.
The term "station expenses" used in the discussion of EBITDA
immediately following the tables refers to the total of a station's (i) other
operating costs and expenses, (ii) amortization of programming rights and (iii)
selling, general and administrative expenses.
"Broadcast cash flow", a broadcasting industry measure of performance,
is defined as net broadcast revenues, less (i) station operating costs and
expenses (excluding depreciation and amortization of acquired programming and of
intangible assets), (ii) broadcast selling,
28
<PAGE>
general and administrative expenses, and (iii) cash program rights costs. Cash
program rights costs are included in the period in which payment is made, which
may not necessarily correspond to the timing of program use or amortization.
Broadcast cash flow should not be considered as a substitute measure of
operating performance or liquidity prepared in accordance with GAAP (see the
accompanying Consolidated Financial Statements).
29
<PAGE>
<TABLE>
<CAPTION>
SELECTED COMBINED FINANCIAL INFORMATION (1)
(unaudited)
($000s)
Year Ended December 31,
--------------------------------------------------------------------------------------------------------
Net Revenue EBITDA Broadcast Cash Flow
--------------------------------- ----------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
Nova TV.................. 108,826 99,163 109,242 54,887 49,921 53,441 47,489 48,326 53,128
PRO TV................... 41,937 30,155 15,803 (2,016) (1,298) (4,368) (3,069) (3,889) (5,290)
Markiza TV .............. 37,793 31,296 7,462 2,483 5,259 (2,240) 2,634 4,044 (4,502)
POP TV................... 22,122 14,989 9,080 (809) (1,613) (5,157) (2,015) (1,742) (6,394)
Studio 1+1............... 23,598 16,661 - (2,047) 19 - (4,150) (1,419) -
------- ------ ------- ------ ------ ------ ------ ------ ------
Total Established
Stations.............. 234,276 192,264 141,587 52,498 52,288 41,676 40,889 45,320 36,942
TV3 (2)............... 5,379 1,464 - (6,926) (3,086) - (15,215) (9,906) -
Other Operations (3).. 4,103 4,494 1,860 (340) (799) (1,075) (340) (799) (1,075)
------- ------ ------- ------ ------ ------ ------ ------ ------
Total Combined
Operations............ 243,758 198,222 143,447 45,232 48,403 40,601 25,334 34,615 35,867
======= ======= ======= ====== ====== ====== ====== ====== ======
</TABLE>
(1) Important information about this table appears under the heading "Selected
Combined and Attributable Financial Information" immediately preceding this
table.
(2) TV3's EBITDA is without the impact of the $21,289,000 write-down in
1998 of the carrying value of capitalized costs of rights to program
material.
(3) Other operations include Radio Alfa and Videovox.
30
<PAGE>
<TABLE>
<CAPTION>
SELECTED ATTRIBUTABLE FINANCIAL INFORMATION (1)
(unaudited)
($000s)
Year Ended December 31,
-----------------------------------------------------------------------------------------------------------------
Economic Net Revenue EBITDA Broadcast Cash Flow
Interest (4) ------------------------------- ----------------------------- ----------------------------------
----------- ------------------------------- ----------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
Nova TV................ 99% 107,738 98,171 108,150 54,338 49,422 52,907 47,014 47,843 52,597
PRO TV................. 66% 27,678 19,902 10,430 (1,331) (857) (2,883) (2,026) (2,567) (3,491)
Markiza TV............. 80% 30,234 25,037 5,970 1,986 4,207 (1,792) 2,107 3,235 (3,602)
POP TV ...............85.5% 18,914 12,816 7,763 (692) (1,379) (4,409) (1,723) (1,489) (5,467)
Studio 1+1..............60% 14,159 9,997 - (1,228) 11 - (2,490) (851) -
------- ------ ------- ------ ------- ------ ------ ------ -------
Total Established Stations.... 198,723 165,923 132,313 53,073 51,404 43,823 42,882 46,171 40,037
TV3 (2).............. 99% 5,325 1,449 - (6,857) (3,055) - (15,063) (9,807) -
Other Operations(3). 100% 4,103 4,494 1,860 (340) (799) (1,075) (340) (799) (1,075)
------- ------ ------- ------ ------- ------ ------ ------ -------
Total Attributable
Operations 208,151 171,866 134,173 45,876 47,550 42,748 27,479 35,565 38,962
======= ======= ======= ====== ======= ====== ====== ====== =======
</TABLE>
(1) Important information about this table appears under the heading "Selected
Combined and Attributable Financial Information" immediately preceding this
table.
(2) TV3's EBITDA is without the impact of the $21,289,000 ($21,076,000
attributable in 1998) write-down of the carrying value of capitalized
costs of rights to program material.
(3) Other operations include Radio Alfa and Videovox.
(4) Economic interest as of December 31, 1998. For comparison between
the years ended December 31, 1998, 1997 and 1996, all results in this
table are pro forma as if the December 31, 1998 percentages had also been
in place during the years ended December 31, 1996 and 1997. See
"Application of Accounting Principles" regarding the increase in the
Company's interest in Studio 1+1 to 60%.
31
<PAGE>
Combined EBITDA for the year ended December 31, 1998 compared to the
year ended December 31, 1997
Established Stations
The total combined EBITDA for the Established Stations increased
by $210,000 from $52,288,000 for 1997 to $52,498,000 for 1998.
The Russian financial crisis resulted in a number of advertisers
reducing their advertising budgets in the fourth quarter of 1998 in many markets
in Central and Eastern Europe, which adversely impacted net revenues at all of
the Established Stations with the strongest impact in Ukraine (Studio 1+1) and
Romania (PRO TV).
Nova TV's EBITDA increased by $4,966,000, or 10%, to $54,887,000 for
1998, compared with $49,921,000 for 1997. Nova TV's net revenues increased by
$9,663,000, or 10%, as a result of growth in the total television advertising
market. This revenue growth was achieved despite difficulties in the Czech
economy during 1998. Station expenses increased by a total of $4,697,000, or
9.5%, which primarily reflects inflationary pressures on prices and increased
local production.
POP TV's EBITDA improved from negative $1,613,000 for 1997 to negative
$809,000 for 1998. Net revenues increased by $7,133,000, or 48%, to $22,122,000
for 1998 from $14,989,000 for 1997. The increase was a result of the growth of
the overall television advertising market in Slovenia (from $39,000,000 in 1997
to $51,000,000 in 1998) and POP TV's increased audience share. POP TV's station
expenses increased by $6,329,000, or 38%, for 1998 compared to 1997 primarily
due to higher costs of acquired and locally produced programming. The cost of
acquired programming increased primarily due to higher programming prices and
the addition of Gajba TV, a second channel launched in October 1997.
PRO TV's EBITDA decreased by $718,000 from negative $1,298,000 for 1997
to negative $2,016,000 for 1998. The decrease was primarily a result of an
increase in station expenses, primarily attributable to costs associated with
expansion of the network, including Acasa (the Company's second channel in
Romania) launched in February 1998, higher prices of acquired programming and
increased hours of self production. Net revenues for 1998 increased by
$11,782,000, or 39%, over 1997 net revenues. During the fourth quarter of 1998,
PRO TV's net revenues were negatively impacted by the Russian financial crisis,
resulting in only 11% net revenue growth for fourth quarter 1998 over fourth
quarter 1997. For comparison, first nine month 1998 net revenue was 46% higher
than first nine month 1997 net revenue.
Studio 1+1 recorded negative EBITDA of $2,047,000 for 1998 compared
with positive EBITDA of $19,000 for 1997. Net revenues increased $6,937,000, or
42 %, from 1997 to 1998, due to an increase in Studio 1+1's audience share and
significant growth in the Ukrainian television advertising market during the
first eight months of 1998. The financial crisis in Russia negatively impacted
the last four months of 1998 with fourth quarter net revenues $2,100,000, or
31%, lower than fourth quarter of 1997 net revenues. For comparison, first nine
month 1998 net revenue was 92% higher than first nine month 1997 net revenue.
Station expenses for 1998 were $9,003,000, or 54%, higher than in
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<PAGE>
1997 as Studio 1+1 did not reach full scale operational levels until the end of
the third quarter of 1997.
Markiza TV recorded an EBITDA decrease of $2,776,000 from $5,259,000
for 1997 to $2,483,000 for 1998. This decrease was primarily due to a
programming library write-down of approximately $2,000,000 as well as higher
production expenses due to an increase in production hours. Net revenues
increased by $6,497,000, or 21%, reflecting Markiza TV's continued market
leadership in ratings and advertising share. During the fourth quarter of 1998,
Markiza's net revenues were adversely impacted by the Russian financial crisis
and economic difficulties in the Czech Republic (approximately 60% of Markiza
TV's advertising revenues are sourced from agencies based in the Czech
Republic).
TV3
TV3 in Hungary commenced operations in October 1997 and recorded
negative EBITDA of $6,926,000 for 1998.
The Company recorded a $6,664,000 write-down of TV3's program library
in the fourth quarter of 1998 and a total write-down of $21,289,000 for 1998.
Programming commitments were entered into in 1996 and 1997 in anticipation of
the grant of a national license for Hungary. The Company was not granted a
national license for Hungary and has been unable to enter into a partnership
with the license winners during 1998. See Item 3, "Legal Proceedings". In light
of TV3's distribution and audience share, the Company does not expect to be able
to realize the full value of the program library. The carrying value of the
capitalized costs of rights to program material has been adjusted down to its
estimated net realizable value. The EBITDA reported on the table is before this
write-down, as the Company believes it provides a better indication of the
underlying performance of the station.
Total Combined Operations
The total Combined Operations EBITDA (before the write-down of TV3's
programming library) decreased by $3,171,000 from $48,403,000 for 1997 to
$45,232,000 for 1998. As described above, this decrease was primarily due to
negative EBITDA reported by the Company's new operation in Hungary and the
decrease in EBITDA of Markiza TV, Studio 1+1 and PRO TV, offset in part by the
EBITDA improvements in CNTS and POP TV .
Broadcast Cash Flow
Differences between EBITDA and broadcast cash flow are the result of
timing differences between programming use and programming payments.
Application of Accounting Principles
Although the Company conducts operations largely in foreign currencies,
the Company prepares its consolidated financial statements in United States
dollars and in accordance with GAAP. In CME's Consolidated Statements of
Operations, consolidated entities include wholly-owned subsidiaries and the
results of Nova TV, PRO TV, POP TV,
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<PAGE>
TV3, Videovox and Radio Alfa, and separately set forth the minority interests
attributable to other owners of such companies. The results of Markiza TV,
Studio 1+1 and the Company's former German regional television operations FFF,
SFF and 1A TV have been accounted for using the equity method such that CME's
interests in net earnings or losses of those operations is included in the
consolidated earnings and an adjustment is made to the carrying value at which
the investment is recorded on the Consolidated Balance Sheet. The Company
records other investments at the lower of cost or market value. In late December
1998 the Company increased its equity interest in Studio 1+1 to a 60%
controlling interest and, due to the timing of this transaction, the Studio 1+1
balance sheet is consolidated in the Company's Consolidated Balance Sheet as of
December 31, 1998, but on the Company's Consolidated Statements of Operations
and Consolidated Statements of Cash Flows, Studio 1+1 results are accounted for
under the equity method through the date of consolidation (December 23, 1998).
In the future, Studio 1+1 will be consolidated in all of CME's GAAP financial
statements for all periods subsequent to the acquisition of this additional
interest. 1A TV initiated a bankruptcy proceeding in May 1997. The Company
terminated its ownership interests in FFF and SFF as of December 31, 1997.
Foreign Currency
The Company generates revenues primarily in Czech korunas ("Kc"),
Romanian lei ("ROL"), Slovenian tolar ("SiT"), Slovak korunas ("Sk"), Hungarian
forints ("HUF") and Ukrainian hryvna ("Hrn") and incurs expenses in those
currencies as well as German marks, British pounds and United States dollars.
The Romanian lei, Slovenian tolar, Ukrainian hryvna and Slovak koruna are
managed currencies with limited convertibility. The Company incurs operating
expenses for acquired programming in United States dollars and other foreign
currencies. For entities operating in economies considered non-highly
inflationary, including CNTS, POP TV, Markiza TV, Videovox, Radio Alfa, TV3 and
certain Studio 1+1 entities, balance sheet accounts are translated from foreign
currencies into United States dollars at the relevant period end exchange rate
and statement of operations accounts are translated from foreign currencies into
United States dollars at the weighted average exchange rates for the respective
periods. The resulting translation adjustments are reflected in a component of
shareholders' equity (in accumulated other comprehensive income (loss) ) with no
effect on the consolidated statements of operations.
PRO TV and certain Studio 1+1 entities operate in economies considered
highly inflationary. Accordingly, non-monetary assets are translated at
historical exchange rates, monetary assets are translated at current exchange
rates and translation adjustments are included in the determination of net
income. Currency translation adjustments relating to transactions of the Company
in currencies other than the functional currency of the entity involved are
reflected in the operating results of the Company.
The exchange rates at the end of and for the periods indicated are
shown in the table below.
<TABLE>
<CAPION>
Balance Sheet Income Statement
--------------------------------- -----------------------------------
At December 31, Weighted average for the years
ending December 31,
1998 1997 % Change 1998 1997 % Change
---- ---- -------- ---- ---- --------
34
<PAGE>
<S> <C> <C> <C> <C> <C> <C>
Czech koruna equivalent of $1.00 29.86 34.64 13.8% 31.96 32.03 0.2%
German mark equivalent of $1.00 1.67 1.80 7.2% 1.76 1.73 -1.7%
Hungarian forint equivalent of $1.00 217 204 -6.4% 217 201 -8.0%
Romanian lei equivalent of $1.00 10,983 8,023 -36.9% 8,863 7,077 -25.2%
Slovak koruna equivalent of $1.00 36.91 34.78 -6.1% 35.20 33.64 -4.6%
Slovenian tolar equivalent of $1.00 161.20 169.18 4.7% 165.99 160.37 -3.5%
Ukrainian hryvna equivalent of $1.00 3.43 1.90 -80.5% 2.45 1.86 -31.7%
</TABLE>
The Company's results of operations and financial position during 1998
were impacted by changes in foreign currency exchange rates since December 31,
1997.
Results of Operations
During the fourth quarter of 1998, the Company sold its interests in
the TVN television operations in Poland at a loss, resulting in the treatment of
these interests and related operations as discontinued operations for all
periods described in Results of Operations. The Company's financial statements
have been restated for all periods presented in order to reflect the operations
in Poland as discontinued operations.
Year ended December 31, 1998 compared to year ended December 31, 1997
CME's consolidated net revenues increased by $32,102,000, or 21%, to
$182,367,000 for 1998 from $150,265,000, for 1997. Net revenues increased for
each of the consolidated television operations (Nova TV, PRO TV, POP TV and
TV3). However, the Russian financial crisis resulted in a number of advertisers
reducing their advertising budgets in the fourth quarter of 1998 in many markets
in Central and Eastern Europe, which adversely impacted net revenues at all CME
stations.
Nova TV, PRO TV and POP TV's net revenues improved primarily due to
growth in their respective television advertising markets and despite the
lingering effects of the Russian financial crisis on the advertising market in
Romania and difficulties in the economy during 1998 in the Czech Republic. TV3
recorded net revenues of $5,379,000 in 1998, its first full year of operations.
Total station operating costs and expenses (including amortization of
program rights and depreciation of fixed assets and other intangibles) increased
by $47,624,000, to $146,275,000 for 1998 from $98,651,000 for 1997. The increase
is primarily attributable to increases in 1998 station operating costs and
expenses of TV3 of $28,028,000, of which $21,289,000 reflects the write-down of
the carrying value of TV3's capitalized costs of rights to program material to
its estimated net realizable value. The increase in total station operating
costs and expenses is also attributable to increases in operating costs and
expenses at PRO TV of $13,137,000, POP TV of $5,012,000 and Nova TV of
$2,757,000.
PRO TV's station operating costs and expenses rose primarily as a
result of expansion of network affiliates, higher prices of acquired programming
and increased hours of self- production. In addition, programming amortization
increased due to the second channel Acasa and depreciation increased due to the
increase in network and broadcast equipment needed to expand the signal reach.
Both Nova TV and POP TV's operating costs and expenses increases were primarily
attributable to higher production
35
<PAGE>
costs as a result of increased local production in response to audience demand
and, in the case of POP TV, higher acquired programming costs due to an increase
in programming prices.
Station selling, general and administrative expenses increased by
$5,853,000 to $28,806,000 for 1998 from $22,953,000 for 1997. The increase is
primarily attributable to increases at PRO TV, TV3 (which commenced operations
in October 1997) and POP TV.
PRO TV's 1998 selling, general and administrative expenses were
$2,763,000 higher as a result of administrative and marketing expenses related
to the addition of Acasa and the development of production and post-production
businesses. POP TV's selling, general and administrative expenses increased by
$923,000 primarily due to increased marketing activity.
Corporate operating costs and development expenses decreased by
$2,797,000, or 11%, from $25,467,000 in 1997 to $22,670,000 in 1998 due to
reduced development activity and lower corporate headcount.
The increase in amortization of goodwill and allowance for development
costs of $1,964,000, is primarily attributable to the write-off of goodwill
associated with the Company's Hungarian operations and a provision against
investments in Kanal A.
In the second quarter of 1998, the Company recorded a restructuring
charge of $2,552,000 based on its decision to change its focus from aggressive
development and growth to further enhancing the operating performance of the
Company's existing assets and pursuing opportunities for focused growth. The
restructuring charge is comprised of severance and other associated costs.
As a result of the above factors, the Company generated an operating
loss of $34,745,000 for 1998 compared to an operating loss of $11,651,000 for
1997.
Equity in loss of unconsolidated affiliates decreased by $6,942,000 to
a loss of $3,398,000 for 1998 from a loss of $10,340,000 for 1997. This is a
result of the Company's termination of its loss-making German operations as of
December 31, 1997.
Net interest and other income changed by $12,582,000 to negative
$18,591,000 for 1998 from negative $6,009,000 for 1997. This was primarily
attributable to a full year of interest expense related to CME's $100,000,000
principal amount 9.375% Senior Notes and DM 140,000,000 principal amount 8.125%
Senior Notes, each due 2004, issued in August 1997 (collectively, the "Senior
Notes").
The net foreign currency exchange loss increased to $8,412,000 for 1998
from $5,857,000 for 1997. The loss increased due to the effect of the
appreciation of the German mark against the United States dollar on the
Company's DM denominated Senior Notes and the effect of the appreciation of
Czech koruna against the United States dollar on the Company's Czech koruna
denominated loan with Ceska Sporitelna Bank ("CS"). This increase was offset in
part by the effect of the appreciation of the Czech koruna on the Company's
Czech koruna cash balances.
36
<PAGE>
Provision for income taxes was $15,856,000 for 1998, an increase
from $14,608,000 for 1997 due to an increase in CNTS's taxable income.
Minority interest in income of consolidated subsidiaries was $156,000
in 1998 and minority interest in loss of consolidated subsidiaries was
$1,066,000 in 1997. This results from changes in profitability and, to a lesser
extent, changes in ownership of the consolidated subsidiaries.
In December 1998, CME sold its interests in the TVN television
operations in Poland to its former partner. The operating losses from the
Company's Polish operations and the loss on the sale of the related assets
appear on the Consolidated Statement of Operations under discontinued operations
for both 1998 and 1997.
As a result of these factors, the net loss of the Company was
$125,252,000 for 1998 compared to $85,092,000 for 1997.
Year ended December 31, 1997 compared to year ended December 31, 1996
The Company's net revenues increased by $14,280,000, or 11 %, to
$150,265,000 in 1997 from $135,985,000 in 1996. The increase was primarily
attributable to the increase in net revenues of PRO TV and POP TV and to the
addition of the revenues of TV3 and Radio Alfa, offset by a decrease in net
revenues of Nova TV.
PRO TV's and POP TV's net revenues of $30,155,000 and $14,989,000,
respectively, in 1997, reflect increases of $14,352,000, or 91%, and $5,909,000,
or 65%, respectively. PRO TV's and POP TV's net revenues improved due to the
growth in their respective television advertising markets and, to a lesser
extent, increases in their audience shares.
TV3 and Radio Alfa, which were not included in the Company's 1996
results, recorded net revenues of $1,464,000 and $1,808,000, respectively, for
1997. Videovox also contributed to the Company's net revenue growth with an
increase of $939,000, or 55%, from $1,707,000 in 1996 to $2,646,000 in 1997.
Nova TV's net revenues decreased by $10,079,000, or 9%, to $99,163,000
in 1997 from $109,242,000 in 1996. The decrease in Nova TV's United States
dollar net revenues is due to the 18% devaluation of the Czech koruna against
the United States dollar in 1997. Measured in local currency, Nova TV's net
revenues from advertising sales increased by Kc 292,462,000, or 11%, which
approximates the growth rate of the Czech television advertising market in local
currency terms. Nova TV's United States dollar net revenues from advertising
sales were approximately $16,750,000 lower than they would have been if the
Czech koruna had remained unchanged against the United States dollar during
1997. Other revenues (principally barter and game show revenues) decreased by
$4,093,000.
Total station operating costs and expenses increased by $13,550,000, or
16%, to $98,651,000 in 1997 from $85,101,000 in 1996. The increase in total
station operating costs and expenses is primarily attributable to increases in
1997 operating costs and expenses at PRO TV of $8,549,000, or 51.8%, to
$25,047,000 and the addition of station operating costs and expenses of TV3 of
$3,331,000. This increase was also attributable to
37
<PAGE>
increases at POP TV of $2,654,000, or 20.8%, to $15,418,000 in 1997. PRO TV's
and POP TV's operating costs and expenses rose as a result of increased expenses
related to local production in response to increasing audience demand for local
programming. This increase was partially offset by a decrease in Nova TV's
operating costs and expenses in United States dollar terms from $54,578,000 to
$50,796,000, primarily due to currency devaluation. In local currency terms,
Nova TV's operating costs and expenses increased by Kc 141,994,000, or 10%, from
Kc 1,484,849,000 to Kc 1,626,843,000, primarily due to higher salary and
production costs in response to increased competition in the Czech television
market. During 1997, Nova TV began production on various new entertainment
formats to meet increasing audience demand for local programming.
Station selling, general and administrative expenses increased by
$1,596,000 to $22,953,000 in 1997 from $21,357,000 in 1996. This increase was
primarily attributable to increases at PRO TV, which were primarily due to
increased administrative costs associated with expansion of network affiliates,
diversification into the production and post production businesses and increased
marketing activity in response to competition entering the market. To a lesser
extent, the increase in station selling, general and administrative expenses was
attributable to the addition to the Company's results of TV3 and Radio Alfa in
1997. The increase was partially offset by a decrease in the selling, general
and administrative expenses of Nova TV due to a lower bad debt provision in 1997
as a result of improvements in collecting receivables and the effect of the
devaluation of the Czech koruna against the United States dollar.
Corporate operating costs and development expenses for 1997 and 1996
were $25,467,000 and $15,782,000, respectively, an increase of $9,685,000, or
61%. The increase was primarily attributable to increased scope of operations
and increased legal and consulting fees.
Amortization of goodwill and allowance for development costs was
$14,845,000 and $2,940,000 in 1997 and 1996, respectively. This increase was
primarily attributable to the full-year amortization of goodwill related to the
Company's purchase in August 1996 of an additional 22% economic interest in CNTS
(the "Additional CNTS Purchase"), the Company's purchase in early 1997 of an
additional 5.2% economic interest in CNTS (the "1997 CNTS Purchase") and the
Company's purchase of a 5.8% economic interest in CNTS in August 1997 (the
"Second 1997 CNTS Purchase"), together with the amortization of goodwill related
to the Company's investment in Radio Alfa.
As a result of the above factors, the Company generated an operating
loss of $11,651,000 in 1997 compared to operating income of $9,996,000 in 1996.
Equity in loss of unconsolidated affiliates decreased by $7,527,000 to
$10,340,000 in 1997 from $17,867,000 in 1996 primarily as a result of the
cessation of funding of 1A TV.
Loss on impairment of investments in unconsolidated affiliates of
$20,707,000 was a result of the write-down of the Company's investments in
Germany. This write-down, together with losses incurred by the German
operations, has resulted in a total charge of $27,389,000 to the Company's
Consolidated Statements of Operations in 1997.
38
<PAGE>
Net interest and other income decreased by $4,215,000 to negative
$6,009,000 in 1997 from negative $1,794,000 in 1996. This decrease was
attributable to interest expense related to CME's $100,000,000 principal amount
9.375% Senior Notes and DM 140,000,000 principal amount 8.125% Senior Notes,
each due 2004, issued in August 1997 (collectively, the "Senior Notes"),
together with the full-year impact of interest on the Company's borrowings with
CS in connection with the Additional CNTS Purchase.
The net foreign currency exchange loss of $5,857,000 in 1997 is
primarily attributable to the devaluation of the local operating currencies
against the United States dollar. These currencies devalued considerably more
against the United States dollar in 1997 than in 1996. The net foreign
currencies exchange loss was partially offset by a gain the Company realized on
the Czech koruna debt funding for the Additional CNTS Purchase, which is not
considered as a hedge against net investments in the Czech Republic.
Provision for income taxes was $14,608,000 in 1997 versus $16,405,000
in 1996 as a result of the effect on Nova TV's taxable income of the devaluation
of the Czech koruna against the United States dollar.
Minority interest in loss of consolidated subsidiaries was $1,066,000
in 1997 and minority interest in income of consolidated subsidiaries was
$1,072,000 in 1996. This increase was primarily the result of the Company's
increased ownership in Nova TV, which continued to be profitable during 1997.
In December 1998, CME sold its interests in the TVN television
operations in Poland to its former partner. The operating losses from the
Company's Polish operations for the year ended December 1997 have therefore been
reclassified in the current year presentation as operating loss of discontinued
operations.
As a result of these factors,the net loss of the Company was
$85,092,000 for 1997 compared to $30,003,000 for 1996.
Programming Commitments in Hungary
Programming commitments were entered into in 1996 and 1997 in
anticipation of the grant of a national license for Hungary. The Company was not
granted a national license for Hungary and has been unable to enter into a
partnership with the license winners. In light of TV3's distribution and
audience share, the Company does not expect to be able to realize the full value
of the program library. Accordingly, the Company took write-downs with regard to
commitments for programming rights for TV3 of $10,961,000, $3,664,000 and
$6,664,000 for the second, third and fourth quarters of 1998. The Company
currently estimates that it will take further write-downs of up to $7,593,000
with regard to future programming rights, of which approximately $2,129,000 is
expected to be taken in 1999 and $5,464,000 is expected to be taken in 2000 as
these obligations are incurred. Program rights acquired by the Company under
license agreements, and the related obligations incurred are recorded as assets
and liabilities when the programming is available for use and the license period
begins which is in accordance with SFAS No. 63. See Item 3, "Legal Proceedings".
39
<PAGE>
Liquidity and Capital Resources
Net cash used in operating activities was $28,380,000 in 1998 compared
to $27,744,000 in 1997.
Net cash used in investing activities was $55,761,000 in 1998 compared
to $109,834,000 in 1997. The decrease of $54,073,000 was primarily attributable
to the lower investments made by the Company in its Polish operations in 1998
compared to 1997 and proceeds from the sale of its Polish operations to its
former partner.
Net cash provided by financing activities for 1998 was $22,796,000
compared to $161,330,000 in 1997. The decrease of $138,534,000 was primarily
attributable to the issuance of CME's Senior Notes in August 1997 offset by the
RSL equity investment in December 1998 (see below).
In August 1997, CME issued the Senior Notes, which raised net proceeds
of approximately $170,000,000. The Senior Notes are denominated in United States
dollars, in part, and in German marks, in part. The United States dollar
denominated Senior Notes bear interest at a rate of 9.375% per annum, and the
German mark denominated Senior Notes bear interest at a rate of 8.125% per
annum. The principal amount of the Senior Notes is repayable on their maturity
date, August 15, 2004. The indentures governing the Senior Notes contain certain
restrictions relating to the ability of CME and its Subsidiaries and affiliates
to incur additional indebtedness, incur liens on assets, make investments in
unconsolidated companies, declare and pay dividends (in the case of CME), sell
assets and engage in extraordinary transactions.
In December 1998, the Company received an equity investment of
approximately $22,498,000 from RSL Capital LLC ("RSL"), a company wholly owned
by Ronald S. Lauder, the non-executive Chairman of the Company's Board of
Directors. RSL purchased 1,515,000 shares of the Company's Class B Common Stock
for $15.00 per share. The purchase price per share is subject to adjustment as
follows: If the last reported daily trading price of the Company's Class A
Common Stock on NASDAQ does not equal or exceed $15.00 for at least 20
consecutive trading days during the period commencing November 13, 1998 and
ending November 13, 1999 (the "Measurement Period"), the Company will issue
additional shares of Class B Common Stock to RSL for no additional consideration
so that the average per share price for the shares of the Company's Class B
Common Stock acquired by RSL will equal the average last reported daily trading
price of the Company's Class A Common Stock during the Measurement Period,
provided, that, in no event shall the average price per share for the shares of
the Company's Class B Common Stock acquired by RSL be less than $10.00 per
share.
On December 11, 1998, CME sold its interests in the TVN television
operations in Poland to International Trading and Investments Holding S.A.
("ITI"), a company publicly traded on the Luxembourg Stock Exchange and the
Company's partner in the TVN television operations. CME caused its subsidiaries
to transfer to ITI and certain of ITI's affiliates all of CME's interests in the
TVN operations together with certain outstanding receivables in exchange for $10
million in cash, a note in a principal amount of $40 million bearing interest at
a rate of 5% per annum and maturing in December 2001 that is convertible into
equity securities of ITI and exchangeable into similar debt securities of ITI,
the release of a $10 million bank guarantee and the assumption by ITI of various
40
<PAGE>
obligations of CME and its subsidiaries in respect of programming and satellites
relating to the TVN operations. The note was recorded at a net present value of
$19,836,000 due to the prevailing interest rates on similar instruments at the
date of the transaction. Ronald S. Lauder, the non-executive Chairman of the
Board of Directors of the Company, owns a non-controlling indirect minority
interest in ITI.
In May 1998, CNTS (Nova TV) declared a total dividend of Kc 550,000,000
($16,963,000) of which the Company was paid Kc 525,010,000 ($16,192,000) during
1998. The remaining Kc 24,990,000 ($771,000) was paid to minority shareholders.
As a result of the factors described above, the Company had cash and
cash equivalents of $44,444,000 at December 31, 1998 compared to $104,490,000 at
December 31, 1997.
On August 11, 1997, the Company purchased a 5.8% interest in CNTS from
certain of the partners of CET 21 (including Dr. Zelezny) for a purchase price
of $28,537,000, to be paid in cash installments through February 15, 2000. As of
December 31, 1998, the Company had paid $20,662,000 of the purchase price and is
obligated to make further payments of $5,313,000 during 1999 and $2,562,000
during 2000. Each further payment is subject to increase to an amount equal to
the value of such payment as if it had been invested in CME's Class A Common
Stock at a purchase price of $23.375 per share.
On August 1, 1996, the Company purchased CS's 22% economic interest and
virtually all of CS's voting rights in CNTS for a purchase price of Kc 1 billion
($36,590,000). The Company also entered into a loan agreement with CS to finance
85% of the purchase price. The principal outstanding at December 31, 1998 was Kc
632,580,000 ($21,188,000). Quarterly repayments on the loan are required in the
amount Kc 42,500,000 ($1,424,000) during the period from February 1999 through
May 2002, and Kc 37,580,000 ($1,259,000) in August 2002.
The Company expects CNTS's future cash requirements to continue to be
satisfied through operating cash flows and available borrowing facilities. CNTS
has a line of credit with CS for up to Kc 250,000,000 ($8,374,000) bearing
interest at a rate 0.5% over the Prague Interbank Offer Rate ("PRIBOR"). This
facility is secured by CNTS's equipment, vehicles and receivables. In October
1997, CNTS entered into a Kc 500,000,000 ($16,748,000) line of credit with ING
Bank N.V. The line of credit, which may be drawn in Czech koruna, German marks
or United States dollars, bears interest at a rate of 0.5% over the interbank
offered rate for the applicable currency and matures in October 1999. CNTS had
no borrowings under these facilities at December 31, 1998.
In June 1997 in connection with CNTS's acquisition of Nova TV's main
studios and offices, CNTS assumed obligations under a loan from CS (the "CS
Loan") secured by a mortgage on the studios and offices. The CS Loan provides
for quarterly payments of Kc 16,500,000 ($553,000), plus interest equal to three
month PRIBOR plus 1.0%, to be paid through December 1999. As of December 31,
1998, the outstanding balance under the CS Loan was Kc 60,000,000 ($2,010,000).
In February 1998, Markiza TV entered into a revolving credit facility
with Bank Austria. The facility is for Sk 100,000,000 ($2,709,000) and matures
in September 2000.
41
<PAGE>
This facility is secured by Markiza TV's land and buildings. Bank Austria has
notified Markiza TV that this facility is not available for draw-down as a
result of the dispute regarding the ownership of Markiza-Slovakia s.r.o., the
company which holds the Markiza TV broadcast license. The unavailability of this
facility has had no material impact on Markiza TV's business to date. See Part
I, Item 3 "Legal Proceedings".
In April 1998, POP TV entered into a multicurrency $5,000,000 loan
agreement with Creditanstalt AG which matures in May 2005. As of December 31,
1998, the outstanding balance under the loan was $3,554,000. The loan is secured
by the land, buildings and equipment of POP TV and is guaranteed by CME.
PRO TV has two borrowing facilities with Tiriac Bank in Romania. The
first facility consists of a $2,000,000 line of credit which matures in June
2000. At December 31, 1998, $1,290,000 was outstanding under this facility. The
second facility is a long-term loan for $4,000,000 which matures in December
2002. At December 31, 1998, $3,654,000 was borrowed under this facility. These
facilities are secured by PRO TV's equipment and vehicles.
TV3 has borrowings of HUF 279,000,000 ($1,286,000) from a local
Hungarian bank. The loan matures in December 2000 and is secured by pledges of
certain fixed assets of TV3. The Company has loaned $400,000 to TV3 since
December 31, 1998. The Company has made approximately $385,000 in cash
programming payments on behalf of TV3 since December 31, 1998, and has
additional cash programming payments due for TV 3 in the amount $10,863,000,
$4,567,000 and $4,567,000 for 1999, 2000 and 2001. It is anticipated that the
Company will lend up to an additional $2,000,000 to TV3 throughout 1999.
On February 26, 1999, the Company entered into a $15,000,000 secured
revolving Credit Facility with ING Bank N.V. (the "ING Facility"). The ING
Facility is for a term of three years and the commitment level is to be reduced
in four equal semi-annual instalments starting in June 2000. The ING Facility is
secured by the assets of a wholly-owned subsidiary of the Company, which holds
the Company's interest in CNTS, and will be repaid from the dividends of CNTS.
The rate of interest charged on the ING Facility is based on the ratio of the
Company's indebtedness to CNTS's broadcast cash flow and may range from 3.75% to
2.50% over United States dollar LIBOR. The availability of the ING Facility is
subject to the satisfaction of various conditions which have not yet been met.
On March 18, 1999, the Company added to its cash balances by receiving
net proceeds of approximately $39,000,000 from the sale of its 9.6% stake in
MobilRom in Romania.
The laws under which CME's operating Subsidiaries are organized provide
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital, required
reserves and after the recovery of accumulated losses. In the case of the
Company's Dutch and Netherlands Antilles subsidiaries, the Company's voting
power is sufficient to compel the making of distributions. The Company's voting
power is sufficient to compel CNTS to make distributions. In the case of PRO TV,
distributions may be paid from the profits of PRO TV subject to a reserve of 5%
of annual profits until the aggregate reserves equal 20% of PRO TV's registered
capital. A majority vote can compel PRO TV to make distributions. There are no
legal reserve requirements in Slovenia. In the case of Markiza TV, distributions
may be paid from net profits subject to an initial reserve requirement of 10% of
net profits until the reserve fund equals 5% of registered capital.
Subsequently, the reserve requirement is equal to 5% of net profits until the
reserve fund equals 10% of registered capital. The Company's voting power in
Markiza TV is not sufficient to compel the distribution of dividends. The
Company's voting power in the Studio 1+1 Group is sufficient to compel the
distribution of dividends. In the case of TV3, the Company's voting interest is
sufficient to compel the payment of dividends. There are no legal reserve
requirements in Hungary.
42
<PAGE>
Except for the Company's working capital requirements, the Company's
future cash needs will depend on the Company's financial performance and its
future acquisition and development decisions. The Company continues to invest in
its existing broadcast operations and might engage in the development of
additional broadcast operations. The Company incurs certain expenses in
identifying and pursuing broadcast opportunities before any investment decision
is made.
The Company believes that taken together its current cash balances
(including cash received from the MobilRom sale in March 1999), internally
generated cash flow and local financing of broadcast operations should be
adequate to satisfy the Company's operating and capital requirements for its
current operations for the next 12 to 18 months. To acquire additional broadcast
rights or to fund other significant investments, the Company would require
significant additional financing.
Year 2000 Issue
The "Year 2000 Issue" consists of computer programs and embedded
technology in equipment defining years using the last two digits rather than all
four digits of the applicable year and could result in the complete or partial
failure of computer applications and equipment with embedded technology by or at
the year 2000. The Company has established a Year 2000 compliance plan and
timetable. A Committee chaired by the Company's Chief Operating Officer and
comprised of technical personnel from each of the Company's television
operations is overseeing the process.
The Company has undertaken and expects to complete by mid-1999 (i) a
systems and equipment review (both the Company's and that of third party
vendors), (ii) an assessment of compliance costs and (iii) a plan for business
continuity in the event that full compliance is not attainable and then proceed
through implementation, testing and management.
Based upon the Company's current estimates, incremental out-of-pocket
costs of its Year 2000 program are expected to be immaterial. These costs are
expected to be incurred primarily in fiscal 1999 and include third-party
consultants, remediation of existing computer software and replacement and
remediation of embedded chips. Such costs do not include internal management
time, the effect of which is not expected to be material to the Company's
results of operations or financial condition.
The Company's broadcast operations are highly dependent upon equipment
with embedded computer technology (cameras, mixing equipment, broadcast
equipment, etc.), the widespread failure of which would have a material adverse
impact on the Company's
43
<PAGE>
results of operations. The Company will continually review its progress against
its Year 2000 plans. Accounting rules require Year 2000 compliance costs to be
expensed as incurred.
Euro Conversion
As part of the European Economic and Monetary Union (EMU), a single
currency, the euro, will replace the national currencies of many of the member
countries of the European Union. Although the Company does not currently conduct
business in any of the countries which are adopting the euro, it holds debt
denominated in German marks, one of the currencies scheduled to be replaced by
the euro. Additionally, it is expected that several of the countries in which
the Company operates are likely to join EMU at some point in the future.
The conversion rates between the euro and the participating nations'
currencies were fixed irrevocably as of January 1, 1999 and the participating
national currencies will be removed from circulation between January 1, and June
30, 2002 and replaced by euro notes and coinage. During the "transition period"
from January 1, 1999 through December 31, 2001, public and private entities as
well as individuals may pay for goods and services using either checks, drafts,
or wire transfers denominated in euro or the participating country's national
currency.
Under the regulations governing the transition to a single currency,
there is a "no compulsion, no prohibition" rule which states that no one is
obliged to use the euro until the notes and coinage have been introduced on
January 1, 2002. In keeping with this rule, the Company expects to be euro
"compliant" (able to receive euro denominated payments and able to invoice in
euros as requested by vendors and suppliers, respectively) by the time national
currencies are removed from circulation. The cost of software and business
process conversion is not expected to be material.
Forward-looking Statements
Statements made in "Programming Commitments in Hungary" and "Liquidity
and Capital Resources" regarding future investments in existing television
broadcast operations, business strategies, commitments and the future need for
additional funds from outside sources are forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not even
be anticipated. Future events and actual results, financial and otherwise, could
differ materially from those described in or contemplated by the forward-looking
statements. Important factors that contribute to such risks include the ability
to acquire programming, the ability to attract audiences, the rate of
development of advertising markets in countries where the Company currently
operates, including the continuing impact of the Russian financial crisis on the
economies of these countries, and general market and economic conditions in
these countries. Important factors with respect to discussions and negotiations
described in "Corporate Structure-Czech Republic" include legal and regulatory
conditions in the Czech Republic. Important factors with respect to completion
of the Company's Year 2000 compliance plan include the outcome of the
Company's systems and equipment review and the extent to which Company and
third party systems are found to be out of compliance.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
44
<PAGE>
The Company conducts business in a number of foreign currencies. As a
result, it is subject to foreign currency exchange rate risk due to the effects
that foreign exchange rate movements of these currencies have on the Company's
costs and on the cash flows it receives from certain subsidiaries. Several of
the Company's subsidiaries hold long-term debt under credit facilities that
provide for interest at a spread above a basis rate (such as LIBOR). A
significant rise in these basis rates would not materially adversely affect the
Company's business, financial condition or results of operations. The Company
does not utilize derivative financial instruments to hedge against changes in
interest rates. The Company believes that it currently has no material exposure
to market risk associated with activities in derivative or other financial
instruments.
In limited instances the Company enters into forward foreign exchange
contracts to hedge foreign currency exchange rate risk. See Note 11 to the
Consolidated Financial Statements. At December 31, 1998, CNTS was party to two
foreign exchange contracts for the purchase of an aggregate of $1,000,000. The
Company's value at risk from holding such contracts at December 31, 1998 was
immaterial.
On August 11, 1997, the Company purchased a 5.8% interest in CNTS from
certain of the partners of CET 21 for a purchase price of $28,537,000, to be
paid in installments through February 15, 2000. As of December 31, 1998, the
Company had paid $20,662,000 of the purchase price and is obligated to make
further payments of $5,313,000 during 1999, and $2,562,000 during 2000. Each
further payment is subject to increase to an amount equal to the value of such
payment as if it had been invested in CME's Class A Common Stock at the date of
the closing of the purchase at a purchase price of $23.375 per share. At
December 31, 1998, no such increase has accrued because the trading price of
CME's Class A Common Stock was less than $23.375.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Financial Statements and Supplementary data begin on the following
page and end on the page immediately preceding Item 9.)
45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Central European Media Enterprises Ltd.:
We have audited the accompanying consolidated balance sheets of Central European
Media Enterprises Ltd. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Central European Media
Enterprises Ltd. as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with United States generally accepted
accounting principles.
ARTHUR ANDERSEN & CO.
Hamilton, Bermuda
March 29, 1999
46
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
($000s)
ASSETS December 31,
---------------------------
1998 1997
---- ----
CURRENT ASSETS:
Cash and cash equivalents...................... $ 44,444 $ 104,490
Restricted cash................................ 67 800
Accounts receivable (net of allowances
of $3,271, $3,658)........................... 41,237 37,437
Program rights costs........................... 29,632 22,950
Advances to affiliates......................... 11,058 8,527
Other short-term assets........................ 28,670 10,674
---------- ----------
Total current assets......................... 155,108 184,878
Investments in unconsolidated affiliates....... 29,357 45,796
Investments.................................... - 12,951
Net assets of discontinued operations.......... - 44,587
Loans to affiliates............................ 9,514 12,293
Property, plant and equipment (net of
depreciation of $50,477, $31,047)........... 66,282 56,553
Program rights costs........................... 21,206 12,851
License costs and other intangibles (net of
amortization of $6,813, $4,282).............. 6,502 6,208
Goodwill (net of amortization of $33,968,
$16,124)..................................... 70,196 66,451
Note receivable (Note 1)....................... 20,071 -
Other assets................................... 7,230 9,115
---------- ----------
Total assets................................. $385,466 $ 451,683
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities....... $ 69,187 $ 46,071
Duties and other taxes payable................. 11,722 10,612
Income taxes payable........................... 1,157 2,308
Current portion of credit facilities and
obligations under capital leases............. 10,313 8,310
Dividends payable.............................. - 996
Investments payable............................ 12,281 14,182
Advances from affiliates....................... 2,533 566
---------- ----------
Total current liabilities.................... 107,193 83,045
Deferred income taxes.......................... 302 170
Long-term portion of credit facilities and
obligations under capital leases............. 23,296 24,204
Investments payable............................ 2,563 7,875
$100,000,000 9 3/8 % Senior Notes.............. 99,875 99,853
DM 140,000,000 8 1/8 % Senior Notes............ 83,729 77,513
Other Liabilities.............................. 2,099 199
Minority interest in consolidated
subsidiaries................................. 702 1,241
Commitments and contingencies (Note 11)
SHAREHOLDERS' EQUITY:
Class A Common Stock, $0.01 par value: authorized:
100,000,000 shares at December 31, 1998 and
December 31, 1997; issued and outstanding: 181 169
18,070,789 at December 31, 1998 and
16,934,894 at December 31, 1997............
Class B Common Stock, $0.01 par value: authorized:
15,000,000 shares at December 31, 1998 and
December 31, 1997; issued and outstanding 76 71
7,577,329 at December 31, 1998 and
7,064,475 at December 31, 1997............
Additional paid-in capital..................... 356,378 332,386
Accumulated deficit............................ (288,348) (163,096)
Accumulated other comprehensive income (loss).. (2,580) (11,947)
---------- -----------
Total shareholders' equity.............. 65,707 157,583
---------- -----------
Total liabilities and shareholders'
equity................................ $ 385,466 $451,683
========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
47
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
($000s, except per share data)
For the years
ended December, 31
--------------------------------
1998 1997 1996
---- ---- ----
Gross revenues $ 234,878 $ 194,373 $ 170,114
Discounts and agency commissions (52,511) (44,108) (34,129)
---------- ---------- ----------
Net revenues 182,367 150,265 135,985
STATION EXPENSES:
Other operating costs and expenses 73,993 60,697 50,188
Amortization of programming rights 55,226 22,770 21,599
Depreciation of station fixed assets
and other intangibles 17,056 15,184 13,314
---------- ---------- ----------
Total station operating costs and
expenses 146,275 98,651 85,101
Selling, general and administrative
expenses 28,806 22,953 21,357
CORPORATE EXPENSES:
Corporate operating costs and
development expenses 22,670 25,467 15,782
Amortization of goodwill and allowance
for development costs 16,809 14,845 2,940
Capital registration tax - - 809
Restructuring charge (Note 4) 2,552 - -
---------- ---------- ----------
42,031 40,312 19,531
---------- ---------- ----------
Operating (loss)/income (34,745) (11,651) 9,996
Equity in loss of unconsolidated
affiliates (3,398) (10,340) (17,867)
Loss on impairment of investments in
unconsolidated affiliates - (20,707) -
Net interest and other income (18,591) (6,009) (1,794)
Foreign currency exchange loss, net (8,412) (5,857) (2,861)
---------- ---------- ----------
Loss before provision for income
taxes, minority interest
and discontinued operations (65,146) (54,564) (12,526)
Provision for income taxes (15,856) (14,608) (16,405)
---------- ---------- ----------
Loss before minority interest and
discontinued operations (81,002) (69,172) (28,931)
Minority interest in (income)/loss
of consolidated subsidiaries (156) 1,066 (1,072)
---------- ---------- ----------
Net loss from continuing operations (81,158) (68,106) (30,003)
Discontinued operations:
Operating loss of discontinued
operations (15,289) (16,986) -
Loss on disposal of discontinued
operations (28,805) - -
---------- ---------- ----------
(44,094) (16,986) -
---------- ---------- ----------
Net loss $(125,252) $ (85,092) $ (30,003)
========== ========== ==========
PER SHARE DATA
Net loss per share (Note 3)
Continuing operations - Basic
and diluted $ (3.36) $ (2.85) $ (1.55)
Discontinued operations - Basic
and diluted (1.83) (0.71) -
---------- ---------- ----------
Net $ (5.19) $ (3.56) $ (1.55)
========== ========== ==========
Weighted average common shares used in
computing per share amounts:
Basic and diluted 24,134 23,911 19,373
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
48
<PAGE>
<TABLE>
<CAPTION>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period from December 31, 1995 to December 31, 1998
($000s, except per share data)
Accumulated
Class A Class B Other Total
Comprehensive Common Common Capital Treasury Accumulated Comprehensive Shareholders'
Income Stock Stock Surplus Stock Deficit Income Equity
(Loss) (a) (Loss) (b)
------------- -------- -------- -------- -------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 103 81 187,997 (2,476) (48,001) 1,232 138,936
Comprehensive income (loss):
Net Loss (30,003) (30,003) (30,003)
Other comprehensive
income (loss):
Unrealized
translation adjustments (4,462) (4,462) (4,462)
--------------
Comprehensive loss (34,465)
==============
Stock issued:
Retirement of Treasury
Stock (2) - (2,474) 2,476 - - -
Capital contributed by
shareholders, net of
costs of $8,177 66 (9) 144,792 - - - 144,849
------ ---- ------- ----- -------- -------- --------
BALANCE, December 31, 1996 167 72 330,315 - (78,004) (3,230) 249,320
Comprehensive income (loss):
Net Loss (85,092) (85,092) (85,092)
Other comprehensive
income (loss):
Unrealized translation
adjustments (8,717) (8,717) (8,717)
--------------
Comprehensive loss (93,809)
==============
Stock issued:
Capital contributed by
shareholders 2 (1) 2,071 - - - 2,072
------ ---- ------- ----- -------- -------- --------
BALANCE, December 31, 1997 169 71 332,386 - (163,096) (11,947) 157,583
Comprehensive income (loss):
Net Loss (125,252) (125,252) (125,252)
Other comprehensive
income (loss):
Unrealized
translation adjustments 9,367 9,367 9,367
--------------
Comprehensive loss (115,885)
==============
Stock issued:
Capital contributed by
shareholders, net of
costs of $227 12 5 23,992 - - - 24,009
------ ---- -------- ----- -------- -------- --------
BALANCE, December 31, 1998 181 76 356,378 - (288,348) (2,580) 65,707
====== ==== ======== ===== ======== ======== ========
</TABLE>
(a) Of the accumulated deficit of $288,348 at December 31, 1998, $85,164
represents accumulated losses in unconsolidated affiliates.
(b) Represents foreign currency translation adjustments.
The accompanying notes are an integral part of these consolidated financial
statements.
49
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000s)
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(125,252) $(85,092) $(30,003)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in loss of unconsolidated affiliates 3,398 10,340 17,867
Loss on impairment of investments in unconsolidated affiliates - 20,707 -
Depreciation and amortization (excluding amortization of barter 90,732 51,634 33,288
programs)
Discontinued operations 44,094 16,986 -
(Profit) loss on disposal of investment - (2,255) -
Minority interest in income (loss) of consolidated subsidiaries 156 (1,066) 1,072
Valuation allowance for development costs - 1,125 714
Foreign currency exchange loss, net 8,412 5,857 2,861
Accounts receivable 1,185 (6,619) (4,881)
Cash paid for program rights (52,520) (35,006) (24,072)
Advances to affiliates (1,102) (5,479) (3,334)
Other short-term assets (2,906) (2,605) (1,702)
Accounts payable and accrued liabilities 5,255 2,823 8,297
Income and other taxes payable 168 906 (3,151)
------------- ------------- -------------
Net cash used in operating activities (28,380) (27,744) (3,044)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated affiliates (7,148) (8,264) (45,884)
Other investments (34) (5,133) (3,600)
Investments in discontinued operations (26,513) (51,065) (7,093)
Cash proceeds from disposal of discontinued operations 10,000 - -
Restricted cash 733 1,949 1,467
Acquisition of fixed assets (15,088) (15,322) (17,801)
Acquisition of minority interest (9,930) (16,950) (5,607)
Purchase of business, net of cash acquired - (2,471) (4,895)
Loans and advances to affiliates (6,001) (8,827) (16,705)
Payments for license costs, other assets and intangibles (1,780) (3,630) (1,343)
Development costs - (121) (18,936)
------------- ------------- -------------
Net cash used in investing activities (55,761) (109,834) (120,397)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Credit facilities and payments under capital leases (2,354) (9,834) 1,409
Dividends paid to minority shareholders (1,777) (3,090) (3,575)
Advances received from affiliates 950 - -
Repayment of advances by affiliates - - (2,081)
Issuance of debt, net of related costs - 169,572 -
Capital contributed by shareholders 24,009 2,072 144,849
Other long term liabilities 1,968 (42) 137
Investments by minority shareholders in consolidated subsidiaries - 2,652 -
------------- ------------- -------------
Net cash provided by financing activities 22,796 161,330 140,739
------------- ------------- -------------
IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH 1,299 (665) 243
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (60,046) 23,087 17,541
CASH AND CASH EQUIVALENTS, beginning of period 104,490 81,403 63,862
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period $44,444 $104,490 $81,403
============= ============= =============
SUPPLEMENTAL INFORMATION Cash paid for:
Interest $ 20,375 $ 5,648 $ 4,590
Income Taxes $ 16,613 $24,072 $22,048
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
50
<PAGE>
1. ORGANIZATION AND BUSINESS
See Note 15, "Sale Transaction".
Central European Media Enterprises Ltd., a Bermuda corporation ("CME"),
was formed in June 1994. CME has been in operation since 1991. CME, together
with its subsidiaries and affiliates (CME and its subsidiaries and affiliates
are collectively referred to as the "Company"), invests in, develops, and
operates national and regional commercial television stations and networks in
Central and Eastern Europe.
The Company currently owns a 99% voting and economic interest in Ceska
Nezavisla Televizni Spolecnost s.r.o. ("CNTS"), with the remaining 1% voting and
economic interest in CNTS held by CET 21 s.r.o. ("CET"). CET holds a terrestrial
television broadcast license in the Czech Republic that expires in January 2005.
Dr. Vladimir Zelezny, the General Director of both CET and CNTS, owns a
controlling 60% participation interest in CET. CNTS is governed by a Memorandum
of Association and Investment Agreement. The Company has the right to appoint
five of the seven members of CNTS's Committee of Representatives, which directs
the affairs of CNTS. A representative of CET has certain delay and veto rights
on non-economic programming matters related directly to the broadcast license.
CNTS provides television and related services to CET, which broadcasts
the Nova TV signal, pursuant to a Services Agreement with CET dated May 21, 1997
(the "Services Agreement"). In consideration for its activities under the
Services Agreement, CNTS is entitled to retain revenues from sales of
advertising on Nova TV less a monthly fee paid to CET.
On March 19, 1999, CET provided CNTS with a copy of a letter, dated
March 15, 1999 addressed to Dr. Zelezny as executive of CET and signed by the
Chairman of the Czech Media Council, in which the Czech Media Council takes
positions that appear inconsistent with the existing relationship between CNTS
and CET. Among other things, the Czech Media Council has questioned the
exclusive nature of the commercial relationship between CNTS and CET and the
manner in which CET enters into certain broadcasting-related contracts. CME
believes that the structure of Nova TV and the contracts and business dealings
between CET and CNTS are in compliance with all applicable Czech laws and
regulations. However, there can be no assurance that the Czech Media Council
will conclude, as it has in the past, that such dealings are in compliance and
there can be no assurance that the Czech Media Council will not require
modifications of the arrangements between CET and CNTS.
In this connection, CME has recently been engaged in discussions and
negotiations with Dr. Zelezny regarding the relationship between CNTS and CET,
including with respect to actions taken and proposed to be taken by CET
concerning the acquisition of programming for CET and other matters with which
CNTS disagrees. On behalf of CET, Dr. Zelezny has requested certain
modifications in the CNTS Memorandum of Association and Investment Agreement and
the Services Agreement, which modifications CME is resisting. CME has proposed
to Dr. Zelezny alternative arrangements that it believes would solidify CNTS's
contractual relationship with CET and satisfy Dr. Zelezny's concerns regarding
the existing arrangements. However, there can be no assurance that CME and CNTS
will be able to reach a satisfactory agreement with CET and Dr. Zelezny.
CME and CNTS intend to take all available actions to protect their
legal rights and financial interests in connection with Nova TV, and it is
possible that the current disagreements with Dr. Zelezny could result in
protracted litigation. If the Czech Media Council were to require significant
changes in the current arrangements between CNTS and CET, or if the differences
between CNTS and CET cannot be resolved, one or more material adverse affects on
the business and financial condition of CNTS and CME could result, including a
substantial reduction in the economic benefits currently enjoyed by CNTS and CME
and, potentially, a termination of the existing commercial relationship between
CNTS and CET.
51
<PAGE>
The Company owns a 76% interest in Radio Alfa a.s. v likvidoci ("Radio
Alfa"), which ceased operations on December 31, 1998 and is being liquidated.
In Romania, the Company and its local partners operate PRO TV, a
commercial television network, and a second channel, Acasa, through Media Pro
International S.A. ("Media Pro International"). The Company owns a 66% equity
interest in Media Pro International. The Company owns 49% of the equity of PRO
TV, SRL, an affiliate station of Media Pro International holding many of the
licenses for the stations comprising the PRO TV network. On March 18, 1999 the
Company sold its 9.6% equity interest in MobilRom, a GSM cellular network in
Romania, held through Unimedia, a holding company.
In Slovenia, the Company operates POP TV, together with MMTV d.o.o.
Ljubljana ("MMTV") and Tele 59 d.o.o. Maribor ("Tele 59"), through Produkcija
Plus d.o.o. ("Pro Plus"). Under the names POP TV and Gajba TV, Pro Plus provides
programming to, and sells advertising for, affiliated stations. The Company owns
78% of the equity of Pro Plus, but has an effective economic interest of 85.5%
as a result of a 33% economic interest in MMTV and a 33% economic interest in
Tele 59. Tele 59 owns a 21% equity interest in Pro Plus, and the remaining 1%
equity interest in Pro Plus is owned by MMTV. The Company also owns a 20%
interest in Meglic Telecom d.o.o. ("MTC") a cable operator in Ljubljana which
owns a 67% economic interest in MMTV.
In the Slovak Republic, the Company owns an 80% non-controlling
economic interest and a 49% voting interest in Slovenska Televizna Spolocnost
s.r.o. ("STS"), which operates the national television station Markiza TV.
Markiza-Slovakia s.r.o., the broadcast license holder, and STS have entered into
an agreement pursuant to which STS is entitled to provide exclusive commercial
television services to Markiza-Slovakia s.r.o.
In Hungary, the Company owns a 99% equity interest in Budapesti
Kommunikacios Rt. ("TV3"), a television station operating in Budapest
distributing its signal by satellite to cable systems throughout Hungary. The
Company wholly owns Videovox Studio Limited Liability Company ("Videovox"), a
Hungarian dubbing and duplication company and owns 24.9% of the equity of 2002
Tanacsado es Szolgaltato Korlatolt Felelosegu Tarsasag ("2002 Kft"), a
broadcasting company.
In Ukraine, the Company owns a 60% interest in a group of companies
(collectively, the "Studio 1+1 Group"), which have the right to broadcast
programming and sell advertising on Ukrainian National Channel 2 ("UT-2").
In December 1998, CME sold its interests in the TVN television
operations in Poland to International Trading and Investments Holding S.A.
("ITI") in exchange for $10 million in cash, a note in a principal amount of $40
million bearing interest at a rate of 5% per annum and maturing on December 10,
2001 that is convertible into equity securities of ITI and exchangeable into
similar debt securities of ITI, the release of a $10 million bank guarantee and
the assumption by ITI of various obligations of CME and its subsidiaries in
respect of programming and satellites relating to the TVN operations. The note
was recorded at a net present value of $19,836,000 due to the prevailing
interest rates on
52
<PAGE>
similar instruments at the date of the transaction. Ronald S. Lauder, the
non-executive Chairman of the Board of Directors of the Company, owns a
non-controlling indirect minority interest in ITI.
This transaction resulted in the treatment of these interests and
related operations as discontinued operations for all periods presented in the
accompanying financial statements. The accompanying financial statements have
been restated for all periods presented in order to reflect the Company's Polish
operations as discontinued operations.
2. FINANCING OF OPERATING AND CAPITAL NEEDS
In 1998, the Company continued to use the cash proceeds from the Senior
Notes issued in 1997. In December 1998, the Company received an equity
investment of approximately $22,498,000 from RSL Capital LLC ("RSL"), a company
wholly owned by Ronald S. Lauder, the non-executive Chairman of the Company's
Board of Directors. RSL purchased 1,515,000 shares of the Company's Class B
Common Stock for $15.00 per share. The purchase price per share is subject to
adjustment as follows: If the last reported daily trading price of the Company's
Class A Common Stock on NASDAQ does not equal or exceed $15.00 for at least 20
consecutive trading days during the period commencing November 13, 1998 and
ending November 13, 1999 (the "Measurement period"), the company will issue
additional shares of Class B Common Stock to RSL for no additional consideration
so that the average per share price for the shares of the Company's Class B
Common Stock acquired by RSL will equal the average last reported daily trading
price of the Company's Class A Common Stock during the Measurement Period,
provided, that, in no event shall the average price per share for the shares of
the Company's Class B Common Stock acquired by RSL be less than $10.00 per
share.
The Company had cash of $44,373,000 and marketable securities of
$71,000 at December 31, 1998 to enable it to finance its future activities.
Dividends from Consolidated Subsidiaries and Unconsolidated Affiliates
The laws under which CME's operating Subsidiaries are organized provide
generally that dividends may be declared by the partners or shareholders out of
yearly profits subject to the maintenance of registered capital, required
reserves and after the recovery of accumulated losses. In the case of the
Company's Dutch and Netherlands Antilles subsidiaries, the Company's voting
power is sufficient to compel the making of distributions. The Company's voting
power is sufficient to compel CNTS to make distributions. In the case of PRO TV,
distributions may be paid from the profits of PRO TV subject to a reserve of 5%
of annual profits until the aggregate reserves equal 20% of PRO TV's registered
capital. A majority vote can compel PRO TV to make distributions. There are no
legal reserve requirements in Slovenia. In the case of Markiza TV, distributions
may be paid from net profits subject to an initial reserve requirement of 10% of
net profits until the reserve fund equals 5% of registered capital.
Subsequently, the reserve requirement is equal to 5% of net profits until the
reserve fund equals 10% of registered capital. The Company's voting power in
Markiza TV is not sufficient to compel the distribution of dividends. The
Company's voting power in the Studio 1+1 Group is sufficient to compel the
distribution of dividends. In the case of TV3, the Company's voting interest is
sufficient to compel the payment of dividends. There are no legal reserve
53
<PAGE>
requirements in Hungary. In the Company's history, the only dividend received
from any of the Company's Subsidiaries are those received from CNTS.
General
The Company believes that taken together its current cash balances
(including cash received from the MobilRom sale in March 1999), internally
generated cash flow and local financing of broadcast operations should be
adequate to satisfy the Company's operating and capital requirements for its
current operations for the next 12 to 18 months. To acquire additional broadcast
rights or to fund other significant investments, the Company would require
significant additional financing.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The significant
accounting policies are summarized as follows:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company's wholly-owned subsidiaries and the results of Nova TV, PRO TV,
POP TV, TV3, Videovox and Radio Alfa (the "Consolidated Affiliates"), as
consolidated entities and reflect the interests of the minority owners of these
entities for the years presented, as applicable (Note 1). The results of Markiza
TV (the "Unconsolidated Affiliates") in which the Company has, or during the
periods presented had, minority or non-controlling ownership interests, are
included in the accompanying Consolidated financial statements using the equity
method. The results of the Studio 1+1 Group are consolidated in the 1998 balance
sheet, but are included in the Consolidated Statements of Operations under the
equity method through December 23, 1998, the date at which CME increased its
ownership interest to 60% and began to consolidate the Studio 1+1 Group.
Revenue Recognition
Revenues primarily result from the sale of advertising time and are
recognized in the period in which advertising is aired.
Barter Transactions
Revenue from barter transactions (television advertising time provided
in exchange for goods and services) is recognized as income when commercials are
broadcast, and programming, merchandise or services received are charged to
expense or capitalized as appropriate when received or used.
The Company records barter transactions at the estimated fair market
value of goods or services received. In cases where bartered programs can only
be obtained through a barter agreement, the Company values the barter at the
value of the asset conveyed in exchange for the programs. In other cases where
the Company has elected
54
<PAGE>
to enter into barter agreements as an alternate method of payment, strictly for
economic reasons, the Company values the barter agreement at the value of the
asset received. If merchandise or services are received prior to the broadcast
of a commercial, a liability is recorded. Likewise, if a commercial is broadcast
by the Company's station prior to receiving the merchandise or services, a
receivable is recorded.
Cash and cash equivalents
Cash and cash equivalents includes unrestricted cash in banks and
highly liquid investments with original maturities of less than three months.
Restricted cash (restricted for guarantees to third parties or vendors) at
December 31, 1998 and 1997 is $67,000 and $800,000 respectively.
Long-lived assets
The Company periodically evaluates its long-lived assets using
projected undiscounted future cash flows and operating income for each
subsidiary.
Program Rights and Production Costs
Program rights acquired by the Company under license agreements and the
related obligations incurred are recorded as assets and liabilities when the
program is available and the license period begins. The assets are amortized
using straight-line and accelerated methods based on the estimated period of
usage, ranging from one to five years. The unamortized cost of such rights and
liability for future payments under these agreements are included in the
accompanying Consolidated Balance Sheets. Amortization estimates for program
rights are reviewed periodically and adjusted prospectively.
Payments made for program rights in which the license period has not
begun before year end are classified as prepaid expenses.
Production costs for self-produced programs are expensed when first
broadcast except where the programming has potential to generate future
revenues. When this is the case, production costs are capitalized and amortized
on the same basis as programming obtained from third parties.
Intangible Assets
Intangible assets include goodwill, broadcast license, license
acquisition costs and capitalized debt costs.
Goodwill represents the Company's excess cost over the fair value of
net assets acquired and is being amortized on a straight-line basis over the
estimated useful life of the assets. Amounts recognized to date have been
amortized over periods ranging from 2 to 8 1/2 years from the original date of
acquisition.
License costs and other intangibles reflect the costs of acquiring
licenses to broadcast and the excess of the Company's investment above the
Company's share of net assets received from newly formed, consolidated entities
as well as the amounts paid to secure licenses. Broadcast license costs are
capitalized and amortized over the life of
55
<PAGE>
the related license. License acquisition costs are amortized over the lives of
the related licenses which range from 5 to 10 years. These costs are reviewed
for impairment whenever events or circumstances provide evidence that suggests
that the carrying amount of license acquisition costs may not be recoverable.
Capitalized debt costs represent the costs incurred in connection with
obtaining debt financing. These costs are amortized over the life of the related
debt instrument.
Fair Value of Financial Instruments
The Company accounts for the fair value of financial instruments in
accordance with SFAS No. 107, 'Disclosures about Fair Value of Financial
Instruments'. To meet the reporting requirements of SFAS No. 107, the Company
calculates the fair value of financial instruments and includes this additional
information in the notes to financial statements when the fair value is
different from book value of those financial instruments. When the fair value is
equal to the book value, no additional disclosure is made. The Company uses
quoted market prices whenever available to calculate these fair values. When
quoted market prices are not available, the Company uses standard pricing models
for various types of financial instruments which take into account the present
value of estimated future cash flows. At December 31, 1998 and 1997, the
carrying value of all financial instruments (primarily loans payable and
receivable and, in limited circumstances, foreign exchange contracts)
approximated fair value.
Income Taxes
Deferred income taxes are provided on temporary differences between
financial statement and taxable income. The primary sources of these differences
are depreciation, amortization and tax losses carried forward.
Foreign Currency Translation
The Company generates revenues primarily in Czech korunas ("Kc"),
Romanian lei ("ROL"), Slovenian tolar ("SiT"), Slovak korunas ("Sk"), Hungarian
forints ("HUF") and Ukrainian hryvna ("Hrn") and incurs expenses in those
currencies as well as German marks, British pounds and United States dollars.
The Romanian lei, Slovenian tolar, Ukrainian hryvna and Slovak koruna are
managed currencies with limited convertibility. The Company incurs operating
expenses for acquired programming in United States dollars and other foreign
currencies. For entities operating in economies considered non-highly
inflationary, including CNTS, POP TV, Markiza TV, Videovox, Radio Alfa, TV3 and
certain Studio 1+1 entities, balance sheet accounts are translated from foreign
currencies into United States dollars at the relevant period end exchange rate;
statement of operations accounts are translated from foreign currencies into
United States dollars at the weighted average exchange rates for the respective
periods. The resulting translation adjustments are reflected in a component of
shareholders' equity with no effect on the consolidated statements of
operations.
PRO TV and certain Studio 1+1 entities operate in economies considered
highly inflationary. Accordingly, non-monetary assets are translated at
historical exchange rates, monetary assets are translated at current exchange
rates and translation adjustments are included in the determination of net
income. Currency translation adjustments relating to
56
<PAGE>
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
--------------------------------- --------------------------------------
At December 31, Weighted average for the year
ending December 31,
1998 1997 % Change 1998 1997 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Czech koruna equivalent of $1.00 29.86 34.64 13.8% 31.96 32.03 0.2%
German mark equivalent of $1.00 1.67 1.80 7.2% 1.76 1.73 -1.7%
Hungarian forint equivalent of $1.00 217 204 -6.4% 217 201 -8.0%
Romanian lei equivalent of $1.00 10,983 8,023 -36.9% 8,863 7,077 -25.2%
Slovak koruna equivalent of $1.00 36.91 34.78 -6.1% 35.20 33.64 -4.6%
Slovenian tolar equivalent of $1.00 161.20 169.18 4.7% 165.99 160.37 -3.5%
Ukrainian hryvna equivalent of $1.00 3.43 1.90 -80.5% 2.45 1.86 -31.7%
</TABLE>
In the accompanying notes, $ equivalents of Kc, ROL, SIT, Sk, HUF, Hrn
and DM amounts have been included at December 31, 1998, 1997 or historical
rates, as applicable, for illustrative purposes only. In limited instances, the
Company enters into forward foreign exchange contracts and purchases foreign
currency options to hedge foreign currency transactions for periods consistent
with its identified exposures. Premiums on foreign currency options are
amortized over the option period being hedged.
Net Loss Per Share
Net loss per share was computed by dividing the Company's net loss by
the weighted average of Common Shares (both Class A and Class B) outstanding
during the years ending December 31, 1998, 1997 and 1996. The impact of
outstanding options and warrants has not been included in the computation of
diluted net loss per share, as the effect of their inclusion would be
anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting year. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications were made to prior period amounts to conform
to current period classifications.
Segment Data
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and
Related
57
<PAGE>
Information. SFAS 131 supersedes SFAS 14, Financial Reporting for Segments of a
Business Enterprise, replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal reporting
that is used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments. SFAS 131 also
requires disclosures about products and services, geographic areas and major
customers. The adoption of SFAS 131 did not affect results of operations or the
financial position of the Company but did affect the disclosure of segment
information (Note 14).
Comprehensive Income (Loss)
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which requires companies to report all changes in equity during a
period, except those resulting from investment by owners and distribution to
owners, in a financial statement for the period in which they are recognized.
The Company has chosen to disclose Comprehensive Income, which encompasses net
income (loss) and foreign currency translation adjustments, in the accompanying
Consolidated Statement of Shareholders' Equity (Deficit).
Derivative Instruments and Hedging Activities -- New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. A company may also implement SFAS No. 133 as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998
and thereafter). SFAS No. 133 cannot be applied retroactively.
The Company occasionally enters into forward foreign exchange contracts
(See Note 11). No material impact is expected as a result of the adoption of
SFAS No. 133 when it is applicable.
4. RESTRUCTURING CHARGE
In the second quarter of 1998, the Company recorded a restructuring
charge of $2,552,000 based on its decision to change its focus from aggressive
development and growth to further enhancing the operating performance of the
Company's existing assets and pursuing opportunities for focused growth. The
restructuring charge is comprised of severance and other associated costs.
5. PROPERTY, PLANT AND EQUIPMENT
58
<PAGE>
Property, plant and equipment is carried at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. It consists of the following:
<TABLE>
<CAPTION>
Useful December 31,
-----------------------
Lives 1998 1997
----- ---- ----
Years $000 $000
<S> <C> <C> <C>
Land and buildings ............................................ 25-50 18,686 16,800
Leasehold improvements......................................... 4-15 8,036 4,840
Station machinery, fixtures and equipment...................... 4-8 78,033 56,083
Other equipment................................................ 3-8 7,761 4,558
Construction in progress....................................... -- 4,243 5,319
------------ ------------
116,759 87,600
Less - Accumulated depreciation................................ (50,477) (31,047)
============ ============
66,282 56,553
============ ============
</TABLE>
6. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
---- ----
$000 $000
<S> <C> <C>
Current:
Kanal A ............................................................ -- 1,000
Prepaid program rights and dubbing.................................. 4,968 4,711
VAT recoverable..................................................... 2,419 704
Investment in Unimedia.............................................. 15,310 --
Other............................................................... 5,973 4,259
=============== ================
28,670 10,674
=============== ================
Long term:
Satellite transponder deposits...................................... 1,440 1,331
Advances for technical equipment.................................... -- 1,395
Capitalized debt costs.............................................. 5,502 6,389
Other............................................................... 288 --
=============== ================
7,230 9,115
=============== ================
</TABLE>
In June 1995 the Company, through CME Programming Services Inc.,
obtained leasehold rights for a 12 year period to a 33 MHz transponder on the
Eutelsat Hot Bird 3 satellite ("Hot Bird 3"), which launched in October 1997.
The Company has paid a deposit of $350,000 against this lease. The annual charge
for the lease is euro 3,443,000. Provided that the contract does not terminate
before the expiration date (September 2009), the remaining $350,000 of the
deposit is repayable to the Company by deduction from the final two invoices.
In September 1997, the Company, through CME Programming Services Inc.,
extended and renegotiated its rights to two 9 MHz transponders on the Eutelsat
IIF 1 satellite ("Eutelsat IIF 1"). The Company paid a deposit equivalent to a
three month invoicing period of euro 440,000, which is refundable in
approximately mid-1999. There are no longer any charges due under this lease.
59
<PAGE>
In October 1997, the Company, through CME Programming Services Inc.,
obtained leasehold rights for an approximate 12 year period to a 16.5 MHz
transponder on the Eutelsat Hot Bird 5 satellite ("Hot Bird 5"), which launched
in November 1998.The Company has paid a deposit of euro 557,000 ($678,000). The
annual charge for the lease is euro 1,900,000. Provided that the contract does
not terminate before the expiration date (October 2010), the deposit is
repayable to the Company by deduction from the final three invoices.
Capitalized debt costs represent the costs incurred in connection with
obtaining debt financing. These costs are amortized over the life of the related
debt instrument.
7. INCOME AND CAPITAL TAXES PAYABLE
(a) Provision for income taxes relates primarily to the profits of CNTS.
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1997 1996
---- ---- ----
$000 $000 $000
<S> <C> <C> <C>
Current, domestic taxes............................................. 15,712 15,342 16,826
Deferred foreign taxes.............................................. 144 (734) (421)
============= ============ =============
15,856 14,608 16,405
============= ============ =============
</TABLE>
Income taxes are provided on CNTS profits, which cannot be offset
against losses incurred elsewhere in the group or against corporate costs
incurred in other jurisdictions. The effective income tax rate in the Czech
Republic is 35%, 39% and 39% for the years ended December 31, 1998, 1997 and
1996, respectively.
At the present time no income, profit, capital or capital gain taxes
are levied in Bermuda and, accordingly, no provision for such taxes has been
recorded by the Company. In the event that such taxes are levied, the Company
has received an undertaking from the Bermuda Government exempting it from all
such taxes until March 28, 2016.
Deferred income tax assets
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
---- ----
$000 $000
<S> <C> <C>
Provisions against receivables...................................... 1,046 725
Accelerated amortization of programming licenses.................... -- 602
Tax loss carryforwards.............................................. 1,981 1,348
Other............................................................... 45 724
-------------- --------------
3,072 3,399
Valuation allowance on deferred tax asset........................... (1,806) (2,653)
-------------- --------------
1,266 746
-------------- --------------
</TABLE>
Deferred income tax liabilities
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
---- ----
$000 $000
<S> <C> <C>
Valuation allowance................................................. 489 --
</TABLE>
60
<PAGE>
<TABLE>
<S> <C> <C>
Depreciation and amortization....................................... 467 466
Lease payments...................................................... 289 250
Other............................................................... 323 200
-------------- --------------
1,568 916
============== ==============
Net deferred tax liability.......................................... 302 170
============== ==============
</TABLE>
Net operating losses incurred in 1998, 1997 and 1996 in Romania,
Slovenia, Slovakia, Hungary and Ukraine are available for offset against taxable
income in those countries in the future. Net operating losses experienced in
these jurisdictions in certain years may not be fully available for offset
against taxable income in the future in those countries.
A valuation allowance has been provided for net operating loss
carryforwards in these jurisdictions, as it is more likely than not, for a
variety of reasons, including the uncertainties in the tax regimes, that they
may not be fully utilized.
(b) Capital Registration Tax
Capital registration tax is payable on the contribution of capital to
certain subsidiaries of CME. It has been included within corporate expenses for
1996, as it is not dependent upon the level of income, in the amount of
$809,000.
8. INVESTMENTS PAYABLE
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
---- ----
$000 $000
<S> <C> <C>
Short Term:
CNTS....................................................... 5,312 9,162
Richard Knauff............................................. - 151
Radio Alfa................................................. 69 138
SFF........................................................ - 1,131
Unimedia................................................... 6,900 3,600
============== ==============
12,281 14,182
============== ==============
Long Term:
CNTS....................................................... 2,563 7,875
============== ==============
</TABLE>
CNTS
On August 11, 1997, the Company made the Second 1997 CNTS Purchase when
it purchased Nova Consulting a.s. ("NC") from certain of the partners of CET 21,
for a purchase price of $28,537,000, to be paid on an installment basis through
February 15, 2000, subject to adjustment as described below. NC owns a 5.8%
interest in CNTS. A portion of the payments are subject to increase based upon
the performance of CME's Class A Common Stock. As of December 31, 1998, the
Company has paid $20,662,000 of the purchase price and is obligated to make
further payments of $5,312,000 during 1999, and $2,563,000 during 2000. Any
adjustments made in the future (none have been made through December 31, 1998)
as a result of the performance of CME's Class A Common Stock will be accounted
for as additional purchase price.
61
<PAGE>
Unimedia
At December 31, 1998, the Company had contributed, through Unimedia,
$8,400,000 in equity capital in MobilRom, a mobile telephone company in
Romania. Unimedia is obligated to contribute a further $3,600,000 to MobilRom,
bringing Unimedia's total contribution to $12,000,000, representing 10% of the
equity capital of MobilRom. This $3,600,000 is being offset from the gross sale
price of the Company's interest in MobilRom (See Note 15). In addition, Unimedia
is obligated to contribute $3,500,000 to MobilRom in order to satisfy its 10%
share of a $35,000,000 capital call. The Company will pay $3,300,000 of the
$3,500,000 and the remaining amount will be met by existing cash balances of
Unimedia.
9. LOAN AND OVERDRAFT OBLIGATIONS
Group loan obligations and overdraft facilities consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
---- ----
$000 $000
<S> <C> <C>
CME B.V.
Ceska Sporitelna Loan...................................... (a) 21,207 20,857
Tele 59 loan............................................... (b) 572 681
CME DC
Capital Lease (vehicle ), net of interest.................. 22 98
CNTS
Mortgage loan.............................................. (c) 2,010 3,638
PRO TV
Line of credit............................................. (d) 1,290 1,999
Long-term loan............................................. (e) 3,662 3,854
POP TV
Long-term loan............................................. (f) 3,553 --
Capital lease (vehicles), net of interest, and unsecured
short-term loans........................................... 6 170
TV3
MKB loan................................................... (g) 1,287 1,217
-------------- --------------
33,609 32,514
Less current maturities.................................... (10,313) (8,310)
============== ==============
23,296 24,204
============== ==============
</TABLE>
CME B.V.
(a) On August 1, 1996, the Company entered into an agreement for the
purchase of Ceska Sporitelna Bank ("CS")'s 22% economic interest and virtually
all of CS's voting rights in CNTS for a purchase price of Kc 1 billion
($36,590,000). The Company has also entered into a loan agreement with CS to
finance 85% of the purchase price. Quarterly repayments are required in the
amount of Kc 42,500,000 during the period from February
62
<PAGE>
1999 through May 2002, and Kc 37,580,000 in August 2002. The loan bears interest
at 12.9% per annum.
(b) The Company entered into a loan agreement on November 21, 1996 with
Tele 59 to finance a loan to Tele 59 from SKB banka d.d. ("SKB"). The principal
amount of the loan is DM 1,496,000 with principal repayments of DM 136,000 twice
yearly. This loan matures in May 2004 and bears interest at 7.8% per annum.
CNTS
(c) In June 1997, CNTS assumed obligations under a loan from CS (the
"CS Loan") secured by a mortgage on the Nova Facility. The CS Loan provides for
quarterly payments of Kc 16,500,000. This loan matures in December 1999 and
bears interest at three month PRIBOR plus 1.0% (13.36% at December 31, 1998).
PRO TV
(d) The line of credit, obtained from Tiriac Bank, provides a maximum
facility of $2,000,000. This facility matures in June 2000 and bears interest at
a rate of 4% over 6 month LIBOR (9.25% at December 31, 1998).
(e) The long-term loan, also obtained from Tiriac Bank, has a maximum
facility of $4,000,000. This facility matures in December 2002 and bears
interest at a rate of 4% over 6 month LIBOR(9.25% at December 31, 1998).
POP TV
(f) Multicurrency $5,000,000 loan agreement with Creditanstalt AG. This
loan matures in May 2005 and bears interest at a rate of 3% over FIBOR ( 6.72%
at December 31, 1998) until the loan is equal to or less than $2,000,000 then
the interest rate falls to 2% over FIBOR.
TV3
(g) Loan of HUF 279,000,000 with a local Hungarian bank. This loan
matures in December 2000 and bears interest at a Prime rate (19.25% at December
31, 1998).
At December 31, 1998, maturities of debt are as follows:
<TABLE>
<CAPTION>
Total
$000
-----
<S> <C>
1999................................................................. 10,313
2000................................................................. 7,851
2001................................................................. 7,771
2002................................................................. 7,674
============
33,609
============
</TABLE>
Loan notes payable
On August 20, 1997, the Company issued Senior Notes of $100,000,000 at
9.375% and DM 140,000,000 at 8.125%, due 2004 (collectively the "Senior Notes").
The Senior
63
<PAGE>
Notes are unsecured senior indebtedness of the Company and rank pari passu with
all existing and future unsecured unsubordinated indebtedness of the Company and
are effectively subordinated to all existing and future indebtedness of the
Company's subsidiaries.
The Senior Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after August 15, 2001 at the redemption prices set
forth below.
<TABLE>
<CAPTION>
Dollar Note DM Note
Redemption Redemption
Price Price
------- ------
<S> <C> <C>
2001..................................................104.68750% 104.06250%
2002..................................................102.34375% 102.03125%
2003 and thereafter...................................100.00000% 100.00000%
</TABLE>
In addition, in the event of one or more equity offerings or placings
prior to August 15, 2000, the Company may, at its option, redeem up to 35% of
the original principal amount of each series of Senior Notes from the net
proceeds thereof at 109.375% of the principal amount in the case of the US
dollar denominated Senior Notes and 108.125% of the principal amount in the case
of the DM denominated Senior Notes, plus accrued and unpaid interest, if any, to
the date of redemption.
Interest is payable semi-annually in arrears on each February 15 and
August 15, commencing February 15, 1998. Interest expense on the US dollar
denominated Senior Notes and DM denominated Senior Notes for the period to
December 31, 1998 was $9,375,000 and DM 11,375,000 ($ 6,478,000), respectively.
The indentures pursuant to which the Senior Notes were issued contain
certain restrictive covenants, which among other things, restrict the ability of
the Company and its subsidiaries to : (i) incur additional indebtedness, (ii)
pay dividends or make certain other distributions, (iii) make certain
investments and other restricted payments, (iv) enter into certain transactions
with affiliates, (v) create liens, (vi) sell assets and also create restrictions
on the ability of certain of its subsidiaries to make certain payments to the
Company. Management believes that, as of December 31, 1998, the Company was in
compliance with such restrictive covenants.
10. STOCK OPTION PLAN
The Company adopted the 1994 Stock Option Plan in 1994 and the 1995
Stock Option Plan in August 1995. The 1995 Stock Option Plan was amended in May
1998 ("1995 Amended Stock Option Plan"). Under the 1994 Stock Option Plan, the
Compensation Committee is authorized to grant options for up to 900,000 shares
of the Company's Class A Common Stock. Under the 1995 Amended Stock Option Plan
the Compensation Committee is authorized to grant options for up to 3,200,000
shares of the Company's Class A Common Stock. Under the 1995 Amended Stock
Option Plan options can be given to eligible persons on Class B Common Stock.
The Stock Option Plans allow grants to consultants and non-affiliated directors.
The maximum term of the options granted under the Stock Option Plans is ten
years. Options granted may be either
64
<PAGE>
incentive stock options under the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified stock options. Under the 1995 Amended Stock Option
Plan, non-affiliated directors are automatically granted each year options to
purchase 10,000 shares of Class A Common Stock or Class B Common Stock if
eligible. The Compensation Committee has granted substantially all options to
purchase the 900,000 shares of Class A Common Stock created by the 1994 Stock
Option Plan and does not intend to issue any more options under the 1994 Stock
Option Plan.
Under both plans the option exercise price equals the stock's market
price on the date of grant. Options granted under the 1994 Stock option plan
vest after two years and expire after ten years. Options granted under the 1995
Amended Stock Option Plan can have vesting periods of up to five years and
expire at the latest after ten years. The exercise price of options granted
under the 1995 Amended Stock Option Plan can be made at market value subject to
an increase by the interest rate on US Treasury securities, compounded annually,
with a maturity equal to that of the options.
On September 18, 1998, the Company adopted the Stock Appreciation
Rights Plan, this plan allows the company to grant up to 1,000,000 Stock
Appreciation Rights (SAR's). The SAR's are subject to the same vesting and other
general conditions as options granted under the 1995 Amended Stock Option Plan.
When the SARs are exercised the employees will receive in cash the amount by
which the CME stock price exceeds the exercise price at the time of exercise, if
any, rather than purchase CME shares.
The number of SARs granted through December 31, 1998 totalled 145,350.
No compensation expense has been recognized through December 31, 1998 in
connection with the granting of these SARs.
A summary of the status of the Company's two stock option plans at
December 31, 1998, 1997 and 1996 and changes during the years 1998, 1997 and
1996 is presented in the table and narrative below. The following table does not
include the SARs.
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------------
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Exercise Option Exercise Option Exercise Option
Shares Price $ Price $ Shares Price $ Price $ Shares Price $ Price $
-------- -------- ---------------------- -------- ----------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding
at start of year 2,308,949 20.31 0.20-33.50 1,534,103 17.41 0.20-21.75 1,049,600 13.81 0.20-20.00
Granted..... 580,000 20.28 11.44-24.56 974,450 24.30 23.00-33.50 636,800 21.51 20.75-21.75
Exercised... (133,749) 11.58 0.20-21.75 (143,751) 14.13 0.20-21.75 (139,644) 8.78 0.20-14.63
Forfeited... (173,666) 23.60 14.63-33.50 (55,853) 26.20 20.00-33.50 (12,653) 20.00 20.0
--------- -------- ----------
Oustanding
at end of year.... 2,581,534 20.54 0.20-33.50 2,308,949 20.31 0.20-33.50 1,534,103 17.41 0.20-21.75
========= ===== =========== ========= ===== ============ ========= ===== ===========
</TABLE>
At December 31, 1998, 1997 and 1996, 1,643,872, 1,466,125 and 528,356
shares were exercisable, respectively.
The Company accounts for these plans under APB No. 25, under which no
compensation cost is recognized for stock options granted to employees with an
exercise price at or above the prevailing market price on the date of the grant.
Had compensation cost for these plans been determined consistent with the fair
value approach required by SFAS No. 123, the Company's net loss and net loss per
common share would increase to the following pro forma amounts:
65
<PAGE>
<TABLE>
<CAPTION>
Year ended
December 31,
---------------------------------------------
1998 1997 1996
----- ----- -----
$000s $000s $000s
----- ----- -----
<S> <C> <C> <C> <C>
Net Loss from continuing operations As Reported (81,158) (68,106) (30,003)
Pro Forma (88,577) (74,942) (34,468)
Net Loss from discontinued operations As Reported (44,094) (16,986) -
Pro Forma (44,094) (16,986) -
Net Loss As Reported (125,252) (85,092) (30,003)
Pro Forma (132,671) (91,928) (34,468)
Net Loss Per Common Share from As Reported (3.36) (2.85) (1.55)
Continuing operations - basic and diluted ($) Pro Forma (3.67) (3.13) (1.78)
Net Loss Per Common Share from As Reported (1.83) (0.71) -
Discontinued operations - basic and diluted ($) Pro Forma (1.83) (0.71) -
Total net Loss Per Common Share ($) As Reported (5.19) (3.56) (1.55)
Basic and Diluted....................... Pro Forma (5.50) (3.84) (1.78)
</TABLE>
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model, with the following
assumptions used.
Expected dividends yield are assumed to be 0% for each grant; expected
lives range from 4 to 5 years; expected stock price volatility of 47.6%, 47.19%
and 59.14% for 1996, 1997 and 1998 , respectively.
Risk Free
Date of Option Grant Interest Rate
--------------------------------- -------------------
January 1, 1995 7.84%
August 3, 1995 6.21%
August 10, 1995 6.23%
August 14, 1995 6.28%
October 17, 1995 5.76%
December 15, 1995 5.53%
January 2, 1996 5.30%
August 1, 1996 6.36%
February 27, 1997 6.30%
August 1, 1997 6.03%
January 19, 1998 5.55%
February 23, 1998 5.55%
March 23, 1998 5.63%
June 9, 1998 5.57%
September 3, 1998 4.91%
The effects of applying SFAS No. 123 in this pro forma disclosure may
not be indicative of future amounts because SFAS No. 123 does not apply to stock
options granted prior to January 1, 1995 and additional stock option grants are
anticipated in future years.
11. COMMITMENTS AND CONTINGENCIES
66
<PAGE>
Litigation
On April 30, 1997, Perekhid Media Enterprise Ltd. ("Perekhid") filed a
complaint in the Supreme Court of New York County, State of New York, against
CME and Ronald S. Lauder, the non-Executive Chairman of the Company's Board of
Directors. Perekhid alleged that the issuance to the Studio 1+1 Group of a
license pursuant to which Studio 1+1 has been broadcasting programming on
Ukrainian National Channel 2 ("UT-2"), constitutes a tortious interference by
CME and Mr. Lauder with a Perekhid contract with the Ukrainian authorities for
Perekhid to provide programming for and sell advertising time on UT-2.
Perekhid's complaint sought compensatory damages of $250 million, punitive
damages of $500 million, and an injunction against the Company and Mr. Lauder to
prevent the continuation of the alleged conduct. On July 2, 1997, CME and Mr.
Lauder filed a motion to dismiss the complaint. On April 8, 1998, the Court
dismissed the complaint on grounds of forum non-conveniens. In June 1998,
Perekhid filed a notice of appeal with the Court. Perekhid has nine months from
the date it filed a notice of appeal to submit an appellate brief. On February
19, 1999, Atlantic Group Limited (formerly known as Perekhid Media Enterprise
Ltd.) initiated proceedings against CME in the High Court in London, seeking
$81,772,759 in damages. Atlantic Group Limited alleges that CME conspired with
others to use unlawful means to procure the termination of Atlantic Group
Limited's right to provide programming and advertising sales on UT-2. On March
17, 1999, CME issued a summons to dismiss the London proceedings. The summons is
expected to be heard later in 1999.
The Company is, from time to time, a party to litigation that arises in
the normal course of its business operations. The Company is not presently a
party to any such litigation which management reasonably expect could have a
material adverse effect on its business or operations.
Financial Commitments -- Existing Entities
It is anticipated that the majority of the Company's existing
operations will be self-supporting in terms of funding during 1999, with cash
being available through local credit facilities and/or generated from
operations. Existing operations that will require the Company to provide
additional funding are as follows:
Studio 1+1 Group
The company has provided $1,000,000 in the form of loans to the Studio
1+1 Group since December 31, 1998. It is anticipated that an additional
$2,500,000 may be required throughout 1999 and will be contributed in the form
of loans.
TV3
Programming commitments were entered into in 1996 and 1997 in
anticipation of the grant of a national license for Hungary. The Company was not
granted a national license for Hungary and has been unable to enter into a
partnership with the license winners. In light of TV3's distribution and
audience share, the Company does not expect to be able to realize the full value
of the program library. Accordingly, the Company wrote-down these assets by
$21,289,000 during 1998. The Company currently estimates that it will take
further write-downs of up to $7,593,000 with regard to future programming
rights,
67
<PAGE>
of which approximately $2,129,000 is expected to be taken in 1999 and the
remaining in 2000 when the related license periods begin. Program rights
acquired by the Company under license agreements, and the related obligations
involved are recorded as assets and liabilities when the programming is
available for use and the license period begins which is in accordance with SFAS
No. 63. The Company has made approximately $385,000 in cash programming payments
on behalf of TV3 since December 31, 1998 and has commitments to make additional
cash programming payments on behalf of TV3 in 1999, 2000 and beyond, of
approximately $10,863,000, $4,567,000 and $4,567,000, respectively.
The Company has provided $400,000 in the form of loans to TV3 since
December 31, 1998. Management anticipates that further funding of up to
$2,000,000 will be required in 1999 which will likely be contributed in the form
of loans.
Financial Commitments - Discontinued or Former Entities
Beginning in 1993, 1A TV received investment grants in an aggregate
amount of DM8,544,000 from a German public bank, to partially finance the
development of the station. The grants were guaranteed by a wholly-owned German
subsidiary of the Company. The grants were repayable if 1A TV did not fulfill
certain conditions, including maintaining specified levels of employment for a
five year period. As a result of the bankruptcy proceedings initiated by 1A TV,
the German public bank has demanded repayment of the investment grants from 1A
TV and the guarantor, plus interest at the rate of 6.0% per annum. In January
1998, the Company filed an appeal of the demand for repayment with the German
public bank, which is pending. Management believes that the maximum exposure is
limited to the German assets, which have been fully provided for. Under the
terms of a proposed settlement, which management believes is likely to be
accepted by both parties, the Company would be required to repay DM 500,000 to
the German public bank.
Licenses
The Company has no reason to believe that the licenses for stations
will not be renewed. However, no statutory or regulatory presumption exists for
the current license holder, and there can be no assurance that licenses will be
renewed upon expiration of their initial terms. The failure of any such licenses
to be renewed may adversely affect the results of the Company's operations.
Currency exchange rate fluctuation
The Company and its subsidiaries generate revenues and incur expenses
in a variety of currencies. Fluctuations in the value of foreign currencies may
cause United States dollar translated amounts to change in comparison with
previous periods. Other than as described below under "Foreign Exchange
Contracts", the Company has not hedged against fluctuations in foreign currency
rates. Due to the number of currencies involved, the constantly changing
currency exposures and the fact that all foreign currencies do not fluctuate in
the same manner against the United States dollar, the Company cannot anticipate
the effect of exchange rate fluctuations on its financial condition.
Foreign Exchange Contracts
68
<PAGE>
In limited instances, the Company enters into forward foreign exchange
contracts to hedge foreign currency transactions for periods consistent with its
identified exposures. At December 31, 1998, there were two forward exchange
contracts outstanding for the purchase, in aggregate, of $1,000,000 by CNTS and
the sale of Czech korunas. These contracts mature by February 1999. No material
exposure exists at December 31, 1998 as a result of these contracts.
Station Programming Rights Agreements
The Company had programming rights commitments for $26,983,000 in
respect of future programming which includes contracts signed with license
periods starting after December 31, 1998.
Lease Commitments
For the fiscal years ended December 31, 1998, 1997 and 1996, the
Company paid aggregate rent on all facilities of $2,181,000, $2,036,000 and
$1,776,000 respectively. Future minimum lease payments at December 31, 1998 for
non-cancellable operating leases with remaining terms in excess of one year (net
of amounts to be recharged to third parties) are payable as follows:
At December 31,
1998
---------------
$000s
1999............................. 3,159
2000............................. 3,807
2001............................. 3,807
2002............................. 3,807
2003............................. 3,526
2004 and thereafter.............. 21,937
------------------------
40,043
=======================
12. RELATED PARTY TRANSACTIONS
Related party transactions involve transactions between the Company and
its stations, shareholders and partners and transactions between the stations
and their shareholders and partners.
<TABLE>
<CAPTION>
Consolidated Balance Sheet Items As of
December 31,
-----------------------------
1998 1997
---- ----
$000 $000
<S> <C> <C>
Advances to Affiliates
Amounts due from Unconsolidated Affiliates
Markiza TV................................................. 4,539 2,734
Studio 1 + 1............................................... -- 1,513
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Advances to Affiliates
Studio 1 + 1............................................... 3,469 --
POP TV..................................................... 1,029 721
Media Vision and Video Vision.............................. 1,112 2,816
Radio Alfa................................................. 74 64
Other...................................................... 213 49
Hungary.................................................... 622 630
-------------- --------------
Total 11,058 8,527
Loans to Affiliates
Loans to Unconsolidated Affiliates
Adrian Sarbu............................................... 2,246 2,246
Alexander Rodnyansky....................................... 5,000 --
Intermedia................................................. 1,302 1,302
Markiza ................................................... 777 777
Studio 1+1 Group........................................... -- 6,010
Mediavision................................................ -- 1,329
Videovision................................................ -- 552
Interest on ITI Notes...................................... 111 --
Loans to Affiliates
Hungary - DDTV............................................. 78 77
============== ==============
Total 9,514 12,293
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations Items Year Ended
December 31,
1998 1997 1996
---- ---- ----
$000 $000 $000
<S> <C> <C> <C>
Corporate Operating Costs and Development Expenses
Shareholder controlled affiliates.......................... 86 111 88
Interest Expense
Shareholder and affiliate loans............................ -- -- 68
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
13. SUMMARY FINANCIAL INFORMATION FOR THE STUDIO 1+1 GROUP and MARKIZA TV
<TABLE>
<CAPTION>
As at
-------------------------------------------------------
December 31
1998 December 31, 1997
-------------- ---------------------------------
Studio 1+1
Markiza TV Markiza TV Group
------------- ------------ ---------------
$000s $000s $000s
<S> <C> <C> <C>
Current assets................................. 17,863 18,385 7,744
Non-current assets............................. 26,682 25,900 21,542
Current liabilities............................ (17,703) (13,328) (5,976)
Non-current liabilities........................ (1,089) (998) (6,000)
---------- --------- --------
Net assets (liabilities)....................... 25,753 29,959 17,310
========== ========= =========
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
For the years ended
December 31, 1998 December 31, 1997
-------------------------------------- ----------------------------------------
Studio 1+1 Studio 1+1
Markiza TV Group Markiza TV Group
------------------ ------------------- ------------------- -------------------
$000s $000s $000s $000s
------ ------ ---- -------
<S> <C> <C> <C> <C>
Net revenues................................... 37,793 23,598 31,296 16,661
Operating loss................................. (3,503) (3,150) 799 (799)
Net loss....................................... (3,619) (3,555) (674) (1,082)
</TABLE>
The Company's share of the losses in Unconsolidated Affiliates for 1998
was $3,398,000 (including goodwill amortization related to the Studio 1+1 Group
of $1,583,000) after intercompany eliminations of $2,857,000. The Studio 1+1
Group is included in the consolidated balance sheets as of December 31, 1998 and
its results of operations from December 23, 1998 are included in the
Consolidated Statement of Operations.
The Company acquired its additional interest in Studio 1+1 in December 1998 for
$5,000,000. The impact of the purchase of this additional interest had it
occurred at January 1, 1997 is as follows:
<TABLE>
<CAPTION>
For the years ended
December 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Net revenues.............................................. $ 205,965 $ 199,028
Net loss from continuing operations....................... (82,069) (68,770)
Net Loss per Share........................................
Continuing operations - basic and diluted............. (3.40) (2.88)
Discontinued operations - basic and diluted........... (1.83) (0.71)
---------------- ----------------
Net................................................... (5.23) (3.59)
================ ================
</TABLE>
This pro forma presentation includes the effects of the amortization of goodwill
related to the transaction.
14. SEGMENT DATA
The Company manages its business segments primarily on a geographic
basis. The Company's reportable segments are comprised of CNTS (Czech Republic),
PRO TV (Romania), Markiza TV (Slovakia), POP TV (Slovenia), Studio 1+1 Group
(Ukraine) and TV3 (Hungary). Each operating segment provides products and
services as further described in Note 1.
The accounting policies of the various segments are the same as those
described in the "Summary of Significant Accounting Policies" in Note 3. The
Company evaluates the performance of its segments based on segment EBITDA
(earnings before interest, taxes, depreciation and amortization). Costs for
programming amortization are included in segment EBITDA. Costs excluded from
segment EBITDA primarily consist of interest and foreign exchange gains and
losses, corporate expenses and goodwill amortization and equity in losses of
unconsolidated affiliates, as well as programming write-offs at the
71
<PAGE>
corporate level for TV3 and other non-recurring charges for impairment of
investments or discontinued operations. The assets and liabilities of the
Company are managed centrally and are reported internally in the same manner as
the consolidated financial statements, thus no additional information is
provided.
Summary information by segment as of and for the years ended December
31, 1998, 1997 and 1996 is as follows:
SEGMENT FINANCIAL INFORMATION
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------------------------
($000s)
--------------------------------- -----------------------------------
Net Revenues EBITDA
--------------------------------- -----------------------------------
Station 1998 1997 1996 1998 1997 1996
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CNTS.............................. 108,826 99,163 109,242 54,887 49,921 53,441
PRO TV ........................... 41,937 30,155 15,803 (2,016) (1,298) (4,368)
POP TV ........................... 22,122 14,989 9,080 (809) (1,613) (5,157)
TV3 .............................. 5,379 1,464 - (6,926) (3,086) -
Other Operations ................. 4,103 4,494 1,860 (340) (799) (1,075)
---------- ----------- ---------- ----------- ----------- -----------
Total Consolidated Operations 182,367 150,265 135,985 44,796 43,125 42,841
Studio 1+1 Group ...............(1) 23,598 16,661 - (2,047) 19 -
Markiza TV ....................... 37,793 31,296 7,462 2,483 5,259 (2,240)
---------- ----------- ---------- ----------- ----------- -----------
Total Unconsolidated Operations 61,391 47,957 7,462 436 5,278 (2,240)
---------- ----------- ---------- ----------- ---------- -----------
Total Operations..................... 243,758 198,222 143,447 45,232 48,403 40,601
========== =========== ========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation to Consolidated Statements of Operations:
<S> <C> <C> <C>
Consolidated Operations 44,797 43,125 42,841
Programming write-off in TV3 (21,289) - -
Intercompany elimination 834 720
Station depreciation (17,056) (15,184) (13,314)
Corporate expenses (42,031) (40,312) (19,531)
---------- ---------- ------------
Operating (loss)/ income from continuing operations (34,745) (11,651) 9,996
=========== =========== ===========
</TABLE>
(1) Studio 1+1 Group revenue and other items from December 23, 1998 to December
31, 1998, included in the Consolidated Statements of Operations, were not
material.
15. SUBSEQUENT EVENTS
Sale Transaction
On March 29, 1999, the Company entered into a Reorganization Agreement
with SBS Broadcasting S.A. ("SBS"), which provides, among other things, for (a)
the sale by the Company to SBS of all of the assets, business, properties and
rights of the Company (consisting primarily of the stock of CME Media
Enterprises B.V., an intermediate holding company wholly owned by CME); (b) the
assumption by SBS of, and indemnification of the Company with respect to, all
liabilities, obligations and commitments of the Company; (c) the issuance by
SBS to the Company of a number of shares of SBS common stock, par value $1.50
per share ("SBS Stock"), equal to 0.5 times the total number of shares of the
Company's Class A Common Stock and Class B Common Stock outstanding immediately
prior to the closing of such transaction; and (d) the immediate commencement of
the winding up of the Company and distribution of the SBS Stock so received by
the Company to the shareholders of the Company (followed as soon as practical
thereafter by the final dissolution of the Company). Accordingly, upon the
closing of the transactions contemplated by the Reorganization Agreement, each
shareholder of the Company would receive 0.5 shares of SBS Stock for each share
of Common Stock of the Company owned by such shareholder.
The foregoing transaction is intended to be accounted for as a
purchase, and to qualify as a reorganization under Section 268(a) of the
Internal Revenue Code (and thus to be tax-free for US tax purposes to the
shareholders of CME). The closing of the transaction is subject to a number of
conditions precedent, some of which are beyond the control of the Company,
including the approval of the shareholders of SBS. Ronald S. Lauder, who
controls approximately 69% of the vote of the Company, has entered into a
Shareholders Agreement with SBS whereby he commits to vote his shares of Class A
and Class B Common Stock in favor of the transaction. In the event that the
transaction is not consummated, the Reorganization Agreement provides various
rights to the Company and to SBS, depending upon the circumstances.
Stock Options
Since December 31, 1998, 36,000 stock options for Class A Common Stock
were exercised at a price of $0.20.
72
<PAGE>
Sale of Investment in MobilRom
On March 18, 1999, the Company sold its interest in the Romanian
mobile telephone company MobilRom. As a result of this transaction the Company
realized a gain in the first quarter of 1999 of approximately $25,800,000. The
impact of MobilRom on the Company's results of operations for 1996, 1997 and
1998 was not material.
ING Facility
On February 26, 1999, the Company entered into a $15,000,000 secured
revolving Credit Facility with ING Bank N.V. (the "ING Facility"). The ING
Facility is for a term of three years and the commitment level is to be reduced
in four equal semi-annual instalments starting in June 2000. The ING Facility
is secured by the assets of a wholly-owned subsidiary of the Company, which
holds the Company's interest in CNTS, and will be repaid from the dividends of
CNTS. The rate of interest charged on the ING Facility is based on the ratio of
the Company's indebtedness to CNTS's broadcast cash flow and may range from
3.75% to 2.50% over United States dollar LIBOR. The availability of the ING
Facility is subject to the satisfaction of various conditions which have not yet
been met.
73
<PAGE>
REPORT TO INDEPENDENT PUBLIC ACCOUNTANTS
To IA TV Beteiligungsgesellschaft GmbH & Co. Betriebs-KG: We have audited the
accompanying balance sheet of IA TV Beteiligungsgesellschaft GmbH & Co.
Betriebs-KG (a Limited Partnership organized under German law) as of December
31, 1995 and 1996, and the related statements of operations, partners' capital
and cash flows for the years then ended. These financial statements are the
responsibilty of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of materialk misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluting the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to avove present fairly, in al
material respects, the financial position of IA TV Beteiligungsgesellschaft Gmbh
& Co. Betriebs-KG as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the years then ended in comformity with United
States generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As described in Note 3 to the
financial statements, the Partnership has incurred significant operating losses
during the years 1994 through 1996, and is dependent upon additional capital to
fund its operations. These factors raise substantial doubt about the
Partnership's ability to continue as a going concern. The financial statements
do not include any adjustments relating to the recoverability or classification
of asset carrying amounts or the amount and classification of liabilities that
might result should the Partnership be unable to continue as a going concern.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft GmbH
March 5, 1997
Berlin, Germany
74
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT
MBH & CO. BETRIEBS-KG
BALANCE SHEET AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... 1,721 3,015
Accounts receivable............................. 1,018 662
Program rights costs............................ 37 441
Value-added tax receivables..................... 287 534
Other receivables (Note 5)...................... 1,724 2,727
Prepaid expenses................................ 116 43
Contribution receivable......................... 112 2,500
------------ ------------
Total current assets......................... 5,015 9,922
------------ ------------
PROPERTY, PLANT & EQUIPMENT, including equipment
held under lease, net (Note 6).................. 16,653 20,280
------------ ------------
BROADCAST LICENSE COSTS, net...................... 44 55
------------ ------------
OTHER INTANGIBLE ASSETS, net (Note 7)............. 2,306 2,504
------------ ------------
Total assets................................. 24,018 32,761
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note
8)........................................... 5,603 7,337
Duties and other taxes payable.................. 457 364
Related party payables.......................... 132 419
------------ ------------
Total current liabilities.................... 6,192 8,120
------------ ------------
NON CURRENT LIABILITIES:
Capital lease obligation........................ 4,117 6,125
Deferred income (Note 9)........................ 5,657 6,861
------------ ------------
Total non current liabilities................ 9,774 12,986
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
PARTNERS' CAPITAL:
Contributed Capital............................. 135,575 111,000
Accumulated deficit............................. (127,523) (99,345)
------------ ------------
Total Partners' capital...................... 8,052 11,655
------------ ------------
Total liabilities and partners' capital...... 24,018 32,761
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
75
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
TDM TDM
------- -------
<S> <C> <C>
REVENUES:
Advertising.......................................... 4,872 4,847
------- -------
STATION EXPENSES:
Amortization of programming rights................... (652) (4,375)
Depreciation of station equipment.................... (4,056) (3,846)
Other operating costs and expenses................... (7,544) (13,321)
Selling, general and administrative expenses......... (20,838) (18,374)
------- -------
Operating loss.................................... (28,218) (35,069)
------- -------
INTEREST AND OTHER INCOME.............................. 581 1,115
INTEREST EXPENSE....................................... (541) (851)
------- -------
40 264
------- -------
Net loss.......................................... (28,178) (34,805)
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of this statement.
76
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Partners' capital, brought forward................ 11,655 8,960
Capital contributions during the year............. 24,575 37,500
Net loss for the year............................. (28,178) (34,805)
------------ ------------
Partners' capital, carried forward................ 8,052 11,655
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
77
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
TDM TDM
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)................................................ (28,178) (34,805)
Adjustments to reconcile net (loss) to net cash used in
operating activities:
Depreciation and amortization.......................... 4,708 8,222
Increase in assets and liabilities:
Accounts receivable.................................. (356) 193
Prepaid expenses..................................... (73) (21)
Accounts payable and accrued liabilities............. (1,734) 1,360
Program and film rights.............................. (248) (3,368)
Related party liabilities............................ (287) (158)
Value-added tax receivables.......................... 247 464
Other receivables.................................... 1,003 1,392
Other payables....................................... 93 (1,145)
-------- --------
Net cash used in operating activities.................. (24,825) (27,866)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditure....................................... (1,637) (1,295)
Additions to other intangible assets...................... (240) (2,516)
Disposals................................................. 157 1,039
Deferred income--investment grants and allowances......... 296 1,030
-------- --------
Net cash used in investing activities..................... (1,424) (1,742)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft............................................ 0 (864)
Partners' capital contributions, net...................... 26,963 35,000
Capital lease payments.................................... (2,008) (1,857)
-------- --------
Net cash provided by financing activities................. 24,955 32,279
-------- --------
Net decrease/increase in cash and cash equivalents.......... (1,294) 2,671
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 3,015 344
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... 1,721 3,015
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
78
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND BUSINESS
IA TV Beteiligungsgesellschaft mbH & Co. Betriebs-KG, Berlin ('IA
Fernsehen' or 'the Partnership'), set up under German law as a Limited
Partnership, was established in 1993.
The management of the Partnership is carried out by IA TV
Beteiligungsgesellschaft mbH, Berlin ('IA TV'), the sole general partner of IA
Fernsehen. According to the Partnership agreement the general partner is not
required to contribute any capital nor does he participate in Partnership
profits or losses. IA TV has a supervisory board which monitors the activities
of management.
IA Fernsehen principally broadcasts television programs in the
Berlin/Brandenburg area of Germany. Until the third quarter of 1995 this
included the purchase and airing of acquired program rights for films and
series. The Partnership limited the acquisition of such rights and has since
been pondering more strongly on the broadcasting of self produced news and
entertainment features with regional content. In May 1996 the station was
relaunched and is since then broadcasting under the name of 'Puls Tv'.
The Partnership was awarded the first private regional television license
in Germany on August 4, 1993 from the Media Authority of Berlin-Brandenburg. The
license is limited to a period of 7 years commencing from the date of
broadcasting which was November 28, 1993. The license granted to the Partnership
is, under the terms of the license, renewable. However, no statutory or
regulatory presumption exists for the current license holder, and there can be
no assurance that the Partnership will receive a renewal upon expiration of the
initial term of the license.
2. FINANCING OF OPERATING AND CAPITAL NEEDS
Under the provisions of the Partnership Agreement the limited Partners were
required to contribute fixed capital of DM 10 mio. and variable capital of DM 90
mio. The total amount of fixed and variable capital of DM 100 mio. was called up
as of June 30, 1995.
According to the bylaws of the Partnership Agreement the partners may
decide with a majority of 75 % of votes cast to call variable capital amounts
exceeding DM 90 mio. The obligation and the right to contribute in such a case
shall exist only for those limited partners who have voted in favour of a
corresponding resolution or who give notice in writing to the General Partner
within one month following such resolution that they will participate in the
increase. The contributions shall be made in proportion to the share in fixed
capital of the limited partners participating in the increase.
In response to the capital needs of the Partnership the partners have
resolved the following capital calls in 1996 that were mainly supported by one
major partner:
<TABLE>
<CAPTION>
TDM
------
<S> <C>
March 26, 1996........ 10,000
June 19, 1996......... 2,500
August 6, 1996........ 2,500
August 28, 1996....... 2,000
September 17, 1996.... 2,500
September 17, 1996.... 575
November 12, 1996..... 4,500
------
24,575
------
------
</TABLE>
79
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
3. GOING CONCERN
Since its inception the Partnership has incurred losses of DM 127.5 mio.
The initially agreed fixed and variable capital of DM 100 mio. as well as
additional capital of DM 35.5 mio. was nearly used until year-end 1996. Until
December 31, 1997, losses are projected to reach DM 15 mio. to DM 20 mio. Due to
the amortization of liabilities and capital expenditures the necessary funding
for 1997 is beyond DM 15 mio. as well and therefore exceeds the cash presently
available and resolved capital calls.
To maintain the operation as a going concern until year-end 1997 further
capital calls and funding are necessary. Presently the Partnership is unable to
fulfil its financial commitments. On September 4, 1996, the Partnership engaged
an investment bank to seek a strategic investor who may acquire a share in the
Partnership. Meanwhile the Partnership is provided with Partner's capital on a
day to day basis.
The factors described in the preceding paragraph raise substantial doubt
about the Partnership's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability or
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Partnership be unable to continue as a
going concern.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Program and Film Rights
The book value of film licences reduced from TDM 441 as of December 31,
1995 to TDM 37 as of December 31, 1996. Since the change of the program
structure in 1995 the Partnership limited the purchase of film rights. In 1996
the Partnership changed its accounting policy for program and film rights from
capitalization and amortization based upon the actual airing to directly
expensing the costs for program rights.
Production Costs
Production costs for self-produced programs are recorded as operating
costs.
Property, Plant and Equipment and Intangible Assets
Fixed and intangible assets are carried at cost and are depreciated on a
straight line basis using the shorter of estimated useful lives, the underlying
lease period or the term of the television license period.
Replacements, renewals and improvements are capitalized. Maintenance and
repairs are charged to expense as incurred.
Investment grants and allowances that subsidize the assets of IA Fernsehen
are recorded as deferred income and disclosed among other liabilities.
Accordingly the assets are reported at their acquisition value net of
amortization. The amortization of deferred investment grants and allowances
relate to the underlying estimated useful lives of fixed assets acquired and are
netted with the amortization of such assets.
Income Taxes
Income taxes have not been recorded in the accompanying financial
statements as they are the obligation of the partners. Municipal trade tax on
income is payable by the Partnership. No such tax is due for the period ending
December 31, 1996 due to losses incurred by the Partnership in this period.
80
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash and cash equivalents
Cash and cash equivalents include cash in banks and cash on hand.
Revenue Recognition
Revenues result from the sale of advertising time. Advertising revenue is
recognized at the time the commercials are broadcast.
Barter Transactions
Revenue from barter transactions (television advertising provided in
exchange for goods and services) is recognized as income when advertisements are
broadcast, and merchandise or services received are charged to expense (or
capitalized as appropriate) when received or used.
Receivables and payables arising from barter transactions are offset when
the services have been rendered to the customer and from the vendor.
Barter transactions in 1996 of TDM 944 are included in advertising revenues
and the related expenditures of TDM 917 are included in direct operating costs.
5. OTHER RECEIVABLES
Other receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Receivable from Deutsche Leasing AG (see Note
10)............................................. 1,497 1,610
Investment subsidies receivable................... 20 1,075
Other receivables................................. 207 42
------------ ------------
1,724 2,727
------------ ------------
------------ ------------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Fixtures and fittings............................. 12,094 12,043
Station machinery and office equipment............ 19,219 17,875
-- thereof relating to assets held under lease:
TDM 15,144 (1995: TDM 15,144)
------------ ------------
31,313 29,918
Less-Accumulated depreciation..................... (14,660) (9,638)
------------ ------------
16,653 20,280
------------ ------------
------------ ------------
</TABLE>
81
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
7. OTHER INTANGIBLE ASSETS
Other intangible assets, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Studio equipment software held under lease........ 2,586 2,500
Financial systems software........................ 578 425
------------ ------------
3,164 2,925
Less--Accumulated depreciation.................... (858) (421)
------------ ------------
2,306 2,504
------------ ------------
------------ ------------
</TABLE>
The studio equipment software represents a traffic system leased from
Enterprise Air-Time Systems Limited, Thames Ditton, U.K.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Accounts payable, trade........................... 4,169 6,152
Vacation accrual.................................. 354 354
Ancillary rental cost............................. 339 245
Consulting fees................................... 241 --
Compensation...................................... 117 214
Contract risks.................................... 70 120
Miscellaneous accruals............................ 313 252
------------ ------------
5,603 7,337
------------ ------------
------------ ------------
</TABLE>
Trade payables include an unsettled liability of TDM 1,980 relating to the
operating lease contract with Enterprise Air-Time Systems Limited, Thames
Ditton, U.K., for the new traffic system.
9. DEFERRED INCOME
On October 5, 1993 the Partnership was awarded a first federal and state
funded grant amounting to 23% of capital investment of up to DM 50 mio. between
1993 and 1996. Total investments relating to the underlying budget for this
investment grant amounted to DM 37.1 mio. as of August 1996 with the Partnership
having received investment grants of TDM 8,544. As all budgeted investments were
finalized by that time the approval for investment grants was adjusted from
initially TDM 11,287 to TDM 8,544.
On August 26, 1996 the Partnership was awarded a second federal and state
funded grant amounting to 25% of capital investments of up to DM 13 Mio. between
1996 and 1999. As of December 31, 1996 the Partnership has received investment
grants of TDM 349 relating to this second investment grant approval.
The Partnership is required to retain the underlying assets acquired, upon
which these grants were received, in its business and region for a period of at
least 3 years. Furthermore 130 employment positions are guaranteed to be
maintained for a period of five years beginning with the first airing in
82
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
9. DEFERRED INCOME--(CONTINUED)
November 1993. The second investment grant increases the number of guaranteed
labour from 130 to 150 for a period of five years beginning with the completion
of the budgeted investments. A failure to meet these two conditions could result
in the Partnership having to repay some or all of the grants received.
In addition the Partnership has the right, as governed by German tax law,
to receive tax free investment subsidies of 5% respectively of 8% of the cost of
acquired moveable fixed assets. The allowance is granted subject to the acquired
fixed assets remaining in the business for a period of at least 3 years.
Deferred investment grants and tax free subsidies are amortized according
to the underlying estimated useful lives of fixed assets acquired.
The total amount of grants and tax free subsidies received by the
Partnership and recorded in the accompanying balance sheet as deferred income is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
TDM TDM
------------ ------------
<S> <C> <C>
Investment grants and subsidies................... 10,308 10,012
Less--Amortization to December 31................. (4,651) (3,151)
------------ ------------
5,657 6,861
------------ ------------
------------ ------------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
Commitments under capital leases
The Partnership signed a contract with an investment bank, the Deutsche
Leasing AG, Berlin (Deutsche Leasing), to finance a part of its investments in
studio equipment. The total lease financing of DM 10 mio. represented two thirds
of the originally planned volume of investments in studio equipment of DM 15
mio. It was agreed that Deutsche Leasing retains a guarantee of DM 1 mio. at an
interest rate payable to IA Fernsehen of 5.35% p.a. The loan of DM 10 mio. is
financed at an annual interest rate of 6.9%. The loan has to be repaid to
Deutsche Leasing by October 1998 with monthly installments of TDM 201.
Deutsche Leasing is entitled to demand immediate repayment of the loan
amount outstanding if IA Fernsehen fails to meet the terms of the loan
agreement. The corresponding liability to the fixed assets held under finance
lease is the DM 4.1 mio. payable to Deutsche Leasing as of December 31, 1996.
Additionally, IA Fernsehen records a receivable from Deutsche Leasing of DM 1.5
mio. representing the guarantee (DM 1 mio.) and the unused finance volume (DM
0.5 mio.). The future obligations under the capital leases are as follows:
<TABLE>
<CAPTION>
INTEREST AMORTIZATION TOTAL
TDM TDM TDM
-------- ------------ -----
<S> <C> <C> <C>
1997.... 239 2,172 2,411
1998.... 64 1,945 2,009
-------- ------------ -----
303 4,117 4,420
-------- ------------ -----
-------- ------------ -----
</TABLE>
83
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Commitments under operating leases
--TV station headquarters
The Partnership entered into an operating lease for the television station
headquarters adjacent to the Television tower at the Alexanderplatz in Berlin on
May 14, 1993. The lease term commenced on May 1, 1993 and expires on December
31, 1999. The lease provides for a renewal option. For the period ended December
31, 1996, the Partnership paid rent and operating expenses amounting to DM 1.8
mio. Under the agreement the monthly rent amounts to DM 105,000 until April 30,
1998. Thereafter it increases to DM 197,500 per month. In addition the
Partnership is obliged to pay certain taxes, insurance costs and operating
expenses, as provided in the lease agreement.
According to the lease contract the Partnership is liable for possible
third party claims arising from restitution filings on the premises leased. The
Partnership as tenant cannot obtain valid evidence from the BVS ('Bundesanstalt
fur vereinigungs-bedingte Sonderaufgaben'--the former privatization agency
of the German Government) regarding any pending restitution claims. Should the
Partnership be forced to terminate its rental agreement prior to December 31,
1999, the lessor has agreed to negotiate the amount of capital expenditures
incurred to be reimbursed. The management will cooperate with the lessor in
order to obtain information on possible restitution claims.
According to the lease contract the Partnership is liable to guarantee the
pedestrians' safety on all passageways around the rented building. The
Partnership has taken steps to provide for such safety. Furthermore the
Partnership has to carry out maintenance work relating to the building at its
own cost. This obligation may result in additional costs which have not been
evaluated and correspondingly not been accrued for.
The Company has minimum future obligations under the operating lease
relating to the TV station headquarters as follows:
<TABLE>
<CAPTION>
TDM
-----
<S> <C>
1997.... 1,620
1998.... 2,360
1999.... 2,730
</TABLE>
--Traffic system
On May 24, 1995, the Partnership entered into a lease agreement for a
traffic system with the Enterprise Air-Time Systems Limited, Thames Ditton, U.K.
The lease term commenced on May 24, 1995, and expires on May 24, 2005. The
agreement may be terminated by written notice if a party e.g. ceases to carry on
its business. The traffic system was capitalized at TDM 2,568 and
correspondingly accrued for under trade liabilities. Amortization of TDM 266 for
1996 was expensed. The future payments represent the repayment of the liability
and will annually be increased with reference to the
84
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
development of the Electrical and Electronical Engineering Index. The future
obligations under the terms of this operating lease are as follows:
<TABLE>
<CAPTION>
TDM
-----
<S> <C>
1997.......... 248
1998.......... 248
1999.......... 248
2000.......... 248
thereafter.... 1,236
</TABLE>
Government Regulation
Broadcast operations in Germany are subject to extensive Government
regulation. Television in Germany is regulated by the Media Authority of each
region, and the Media Authority Berlin-Brandenburg ('MABB') is responsible for
the activities of the Partnership. Regulations govern the issuance, renewal,
transfer and ownership of station licenses, as well as the timing and content of
programming and the timing, content and amount of commercial advertising
permitted. There are also regulations requiring that certain percentages of
programming are being produced or originated in local markets. The ownership of
a private TV station is closely monitored to avoid a single shareholder being
able to exercise a dominant influence on the business and program of a TV
station.
The Partnership communicated in writing the changes effected and intended
regarding the Partners' capital, the Partners' voting rights and the program
structure to MABB and obtained assurance to comply with the rules of the TV
license.
Employment Agreements
The managing directors of the Partnership are employed at the general
partner. In 1996 the following persons have been managing directors:
<TABLE>
<CAPTION>
APPOINTMENT PER DISMISSAL PER PARTNERS'
PARTNERS' RESOLUTION RESOLUTION
-------------------- -----------------------
<S> <C> <C>
Dr. Dietmar Straube.... September 19, 1995 September 30, 1996
Stefan Ziegenhagen..... March 26, 1996
</TABLE>
In accordance with para 4.1 of the General Partner's Agreement IA TV
Beteiligungs--gesellschaft mbH shall have at least two managing directors. The
Partnership is aware of this deficiency and will take corrective action. None of
the resolutions or changes of 1995 and 1996 have been inscribed in the
commercial register.
In 1996 an average of 148 employees and 103 freelancers worked for the
Partnership. Generally employment agreements may be terminated by either party
within 1 to 2 months upon prior written notice.
Litigation
Various competitors of IA Fernsehen have taken legal action against the
Media Authority Berlin-Brandenburg to overturn its decision in awarding the
Partnership the broadcast license for IA Fernsehen. The Partnership and legal
counsel believe that its broadcast license for IA Fernsehen is in
85
<PAGE>
IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
no danger. The Media Authority has informed the Partnership that these legal
actions have no realistic chance of success.
The Company is from time to time involved in litigation incidental to the
conduct of its business. Management and its counsel believe such pending
litigation will not have a material adverse effect on the company's financial
condition.
86
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Slovenska televizna spolocnost, s.r.o.
We have audited the accompanying balance sheets of Slovenska televizna
spolocnost, s.r.o. as of December 31, 1996 and 1995, and the related statements
of income and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Slovenska televizna spolocnost,
s.r.o. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with United States
generally accepted accounting principles.
ARTHUR ANDERSEN
Bratislava, Slovak Republic
13 March 1997
87
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... 15,257 30,756
Accounts receivable (net of allowances of 3,387
TSK)......................................... -- 169,979
Program rights costs, net (Note 3).............. -- 5,155
Amounts due from shareholders................... -- 6
Other assets (Note 4)........................... 52,214 141,681
------------ ------------
Total current assets......................... 67,471 347,577
------------ ------------
INVESTMENT (Note 5)............................... -- 100
PROPERTY, PLANT & EQUIPMENT (net of depreciation
of 299 SK and 39,843 SK) (Note 6)............... 36,248 682,480
PROGRAM RIGHTS COST, net (Note 3)................. -- 166,618
INTANGIBLE ASSETS (net of amortisation of 27 SK,
1,324 SK) (Note 7).............................. 198 13,782
PRE OPERATIONAL COSTS (net of amortisation of nil,
5,016 SK) (Note 3).............................. 5,459 55,185
------------ ------------
Total assets................................. 109,376 1,265,742
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ 4,910 158,537
Accrued Liabilities (Note 8).................... 1,005 24,233
Duties and other taxes payable.................. 167 17,162
Amounts due to Shareholders (Note 9)............ -- 10,521
Amounts due to related parties (Note 10)........ -- 1,192
------------ ------------
Total current liabilities.................... 6,082 211,645
------------ ------------
NON CURRENT LIABILITIES:
Shareholder loan (Note 9)....................... -- 294,192
------------ ------------
Total non current liabilities................ -- 294,192
------------ ------------
SHAREHOLDERS' EQUITY: (Note 13)
Capital stock................................... 100 100
Other contributed capital....................... 105,446 893,768
Accumulated deficit............................. (2,252) (133,963)
------------ ------------
Total shareholders' equity................... 103,294 759,905
------------ ------------
Total liabilities and shareholders' equity... 109,376 1,265,742
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
88
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
INCOME STATEMENTS
FOR THE PERIODS ENDED DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
<TABLE>
<CAPTION>
1995 1996
------ --------
<S> <C> <C>
REVENUES:
Advertising............................................... -- 227,026
Other..................................................... 1 5,334
------ --------
1 232,360
------ --------
------ --------
STATION EXPENSES:
Depreciation of station equipment......................... (299) (39,544)
Amortisation of programming rights........................ -- (74,769)
Amortisation of intangibles and pre-operational costs..... (27) (6,313)
Other operating costs and expenses........................ (1,908) (177,374)
Selling, general and administrative expenses.............. -- (49,966)
------ --------
Operating loss.............................................. (2,233) (115,606)
------ --------
------ --------
INTEREST AND OTHER INCOME (NOTE 14)......................... 4 7,750
INTEREST EXPENSE (NOTE 15).................................. (23) (23,855)
------ --------
Net loss.................................................... (2,252) (131,711)
------ --------
------ --------
</TABLE>
The accompanying notes are an integral part of these income statements.
89
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. (2,252) (131,711)
Depreciation and amortization............................. 326 45,857
Depreciation of program rights............................ -- 74,769
Provision for bad debts................................... -- 3,387
-------- ----------
Operating profit before changes in operating assets....... (1,926) (7,698)
(Increase) decrease in operating assets:
Accounts receivable.................................... -- (173,366)
Other assets........................................... (52,214) (84,037)
Increase (decrease) in operating liabilities:
Accounts payable....................................... 4,910 153,627
Accrued liabilities.................................... 1,005 23,228
Duties and other taxes payable......................... 167 16,995
Amounts due to shareholders............................ -- 10,521
Amounts due to related parties......................... -- 1,192
-------- ----------
Net cash (used)/ from operating activities............. (48,058) (59,538)
-------- ----------
-------- ----------
Cash flows from investing activities:
Investments in program rights............................. -- (251,978)
Investments............................................... -- (100)
Net purchase of property, plant & equipment............... (36,547) (685,776)
Net purchase of intangible assets......................... (225) (14,881)
Pre-operational cost capitalised.......................... (5,459) (54,742)
-------- ----------
Net cash (used)/ from investing activities.................. (42,231) (1,007,477)
-------- ----------
-------- ----------
Cash flows from financing activities:
Increase in shareholder loan.............................. -- 294,192
Capital increase.......................................... 100 --
Increase in other contributed capital..................... 105,446 788,322
-------- ----------
Net cash(used)/ from financing activities................... 105,546 1,082,514
-------- ----------
-------- ----------
Net increase in cash and cash equivalents................... 15,257 15,499
-------- ----------
-------- ----------
Cash and cash equivalents at the beginning of the year.... -- 15,257
-------- ----------
Cash and cash equivalents at end of year.................. 15,257 30,756
-------- ----------
-------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
90
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
(1) ORGANIZATION AND BUSINESS
Slovenska televizna spolocnost, s.r.o. (STS or the Company) was established
as a Limited Liability Company under the Laws of the Slovak Republic on October
9, 1995, to develop an independent, private television station, TV Markiza, and
to both technically secure the preparation of television broadcasting and to
provide full scale television programming.
Programming prepared by STS, is broadcast by Markiza Slovakia, s.r.o., in
accordance with the license granted to Markiza Slovakia, by The Council of the
Slovak Republic for Broadcasting and Television Transmission. The license
provides for broadcast within the territory of the Slovak Republic utilising
terrestrial signals, achieving an initial 65% national coverage. The license is
limited for a period of 12 years commencing August 7, 1995.
The provision of programming to Markiza Slovakia by STS, is performed in
accordance with the terms of an agreement between these parties, under which
Markiza Slovakia grants STS the rights to all revenues derived from broadcasting
in exchange for a 51% ownership interest and a 20% economic interest in the
Company, subject to the repayment of the original capital contribution made by
Central Media Enterprises, B.V. (CME).
(2) FINANCING OF OPERATING AND CAPITAL NEEDS
The share capital of 100 TSK is 51% owned by Markiza Slovakia, s.r.o., a
limited liability company established under the Laws of the Slovak Republic, and
41% owned by CME, a Limited Liability Company established under the Laws of The
Netherlands.
In addition to the share capital provided, contributions amounting to
893,768 TSK have been received from CME for the provision of operating funds to
the Company. As a result of this increased contribution, and in accordance with
the Participants agreement between the shareholders, CME is entitled to 80% of
the Company's profits and losses and 80% of the proceeds upon liquidation of the
Company's assets.
In addition to shareholders capital, CME have granted loans to the Company
amounting to 294,192 TSK, as of December 31, 1996, inclusive of accrued interest
of 6,815 TSK.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements, consisting of the balance sheet as
of December 31, 1996 and 1995, and the related statements of income, cash-flow
statements and notes to the financial statements for the year ended 31 December
1996 are presented in accordance with US GAAP and, accordingly, give a true and
fair view of the Company's net worth, financial position and results.
a) Basis of accounting
The Company maintains its books of accounts and prepares statements for
regulatory purposes in accordance with Slovak accounting principles. The
accompanying financial statements are based on the accounting records of the
Company, together with appropriate reclassifications necessary for fair
presentation in accordance with US GAAP.
91
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
b) Property, Plant and Equipment and Intangible Assets
Fixed and Intangible assets are carried at cost less accumulated
depreciation. Depreciation is computed using the straight line method over the
estimated useful lives of the related assets. (Notes 6 and 7).
c) Assets held under Capital Leases
Assets held under capital leases are accounted for in accordance with
Statement of Financial Accounting Standards No. 13, 'Accounting for Leases', and
recorded in Property, Plant and Equipment. The related liability is included in
obligations under capital lease.
d) Program Rights and Production Costs
Program rights acquired by the Company under license agreements and the
related obligations incurred are recorded as assets and liabilities when the
license period begins, and the assets are amortised to expense using accelerated
methods based on the estimated period of usage, ranging from one to five years.
Amortisation estimates for program rights are reviewed periodically and adjusted
prospectively. Program rights costs are shown net of amortisation of 74,769 TSK.
Payments made for program rights for which the license period has not begun
before the year end are classified as prepaid expenses and amount to 5,436 TSK
at December 31, 1996. (See Note 4).
The elements of program rights for which the licence period will expire
within one year, amounting to 5,155 TSK have been reclassified as current
assets.
Production costs for self-produced programs are capitalised, and expensed
when first broadcast except where the programming has potential to generate
future revenues. When this is the case, production costs are capitalised and
amortised on the same basis as programming obtained from third parties.
e) Pre Operational Costs
The Company has capitalised 60,201 TSK in costs incurred in connection with
the organisation and incorporation of the business prior to the commencement of
broadcasting of its programming. These costs will be amortised over four years
from the commencing of broadcasting of the station. Amortisation of 5,016 TSK
has been provided to December 31, 1996. (1995--nil)
f) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes.' No tax is
due for the period ending December 31, 1996 due to losses incurred by the
Company in this period.
g) Foreign Currency Transactions
Transactions denominated in foreign currencies are recorded at the exchange
rate in effect at the date of the transaction. Outstanding foreign currency
obligations and receivables have been translated at the exchange rate in effect
as of the balance sheet date. Translation gains or losses have been charged to
other income and expense.
92
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
h) Cash and cash equivalents
Cash and cash equivalents include cash in banks and on hand. The Company
does not have any restricted cash balances.
i) Revenue Recognition
Revenues primarily result from the sale of advertising time and are
recognized at the time the advertisements are broadcast.
j) Barter Transactions
Revenue from barter transactions (television advertising provided in
exchange for goods and services) is recognised as income when advertisements are
broadcast, and programming, merchandise or services received are charged to
expense (or capitalised as appropriate) when received or used. Barter revenues
and related expenditures of 11,977 TSK have been recognised for the year within
advertising revenues and operating expenses respectively.
The Company does not believe that the bartered programming has significant
value on its second showing on Slovak television as it has been the experience
of the industry that first runs, on average, account for a substantial majority
of the program's potential revenue. Thus, no asset or liability is recorded on
the balance sheet for the potential rebroadcast of bartered programming.
The Company records barter transactions at the estimated fair value of the
production or services received. In cases where bartered programs can only be
obtained through a barter agreement the Company values the barter at the value
of the asset given up. In other cases where the Company has elected to enter
into barter agreements as an alternate method of payment, strictly for economic
reasons, the Company values the barter agreement at the value of the asset
received. If merchandise or services are received prior to the broadcast of a
commercial, a liability is recorded. Likewise, if a commercial is broadcast
first, a receivable is recorded.
Receivables and payables arising from barter transactions are offset when
the services have been rendered to the customer and the services rendered, or
the merchandise received from the vendor.
(4) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Value-added tax......................... 2,189 18,765
Operational advances 50,018 116,413
Prepayments
--programming......................... -- 5,436
--other............................... -- 854
Other................................... 7 213
-------- -----------------
52,214 141,681
-------- -----------------
-------- -----------------
</TABLE>
In 1996, the Company entered into an agreement with Slovak Telecom for the
provision of the broadcasting infrastructure and signal transmission. In
accordance with this, advances of 127,000 TSK were remitted to Slovak Telecom,
against future signal transmission charges. This agreement accounts for 50,000
TSK and 108,632 TSK at December 31, 1995 and 1996, respectively.
93
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
(5) INVESTMENTS
The Company hold 100% (100 TSK) of the share capital of company, 'Vyhra'. A
limited liability company established by STS under the Laws of the Slovak
Republic. Vyhra has not traded since its establishment.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following:
<TABLE>
<CAPTION>
USEFUL DECEMBER 31, DECEMBER 31,
LIVES 1995 1996
------ --------------- ---------------
<S> <C> <C> <C>
Land and buildings...................... 25 -- 243,838
Technical Equipment..................... 4-8 1,197 394,595
Other................................... 4 -- 70,552
Construction in progress................ -- 15,102 --
Advances for tangibles.................. -- 20,248 13,338
--------------- ---------------
36,547 722,323
Less--Accumulated depreciation.......... (299) (39,843)
--------------- ---------------
36,248 682,480
--------------- ---------------
--------------- ---------------
</TABLE>
(7) INTANGIBLE ASSETS
Intangible assets, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
--------------- ---------------
<S> <C> <C>
Software................................ 25 7,013
Other................................... 200 8,093
--------------- ---------------
225 15,106
Less--Accumulated amortisation.......... (27) (1,324)
--------------- ---------------
198 13,782
--------------- ---------------
--------------- ---------------
</TABLE>
(8) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
--------------- ---------------
<S> <C> <C>
Legal and Professional fees............. -- 194
Personnel accruals...................... 1,005 15,381
Social fund............................. -- 297
Other................................... -- 8,361
--------------- ---------------
1,005 24,233
--------------- ---------------
--------------- ---------------
</TABLE>
94
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
(9) AMOUNTS DUE TO SHAREHOLDERS
Shareholder Loan
The Company has borrowed a total of 287,377 TSK over the period from July
10, 1996 to August 26, 1996. These loans are unsecured, repayable after a period
of no less than 5 years, maturing in 2007, and bearing interest at the rate of
6% per annum Interest of 6,815 TSK has accrued as at December 31, 1996 relating
to the period to this date.
Other
The Company owes 10,521 TSK to CME as at December 31, 1996, in relation to
consultancy services for the six months to the year end and for programming
services provided to the Company by CME.
(10) AMOUNTS DUE TO RELATED PARTIES
The Company has liabilities to Ceska nezavisla televizni spolecnost, s.r.o.
(TV Nova) at December 31, 1996, amounting to 1,192 TSK, relating to the purchase
of programs.
(11) LOAN OBLIGATIONS
The Company has no loan obligations other than that disclosed in Note 9.
(12) COMMITMENTS AND CONTINGENCIES
Commitments under Capital Leases
The Company has no material Capital Lease commitments at December 31, 1996.
Commitments under Operating Leases
The Company has entered into operating leases for three properties located
in Bratislava. The lease terms commenced June 15, and July 1, 1996 and expire
June 30, 1999 or have unlimited terms. Where a definitive term is set, the lease
provides for a renewal option. For the fiscal year ended December 31, 1996, the
Company paid aggregate rent on all facilities of 8,083 TSK.
The Company has minimum future obligations under operating leases relating
to property with definitive terms as follows:
<TABLE>
<CAPTION>
YEAR DM TSK
- -------- --- -----
<S> <C> <C>
1996.... 96 1,969*
1997.... 96 1,969
1998.... 96 1,969
1999.... 48 985
--- -----
336 6,892
--- -----
--- -----
</TABLE>
- ------------------
*translated using the exchange rate as at December 31, 1996.
Monthly payments relating to leases with unlimited terms amount to 56 TSK.
95
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
Programming Rights Commitments
The Company has commitments amounting to 80,122 TSK in respect of rights
for future programming.
The Company has also entered into certain barter agreements in 1996 that
continue through 1997 and beyond, by which television advertising will be
provided in exchange for programming. As the value of this advertising time will
only be established at the time of broadcast, it is not possible to quantify the
impact of these agreements.
(13) SHAREHOLDERS' EQUITY
The movement on shareholders' equity in the year is as follows:
<TABLE>
<CAPTION>
OTHER TOTAL
CONTRIBUTED ACCUMULATED SHAREHOLDERS'
SHARE CAPITAL CAPITAL DEFICIT EQUITY
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance as at December 31, 1995.... 100 105,446 (2,252) 103,294
Contributions...................... -- 788,322 -- 788,322
Loss for the year.................. -- -- (131,711) (131,711)
----- ----------- ----------- -------------
Balance as at December 31, 1996.... 100 893,768 (133,963) 759,905
----- ----------- ----------- -------------
----- ----------- ----------- -------------
</TABLE>
(14) INTEREST INCOME
Interest income consists of the following:
<TABLE>
<CAPTION>
1995 1996
---- -----
<S> <C> <C>
Bank & short term deposit......................... 4 2,509
Realised foreign exchange gains................... -- 190
Other............................................. -- 5,051
---- -----
4 7,750
---- -----
---- -----
</TABLE>
(15) INTEREST EXPENSE
Interest expense consists of the following:
<TABLE>
<CAPTION>
1995 1996
---- ------
<S> <C> <C>
Shareholder loan interest......................... -- 6,815
Foreign exchange losses
--realised...................................... -- 529
--unrealised.................................... -- 14,333
Other............................................. 23 2,178
---- ------
23 23,855
---- ------
---- ------
</TABLE>
96
<PAGE>
SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
(CURRENCY--THOUSANDS OF SLOVAK CROWNS)
(16) NUMBER OF EMPLOYEES
The number of employees as of December 31, 1996, was 380 full time and 3
part-time.
(17) TAXATION
The reconciliation between the accounting loss and the taxable base of the
Corporate Income Tax is as follows:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Profit for the year............................... (131,711)
Permanent differences
Non deductible expenses......................... 12,667
Temporary differences
Unrealised exchange looses...................... 19,340
Difference with tax depreciation................ 4,124
US GAAP Adjustments............................. (54,733)
--------
Taxable income, (loss)............................ (150,313)
--------
--------
</TABLE>
Following the prudence principle and due to the uncertainty on the
recoverability of the tax credit following the current Slovak tax legislation,
the Management of STS has decided not to record the tax carry forward (60,125
TSK) or the deferred tax (asset, 21,893 TSK, liability, 9,386 TSK) as of
December 31, 1996.
97
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference
to the section entitled "Election of Directors and Executive Officers" in the
Company's Proxy Statement for the 1999 Annual Meeting of Shareholders.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the sections entitled "Executive Compensation," "Compensation Committee
Report on Executive Compensation" and "Performance Graph" in the Company's Proxy
Statement for the 1999 Annual Meeting of Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference
to the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for the 1999 Annual Meeting of
Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the section entitled "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for the 1999 Annual Meeting of Shareholders.
98
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following Financial Statements of the Company are included in Part
II, Item 8 of this Report:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity (Deficit) for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(a)(2) The following Financial Statements of 1A TV Beteiligungsgesellschaft MBH
& Co. Betreibs-KG are included in Part II, Item 8 of this Report:
Report of Independent Public Accountants
Balance Sheet as of December 31, 1996 and 1995
Statement of Operation for the years ended December 31, 1996 and 1995
Statement of Partners' Capital for the years ended December 31, 1996
and 1995
Statement of Cash Flows for the years ended December 31, 1996 and 1995
Notes to Financial Statements
(a)(3) The following Financial Statements of Slovenska Televizna Spolocnost,
s.r.o. are included in Part II, Item 8 of this Report:
Report of Independent Public Accountants
Balance Sheet as of December 31, 1995 and 1996
Income Statements for the periods ended December 31, 1995 and 1996
Statements of Cash Flows for the periods ended December 31, 1995 and
1996
Notes to Financial Statements
(a)(5) The following exhibits are included in this report:
99
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.01* -- Memorandum of Association (incorporated by reference to Exhibit
3.01 to the Company's Registration Statement No. 33-80344 on Form
S-1, filed June 17, 1994).
3.02* -- Bye-Laws of Central European Media Enterprises Ltd., as amended,
dated as of May 2, 1997 (incorporated by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997).
3.03* -- Memorandum of Increase of Share Capital (incorporated by reference
to Exhibit 3.03 to Amendment No. 1 to the Company's Registration
Statement No. 33-80344 on Form S-1, filed August 19, 1994).
3.04* -- Memorandum of Reduction of Share Capital (incorporated by
reference to Exhibit 3.04 to Amendment No. 2 to the Company's
Registration Statement No. 33-80344 on Form S-1, filed September
14, 1994).
3.05* -- Certificate of Deposit of Memorandum of Increase of Share Capital
executed by Registrar of Companies on May 20, 1997 (incorporated
by reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1997).
4.01* -- Specimen Class A Common Stock Certificate (incorporated by
reference to Exhibit 4.01 to Amendment No. 1 to the Company's
Registration Statement No. 33-80344 on Form S-1, filed August 19,
1994).
4.02* -- Specimen Note for 9 3/8% Senior Notes Due 2004 (incorporated by
reference to Exhibit 4.1 to the Company's Amendment No. 3 to Form
S-3 filed on August 14, 1997)
4.03* -- Specimen Note for 8 1/8% Senior Notes Due 2004 (incorporated by
reference to Exhibit 4.1 to the Company's Amendment No. 3 to Form
S-3 filed on August 14, 1997)
4.04* -- Form of Indenture for 9 3/8% Senior Notes Due 2004 (incorporated
by reference to Exhibit 4.2 to the Company's Amendment No. 3 to
Form S-3 filed on August 14, 1997)
4.05* -- Form of Indenture for 8 1/8% Senior Notes Due 2004 (incorporated
by reference to Exhibit 4.2 to the Company's Amendment No. 3 to
Form S-3 filed on August 14, 1997)
10.01*+ -- Central European Media Enterprises Ltd. Amended and Restated 1994
Stock Option Plan, as amended to October 17, 1995. (incorporated
by reference to
100
<PAGE>
Exhibit
Number Description
- ------ -----------
Exhibit 10.01A to Amendment No. 1 to the Company's Registration
Statement No. 33-96900 on Form S-1, filed October 18, 1995).
10.02+ -- Central European Media Enterprises Ltd. 1995 Stock Option Plan, as
amended and restated to September 3, 1998
10.03 -- Memorandum of Association and Investment Agreement by and between
CME Czech Republic B.V. and CET 21 spol s.r.o dated May 4, 1993
and as amended
10.04* -- Credit Agreement between Ceska Sporitelna, a.s. and Ceska
Nezavisla Televizni Spolecnost, s.r.o. (incorporated by reference
to Exhibit 10.16 to Amendment No. 1 to the Company's Registration
Statement No. 33-80344 on Form S-1, filed August 19, 1994).
10.05* -- Term Promissory Note in favor of Ronald S. Lauder dated September
9, 1994 and Warrant for the Purchase of Shares of Common Stock
issued to Ronald S. Lauder dated as of September 9, 1994
(incorporated by reference to Exhibit 10.17 to Amendment No. 2 to
Registration Statement No. 33-80344 on Form S-1, filed September
14, 1994).
10.06* -- Partnership Agreement of Produkcija Plus d.o.o. Ljubljana,
dated February 10, 1995 among CME Media Enterprises B.V., Boutique
MMTV d.o.o. Ljubljana, and Tele 59 d.o.o. Maribor. (incorporated
by reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994).
10.07* -- Letter Agreement, dated March 23, 1995, among, Kanal A,
Boutique MMTV d.o.o. Ljubljana, Tele 59 d.o.o. Maribor, Euro 3 and
Baring Communications Equity as advisor to Baring Communications
Equity Limited, regarding Produkcija Plus d.o.o. (incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
10.08* -- Credit Agreement, dated as of November 14, 1994, between Ceska
Sportelma, a.s. and Ceska Nezavisla Televizni Spolecnost, s.r.o.
(incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.09* -- Lease, dated February 2, 1995, between CME Development Corporation
Inc. and JRT (Properties) Limited for the term of ten years for
the offices at 9 Poland Street and 17, 18 and 19 D'Arblay Street
in London. (incorporated by reference to Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
10.10* -- Contract for Space Segment Service dated June 9, 1995, between
British Telecommunications plc ('BT') and CME Programming
Services, Inc. for the provision of programming transmission
services by BT and the payment
101
<PAGE>
Exhibit
Number Description
- ------ -----------
thereon (incorporated by reference to Exhibit 10.25A to the
Company's Report on Form 10-Q for the quarterly period ended June
30, 1995).
10.10A* -- Guarantee by Central European Media Enterprises Ltd. in respect of
obligations due to British Telecommunications plc by CME
Programming Services, Inc. dated June 9, 1995 (incorporated by
reference to Exhibit 10.25B to the Company's Report on Form 10-Q
for the quarterly period ended June 30, 1995).
10.11* -- Cooperation Agreement among CME Media Enterprises B.V., Ion Tiriac
and Adrian Sarbu (incorporated by reference to Exhibit 10.27 to
the Company's Registration Statement No.33- 96900 on Form S-1
filed September 13, 1995).
10.12* -- Preliminary Agreement, dated June 12, 1995, between CME Media
Enterprises B.V. and Markiza-Slovakia s.r.o. (incorporated by
reference to Exhibit 10.28 to the Company's Registration Statement
No. 33-96900 on Form S-1, filed September 13, 1995).
10.12A* -- Memorandum of Association between CME Media Enterprises, B.V. and
Markiza-Slovakia s.r.o. (incorporated by reference to Exhibit
10.28A to Amendment No. 1 to the Company's Registration
Statement No. 33-96900 on Form S-1, filed October 18, 1995).
10.12B* -- Articles of Association of Slovenska Televizna Spolocnost, s.r.o.
founded by CME Media Enterprises, B.V. and Markiza-Slovakia s.r.o.
(incorporated by reference to Exhibit 10.28B to Amendment No. 1 to
the Company's Registration Statement No. 33-96900 on Form S-1,
filed October 18, 1995).
10.13* -- Contract of Sale, dated July 7, 1995 between In Razvoj in
Svetovanje d.o.o. Ljubljana and Produkcija Plus d.o.o. Ljubljana
and Central European Media Enterprises Group (incorporated by
reference to Exhibit 10.29 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.14* -- Loan Agreement, dated December 4, 1995, between CME Media
Enterprises, B.V., and Inter Media S.R.L. (incorporated by
reference to Exhibit 10.30 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.15* -- Contocurrent Credit Contract kept with the Current Account, dated
as of November 1, 1995 between Ceska Sporitelna a.s. and Czech
Independent Television Company s.r.o. (Ceska Nezavisla Televizni
Spolecnost s.r.o.) (incorporated by reference to Exhibit 10.32 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10.16* -- Transfer Agreement between Ceska Sporitelna and CME BV
(incorporated by reference to Exhibit 10.03 to the Company's
Report on Form 10-Q for the quarterly period ended June 30, 1996).
102
<PAGE>
Exhibit
Number Description
- ------ -----------
10.16A* -- Annex to Transfer Agreement between Ceska Sporitelna and CME BV
(incorporated by reference to Exhibit 10.04 to the Company's
Report on Form 10-Q for the quarterly period ended June 30, 1996).
10.17* -- Loan Agreement between Ceska Sporitelna and CME BV (incorporated
by reference to Exhibit 10.05 to the Company's Report on Form 10-Q
for the quarterly period ended June 30, 1996).
10.18* -- Agreement on a Future Agreement between Ceska Sporitelna and CME
BV (incorporated by reference to Exhibit 10.06 to the Company's
Report on Form 10-Q for the quarterly period ended June 30, 1996).
10.19* -- Loan Agreement between Vladimir Zelezny and CME dated August 1,
1996 (incorporated by reference to Exhibit 10.01 to the Company's
Report on Form 10-Q for the quarterly period ended September 30,
1996).
10.19A* -- Amendment to the Loan Agreement of August 1, 1996 and agreements
referred to as Security Documents between Vladimir Zelezny and
CME, dated as of March 11, 1997 (incorporated by reference to
Exhibit 10.38A to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.20* -- Ronald S. Lauder Warrant for the Purchase of Shares, dated October
2, 1996 (incorporated by reference to Exhibit 10.03 to the
Company's Report on Form 10-Q for the quarterly period ended
September 30, 1996).
10.21* -- Agreement between CME, Boris Fuchsmann, Alexander Rodniansky and
Innova Film GmbH in English, dated October 25, 1996 (incorporated
by reference to Exhibit 10.10 to the Company's Report on Form 10-Q
for the quarterly period ended September 30, 1996).
10.22* -- Agreement between CME, Boris Fuchsmann, Alexander Rodniansky and
Innova Film GmbH in German, dated October 25, 1996 (incorporated
by reference to Exhibit 10.11 to the Company's Report on Form 10-Q
for the quarterly period ended September 30, 1996).
10.23* -- Poland Street Lease Agreement, dated April 2, 1996 (incorporated
by reference to Exhibit 10.18 to the Company's Report on Form 10-Q
for the quarterly period ended September 30, 1996).
10.24* -- Share Purchase Agreement between Ceska Sporitelna a.s. and CME
Media Enterprises B.V., dated December 12, 1996 (incorporated by
reference to Exhibit 10.58 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996).
10.25* -- Agreement on Assignment of Claim between Ceska Sporitelna, a.s.
and CME Media Enterprises B.V., dated December 12, 1996
(incorporated by reference to Exhibit 10.59 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996).
103
<PAGE>
Exhibit
Number Description
- ------ -----------
10.26* -- Assignment of Shares Agreement between Balaclava B.V., Adrian
Sarbu (as shareholders of PRO TV Ltd.), CME Media Enterprises
B.V., Grigoruta Roxana Dorina and Petrovici Liana, dated December
6, 1996 (incorporated by reference to Exhibit 10.60 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).
10.27* -- Net Reimbursement Agreement by and among International
Teleservices Limited, International Media Services, Limited and
Limited Liability Company 'Prioritet', dated February 13, 1997
(incorporated by reference to Exhibit 10.64 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996).
10.28* -- Agreement by and between International Media Services, Ltd and
Innova Film GmbH, dated January 23, 1997 (incorporated by
reference to Exhibit 10.65 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996).
10.29* -- Amended and Restated Charter of the Enterprise 'Inter-Media',
dated January 23, 1997 (incorporated by reference to Exhibit 10.66
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.30* -- Amended and Restated Charter of the Broadcasting Company 'Studio
1+1', dated January 23, 1997 (incorporated by reference to Exhibit
10.67 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996).
10.31* -- Amended and Restated Foundation Agreement on the Establishment and
Operation of the Broadcasting Company 'Studio 1+1,' dated January
23, 1997 (incorporated by reference to Exhibit 10.68 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).
10.32* -- Protocol of the Participants' Assembly of the Broadcasting Company
'Studio 1+1,' dated January 23, 1997 (incorporated by reference to
Exhibit 10.69 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.33* -- Marketing, Advertising and Sales Agreement by and between
International Media Services Ltd and Innova Film GmbH, dated
January 23, 1997 (incorporated by reference to Exhibit 10.70 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).
10.33A* -- Amendment Agreement to Marketing, Advertising and Sales Agreement
between Innova Film GmbH and International Media Services Limited,
dated May 7, 1997 (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997).
10.34* -- Marketing and Sales Agreement by and between International Media
Services Ltd. and Prioritet, dated January 23, 1997 (incorporated
by reference to Exhibit 10.71 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996).
10.34A* -- Termination Agreement between International Media Services Ltd.
and Prioritet, dated May 7, 1997 (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1997).
104
<PAGE>
Exhibit
Number Description
- ------ -----------
10.35* -- IMS Advertising Service Agreement between International Media
Services Ltd. and Limited Liability Company --Prioritet--, dated
May 7, 1997 (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997).
10.36* -- Advertising Consultancy Agreement between Intermedia and Limited
Liability Company --Prioritet--, dated May 7, 1997 (incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1997).
10.37* -- Service Agreement between R. S. Lauder Gaspar & Co., LP and
Central European Media Enterprises Ltd., dated as of April 1, 1997
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1997).
10.38* -- Contract on Purchase of Real Estate between Central European
Development Corporation Praha, spol s.r.o. and Ceska Nezavisla
Televizni Spolecnost, spol. s.r.o., dated May 21, 1997
(incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1997).
10.39*+ -- Employment Agreement between CME Development Corporation and John
Schwallie, dated as of November 21, 1997 (incorporated by
reference to Exhibit 10.72 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997).
10.40*+ -- Employment Agreement between Central European Media Enterprises
Ltd. and John Schwallie, dated as of November 21, 1997
(incorporated by reference to Exhibit 10.72 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997).
10.41*+ -- Employment Agreement between CME Development Corporation and Fred
Klinkhammer, dated as of January 1, 1998 (incorporated by
reference to Exhibit 10.72 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997).
10.41A+ Amendment No. 1 to Employment Agreement between CME Development
Corporation and Fred Klinkhammer, dated as of March 23, 1999.
10.42*+ -- Employment Agreement between Central European Media Enterprises
Ltd. and Fred Klinkhammer, dated as of January 1, 1998
(incorporated by reference to Exhibit 10.72 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997).
10.42A+ Amendment No. 1 to Employment Agreement between Central European
Media Enterprises Ltd. and Fred Klinkhammer, dated as of March 23,
1999.
105
<PAGE>
Exhibit
Number Description
- ------ -----------
10.43*+ -- Employment Agreement, dated as of March 23, 1998, between CME
Development Corporation and Michel Delloye (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1998)
10.44*+ -- Employment Agreement, dated as of March 23, 1998, between Central
European Media Enterprises Ltd. and Michel Delloye (incorporated
by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1998)
10.45*+ -- Agreement, dated as of March 25, 1998, among Central European
Media Enterprises Ltd., CME Development Corporation, CME
Programming Services Inc., The Acorn Consulting Group, Inc. and
Leonard M. Fertig (incorporated by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998)
10.46* -- Sale and Purchase Agreement, dated December 10, 1998, between
Central European Media Enterprise Ltd. and International Trading
and Investments Holding S.A. (incorporated by reference to Exhibit
2.1 to Form 8-K filed on December 28, 1998)
10.47+ -- Central European Media Enterprises Ltd. Stock Appreciation Rights
Plan, effective as of September 3, 1998
10.48+ -- Central European Media Enterprises Ltd. Director, Officer and
Senior Executive Co-Investment Plan
10.49 -- Revolving Facility Agreement between CME Czech Republic B.V. and
ING Bank N.V dated February 26, 1999
10.50 -- Contract on cooperation in ensuring service for television
broadcasting between Ceska Nezavisla Televizni Spolecnost, spol.
s.r.o. and CET 21, spol. s.r.o. dated May 21, 1997 and Supplement
dated May 21, 1997
10.51 -- Stock Purchase Agreement between Central European Media
Enterprises Ltd. and RSL Capital, dated as of December 3, 1998.
21.01 -- List of subsidiaries.
23.01 -- Consent of Arthur Andersen & Co.
24.01 -- Power of Attorney, dated as of March 8, 1999, authorizing Michel
Delloye, Frederic T. Klinkhammer and John A. Schwallie as attorney
for Ronald S. Lauder, Michel Delloye, Robert R. Grusky, Peter R.
Goldscheider, Herbert S. Schlosser, Nicolas G. Trollope and John
A. Schwallie.
27.01 -- Financial data schedule.
(b) -- Current Reports on Form 8-K:
106
<PAGE>
Registrant filed a current report on Form 8-K on December 28,
1998 reporting the sale of the Company's interest in TVN
Television Operations in Poland, under Item 2: Disposition of
Assets
The following pro forma Financial Statements were filed in
such Form 8-K
Pro Forma Consolidated Balance Sheet as of September
30, 1998
Pro Forma Consolidated Statements of Operations for
the Year Ended December 31, 1997
Pro Forma Consolidated Statements of Operations for
the Nine Months Ended September 30, 1998
(c) -- Exhibits: See (a)(5) above for a listing of the exhibits
included as part of this report.
(d) -- Report of Independent Public Accountants on Schedule II--
Schedule of Valuation Allowances.
- -----------------------
* -- Previously filed exhibits
+ -- Exhibit is a management contract or compensatory plan
107
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Central European Media Enterprises Ltd.
By: /s/ John A. Schwallie
-------------------------------
John A. Schwallie
Vice President - Finance and Chief
Financial Officer
March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*
- -------------------------------- Chairman of the Board of Directors March 29, 1999
Ronald S. Lauder
/s/ Frederic T. Klinkhammer
- -------------------------------- President, Chief Executive Officer and March 29, 1999
Frederic T. Klinkhammer Director (Principal Executive Officer)
/s/ John A. Schwallie
- -------------------------------- Vice President - Finance and Chief March 29, 1999
John A. Schwallie Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
*
- -------------------------------- Vice President, Secretary and Director March 29, 1999
Nicolas G. Trollope
*
- -------------------------------- Director March 29, 1999
Robert R. Grusky
*
- -------------------------------- Director March 29, 1999
Herbert S. Schlosser
*
- -------------------------------- Director March 29, 1999
Peter R. Goldscheider
</TABLE>
* By: /s/ John A. Schwallie
----------------------------
John A. Schwallie
Attorney-in-fact
108
<PAGE>
INDEX TO SCHEDULES
Report of Independent Public Accountants on Schedule:.....................S-2
Schedule II: Schedule of Valuation Allowances............................S-3
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To: Central European Media Enterprises Ltd.:
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements of Central European Media Enterprises
Ltd. included in this filing and have issued our report thereon dated March 29,
1999. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen & Co.
Hamilton, Bermuda
March 29, 1999
S-2
<PAGE>
Schedule II
Schedule of Valuation Allowances
$000s
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
January 1, Costs and Other December
1998 Expenses Accounts Deductions 31, 1998
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Bad debt provision................ 3,658 (225) (555) 393 3,271
Development costs................. 2,660 -- -- -- 2,660
Restructuring costs............... -- 2,552 -- (2,042) 510
<CAPTION>
Balance at Charged to Charged to Balance at
January 1, Costs and Other December
1997 Expenses Accounts Deductions 31, 1997
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Bad debt provision................ 3,200 1,274 -- (816) 3,658
Development costs................. 996 1,400 264 -- 2,660
<CAPTION>
Balance at Charged to Charged to Balance at
January 1, Costs and Other December
1996 Expenses Accounts Deductions 31, 1996
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Bad debt provision................ 1,105 2,095 -- -- 3,200
Development costs................. 4,373 714 -- (4,091) 996
</TABLE>
S-3
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
1995 STOCK OPTION PLAN
As Amended and Restated to September 3, 1998
--------------------------------------------
1. Purpose
The purpose of the 1995 Stock Option Plan (the "Plan") is to induce employees,
nonemployee consultants and directors who are not employees of the Company or
a Subsidiary ("nonemployee directors") to retain their association with
Central European Media Enterprises Ltd (the "Company"), its affiliates and its
present and future subsidiaries (each a "Subsidiary"), as defined in Section
424(f) of the Internal Revenue Code of 1986 [of the USA], as amended (the
"Code"), to attract new employees, nonemployee consultants and directors who
are not employees and to encourage such employees, nonemployee consultants and
directors who are not employees to secure or increase on reasonable terms
their stock ownership in the Company. The Board of Directors of the Company
(the "Board") believes that the granting of stock options (the "Options")
under the Plan will promote continuity of management and increased incentive
and personal interest in the welfare of the Company by those who are or may
become primarily responsible for shaping and carrying out the long range plans
of the Company and securing its continued growth and financial success.
Options granted hereunder are intended to be either (a) "incentive stock
options" (which term, when used herein, shall have the meaning ascribed
thereto by the provisions of Section 422(b) of the Code) or (b) options which
are not incentive stock options ("non-incentive stock options") or (c) a
combination thereof, as determined by the Committee (the "Committee") referred
to in Section 5 hereof at the time of the grant thereof.
2. Effective Date of the Plan
The Plan was adopted by resolution of the Board of Directors of the Company
(the "Board") on August 2, 1995 and ratified by a majority of the votes cast
by holders of outstanding shares of the
-1-
<PAGE>
common stock, $.01 par value, of the Company (the "Common Stock"), at the
Company's annual general meeting of shareholders held on May 3, 1996. The Plan
was amended by the Board on March 17, October 4, 1997 and March 11, 1998 (the
"March 11 Board Meeting"). The decision of the March 11 Board Meeting was
ratified in certain respects by the Company's annual general meeting of
shareholders held on June 5 1998. The Plan was further amended by the Board on
September 3 1998.
3. Stock Subject to Plan
3,200,000 of the authorized but unissued shares of the Class A Common Stock
(the "Class A Common Stock") and 320,000 of the authorized but unissued shares
of the Class B Common Stock (the "Class B Common Stock"), are hereby reserved
for issue upon the exercise of Options granted under the Plan; provided,
however, that the aggregate number of shares of Common Stock that may be
issued under the Plan shall not exceed 3,200,000, provided further, however,
that the number of shares so reserved may from time to time be reduced to the
extent that a corresponding number of issued and outstanding shares of the
Class A Common Stock or Class B Common Stock are purchased by the Company and
set aside for issue upon the exercise of Options; and provided further,
however, that the number of shares of Class A Common Stock reserved shall be
reduced by the number of shares of Class B Common Stock that are delivered
pursuant to the exercise of Options hereunder. If any Options expire or
terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for the purposes
of the Plan.
4. Administration
The Plan shall be administered by the Committee referred to in Section 5
hereof. Subject to the express provisions of the Plan, the Committee shall
have complete authority, in its discretion, to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and provisions of the respective option agreements or
certificates (which need not be
-2-
<PAGE>
identical), to determine the individuals (each a "Participant") to whom and
the times and the prices at which Options shall be granted, the period during
which each Option shall be exercisable and the vesting schedule therefor
(which may vary with each optionee and may be granted on a basis less
favourable to the optionee than that provided in Section 10 hereof), the
number of shares of the Class A Common Stock of Class B Common Stock to be
subject to each Option and whether such Option shall be incentive stock or
Class B Common Stock to be subject to each Option and whether such Option
shall be incentive stock option or a non-incentive stock option and to make
all other determinations necessary or advisable for the administration of the
Plan; provided, however, that Options on Class B Common Stock shall be granted
only to persons eligible to be a holder of Class B Common Stock pursuant to
the Company's Bye-laws; and provided further, however, that only the Board
shall grant Options to nonemployee directors, other than Options granted to
nonemployee directors pursuant to Section 20.B. hereof, and to determine the
terms thereof. In making such determinations, the Committee or the Board, as
the case may be, may take into account the nature of the services rendered by
the respective employees, nonemployee consultants and nonemployee directors,
their present and potential contributions to the success of the Company and
the Subsidiaries and such other factors as the Committee or the Board in its
discretion shall deem relevant. The Committee's or Board's determination on
the matters referred to in this Section 4 shall be conclusive. Any dispute or
disagreement which may arise under or as a result of or with respect to any
Option shall be determined by the committee, in its sole discretion, and any
interpretations by the Committee of the terms of any Option shall be final,
binding and conclusive.
5. Committee
The Committee shall consist of two or more members of the Board both or all of
whom shall be "Non-Employee Directors" within the meaning of Rule 16b 3(b)(i)
promulgated under the Securities Exchange Act of 1934, as amended [of the USA]
(the "Exchange Act"). The Committee shall be appointed annually by the Board,
which may at any time and from time to time remove any members of the
Committee, with or without cause, appoint additional members to the Committee
and fill
-3-
<PAGE>
vacancies, however caused, in the Committee. A majority of the
members of the Committee shall constitute a quorum. All determinations of the
Committee shall be made by a majority of its members present at a meeting duly
called and held. Any decision or determination of the Committee reduced to
writing and signed by all of the members of the Committee shall be fully as
effective as if it had been made at a meeting duly called and held.
6. Eligibility
An Option may be granted only to a key employee or nonemployee consultant of
the Company or a Subsidiary. A director of the Company or a Subsidiary who is
not an employee of the Company or a Subsidiary shall be eligible to receive an
Option, but only as provided in Section 4 and 20 hereof.
7. Option Prices
A. The initial per share option price of an Option which is an
incentive stock option shall be the price determined by the
Committee, but not less than the fair market value of a share of the
Class A Common Stock or Class B Common Stock on the date of grant;
provided, however, that, in the case of a Participant who owns more
than 10% of the total combined voting power of the Common Stock at
the time an Option which is an incentive stock option is granted to
him, the initial per share option price shall not be less than 110%
of the fair market value of a share of the Class A Common Stock or
Class B Common Stock on the date of grant.
B. The initial per share option price of any Option which is a
non-incentive stock option granted to an employee or nonemployee
consultant shall be the price determined by the committee, but not
less than either the fair market value of a share of Class A Common
Stock on the date of grant or the average fair market value of a
share of Class A Common Stock
-4-
<PAGE>
over a period specified in the grant following the date the Option is
granted not to exceed 20 business days. The Committee may provide
that the option price per share will increase to reflect the cost of
the capital or any other objective measure or may set the initial
exercise price at an amount in excess of the fair market value at the
time of grant. The per share option price of any Option granted to a
nonemployee director pursuant to Section 20.A. shall be determined in
the same manner as the per share option price for options granted to
employees and nonemployee consultants, and the per share option price
of an Option granted to a nonemployee director pursuant to Section
20.B. shall be determined as provided in Section 20.B.
C. For all purposes of the Plan, the fair market value of a share of
the Class A Common Stock or the Class B Common Stock on any date
shall be equal to (i) if, on such day, shares of the Class A Common
Stock shall be traded on a national securities exchange, the closing
sales price of a share of the Class A Common Stock as published by
such national securities exchange or if there is no sale of the Class
A Common Stock on such date, the average of the bid and asked price
on such exchange at the close of trading on such date, or (ii) if the
shares of the Class A Common Stock are not listed on a national
securities exchange on such date, and are traded on a national
securities market, the average of the bid and asked price in the
over-the-counter market at the close of trading on such date, or
(iii) if the provisions of clause (i) and clause (ii) shall not be
applicable, such amount as shall be determined in good faith by the
Board.
8. Option Term
Participants shall be granted Options for such term as the Committee shall
determine, not in excess of ten years from the date of the granting thereof;
provided, however, that, in the case of a Participant who owns more than 10%
of the total combined voting power of the Common Stock at the time an Option
which is an incentive stock option is granted to him, the term with respect to
such Option
-5-
<PAGE>
shall not be in excess of five years from the date of the granting
thereof. The Committee may provide that the length of the term of an Option
will vary with the length of the period over which the Option first becomes
exercisable.
9. Limitations on Amount of Incentive Stock Options Granted
The Aggregate fair market value of the shares of the Class A Common Stock or
Class B Common Stock for which any Participant may be granted incentive stock
options which are exercisable for the first time in any calendar year (whether
under the terms of the Plan or any other stock option plan of the Company)
shall not exceed $100,000.
10. Exercise of Options
A. Each Option shall be exercisable and the total number of shares
subject thereto shall be purchasable in installments, which need not
be equal, as specified in the Option. Except as otherwise determined
by the Committee, the first installment shall not become exercisable
during the period commencing on the date of the granting of such
Option and ending on the day next preceding the first anniversary of
such date. An installment once exercisable shall remain exercisable
until the Option expires or is terminated.
B. Except as hereinbefore otherwise set forth, an Option may be
exercised either in whole at any time or in part from time to time.
C. An Option may be exercised only by a written notice of intent to
exercise such Option with respect to a specific number of shares of
the Class A Common Stock or Class B Common Stock and payment to the
Company of the amount of the option price for the number of shares of
the Class A Common Stock or the Class B Common Stock so specified;
provided, however, that all or any portion of such payment may be
made in kind by the
-6-
<PAGE>
delivery of shares of the Class A Common Stock or Class B Common
Stock, as the case may be, having a fair market value equal to the
portion of the option price so paid; provided, further, however,
that, subject to the requirements of Regulation T (as in effect from
time to time) promulgated under the Exchange Act, the Committee may
implement procedures to allow a broker chosen by a Participant to
make payment of all of any portion of the option price payable upon
the exercise of an Option and receive, on behalf of such Participant,
all or any portion of the shares of the Class A Common Stock or Class
B Common Stock issuable upon such exercise.
D. Notwithstanding the terms of this Section 10, the Board may, in
its discretion, permit any Option to be exercised, in whole or in
part, prior to the time when it would otherwise be exercisable.
11. Transferability
No Option shall be assignable or transferable except by will and/or by the
laws of descent and distribution and, during the life of any Participant, each
Option granted to him may be exercised only by him; provided, however that the
Board or Committee may provide that a Participant may transfer an Option for
no consideration to any member of his or her immediate family or to any trust
for the benefit of the Participant's immediate family.
12. Termination of Employment or Service
In the event a Participant leaves the employ of the Company and the
Subsidiaries, or the services or the contract of a nonemployee consultant of
the Company and the Subsidiaries is terminated or a Participant ceases to
serve as a nonemployee director (a "Termination"), an Option may thereafter be
exercised only as hereinafter provided:
-7-
<PAGE>
(a) If Termination occurs by reason of (i) disability, (ii) death or
(iii) retirement at or after age 65, each Option theretofore granted
to him which shall not have theretofore expired or otherwise been
cancelled shall become exercisable in full and shall, to the extent
not theretofore exercised, terminate upon the earlier to occur of the
expiration of one (1) year after the date of such Termination and the
date of termination specified in such Option;
(b) If Termination occurs by reason of (i) termination by the Company
or a Subsidiary other than for Cause or (ii) the Participant's
voluntary termination, each Option theretofore granted to him which
shall not have theretofore expired or otherwise have been cancelled
shall, to the extent not theretofore exercised, terminate upon the
earlier to occur of the expiration of ninety (90) days after the date
of Termination and the date of termination specified in such Option,
and
(c) If termination occurs by reason of termination by the Company for
Cause, each Option theretofore granted to him which shall not have
theretofore expired or otherwise been cancelled shall immediately
terminate;
"Cause" shall mean (i) the commission by a Participant of any act or omission
that would constitute a felony under United States federal, state or
equivalent foreign law, or an indictable offense under Bermuda law, (ii) a
Participant's gross negligence, recklessness, dishonesty, fraud, disclosure of
trade secrets or confidential information, willful malfeasance or willful
misconduct in the performance of services to the Company or its Subsidiaries,
(iii) willful misrepresentation to shareholders or directors which is
injurious to the Company; (iv) a willful failure without reasonable
justification to comply with reasonable directions of a Participant's
supervisor; or (v) a willful and material breach of a Participant's duties or
obligations under any agreement with the Company or a Subsidiary.
13. Adjustment of Number of Shares
-8-
<PAGE>
A. In the event that a dividend shall be declared upon the Class A
Common Stock payable in shares of the Class A Common Stock, the
number of shares of the Class A Common Stock then subject to any
Option, the number of shares of the Class A Common Stock reserved for
issuance in accordance with the provisions of the Plan but not yet
covered by an Option and the number of shares referred to in Section
20.B. hereof shall be adjusted by adding to each share the number of
shares which would be distributable thereon if such shares had been
outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend.
B. In the event that the outstanding shares of the Class A Common
Stock shall be changed into or exchanged for a different number or
kind of shares of stock or other securities of the Company or of
another corporation, whether through reorganization, stock split-up,
combination of shares, sale of assets, merger or consolidation in
which the Company is the surviving corporation, then, there shall be
substituted for each share of the Class A Common Stock then subject
to any Option, for each share of the Class A Common Stock reserved
for issuance in accordance with the provisions of the Plan but not
yet covered by an Option and for each share of the Class A Common
Stock referred to in Section 20.B. hereof, the number and kind of
shares of stock or other securities into which each outstanding share
of the Class Common Stock shall be so changed or for which each such
share shall be exchanged.
C. In the event that there shall be any change, other than as
specified in this Section 13, in the number or kind of outstanding
shares of the Class A Common Stock, or of any stock or other
securities into which the Class A Common Stock shall have been
changed, or for which it shall have been exchanged, then, if the
Committee shall, in its sole discretion, determine that such change
equitably requires an adjustment in the number or kind of shares then
subject to any Option, the number or kind of shares reserved for
issuance in accordance
-9-
<PAGE>
with the provisions of the Plan but not yet covered by an Option and
the number or kind of shares referred to in Section 20.B. hereof,
such adjustment shall be made by the Committee and shall be effective
and binding for all purposes of the Plan and of each stock option
agreement or certificate entered into in accordance with the
provisions of the Plan.
D. In the case of any substitution or adjustment in accordance with
the provisions of this Section 13, the option price in each stock
option agreement or certificate for each share covered thereby prior
to such substitution or adjustment shall be the option price for all
shares of stock or other securities which have been substituted for
such share or to which such share shall have been adjusted in
accordance with the provisions of this Section 13.
E. No adjustment or substitution provided for in this Section 13
shall require the Company to sell a fractional share under any stock
option agreement or certificate.
F. In the event of the dissolution or liquidation of the Company, or
a merger, reorganization or consolidation in which the Company is not
the surviving corporation, then, except as otherwise provided in
second sentence of this Section 13, each Option, to the extent not
theretofore exercised, shall be immediately exercisable in full.
G. This Section 13 shall apply, pari passu, with respect to Class B
Common Stock.
14. Purchase for Investment, Withholding and Waivers.
Unless the shares to be issued upon the exercise of an Option by a Participant
shall be registered prior to the issuance thereof under the Securities Act of
1933, as amended [of the USA], such Participant will, as a condition of the
Company's obligation to issue such shares, be required to give a
representation in writing that he is acquiring such shares, be required to
give a representation in writing that he is acquiring such shares for his own
account as an investment and not with a view
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to, or for sale in connection with, the distribution of any thereof. In the
event of the death of a Participant, a condition of exercising any Option
shall be the delivery to the Company of such tax waivers and other documents
as the Committee shall determine. In the case of each stock option, a
condition of exercising the same shall be the entry by the person exercising
the same into such arrangements with the Company with respect to all federal,
state, local and foreign withholding tax requirements as the Committee may
determine.
15. No Stockholder Status.
Neither any Participant nor his legal representatives, legatees or
distributees shall be or be deemed to be the holder of any share of the Class
A Common Stock or Class B Common Stock covered by an Option unless and until a
certificate for such share has been issued. Upon payment of the purchase price
thereof, a share issued upon exercise of an Option shall be fully paid and
non-assessable.
16. No Restrictions on Corporate Acts.
Neither the existence of the Plan nor any Option shall in any way affect the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Class A Common Stock or Class B Common Stock
or the rights thereof, or dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding whether of a similar character or otherwise.
17. No Employment Right or Right to Continued Service.
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Neither the existence of the Plan nor the grant of any Option shall require
the Company or any Subsidiary to continue any Participant in the employ of the
Company or such Subsidiary, as a nonemployee consultant of the Company or a
Subsidiary or as a director of the Company.
18. Termination and Amendment of the Plan.
The Board may at any time terminate the Plan or make such modifications of the
Plan as it shall deem advisable; provided, however, that the Board may not
without further approval of the holders of a majority of the shares of the
Common Stock voting as a single class as provided in the Company's Bye-Laws
present in person or by proxy at any special or annual meeting of the
stockholders, increase the number of shares as to which Options may be granted
under the Plan (as adjusted in accordance with the provisions of Section 13
hereof), or change the manner of determining the option prices, or extend the
period during which an Option may be granted or exercised. Except as otherwise
provided in Section 13 hereof, no termination or amendment of the Plan may,
without the consent of the Participant to whom any Option shall theretofore
have been granted, adversely affect the rights of such Participant under such
Option.
19. Expiration and Termination of the Plan.
The Plan shall terminate on the business day preceding the tenth anniversary
of its effective date or at such earlier time as the Board may determine.
Options may be granted under the Plan at any time and from time to time prior
to its termination. Any Option outstanding under the Plan at the time of the
termination of the Plan shall remain in effect until such Option shall have
been exercised or shall have expired in accordance with its terms.
20. Options for Outside Directors.
A. A nonemployee director shall be eligible to receive Options.
Except as otherwise provided in this Section 20, each such Option
shall be subject to all of the terms and
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conditions of the Plan.
B. I. Upon the effective date of the Company's first registration
statement under the Securities Act of 1933, as amended [of the USA],
each nonemployee Director shall be granted an Option to purchase
10,000 shares of the Class A Common Stock.
II. At each annual meeting of the Company, each nonemployee
director who shall have served as a nonemployee director since the
immediately preceding annual meeting shall be granted a non-incentive
stock option to purchase 10,000 shares of the Class A Common Stock or
Class B Common Stock.
III. The initial per share option price of each Option
granted to a nonemployee director pursuant to this Section 20.B.
shall be equal to the average fair market value of a share of Class A
Common Stock for the ten (10) consecutive business days immediately
following the date the Option is granted, or 105% of the ten (10)
consecutive business day average thereof, in the case of a grant of
an Option on shares of Class B Common Stock.
IV. The term of each Option granted to a nonemployee
director pursuant to this Section 20.B. shall be ten years from the
date of the granting thereof.
V. All or any portion of the payment required upon the
exercise of an Option granted to a nonemployee director may be made
in kind by the delivery of shares of the Class A Common Stock or
Class B Common Stock, as the case may be, having a fair market value
on the date the Option is exercised equal to the portion of the
option price so paid.
C. The provisions of this Section 20 may not be amended except by the
vote of a majority of the members of the Board and by the vote of a
majority of the members of the Board who are nonemployee directors.
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21. Governing Law.
The Plan shall be governed by the laws of Bermuda.
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MEMORANDUM OF ASSOCIATION
AND INVESTMENT AGREEMENT
(updated version as agreed on May 4, 1993 and amended on June 1, 1993,
December 8, 1994, March 15, 1996, July 17, 1996, November 14,
1996, December 17, 1996, February 3, 1997, April 24, 1997,
May 21, 1997, December 9, 1997 and December 15, 1998)
The following agreement is entered into by and between:
1.
CME Czech Republic B. V., with its registered office in the Netherlands, 1017 DG
Amsterdam, Nieuwe Spiegelstraat 26 (hereinafter referred to as "CME")
and
2.
CET 21, spol. s r. o., with its registered office at V Jami 12, Praha 1
(hereinafter referred to as "CET")
for the purposes and intents outlined as follows:
PREAMBLE
--------
A.
CME is an investment company focusing on the development of companies which, in
the Central Europe geographical area, are emerging companies as well as the
start-op of significant projects, inter alia, mass media projects, such as the
development of new television stations. CME has been named under the conditions
of the License described herein below as a direct participant in the agreement
implementing the License.
B.
CS is the leading Czech bank with a long-standing tradition of over 100 years
which desires to participate in the investment in companies whose reputation may
have a positive impact among its broadly based clientele.
C.
CET is registered as an s. r. o. (limited liability company) which applied for a
country-wide license for operating a private, independent television station in
the Czech Republic in conjunction with CME as referred to hereinabove. Effective
as of February 9, 1993, CME was granted and became the holder of a license for
nation wide broadcasting No. 001/1993, (hereinafter referred to as "the License"
in its present and amended form, including, but not limited to extensions and
renewals), issued by the Council of the Czech republic for Radio and Television
Broadcasting (hereinafter referred to as "the Council") on sad date for a period
of twelve (12) years, a copy of which is Attachment No. 1 to this Agreement. The
License shall expire on January 30, 2005.
D.
The parties hereto (hereinafter also referred to individually as "Member" and
collectively as "Members") desire to develop under the License, an independent,
private television station in
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the Czech Republic, the name of which is yet to be determined by the Members
(hereinafter referred to as the "Television Station"). The Members agree that
the Television Station will be managed by a company to be formed and organised
by the Members according to the provisions of this document and which will be
called, Czech Independent Television Company, s. r. o. (hereinafter referred to
as "the Company").
E.
The Company shall comply with the conditions of the project of the independent
Television Station CET 21 (hereinafter "the Project"), a copy of which is
attached as Attachment No. 2 to this Agreement, and to operate the Television
Station under the conditions of the License.
For this purpose, the Members hereby enter into this Agreement on May 4, 1993.
I.
FOUNDATION/CONDITIONS
1.1
The Members shall agree to form the Company as a limited liability company
operating under the laws of the Czech Republic.
1.2
The Company will have its registered office at Vladislavova 20, Prague 1.
1.3
The registered capital of the Company shall be CZK 400,100,000 (in words: four
hundred million one hundred thousands Czech Crowns).
1.4
The registered capital of the Company shall be created by contributions by the
individual Members in the amounts and in the forms set forth below:
1.4.1
CET:
a)
CET shall contribute to the Company unconditionally, unequivocally, and on an
exclusive basis the right to use, exploit by the Company know-how connected with
the License, its maintaining and protection
b)
The value of the CET non-monetary contribution shall be CZK 48,000,000 (forty
eight million) which was established on the basis of provision of Section 109 of
the Commercial Code upon mutual agreement among the Members and which was
unconditionally accepted by all of the Members, including the concept of the
future constant ownership interest of CET
c)
The value of the fully-paid contribution of CET shall represent a 12% ownership
interest in the Company.
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1.4.3
CME:
The contribution of CME is CZK 352,100,000 (in words: three hundred fifty two
millions one hundred thousands Czech crowns) and is formed by:
a)
the monetary contribution in the total amount of CZK 178,952,000 (in words: one
hundred seventy eight million nine hundred fifty two thousands Czech Crowns)
consisting of the monetary contribution of CME in the amount of CZK 90,852,000
(in words: ninety million eight hundred fifty two thousands Czech Crowns) paid
by CME consecutively to the day of incorporation of the Company into the
Companies Registry, i. e. on July 8, 1993, and on November 12, 1993 and on
December 21, 1993, by the monetary contribution of Eeska spo0itelna, a. s., in
the amount of CZK 88,000,000 (in words: eighty eight million Czech Crowns) paid
by Eeska spo0itelna, a. s., consecutively to the day of incorporation of the
Company into the Companies Registry, i. e. on July 8, 1993, and on September 28,
1993 and on November 13, 1993 and then transferred to CME pursuant to the
Agreements on the Transfer of the Participation Interest of July 17, 1996 and
December 9, 1997 and by the monetary contribution of NOVA-Consulting, a. s., in
the amount of CZK 100,000 (in words: one hundred thousand Czech Crowns) paid up
on the day of the registration of NOVA-Consulting, a. s., as the partner of the
Company to the Companies Registry, i. e. on May 21, 1997 and then transferred to
CME pursuant to the decision of the General Meeting of the Company of December
9, 1997 after the termination of the participation of NOVA-Consulting, a. s., in
the Company pursuant to the Agreement on the Termination of the Participation of
NOVA-Consulting, a. s., in the amount of December 9, 1997; and
b)
the in-kind contribution of CZK 173,148,000 (in words: one hundred seventy three
million one hundred forty eight thousands Czech Crowns), which is formed by the
price of movable assets, other rights and other property, used by the Company
(hereinafter referred as "Property"). The Property was taken over by Company's
Executive Dr. Vladimir o elezny and was filed in the accounting documents of
the Company. The list of the Property was included in the Appendix No.: 3 to
this Agreement.
1.8
The Participation Interests of the Partners shall be as follows:
CME - 99%
CET - 1%
1.9
The Company does not have a Reserve Fund at the time of the Company's
foundation. At the time the Company becomes profitable, it shall create and
contribute to a Reserve Fund 10% of its net profit; however, such contribution
shall not exceed five percent 5% of the Company's registered capital.
Thereafter, the Reserve Fund shall receive a contribution of five percent 5% of
the net profit annually until such time as the Reserve Fund reaches ten percent
10% of the Company's registered capital. Possible further allocations to the
Reserve Fond shall be determined by the General Meeting of the Company.
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II.
INVESTMENTS
REPAYMENT OF INVESTMENT
PROFIT SHARING
The Members, in anticipation of necessary investments into the Company, led by a
desire to avoid any potential future need for clarification, have entered into
the following agreement with respect to their contributions pertaining to the
development and management of the Television Stations:
2.2
The Members shall provide additional financing of up to nine hundred million
Czech Crowns (CZK 900,000,000) on an as needed basis as determined by the
Company's Committee of Representatives through bank loans primarily to be
provided by CS under competitive conditions. Any and all loans made by the
Members to the Company shall be made on an arms-length basis at the best
available market terms of repayment.
2.4
The Members shall contribute to the Company unconditionally on time, and no
right of any third parties shall be attached to their contributions.
2.6
None of the above shall result in the waiver of any right which any and all
Members and the Company may have against any Member in conjunction with the
damages that have resulted from the aforementioned failure.
2.8
The Members have specifically agreed that CET possesses one percent (1%) of the
ownership interest in the Company representing a constant amount pursuant to
this Agreement up to CZK 1.3 bill. in capitalisation.
2.9
The Partners shall divide the profit pursuant to the following ratio:
CME - 99%
CET - 1%
2.10
To provide for incentives for the Management of the Company, the Company shall
allocate to Management in its financial plan a performance bonus of 3% of the
Company's annual gross profit.
III.
SCOPE OF BUSINESS, THE COMPANY'S OBJECTIVES
AND GOVERNING BODIES
3.1
The scope of business of the Company shall in general terms include the
development and management of a new independent, private, country-wide
television broadcasting station in
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compliance with the License and the conditions attached thereto.
The subject of the company's activities shall be:
O production and sale of non-recorded tracks of sonic or sonic-pictorial
records and sale and lending of recorded sonic and sonic-pictorial records;
O agency activity in the sphere of culture;
O production of audio-visual works;
O purchase of goods for sale purposes and sale in the scope of the registered
craft;
O advertising and propagation;
O publishing;
O mediation in the sphere of culture;
O mediation in trade;
O organizational and technical arrangement of the TV broadcasting;
O production of TV and audio-visual programs;
O advertising agency;
O mediation of investment, business and industry;
O advisory activity in the sphere of media
3.2
In particular, the Company's objectives shall be:
O to provide on excellent mix of news, entertainment, and information
television which is responsive to the tastes and interests of the residents
of the Czech Republic;
O to maintain on independent television station which is free from the
influence of any political or special interest group;
O to create a merit-oriented work environment with fair advancement
opportunities for a relatively small, highly motivated staff; and
O to earn profits and provide a high return on investment for its Members.
3.3
The Company shall have the following bodies:
a. General Meeting;
b. The Committee of Representatives;
c. Executives;
d. Supervisory Board; and
e. Advisory Programming Board.
IV.
GENERAL MEETING
4.1
The first General Meeting of the Company's Members shall be held no later than
30 days after the day of execution of this Agreement.
4.2
The first General Meeting of the Company shall approve the Articles of
Association of the Company, and undertake all actions required by law to
register the Company. The Members shall appoint a Committee of Representatives
and the General Meeting may delegate the rights
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and duties apart from as set forth m Section 4.4 below to the Committee of
Representatives (hereinafter referred to as "the Committee").
4.3
The General Meeting shall convene at least once a year at such time and place as
determined by the Executives but not later than six months after the year end.
The General Meeting shall decide on all matters as required by law including but
not limited to the delegation of such powers to the Committee as the Members
deem appropriate and as permitted by Law.
4.4
Within the competence of the General Meeting shall be to decide on the following
matters:
a)
to approve the annual budget;
b)
to approve the annual financial statements, to distribute the profits, and to
cover losses;
c)
to approve and to amend the Company Articles of Association;
d)
to decide on the amendments of the Memorandum of Association (Section 114 of the
Commercial Code);
e)
to decide on the increase or reduction of the registered capital;
f)
to elect, recall and remunerate company executives as more specifically set
forth under Section 6.5;
g)
to expel a Member (in accordance with Sections 113 and 121 of the Commercial
Code);
h)
to decide on the winding up of the Company, if the Articles of Association so
permit;
i)
to elect the Supervisory Board Members;
j)
to approve purchasing, long term leasing, mortgaging of real estate investments,
loans or guarantees in excess of thirty million Czech Crowns (CZK 30 mill.) not
reflected in the Company's annual budget;
k)
to decide on remuneration for attendance of meetings by the Committee, Advisory
Programming Board (hereinafter "Programming Board") and Supervisory Board.
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l)
decide on other matters, entrusted into its competence by the Commercial Code,
Memorandum of Association or Articles of Association.
4.5
The General Meeting shall constitute a Quorum when Members whose ownership
interests total at a minimum of seventy-nine percent (79%) are present. Each
Member shall cast votes equal to the ownership interest which it holds. All
resolutions of the General Meeting, with exception of resolutions where in
accordance with generally bounded legal provision the higher amount of votes is
required, will require 65% of votes of all Members.
4.6
The rules governing the General Meeting procedure shall be set forth in the
Company's Articles of Association.
V.
THE COMMITTEEE OF REPRESENTATIVES
5.1
The Committee shall be appointed directly by the Members and will decide on
matters of economic management, basic investments, all decisions of a strategic
nature, all other significant decisions which may affect the Company included
but not limited to the control of the General Director, and all other decisions
not specifically reserved to the General Meeting.
5.2
The Committee shall have seven (7) Representatives who are appointed by the
respective Members as follows:
a)
CME shall appoint five (5) Representatives, one of whom must be the General
Director;
b)
CS shall appoint one (1) Representative; and
c)
CET shall appoint one (1) Representative;
During the appointment the Members shall observe the conditions of the License.
5.3
The Members appoint their Representatives for an indefinite period of time. The
Representatives can be recalled and replaced at any time by the appointing
Member.
5.4
A decision by the Committee is required for the following :
a)
to call additional funds and financing (pursuant to Section 2.1 and 2.2 above);
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b)
the submission of an annual budget and business plan of the Company to the
General Meeting;
c)
the purchase of real estate, long term leases (over 2 years), buildings,
pledging as collateral the company assets, mortgaging Company owned assets or a
substantial part thereof valued over two million five hundred thousands Czech
Crowns (CZK 2,500,000) if in excess of budget per item but not exceeding thirty
million Czech Crowns (CZK 30,000,000) cumulatively;
d)
long term (over 1 year) financing commitments pertaining to programming valued
over ten million Czech Crowns (CZK 10,000,000) beyond the budget;
e)
deciding of the economic aspects of the programming principles, programming
structure and programming plan of the television Station upon consultation with
the Chairman of the Programming Board;
f)
to make recommendations pursuant to Article XI. hereof;
g)
to establish procedural rules for the Management;
h)
to enter into a managerial contract with the General Director; and
i)
to decide on all of the matters not specifically reserved to the decision of the
General Meeting and on all matters specifically delegated by the General Meeting
to the Committee.
5.5
Upon deciding on maters related to programming (except for the financial and
economics aspects thereof), implementation of the Project or the conditions of
the License, the Member of the Committee nominated by CET shall be entitled to
discontinue the discussion of the Committee on this issue, provided he gives
cause for such act. the reason to discontinue the discussion may only be the
fact that the proposed resolution of the Committee shall endanger the fulfilment
of the terms and conditions of the License or shall be discordant to these terms
and conditions. The chairman of the Committee or, in case of his absence,
another Member of the Committee presiding over the Committee meeting shall be
obliged to ask CET and the Programming Board immediately for advice, views and
opinions on the proposed Committee resolution and on the reason given by the
Member of the Committee nominated by CET. The requested views and opinions must
be submitted to the Committee within fifteen (15) days after the delivery of the
request for views and opinions to the Board. The Committee shall not
unreasonably reject the recommendation of the Programming Board.
5.6
The Committee may, at any time, inspect the books and records of the Company.
The
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Committee may delegate its authority vis-a-vis the Management to one or more of
the Committee members and may commission experts to carry out specific
assignments.
5.7
The Committee, after its appointment by the Members at its first session, shall
elect its Chairman and Vice Chairman. Representatives of CME shall have the
right to nominate the Chairman and the Vice Chairman. The right to Chair the
Committee of Representatives Meeting cannot be transferred or assigned.
5.8
A Committee of Representatives' Meeting may be called by any one of the seven
(7) Representatives, provided that he or she give a minimum of thirty day notice
prior to the meeting, each of whom shall also have the right to propose items
for the agenda. Each Committee session must be attended by a minimum five (5)
Representatives or their proxies.
5.9
To pass a resolution, the Committee must approve each proposal voted upon by a
simple majority of Members votes, except those matters defined in provisions 5.4
a) - d), h) and i) including matters when no less than five affirmative votes is
required.
5.10
All Committee members shall be reimbursed by the Company for their out f pocket
expenses in attending Committee meetings. For their attendance at Committee
meetings, they shall also receive a reasonable remuneration as determined by the
General Meeting from time to time.
VI.
EXECUTIVES
6.1
The Company will have two executives consisting of the General Director who
shall be elected by the General Meeting as set forth in Sections 4.4 f) and 6.5
and a second executive who shall be nominated by the General Director and
elected by the General Meeting, pursuant to Sections and 4.4 f) and 6.5.
6.2
Dr. Vladimir Zelezny and Mr. Rudolf Hanus were appointed by the Members the
first authorised executives.
6.3
The Executives are the statutory bodies of the Company and in accordance with
the Commercial Code are entitled to represent the Company in its business
activities vis-a-vis third persons. This provision is subject to Section 9.4.
6.4
For intracompany purposes, the Committee shall supervise or direct the
Executives and the executive which shall concurrently be the General Director
shall supervise the second Executive. In regard to business management of the
Company and upon representation of the Company the authorised executives shall
be obliged to respect resolutions, views and recommendations of the Committee.
This limitation of executives is in accordance with
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Section 133 subsection 2 of the Commercial Code and shall be ineffective in
relation to third parties.
6.5
CET shall have the right to nominate the Executive, who shall be at the same
time the General Director of the Company. The General Director election requires
67% of votes. In the case the proposal of CET shall not received 67% of votes,
the General Director is nominated gradually by other Members in sequence of
amount of their participation interests. The General Director election requires
again 67% of votes.
6.6
The Executive may be recalled by a General Meeting decision. The recalling of
the Executive shall necessitate the same majority by which the Executive was
elected. In the case of the General Director, the General Director may be
recalled by a General Meeting decision, which had obtained at least 79% of votes
of all Members, and only on the basis of recommendation by the Committee,
provided that the reason of the recall was a violation of the License or such
act of the General Director, which may directly cause a withdrawal of the
License.
6.7
The Executive may also act as the statutory authority for CET 21.
VII.
SUPERVISORY BOARD
7.1
The Supervisory Board shall consist of three (3) members with economic
backgrounds. Each Member shall propose one Supervisory Board member, and the CS
representative shall be the Supervisory Board chairman. The Supervisory Board
shall be entitled to require from any of the Company's bodies or employees
information, opinions or explanations necessary for exercising its authority.
7.2
The powers of the Supervisory Board are limited to the extent allowed by law to
the powers set forth in Section 138 subsection b) - d) of the Commercial Code:
1.
shall inspect ledgers, other business documents and accounting documents, and
check their data;
2.
shall review the annual financial statement;
3.
shall submit reports to the General Meeting within a term stipulated by the
Memorandum of Association, otherwise within one year.
7.3
The following persons were nominated by the Members as the first members of the
Supervisory Board:
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Mr. Bohuslav Poduska, residing at Fantova 1794, 155 00 Praha 5 - Stod o lky
Mr. Hans Hoenig, residing at Am Eulenhorst 7A, Berlin 1000027
Mr. Fedor Gal, residing at Guevarova 713, Praha 6
VIII.
ADVISORY PROGRAMMING BOARD
8.1
The Company shall have an advisory Programming Board which will have seven (7)
members, three (3) of which shall be appointed by CET, two (2) shall be
appointed by CS, and one (1) shall be appointed by CME. The seventh member shall
be the Programming Director of the Company. Only one of the CET Members and one
CS employee respectively can be appointed to the Programming Board.
8.2
The Programming Board members are appointed and can be recalled in the same
manner as set forth above for the Committee members. The first Board meeting
shall be called by the executive which shall concurrently by the General
Director within thirty (30) days after the registration of the Company.
8.3
The Programming Board members shall elect the Chairman of the Programming Board
at the first Programming Board meeting. The Chairman of the Programming Board
shall be invited to present at Committee sessions and to be heard by the
Committee prior to any voting on all and any matters regarding the programming
of the Television Station.
8.4
The Programming Board shall be an advisory body of the Company to develop,
implement and oversee the principles of programming except for the financial and
economics aspects thereof in accordance with the terms of the License and the
business plan. The Programming Board shall review the programming plans of the
Company and present its recommendations to the Committee.
8.5
The resolutions and recommendations of the Programming Board require the
approval of a simple majority of a minimum of five (5) present Programming Board
members.
8.6
The Programming Board shall meet on an as-needed basis, depending on the
programming cycle of Television Station. Programming Board meetings shall be
called by the Chairman of the Programming Board.
8.7
The Programming Board shall establish its own procedural rules, the principles
of which shall not be inconsistent with any provision of this Agreement.
8.8
The Company shall reimburse the Members of the Programming Board for their out
of pocket
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expenses in attending the Programming Board meetings. The General Meeting shall
decide on the remuneration of the Members of the Programming Board for their
attendance at the Programming Board meetings.
IX.
GENERAL DIRECTOR AND THE COMPANY'S MANAGEMENT
9.1
The term for the General Director shall be 3 years. The General Director shall
be the highest representative of the executive management of the Company and
shall be responsible for due operation of the Company and for fulfilment of
tasks imposed by individual bodies of the Company.
9.2
The General Director appoints and recalls all other company management except
for his deputy. The General Director is responsible for the management of the
Company on a daily basis. By he twenty-fifth (25) day of each month, the General
Director shall submit the prior month's balance sheet and income and expenses
statement to the Committee along with a written report regarding the business
and developments of the Company. Instructions directed by the Committee to the
Management shall be implemented through the mediation of the General Director.
The Executive, who is at the same time the General Manger of the Company is
authorised to approve and change the organisation frame of the Company.
9.3
The Members hereby appoint the first General Director of the Company, Dr.
Vladimir o elezny and expressly agree that such appointment does not require
reconfirmation by the first General Meeting.
9.4.
The General Director, or his designee, and an additional individual to be
designated by CET shall be jointly authorised to represent the Company to the
Council for Radio and Television Broadcasting in compliance with the conditions
set forth in the License.
9.5
The working conditions and the remuneration of the General Director, shall
comply with the Committee
9.6
Subject to Section 6.4, the Management, through its General Director, shall
comply with Committee's instructions and must obtain prior specific or general
consent of the Committee or the General Meeting to effect the following
transactions:
a)
amendment of adopted annual budgets and business plans; as well as the following
transaction outside the adopted annual budgets and business plan;
b)
conclusions, amendments and termination of lease agreements with a term of more
than two (2) years or with a monthly rent exceeding CZK 600,000;
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c)
sale of the Company's fixed assets in a value exceeding three million Czech
Crowns (CZK 3,000,000);
d)
purchase, sale and encumbrance of real estate or rights attached thereto,
exceeding the value of three million Czech Crowns (CZK 3,000,000);
e)
granting of loans exceeding the value of six hundred thousand Czech Crowns (CZK
600,000) except loans to employees of the Company up to a total amount equal to
one monthly gross salary of such employee;
f)
taking of loans;
g)
assumption of obligations as a surety or a guarantee exceeding the value of six
hundred thousands Czech Crowns (CZK 600,000);
h)
establishment and dissolution of other enterprises as well as purchase and sales
of other enterprises and participation in such;
i)
establishment and dissolution of branches and offices;
j)
decisions on the economic and financial aspects of the Company's programming
principles, programming structure and programming plan; and
k)
any transactions and actions outside the ordinary course of business of the
Company.
X.
REPRESENTATIONS
10.1
CME is duly registered and validly existing and in a good standing under the
laws of the Netherlands and is duly authorised to execute and perform this
Agreement which it deems fully enforceable for which it requires no further
approval of any of administrative bodies of the Government.
10.2
CS is duly registered as o joint stock company and validly existing and in good
standing under the laws of the Czech Republic and is duly authorised to enter
into this Agreement which it deems fully enforceable. CS has received approval
from the Czech National Bank to obtain a 22% ownership interest in the Company
in accordance with Section 17 of the Act No. 21/1992
13
<PAGE>
Coll.
10.3
CET 21 is duly registered and validly existing and in good standing under the
laws of the Czech Republic and is duly authorised to enter into this Agreement
which it deems fully enforceable and for which it requires no further approval
of any of its governing bodies or the Government.
10.4
CME, CS and CET hereby agree to be bound and to respect all of the conditions of
the License mandated by the Council. In particular CME and CS agree to abide by
condition No. 18 not to interfere by any means with the programming of
Television station and especially not to interfere with the journalistic
independence of the news department.
10.5
In the event that any party brings an action, or threatens to bring an action,
or any other administrative proceeding against CET for an activity or action
caused by the Company, or as a result of CET<180>s status as the named holder of
the License, and as long as this action does not stem from gross negligence or
wilful misconduct on the part of CET, than the Members hereby agree to cause the
Company to bear the costs of such defence of CET and shall indemnify CET for all
costs associated therewith.
10.6
In the event that CET intentionally causes harm to the Company or to the
License, the CET shall indemnify the Company for all costs associated therewith.
10.7
CET, CME and CS agree not to take any action that could reasonably be expected
to obstruct the possibility of obtaining an extension or renewal of the License.
Furthermore, CET, CME and CS, m consideration of the Company's efforts and
investments, do hereby pledge not to take any action, either by way of
commission or omission, to put into jeopardy the grant of the License in
general, and under the Czech Act on Television Broadcasting (No. 468/1991 Coll.)
in particular and not to assign in whole or in part any right under the
aforesaid License to any third person not a party to the contract, except for
the assignee, who may be designated by the Company, subject to the approval of
the Council.
10.8
The Partners acknowledge that in accordance with the Section 10 subsection 2 of
the Act No. 468/1991 Coll., as amended, and the prevailing interpretation of the
legal public the License is not transferable. In case of change of regulation
and the prevailing interpretation of the legal public the CET 21 will be obliged
pursuant to prior agreed conditions to offer the License to the Company on a
priority basis in order it may be duly transferred to the Company.
CET is obliged not to entrust the subject of its contribution, neither any other
right connected with the License, neither the License into the ownership or use
of any legal entity of individual person other than the Company, which would
grant to this or other legal entity any rights to the subject of its
contribution to the Company or directly to CET, which would result in the
setting up of the similar right as the Company has; and it is obliged neither to
14
<PAGE>
start any negotiations with other legal entity or individual person on the
establishing of such legal relationship. Any such agreement with other legal
entity or individual person will be invalid from the beginning (ex tunc). If CET
breach this provision, it will pay to CME the contractual penalty in the amount
of double of its contribution pursuant to the Article 1.4.1. The claim of the
Participants to compensate the damages is not excluded by the payment of the
contractual penalty.
XI.
REDEMPTION OF INTERESTS
11.1
With the consent of the affected Member, fully paid up ownership interests may
be redeemed at any time by resolution of the Committee.
11.2
Even without the consent of the affected Members, fully paid up ownership
interests may be redeemed by resolution of the Committee.
i)
if the ownership interest has been attached; or
ii)
if the Member has been declared bankrupt and the bankruptcy proceedings have not
been delayed prior to the adoption of the resolution.
11.3
In both cases of subsections (i) and (ii) above the Company shall reimburse to
the Member concerned the fair market value of the ownership interest, unless
otherwise agreed upon in the individual case. The fair market value shall be
determined by a firm of certified accountants of international reputation
appointed by the Committee.
11.4
In both cases of subsection (i) and (ii) above the Committee may, as on
alternative to redemption, resolve on the transfer of the ownership interest
otherwise redeemable to Members of third parties of its choice, who shall
reimburse to the Member concerned the fair market value of the ownership
interest, unless otherwise agreed upon in the individual case. Subsection (ii),
second sentence shall be applicable.
XII.
CHANGE OF CONTROL
12.1
The Member can transfer his participation interest or any part thereof to other
Member or another only with consent of the General Meeting, while CET 21, spol.
s r. o., NOVA-Consulting, a. s., and Eeska spo0itelna, a. s. may transfer their
participation interest or any part thereof without consent after they priory
offered their participation interest or any part thereof to CME for the market
price examined by an independent accounting firm and CME would not accepted this
offer in 30 days. This provision does not refer to CME.
15
<PAGE>
12.2
If the remaining Partner do not agree with the proposed transfer, they will be
obligated to purchase the share at a purchase price which is equal to the market
price. The market price might be examined prior to the signing of a contract by
one of the six major auditing companies, which will be chosen by the Partner
that wants to conduct he transfer.
XIII.
SIGNING ON BEHALF OF THE COMPANY
The Executive who is currently the General Director signs on behalf of the
Company. In his absence, the Second Executive the Deputy General Director, shall
be authorised to sign.
XIV.
TERMINATION
14.1
This agreement is concluded for an indefinite period of time for as long as the
Company has not ceased its operations under the License and has not been deleted
from the Companies Registry.
14.2
All Members shall cause the Company jointly to apply on a timely basis for the
renewal of the license.
XV.
RESOLUTION OF DISPUTES
All disputes arising in connection with and any controversy or claim arising out
of or relating to this Agreement or the establishment of the Company that are
not otherwise resolved by the parties shall be finally settled under the Rules
of UNCITRAL and Arbitration of the International Chamber of Commerce in force
from time to time. The place of arbitration shall be Vienna, Austria and the law
applicable to the arbitration procedure shall be determined by referring to the
laws of the place of arbitration. The panel of at a minimum three (3)
arbitrators shall determine the matters in dispute in accordance with the law of
the Czech Republic. The English language shall be used throughout the arbitrage
proceedings. The parties agree, that the decision of the arbitrators shall be
the sole and exclusive remedy between them regarding any claims, counterclaims,
issues or accounting presented or pled to the arbitrators; that any monetary
award shall be made, and shall promptly be payable, free of any tax, deduction
or offset; and that any costs, fees or taxes incident to enforcing the award
shall, to the maximum extent permitted by law, be charged against the party
resisting enforcement. All notices by one party to the other in connection with
the arbitration shall be in accordance with the provisions of Section 16.2
hereof.
XVI.
MISCELLANEOUS
16.1
Reasonable and supported expenses related to the acquisition of the License and
the formation of the Company including expenses of legal counsel shall be borne
or reimbursed by the
16
<PAGE>
Company.
16.2
Alt notices, requests, demands, waivers and other communications required or
permitted to be given under this Agreement shall be in writing and may be given
by any of the following methods:
i)
personal delivery;
ii)
facsimile transmissions;
iii)
registered or certified mail, postage prepaid, return receipt requested; or
iv)
delivery service.
Notices shall be sent to the appropriate party at its address or facsimile
number given below (or any other address or facsimile number of such party as
shall be specified by notice given hereunder):
a)
if to CME to:
JUDr. Martin Radvan, LL. M.
Harrach Palace
Jind O isska 20
110 00 Praha 1
fax No.: (420-2) 24213919
b)
if to CS to:
Squire, Sanders & Dempsey
Adria Palace, Jungmannova 31/36
110 00 Praha 1
fax No.: (42-2) 2315482
Attention: Dr. Milan Ganik
c)
if to CET to:
CET 21, spol. s r. o.
V jam O 12
110 00 Praha 1
fax No.: (420-2) 268598
Attention: Prof. Josef Alan
All such notices, requests, demands, waivers and communications shall be deemed
received
17
<PAGE>
upon (i) actual receipt thereof by the address; (ii) actual delivery thereof to
the appropriate address; or (iii) in the case of a facsimile transmission, upon
transmission thereof by the sender and the issuance by the transmitting machine
of a confirmation slip confirming that the number of pages constituting the
notice have been transmitted without error. In the case of notices sent by
facsimile transmission, the sender shall contemporaneously mail a copy of notice
to the addressee at the address provided for above. However, such mailing shall
in no way alter the time at which the facsimile notice is deemed received.
16.3
This Agreement, the exhibits, schedules and other documents referred to herein
or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties thereto with respect to their subject matter. This
Agreement, together with the exhibits hereto, supersedes all prior agreements
and understanding, oral and written, with respect to this subject matter
(including, without limitation, the letters of intent).
16.4
Should any provision of the Agreement for any reason be declared invalid or
unenforceable, such decision shall not affect the validity or enforceability of
any of the other provisions of this Agreement, which remaining provisions shall
remain full force and effect and the application of such invalid or
unenforceable provision to persons or circumstances other than those as to which
it is held invalid unenforceable shall be valid and be enforced to the fullest
extent permitted by law. If any provision of this Agreement is held to be
invalid or unenforceable for any reason, it shall be adjusted rather than
voided, if possible in order to achieve the intent of the parties to this
Agreement to the fullest extent possible.
16.5
This Agreement and all of the provisions hereof shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Except as expressly contemplated by this Agreement, neither
this Agreement not any of the rights, interests or obligations hereunder shall
be assigned directly or indirectly, by any party hereto without the prior
written consent of the other parties.
16.6
Except as otherwise provided in this Agreement, any failure of any of the
parties to comply with any obligations, covenant, agreement or condition herein
may be waived by the party or parties entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver. No delay on the
party of any party in exercising any right, power, privilege hereunder shall
operate as a waiver thereof, not shall any waiver of any other right, power or
privilege hereunder, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude another or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
16.7
The Members, shall obligate their officers and members of management which
represent their interest in the Company, to declare at the time of assuming
their function in the Company that their function does not in any event
constitute a conflict of interest with any other activity specifically, that
they have no personal employment, financial or other connection with another
business organisation with the same or similar business. The form of the
declaration for employees shall constitute the Attachment No. 4.
18
<PAGE>
16.8
This Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which collectively shall constitute one and the same
instrument.
16.9
This Agreement shall be governed by the laws of the Czech Republic (regardless
of the laws that might otherwise govern applicable principles of conflicts of
law) as to all matters, including but not limited to matters of validity,
content, effect, performance and remedies, except where the application of a
different law is mandatory.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
duly authorised officers or representatives of the parties hereto as of the date
first written above.
19
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1, dated as of March 23, 1999, to the Employment
Agreement, dated as of January 1, 1998 (the "Employment Agreement"), between
Fred Klinkhammer ("Executive") and CME Development Corporation (the "Company").
WHEREAS, Executive is currently serving as Executive Vice
President, Managing Director and Chief Operating Officer of the Company;
WHEREAS, the Company has determined that it is in the
Company's best interest to promote Executive from his current position to become
President and Chief Executive Officer of the Company;
NOW, THEREFORE, Executive and the Company agree to amend the
Employment Agreement, effective as of March 23, 1999, as follows:
1. Section 1(b) is hereby amended to replace the reference to
"December 31, 2002" in the first sentence thereof with "March 22, 2004".
2. Section 2(a) is hereby deleted in its entirety, and a new
Section 2(a) shall be inserted in lieu thereof to read as follows:
In general. Executive shall be employed as President and Chief
Executive Officer and shall perform such duties and services,
consistent with such position for the Company, as may be (i) specified
in the By-Laws of the Company or (ii) assigned to him from time to time
by the Board of Directors of Central European Media Enterprises Ltd.
(the "Board"). The duties of the Executive shall include serving as an
officer or director or otherwise performing services for any
"Affiliate" of the Company as requested by the Company. An "Affiliate"
of any person means any entity that controls, is controlled by or is
under common control with such person.
3. Section 2(b) is hereby amended to replace the reference to
"one-third" in the first sentence thereof with "two-thirds". Section 2(b) is
further amended to replace the reference to "CEO" in the second sentence thereof
with "Board". Section 2(b) is further amended to replace the first reference to
"Company" in the last sentence thereof with "Board".
4. Section 3(a) is hereby deleted in its entirety, and a new
Section 3(a) shall be inserted in lieu thereof to read as follows:
Base Salary. Effective March 23, 1999, and for the duration of
the Employment Period thereafter, the Company shall pay Executive a
base salary (the
<PAGE>
"Base Salary") at an initial annual rate of US$120,000. The Base Salary
shall be payable in such installments (but not less frequent than
monthly) as the salaries of other executives of the Company are paid.
The Base Salary shall be reviewed annually by the Compensation
Committee of the Board of Directors of Central European Media
Enterprises Ltd. (the "Compensation Committee"). The Base Salary shall
be increased annually (commencing March 23, 2000) by 5%, and may be
increased in excess of such amount at the option and sole discretion of
the Compensation Committee.
5. Section 3(b) is hereby deleted in its entirety, and a new
Section 3(b) shall be inserted in lieu thereof to read as follows:
Annual Bonus. The Company shall provide Executive with the
opportunity to earn an annual cash bonus at the level established for
the Chief Executive Officer under the Annual Bonus Plan for Executives
and Officers established under the Compensation Principles approved by
the Board of Directors of Central European Media Enterprises Ltd. (the
"Board") on March 11, 1998. Under the Annual Bonus Plan, Executive will
be eligible to receive a bonus for each full year of his employment
equal to 75% of his Base Salary if the performance goals ("target")
established by the Compensation Committee for such year are met. Sixty
percent (60%) of the annual bonus, if any, will be based on the
achievement of Company-wide objectives established by the Compensation
Committee, and 40% on an evaluation of personal performance as
determined by the Compensation Committee. The actual bonus may range
from zero (if 80% of the established goals are not achieved) to 50% of
Base Salary if performance is at 80% of target, 75% of Base Salary if
performance is at 100% of target to a maximum of 100% of Base Salary if
performance is at or above 150% of target, in each case interpolated
for actual performance. Executive has been provided a copy of the
Compensation Principles.
6. Section 4(b) is hereby amended to replace the reference to
"15,000 pounds" in the last sentence thereof with "34,000 pounds". Section
4(b) is further amended to add a new final sentence thereof to read as follows:
During the Employment Period, the Company shall provide Executive with
a suitable car and driver for his use.
7. Section 5(d) is hereby amended to delete the definition for
the defined term "Severance Benefit" in its entirety, and to insert in lieu
thereof a new definition to read as follows:
2
<PAGE>
"Severance Benefit" means an amount equal to the greater of (i) the
minimum amount of Base Salary Executive would have been entitled to
receive for the duration of the Term and (ii) three times Executive's
Base Salary as of the Termination Date.
8. Section 5(d) is hereby further amended to delete the
reference to "CEO or" in clause (iv) under the defined term "Termination for
Cause".
9. Section 5(d) is hereby further amended to delete clause
(ii) under the defined term "Termination for Good Reason", and to insert a new
clause (ii) in lieu thereof to read as follows:
(ii) a material reduction in Executive's titles, positions, duties,
responsibilities or reporting lines from those described in Section 2
hereof, except the loss of Executive's position and title as Chief
Executive Officer (and the duties, responsibilities and reporting lines
associated with such position and title) in connection with a sale or
merger of the Company which occurs prior to March 23, 2000;
10. Section 7(a) is hereby amended to replace the reference to
"US$50,000" with "US$75,000".
Executive: CME Development Corporation
- -------------------------- --------------------------------
Fred Klinkhammer By:
Dated: March 23, 1999
3
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1, dated as of March 23, 1999, to the Employment Agreement,
dated as of January 1, 1998 (the "Employment Agreement"), between Fred
Klinkhammer ("Executive") and Central European Media Enterprises Ltd. (the
"Company").
W I T N E S S E T H :
WHEREAS, Executive is currently serving as Executive Vice President and
Chief Operating Officer of the Company pursuant to the Employment Agreement;
WHEREAS, the Company has determined that it is in the Company's best
interest to promote Executive from his current position to become President and
Chief Executive Officer of the Company;
NOW, THEREFORE, Executive and the Company agree to amend the Employment
Agreement, effective as of March 23, 1999, as follows:
1. Section 1(b) is hereby amended to replace the reference to "December 31,
2002" in the first sentence thereof with "March 22, 2004".
2. Section 2(a) is hereby deleted in its entirety, and a new Section 2(a)
shall be inserted in lieu thereof to read as follows:
In general. Executive shall be employed as President and Chief
Executive Officer, with overall responsibility for the Company's business
and operations, and shall perform such duties and services, consistent with
such position for the Company, as may be (i) specified in the Bye-Laws of
the Company or (ii) assigned to him from time to time by the Board of
Directors of the Company (the "Board"). On or promptly following March 23,
1999, Executive shall be named to the Company's Board and the Board will
propose Executive for election and re-election to the Board during the
remainder of the Employment Period. The duties of the Executive shall
include serving as an officer or director or otherwise performing services
for any "Affiliate" of the Company as requested by the Company. An
"Affiliate" of any person means any entity that controls, is controlled by
or is under common control with such person. Executive shall report to the
Board.
3. Section 2(b) is hereby amended to replace the reference to "two-thirds"
in the first sentence thereof with "one-third". Section 2(b) is further amended
to replace the reference to "CEO" in the second sentence thereof with "Board".
Section 2(b) is further
<PAGE>
amended to delete the last sentence thereof, and to insert in lieu thereof a new
last sentence to read as follows:
Executive shall travel to such location or locations outside of the United
Kingdom and the United States as may be requested by the Board, or which
Executive believes is necessary or advisable, in the performance by
Executive of his duties hereunder or to the extent appropriate to improve
and advance the interests of the Company and its Affiliates.
4. Section 3(a) is hereby deleted in its entirety, and a new Section 3(a)
shall be inserted in lieu thereof to read as follows:
Base Salary. Effective March 23, 1999, and for the duration of the
Employment Period thereafter, the Company shall pay Executive a base salary
(the "Base Salary") at an initial annual rate of US$230,000. The Base
Salary shall be payable in such installments (but not less frequent than
monthly) as the salaries of other executives of the Company are paid. The
Base Salary shall be reviewed annually by the Compensation Committee of the
Board of Directors of the Company (the "Compensation Committee"). The Base
Salary shall be increased annually (commencing March 23, 2000) by 5%, and
may be increased in excess of such amount at the option and sole discretion
of the Compensation Committee.
5. Section 3(b) is hereby deleted in its entirety, and a new Section 3(b)
shall be inserted in lieu thereof to read as follows:
Annual Bonus. The Company shall provide Executive with the opportunity
to earn an annual cash bonus at the level established for the Chief
Executive Officer under the Annual Bonus Plan for Executives and Officers
established under the Compensation Principles approved by the Board on
March 11, 1998. Under the Annual Bonus Plan, Executive will be eligible to
receive a bonus for each full year of his employment equal to 75% of his
Base Salary if the performance goals ("target") established by the
Compensation Committee for such year are met. Sixty percent (60%) of the
annual bonus, if any, will be based on the achievement of Company-wide
objectives established by the Compensation Committee, and 40% on an
evaluation of personal performance as determined by the Compensation
Committee. The actual bonus may range from zero (if 80% of the established
goals are not achieved) to 50% of Base Salary if performance is at 80% of
target, 75% of Base Salary if performance is at 100% of target to a maximum
of 100% of Base Salary if performance is at or above 150% of target, in
each case interpolated for actual performance. Executive has been provided
a copy of the Compensation Principles.
2
<PAGE>
6. Section 3(c) is hereby deleted in its entirety, and a new Section 3(c)
shall be inserted in lieu thereof to read as follows:
Special Long-Term Incentive Bonus. Given that the share price of the
Company is largely dependent on the performance of the individual
television stations, if Executive is employed by the Company or any
successor corporation on December 31, 2003, and if the Fair Market Value of
a Class A Share of Company Stock on December 31, 2003 has increased from
$8.3125, the mean between the high and low prices of the Company's Class A
Shares as reported by NASDAQ for March 22, 1999, and the percentage
increase is greater than the percentage increase in the NASDAQ Composite
Average during the same period, Executive will receive a special one-time
bonus of US$1,000,000.
7. Section 3(d) is hereby amended to add a new second paragraph thereof to
read as follows:
The Company shall grant Executive an additional option to purchase
300,000 Class A Shares of the Company as of March 23, 1999, at an exercise
price per share equal to $8.3125, the mean between the high and low prices
of the Company's Class A Shares as reported by NASDAQ for March 22, 1999
("Option C"). Option C shall become exercisable as to 150,000 shares on
March 23, 1999 and as to the remaining 150,000 shares in five equal
installments on each of the first five anniversaries of March 23, 1999,
provided Executive is employed by the Company on each such anniversary
date. Option C shall expire on March 23, 2009. Option C shall become
immediately exercisable in full in the event that Executive's employment
with the Company is terminated (i) by the Company other than for Cause,
(ii) by the Executive for Good Reason, (iii) by reason of the death or
Disability of the Executive or (iv) by the Company following a Change in
Control (as these terms are hereinafter defined). Once exercisable, Option
C shall remain exercisable for the specified term, except that (i) if
Executive's employment is terminated for Cause Option C shall immediately
terminate and (ii) if Executive's employment terminates for any other
reason, Option C shall remain exercisable for the lesser of the remaining
term of Option C and three years following termination of employment.
8. Section 4(b) is hereby amended to replace the reference to
"(pound)30,000" in the last sentence thereof with "(pound)70,000".
9. Section 5(d) is hereby amended to delete the definition for the defined
term "Severance Benefit" in its entirety, and to insert in lieu thereof a new
definition to read as follows:
3
<PAGE>
"Severance Benefit" means an amount equal to the greater of (i) the minimum
amount of Base Salary Executive would have been entitled to receive for the
duration of the Term and (ii) three times Executive's Base Salary as of the
Termination Date.
10. Section 5(d) is hereby further amended to delete the reference to "CEO
or" in clause (iv) under the defined term "Termination for Cause".
11. Section 5(d) is hereby further amended to delete clause (ii) under the
defined term "Termination for Good Reason", and to insert a new clause (ii) in
lieu thereof to read as follows:
(ii) a material reduction in Executive's titles, positions, duties,
responsibilities or reporting lines from those described in Section 2
hereof, except the loss of Executive's position and title as Chief
Executive Officer (and the duties, responsibilities and reporting lines
associated with such position and title) in connection with a sale or
merger of the Company which occurs prior to March 23, 2000;
12. Section 7(a) is hereby amended to replace the reference to "US$150,000"
with "US$175,000".
Executive: Central European Media Enterprises Ltd.
- -------------------------- ---------------------------------------
Fred Klinkhammer By:
4
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
STOCK APPRECIATION RIGHTS PLAN
1. Purpose
The purpose of the Central European Media Enterprises Ltd.
Stock Appreciation Rights Plan (the "Plan") is to induce key employees and
nonemployee consultants of the Company or a Subsidiary to retain their
association with Central European Media Enterprises Ltd. (the "Company"), its
affiliates and its present and future subsidiaries (each a "Subsidiary"), to
attract new employees and nonemployee consultants and to encourage and
compensate such individuals by means of performance related incentives. The
Board of Directors of the Company (the "Board") believes that the granting of
stock appreciation rights (the "SARs") under the Plan will promote continuity
of management and increased incentive and personal interest in the welfare of
the Company by those who are or may become primarily responsible for shaping
and carrying out the long range plans of the Company and securing its
continued growth and financial success.
2. Effective Date of the Plan
The Plan was authorized by resolution of the Board of
Directors of the Company (the "Board") on September 3, 1998, effective as of
September 3, 1998.
3. Administration
The Plan shall be administered by the Committee referred to
in Section 4 hereof. Subject to the express provisions of the Plan, the
Committee shall have complete authority, in its discretion, to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and provisions of the respective SAR agreements, to
determine the individuals (each a "Participant") to whom and the times and the
base prices at which SARs shall be granted, the periods during which SARs
shall be exercisable and the vesting schedule therefor (which may vary with
each grantee and may be granted an a basis less favorable to the grantee than
that provided in Section 8 hereof), the number of shares of the Company's
Class A common stock, par value $.01 per share (the "Common Stock"), to which
SARs relate and to make all other determinations necessary or advisable for
the administration of the Plan. In making such determinations, the Committee
or the Board, as the case may be, may take into account the nature of the
services rendered by the respective employees and nonemployee consultants,
their present and potential contributions to the success of the Company and
the Subsidiaries and such other factors as the Committee or the Board in its
discretion shall deem relevant. The Committee's or Board's determination on
the matters referred to in this Section 3 shall be conclusive. Any dispute or
disagreement which may arise under or as a result of or with respect to any
SAR shall be determined by the Committee, in its sole discretion, and any
<PAGE>
interpretations by the Committee of the terms of any SAR shall be final,
binding and conclusive.
4. Committee
The Committee shall consist of two or more members of the
Board both or all of whom shall be "Non-Employee Directors" within the meaning
of Rule 16b-3(b)(i) promulgated under the United States Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Committee shall be appointed
annually by the Board, which may at any time and from time to time remove any
members of the Committee, with or without cause, appoint additional members to
the Committee and fill vacancies, however caused, in the Committee. A majority
of the members of the Committee shall constitute a quorum. All determinations
of the Committee shall be made by a majority of its members present at a
meeting duly called and held. Any decision or determination of the Committee
reduced to writing and signed by all of the members of the Committee shall be
fully as effective as if it had been made at a meeting duly called and held.
5. Eligibility
A SAR may be granted only to a key employee or nonemployee
consultant of the Company or a Subsidiary.
6. Stock Appreciation Rights
A. A SAR shall represent the right to receive a payment from
the Company equal to the excess of the fair market value of a share of Common
Stock at the date of exercise over a specified price fixed by the Committee
(the "Base Price"). Each SAR grant shall be evidenced by an award agreement
setting forth the terms and conditions of such SAR (the "SAR Agreement").
B. The Base Price of any SAR shall be the price determined
by the Committee, but not less than the lesser of (i) the fair market value of
a share of Common Stock on the date of grant and (ii) the average fair market
value of a share of Common Stock over a period specified in the grant
following the date the SAR is granted not to exceed twenty (20) business days.
The Committee may provide that the Base Price per SAR will increase to reflect
the cost of capital or any other objective measure or may set the initial Base
Price at an amount in excess of the fair market value at the time of grant.
C. For all purposes of the Plan, the fair market value of a
share of the Common Stock on any date shall be equal to (i) if, on such day,
shares of the Common Stock shall be traded on a national securities exchange,
the closing sales price of a share of the Common Stock as published by such
national securities exchange or if there is no sale of the Common Stock on
such date, the average of the bid and asked price on such exchange at the
close of trading on such date, or (ii) if the
<PAGE>
shares of the Common Stock are not listed on a national securities exchange on
such date, and are traded on a national securities market, the average of the
bid and asked price in the over-the-counter market at the close of trading on
such date, or (iii) if the provisions of clause (i) and clause (ii) shall not
be applicable, such amount as shall be determined in good faith by the Board.
D. The number of shares of Common Stock with respect to
which SARs may be granted under the Plan shall be limited to 1,000,000,
subject to equitable adjustment by the Committee in the event of a stock
split, stock dividend or recapitalization of the Common Stock.
7. SAR Term
Participants shall be granted SARs for such term as the
Committee shall determine, not in excess of ten years from the date of the
granting thereof. The Committee may provide that the length of the term of a
SAR will vary with the length of the period over which the SAR first becomes
exercisable.
8. Exercise of SARs
A. SARs shall become exercisable in installments, which need
not be equal, as specified in the SAR Agreement. Except as otherwise
determined by the Committee, the first installment shall not become
exercisable during the period commencing on the date of the granting of such
SAR to him and ending on the day next preceding the first anniversary of such
date. An installment once exercisable shall remain exercisable until the SAR
expires or is terminated.
B. Except as hereinbefore otherwise set forth, a SAR may be
exercised either in whole at any time or in part from time to time.
C. A SAR may be exercised only by a written notice of intent
to exercise such SAR with respect to a specific number of shares of Common
Stock.
D. Notwithstanding the terms of this Section 10, the Board
may, in its discretion, permit any SAR to be exercised, in whole or in part,
prior to the time when it would otherwise be exercisable.
E. Subject to Section 12 hereof, upon exercise of a SAR, the
Participant shall be entitled to receive payment in cash, Common Stock or in a
combination of cash and Common Stock, as determined by the Committee, of an
amount determined by multiplying:
(i) the excess (if any) of the fair market value
(determined in accordance with Section 6.C above)
of a share of Common Stock at the date of exercise
over the Base Price fixed by the Committee with
respect to such SAR, by
<PAGE>
(ii) the number of shares of Common Stock with
respect to which the SAR is exercised;
provided, however, that no Common Stock shall be issued upon exercise of a SAR
unless the Plan has been approved by the Company's shareholders, if such
approval is required under applicable law or pursuant to the listing
requirements of any national securities exchange on which the Common Stock is
listed.
9. Transferability
No SAR shall be assignable or transferable except by will
and/or by the laws of descent and distribution and, during the life of any
Participant, each SAR granted to him may be exercised only by him; provided,
however that the Board or Committee may provide that a Participant may
transfer a SAR for no consideration to any member of his or her immediate
family or to any trust for the benefit of the Participant's immediate family.
10. Termination of Employment or Service
In the event a Participant leaves the employ of the Company
and the Subsidiaries, or the services or the contract of a nonemployee
consultant of the Company and the Subsidiaries is terminated (a
"Termination"), a SAR may thereafter be exercised only as hereinafter
provided:
(a) If Termination occurs by reason of (i) disability, (ii)
death or (iii) retirement at or after age 65, each SAR theretofore
granted to him which shall not have theretofore expired or otherwise
been canceled shall become exercisable in full and shall, to the
extent not theretofore exercised, terminate upon the earlier to occur
of the expiration of one (1) year after the date of such Termination
and the date of termination specified in such SAR Agreement;
(b) If Termination occurs by reason of (i) termination by
the Company or a Subsidiary other than for Cause or (ii)
Participant's voluntary termination, each SAR theretofore granted to
him which shall not have theretofore expired or otherwise have been
canceled shall, to the extent not theretofore exercised, terminate
upon the earlier to occur of the expiration of ninety (90) days after
the date of Termination and the date of termination specified in such
SAR Agreement; and
(c) If Termination occurs by reason of termination by the
Company for Cause, each SAR theretofore granted to him which shall
not have theretofore expired or otherwise been canceled shall
immediately terminate;
"Cause" shall mean (i) the commission by a Participant of
any act or omission that would constitute a felony under United States
federal, state or equivalent foreign law, or an indictable offense under
Bermuda law; (ii) a Participant's gross negligence, recklessness, dishonesty,
fraud, disclosure of trade secrets or
<PAGE>
confidential information, willful malfeasance or willful misconduct in the
performance of services to the Company or its Subsidiaries; (iii) willful
misrepresentation to shareholders or directors which is injurious to the
Company; (iv) a willful failure without reasonable justification to comply
with reasonable directions of Participant's supervisor; or (v) a willful and
material breach of Participant's duties or obligations under any agreement
with the Company or a Subsidiary.
11. Adjustment of Number of Shares
A. In the event that a dividend shall be declared upon the
Common Stock payable in shares of Common Stock, the number of shares of the
Common Stock to which any SAR relates shall be adjusted by adding to each
share the number of shares which would be distributable thereon if such shares
had been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend.
B. In the event that the outstanding shares of Common Stock
shall be changed into or exchanged for a different number or kind of shares of
stock or other securities of the Company or of another corporation, whether
through reorganization, recapitalization, stock split-up, combination of
shares, sale of assets, merger or consolidation in which the Company is the
surviving corporation, then, there shall be substituted for each share of
Common Stock to which any SAR relates the number and kind of shares of stock
or other securities into which each outstanding share of Common Stock shall be
so changed or for which each such share shall be exchanged.
C. In the event that there shall be any change, other than
as specified in this Section 11, in the number or kind of outstanding shares
of Common Stock, or of any stock or other securities into which the Common
Stock shall have been changed, or for which it shall have been exchanged,
then, if the Committee shall, in its sole discretion, determine that such
change equitably requires an adjustment in the number or kind of shares as to
which any SAR relates, such adjustment shall be made by the Committee and
shall be effective and binding for all purposes of the Plan and of each SAR
Agreement entered into in accordance with the provisions of the Plan.
D. In the case of any substitution or adjustment in
accordance with the provisions of this Section 11, the Base Price for each SAR
granted prior to such substitution or adjustment shall be the Base Price for
all stock appreciation rights which shall have been substituted for such SAR.
E. In the event of the dissolution or liquidation of the
Company, or a merger, reorganization or consolidation in which the Company is
not the surviving corporation, then, except as otherwise provided in the
second sentence of this Section 11, each SAR, to the extent not theretofore
exercised, shall be immediately exercisable in full.
<PAGE>
12. Tax Withholding and Waivers
In the event of the death of a Participant, a condition of
exercising any SAR shall be the delivery to the Company of such tax waivers
and other documents as the Committee shall determine. In the case of each SAR,
a condition of exercising the same shall be the entry by the person exercising
the same into such arrangements with the Company with respect to all federal,
state, local and foreign withholding tax requirements as the Committee may
determine.
13. No Stockholder Status
Neither any Participant nor his legal representatives,
legatees or distributees shall be or be deemed to be the holder of any share
of Common Stock to which a SAR relates.
14. No Restrictions on Corporate Acts
Neither the existence of the Plan nor any SAR shall in any
way affect the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock or the rights
thereof, or dissolution or liquidation of the Company, or any sale or transfer
of all or any part of its assets or business, or any other corporate act or
proceeding whether of a similar character or otherwise.
15. No Employment Right or Right to Continued Service.
Neither the existence of the Plan nor the grant of any SAR
shall require the Company or any Subsidiary to continue any Participant in the
employ of the Company or such Subsidiary or as a nonemployee consultant of the
Company or a Subsidiary.
16. Termination and Amendment of the Plan
The Board may at any time terminate the Plan or make such
modifications of the Plan as it shall deem advisable; provided, however, that
except as otherwise provided in Section 11 hereof, no termination or amendment
of the Plan may, without the consent of the Participant to whom any SAR shall
theretofore have been granted, adversely affect the rights of such Participant
under such SAR.
17. Expiration and Termination of the Plan
The Plan shall terminate on the business day preceding the
tenth anniversary of its effective date or at such earlier time as the Board
may determine.
<PAGE>
Options may be granted under the Plan at any time and from time
to time prior to its termination. Any SAR outstanding under the Plan at the
time of the termination of the Plan shall remain in effect until such SAR
shall have been exercised or shall have expired in accordance with its terms.
18. Governing Law
The Plan shall be governed by the laws of Bermuda.
<PAGE>
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
DIRECTOR, OFFICER AND SENIOR EXECUTIVE CO-INVESTMENT PLAN
1. Purposes
The purposes of this Central European Media Enterprises Ltd. Director, Officer
and Senior Executive Co-Investment Plan (the "Plan") are (a) to encourage
certain select senior executives of Central European Media Enterprises Ltd.
(the "Company") and its subsidiaries and key station managers to hold a
meaningful amount of their liquid net worth in Common Stock of the Company and
to invest personal capital in the Company, thereby encouraging such executive
to think as owners of the Company with real risk of loss, as well as upside
return, further aligning their interests with those of the Company and its
shareholders and (b) to encourage and facilitate investment in and purchases
of shares of the Company's Common Stock by such executives and key station
managers and by the non-employee directors of the Company.
2. Administration
The Plan shall be administered by the Compensation Committee of the Company's
Board of Directors (the "Board"), or such other committee as shall be
designated by the Board to administer the Plan, which shall consist of at
least two directors of the Company chosen by the Board each of whom is a
director of the Company who is both a "Non-Employee Director" with the meaning
of Rule 16b-3 under the Exchange Act and an "outside director" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Committee"). Subject to the provisions of the Plan, the Committee shall
possess the authority (a) to select the officers, employees and key station
managers eligible to participate in the Plan ("Participants"); (b) to
determine the period or periods during any year within which Participants may
purchase stock from the Company under the Plan; (c) establish rules and
procedures under the Plan requiring prior notice by Participants of the number
of shares to be purchased and the proposed date of such purchase; (d) to
determine and to set the terms and conditions of all loans under the Plan for
the purchase of stock and the loan documentation relating thereto, including
any pledges of the Common Stock acquired under the Plan; (e) to interpret the
Plan; (f) to make and amend rules and regulations relating to the Plan and;
(f) to make all other determinations necessary or advisable for the
administration of the Plan. Any decision or action taken or to be taken by the
Committee, arising out of or in connection with the construction,
administration, interpretation and effect of the Plan and of its rules and
regulations, shall, to the maximum extent permitted by applicable law, be
within its absolute discretion (except as otherwise specifically provided
herein) and shall be conclusive and binding upon all Participants and any
person claiming under or through any Participant or any non-employee director
who has purchased shares from the Company pursuant to the Plan. No member of
the Committee shall be liable for any action taken or decision made in good
faith relating to the Plan or any award granted hereunder.
3. Eligible Participants
The most senior corporate executives and key station managers of the Company
and its subsidiaries selected by the Committee shall be eligible (i) for loans
from the Company to facilitate purchases of Class A Common Stock of the
Company pursuant to the Plan and (ii) to purchase shares of the Company's
Class A Common Stock from the Company pursuant to the Plan. The Company's
non-employee directors, for these purposes including the Chairman and Vice
Chairman so long as such person receives no compensation for his services to
the Company other than as a non-executive Chairman or Vice Chairman, as the
case may be (each, a "non-employee director") shall be eligible to purchase
shares of the Company's Class A Common Stock from the Company pursuant to the
Plan in order than such non-employee directors might meet any share purchase
requirements related to any option grants the Company may make to such
persons, but non-employee directors shall not be eligible for loans under the
Plan to purchase such shares.
4. Maximum Amount of Loans
The maximum aggregate principal amount of all loans made pursuant to the Plan
outstanding at any time may not exceed US$2,000,000. The maximum aggregate
principal amount of all loans outstanding at any time made to any individual
may not exceed such individual's annual base salary at the time any such loan
is made.
<PAGE>
5. Terms and Conditions of Loans
If a Participant purchases shares of the Class A Common Stock of the Company
in the open market or from the Company pursuant to the Plan, other than
pursuant to the exercise of a stock option, (the "Matched Shares"), the
Company may, make a matching loan to such Participant not to exceed the Fair
Market Value (as defined below) of the Matched Shares, the proceeds of such
loan to be used by such Participant to purchase additional shares of Class A
Common Stock (either in the open market or from the Company pursuant to the
Plan). Any such loan shall be subject to any limitations imposed by law. The
Committee shall establish the terms and conditions of the loans, which shall
be secured by a pledge of the shares of' Class A Common Stock purchased with
the proceeds thereof. The loans may be non-recourse (other than to the pledged
shares) or, if so determined by the Committee at the time such a loan is made,
partially or fully recourse. Shares purchased with the proceeds of a loan may,
not be sold until the Participant's employment with the Company is terminated
or after seven years, whichever period is shorter, unless the Committee shall
have consented to an earlier sale. Any such loans will bear interest at the
7-year Treasury Note rate in effect at the time of the loan. and interest
shall be due at the end of each calendar year.
Any such loan shall not have a maturity that is later than the earliest of:
(a) the expiration of 7 years from the date the loan is made; (b) termination
of the Participant's employment for any reason other than death or disability;
(c) one year after termination of the Participant's employment by reason of
death or disability; and (d) a Participant's sale of Matched Shares (in which
case the loan shall become due on a pro rata basis with the Matched Shares
sold).
A Participant will be required to apply 25% of his or her annual cash bonus,
or such higher figure as the Committee determines, to repay the principal of
any such loan.
Any such loan shall have such other terms and conditions as the Committee
determines, and shall be evidenced by a promissory note and pledge agreement
in form and substance satisfactory to the Committee.
6. Terms and Conditions of Stock Purchases
Participants and non-employee directors shall be eligible to purchase shares
of Class A Common Stock from the Company under the Plan. The Committee shall
determine the maximum number of shares that may be sold under the Plan in any
year to any Participant or non-employee director. Notwithstanding the
foregoing, a non-employee director shall not be eligible to purchase an
aggregate number of shares of Class A Common Stock from the Company under the
Plan that exceeds the sum of (a) the number of shares subject to outstanding
stock options previously granted by the Company to such non-employee director
plus (b) 25,000.
The purchase price for each share of Class A Common Stock to be sold pursuant
to the Plan shall be the average of the Fair Market Value of a share of Class
A Common Stock over the 10 day period following the effective date of any
notice delivered by such purchaser to so purchase shares of Class A Common
Stock. As used herein, "Fair Market Value" shall be the mean between the high
and the low trading prices of the Company's Class A Common Stock on any create
of determination as reported on the Nasdaq National Market System (or such
other recognized market or quotation system on which the trading prices of the
Class A Common Stock are reported at such time).
7. Adjustment of Shares
In the event of any change in the Class A Common Stock of the Company by
reason of any stock dividend, stock split, recapitalization, reorganization,
merger, consolidation, split-up, combination, or exchange of shares, or rights
offering to purchase Common Stock at a price substantially below fair market
value, or of any similar change affecting the Common Stock, the number and
kind of shares which thereafter are subject to purchase under the Plan shall be
adjusted automatically, consistent with such change to prevent substantial
dilution or enlargement of the rights granted to, or available for, participants
in the Plan.
8. No Right to Employment
<PAGE>
The Plan and any awards under the Plan shall not confer upon any director any
right with respect to continuance as a director of the Company, nor shall they
interfere in any way with any right the Company or any subsidiary may have to
terminate an individual's service to the Company or such subsidiary at any
time.
9. Term of the Plan; Amendment; Modification
The Plan shall commence on the date it is approved by the Company's
shareholders and shall terminate on the tenth anniversary of such date.
Notwithstanding the foregoing, the Board of Directors may terminate the Plan
at any time. The Plan may be amended or modified by the Board of Directors,
provided that Board shall not be authorized, without the approval of the
Company's shareholders, to (a) increase the number of shares of Class A Common
Stock that can be sold under the Plan, (b) reduce the purchase price of a
share of Class A Common Stock sold under the Plan below its Fair Market Value,
or (c) increase the principal amount of loans that may be outstanding at any
time. No amendment, modification or termination of the Plan shall adversely
affect the right of any participant under any existing loan without the
written consent of the participant.
10. Governing Law
This Plan shall be construed and enforced according to the laws of Bermuda.
<PAGE>
Execution Copy
$15,000,000
REVOLVING FACILITY AGREEMENT
between
CME CZECH REPUBLIC B.V.
as Borrower
CME CZECH REPUBLIC II B.V.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CENTRAL EUROPEAN MEDIA ENTERPRISES N.V.
CME MEDIA ENTERPRISES B.V.
as Guarantors
ING BANK N.V.
as Arranger, Facility Agent, Security Agent and Bank
Clifford Chance
Amsterdam
<PAGE>
CONTENTS
Clause Page No.
PART 1
DEFINITIONS AND INTERPRETATION
1. Definitions and Interpretation................................... 1
PART 2
THE FACILITY
2. The Facility.....................................................16
3. Utilisation of the Facility......................................16
PART 3
INTEREST
4. Payment and Calculation of Interest..............................18
5. Market Disruption and Alternative Interest Rates.................18
PART 4
REPAYMENT, PREPAYMENT AND CANCELLATION
6. Repayment........................................................19
7. Prepayment and Cancellation......................................22
PART 5
RISK ALLOCATION
8. Taxes............................................................23
9. Tax Receipts.....................................................24
10. Changes in Circumstances.........................................24
PART 6
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
11. Representations..................................................27
12. Financial Information............................................32
13. Financial Condition..............................................34
14. Covenants........................................................38
15. Events of Default................................................50
PART 7
GUARANTEE
16. Guarantee and Indemnity..........................................56
<PAGE>
PART 8
DEFAULT INTEREST AND INDEMNITY
17. Default Interest and Indemnity...................................59
PART 9
PAYMENTS
18. Currency of Account and Payment..................................61
19. Payments.........................................................61
20. Set-Off..........................................................63
21. Sharing..........................................................63
PART 10
FEES, COSTS AND EXPENSES
22. Commitment Commission and Fees...................................65
23. Costs and Expenses...............................................65
PART 11
AGENCY PROVISIONS
24. The Facility Agent, the Arranger and the Banks...................67
PART 12
ASSIGNMENTS AND TRANSFERS
25. Assignments and Transfers........................................72
PART 13
MISCELLANEOUS
26. Calculations and Evidence of Debt................................74
27. Remedies and Waivers, Partial Invalidity.........................74
28. Notices..........................................................75
29. Amendments.......................................................75
PART 14
LAW AND JURISDICTION
30. Law and Jurisdiction.............................................77
<PAGE>
THE SCHEDULES
The First Schedule : The Banks
(Definition of "Bank" and "Commitment")
The Second Schedule : Form of Transfer Certificate
(Definition of "Transfer Certificate")
The Third Schedule : Condition Precedent Documents
(Clause 2.3(Conditions Precedent))
The Fourth Schedule : Notice of Drawdown
(Definition of "Notice of Drawdown")
The Fifth Schedule : Applicable Margin Financial Tests
(Definition of "Applicable Margin" and Clause 12.6
(Requirements as to Financial Statements))
The Sixth Schedule : Intercompany Indebtedness
(Definition of "Intercompany Loan")
The Seventh Schedule : Confidentiality Agreement
(Definition of "Confidentiality Agreement")
The Eighth Schedule : Litigation
(Clause 11.24 (Litigation))
The Ninth Schedule : Form of Compliance Certificate
(Definition of "Compliance Certificate")
THIS AGREEMENT is made on the 26th day of February 1999
BETWEEN:
(1) CME CZECH REPUBLIC B.V. (the "Borrower");
(2) CME CZECH REPUBLIC II B.V. ("CME CZECH II"), CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD. ("CME Ltd."), CENTRAL EUROPEAN MEDIA ENTERPRISES
N.V. ("CME N.V.") and CME MEDIA ENTERPRISES B.V. ("CME B.V.") (the
"Guarantors");
(3) ING BANK N.V. (the "Arranger");
(4) ING BANK N.V. as facility agent (the "Facility Agent"), security
agent (the "Security Agent") and Bank.
IT IS AGREED as follows:
PART 1
DEFINITIONS AND INTERPRETATION
1. Definitions and Interpretation
1.1 Definitions In this Agreement the following terms have the meanings
given to them in this Clause 1.1.
<PAGE>
"Advance" means, save as otherwise provided herein, an advance of funds made or
to be made by the Banks hereunder.
"Affiliate" means as to any person:
(a) any other person (other than a subsidiary) which, directly or
indirectly, is in control of, is controlled by, or is under
common control with such person; or
(b) any other person who is a director or officer:
(i) of such person;
(ii) of any subsidiary of such person; or
(iii) of any person described in clause (a) above.
For the purposes of this definition, control of a person shall mean the power,
direct or indirect, to direct or cause the direction of the management and
policies of such person whether by contract or otherwise.
"Agents" means the Facility Agent and the Security Agent (and "Agent" means any
one of them).
"Agreement on Pledge of Dividends of Nova TV" means the agreement on pledge of
dividends of Nova TV dated 26 February 1999 entered into by the Borrower in
favour of the Security Agent in relation to the Borrower's right, title and
interest in and to all distributions of profit (present and future) paid or to
be paid by Nova TV.
"Applicable Margin" means the rate per annum determined in accordance with the
tests set out in the Fifth Schedule.
"Available Commitment" means, in relation to a Bank at any time and save as
otherwise provided herein, its Commitment at such time less the aggregate of
its portions of the Advances which are then outstanding Provided that such
amount shall not be less than zero.
"Available Facility" means, at any time, the aggregate amount of the Available
Commitments at such time adjusted, in the case of any proposed drawdown, so as
to take into account:
(a) any reduction in the Commitment of a Bank pursuant to the
terms hereof;
(b) any Advance which, pursuant to any other drawdown, is to be
made; and
(c) any Advance which is due to be repaid and which is not in
default in payment,
on or before the proposed drawdown date.
5
<PAGE>
"Bank" means:
(a) ING Bank N.V. (until it has ceased to be a party hereto in
accordance with the terms hereof); and
(b) any bank which has become a party hereto in accordance with
the provisions of Clause 25.4 (Assignments by Banks) or
Clause 25.5 (Transfers by Banks).
"Basle Paper" means the paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988 and prepared by the Basle
Committee on Banking Regulations and Supervision, as amended in November 1991.
"Borrower's Pledge of Bank Accounts" means the pledge agreement entitled
"Pledge of Bank Accounts" between the Borrower as pledgor and the Security
Agent as pledgee dated 26 February 1999 whereby the Borrower agrees, inter
alia, to pledge all its right, title and interest in and to each bank account
(present and future) specified therein in favour of the Security Agent.
"Borrower's Pledge of Intercompany Loans" means the pledge agreement entitled
"Pledge of Intercompany Loans" between the Borrower as pledgor and the Security
Agent as pledgee dated 26 February 1999 whereby the Borrower agrees, inter
alia, to pledge to the Security Agent all its right, title and interest in and
to all loans made by the Borrower to any member of the Group.
"Borrower Pledge of Shares" means the agreement and deed of pledge between CME
Czech II as pledgor, the Borrower and the Security Agent as pledgee dated 26
February 1999 whereby CME Czech II agrees, inter alia, to pledge all the issued
and outstanding share capital of the Borrower in favour of the Security Agent.
"Capital Adequacy Requirement" means a request or requirement relating to the
maintenance of capital by banks, including one which makes any change to, or is
based on any alteration in, the interpretation of the Basle Paper or which
increases the amounts of capital required thereunder, other than a request or
requirement made by way of implementation of the Basle Paper in the manner in
which it is being implemented at the date hereof.
"CET 21" means CET 21 s.r.o..
"CME B.V.'s Pledge of Receivables and Intercompany Loans" means the pledge
agreement entitled "Pledge of Receivables and Intercompany Loans" between CME
B.V. as pledgor and the Security Agent as pledgee dated 26 February 1999
whereby CME B.V. agrees, inter alia, to pledge to the Security Agent all its
right, title and interest:
(a) under or pursuant to the Network Access Agreement; and
(b) in and to all loans made by CME B.V. to the Borrower.
"CME Development Corporation" means CME Development Corporation, a corporation
6
<PAGE>
incorporated under the General Corporation Law of the State of Delaware.
"CME Development Corporation's Pledge of Receivables" means the pledge
agreement entitled "Pledge of Receivables" between CME Development Corporation
as pledgor and the Security Agent as pledgee dated 26 February 1999 whereby CME
Development Corporation agrees, inter alia, to pledge to the Security Agent all
its right, title and interest under or pursuant to the Management Support
Agreement.
"CME Ltd.'s Bank Accounts" means its account numbered 2-100-20938-5 at Fleet
Bank, 60 East 42nd Street, New York, NY 10165 and its account numbered
1010609107 at Bank of Bermuda, 6 Front Street, Hamilton, Bermuda.
"CME Ltd.'s Pledge of Intercompany Loans" means the pledge agreement entitled
"Pledge of Intercompany Loans" between CME Ltd. as pledgor and the Security
Agent as pledgee dated 26 February 1999 whereby CME Ltd. agrees, inter alia, to
pledge to the Security Agent all its right, title and interest in and to all
loans made by CME Ltd. to each member of the Group.
"CME Programming Services" means CME Programming Services Inc., a corporation
incorporated under the General Corporation Law of the State of Delaware.
"CME Programming Services' Pledge of Receivables" means the pledge agreement
entitled "Pledge of Receivables" between CME Programming Services as pledgor
and the Security Agent as pledgee dated 26 February 1999 whereby CME
Programming Services agrees, inter alia, to pledge to the Security Agent all
its right, title and interest under or pursuant to the programming services
agreement between CME Programming Services and Nova TV dated 27 June 1996.
"Commitment" means, in relation to a Bank at any time and save as otherwise
provided herein, the amount set opposite its name in the First Schedule (The
Banks).
"Compliance Certificate" means a certificate executed by the chief financial
officer or by two other authorised officers of CME Ltd. substantially in the
form set out in the Ninth Schedule.
"Computer System" means any computer systems, computer hardware and software
and all equipment operated by electronic means.
"Confidentiality Agreement" means, in relation to any Bank, a confidentiality
agreement entered into by it substantially in the form set out in the Seventh
Schedule.
"Consolidated Total Tangible Assets" shall have the meaning ascribed thereto in
Clause 13.2 (Definitions).
"CS Loan" means the principal amount made available by _eska Spo_itelna a.s.
under the CS Loan Agreement.
"CS Loan Agreement" means the loan agreement between CME B.V. and _eska
Spo_itelna a.s.
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<PAGE>
dated 1 August 1996 pursuant to which _eska Spo_itelna a.s. agreed to lend to
CME B.V. an aggregate principal amount of CZK 850,000,000.
"Debt Service" shall have the meaning ascribed thereto in Clause 13.2
(Definitions).
"December/June period" means any period commencing on 1 December in any year
from 1999 onwards and ending on the next succeeding 30 June.
"Dollar Collection Account" means, the Borrower's account numbered 02.17.85.570
with ING Bank N.V., Amsterdam branch.
"Event of Default" means any circumstances described as such in Clause 15.1
(Failure to Pay) to Clause 15.21 (Discontinuation of Broadcasting).
"Facility" means the dollar revolving loan facility granted to the Borrower in
this Agreement.
"Facility Documents" means any one or all of this Agreement, the Security
Documents, the Payment Instruction and any other document, instrument or
agreement entered into by any Obligor or Nova TV and the Arranger, the Facility
Agent and/or any Bank and designated as such by an Obligor and the Facility
Agent together with all amendments of, and supplements to any of the foregoing
(and "Facility Document" shall be construed accordingly).
"Facility Office" means, in relation to the Facility Agent or any Bank, the
office identified with its signature below (or, in the case of a Transferee, at
the end of the Transfer Certificate to which it is a party as Transferee) or
such other office as it may from time to time select.
"Fee Payment" means any Relevant Payment other than a dividend.
"Final Maturity Date" means 30 November 2001 (or, if such day is not a business
day, the immediately preceding business day).
"GAAP" means (i) the generally accepted accounting principles in effect from
time to time in the United States of America, applied on a consistent basis;
and (ii) in relation only to the Original Financial Statements of CME B.V., the
generally accepted accounting principles in effect from time to time in the
Netherlands, applied on a consistent basis.
"Group" means, at any time, CME Ltd., its subsidiaries, any person which,
directly or indirectly, is controlled by CME Ltd. and any person in which CME
Ltd., such subsidiary or such person has an equity interest.
"Guarantee" means, in relation to any person, any obligation of such person
directly or indirectly guaranteeing any indebtedness of any other person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect of such person:
(a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such indebtedness or other obligation
(whether arising by virtue of partnership
8
<PAGE>
arrangements, by any agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, to
maintain financial statement conditions or otherwise); or
(b) entered into for the purpose of assuring in any other manner
the obligee of such indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part)
Provided that the term "Guarantee" shall not include endorsements of negotiable
instruments for collection or deposit in the ordinary course of business. The
term "Guarantee" or "Guaranteed" used as a verb has a corresponding meaning.
"Guilder Account" means, the Borrower's account numbered 66.87.21.847 with ING
Bank N.V., Amsterdam branch.
"Information Memorandum" means each of the documents dated August 1997,
December 1997 and October 1998 concerning the Borrower and the Guarantors
prepared in relation to this transaction and distributed by the Arranger to
selected banks during August 1997, December 1997 and October 1998.
"Instructing Group" means:
(a) whilst no Advances are outstanding hereunder, a Bank or group
of Banks whose Commitments amount (or, if each Bank's
Commitment has been reduced to zero, did immediately before
such reduction to zero, amount) in aggregate to more than 66_
per cent. of the Total Commitments; and
(b) whilst at least one Advance is outstanding hereunder, a Bank
or group of Banks to whom in aggregate more than 66_ per
cent. of the Loan is owed.
"Intercompany Loan Agreement" means each agreement entered into by the Borrower
or CME Ltd. as lender or creditor with any other member of the Group in
relation to any Intercompany Loan which shall comply with Clause 14.12 (Terms
of Intercompany Loans).
"Intercompany Loan" means the financial indebtedness specified in the Sixth
Schedule and each other loan granted by the Borrower or CME Ltd. to any other
member of the Group.
"July/November period" means any period commencing on 1 July in any year from
2000 onwards and ending on the next succeeding 30 November.
"LIBOR" means, in relation to any Advance or unpaid sum:
(i) the offered rate per annum (if any) appearing on page 3750 of
the Telerate screen which displays the London Interbank
Offered Rate for deposits in dollars and for the specified
period or any equivalent successor to such page at or about
11.00 a.m. on the Quotation Date for the specified period; or
9
<PAGE>
(ii) if no such offered rate appears on the Telerate screen for
the purposes of paragraph (i) above, the rate per annum
determined by the Facility Agent to be equal to the
arithmetic mean (rounded upwards, if not already such a
multiple, to the nearest whole multiple of one-sixteenth of
one per cent.) of the rates (as notified to the Facility
Agent) at which each of the Reference Banks was offering to
prime banks in the London Interbank Market deposits in
dollars and for the specified period at or about 11.00 a.m.
on the Quotation Date for such period;
and, for the purposes of this definition, "specified period" means the Term of
such Advance or, as the case may be, the period in respect of which LIBOR is to
be determined in relation to such unpaid sum.
"Limited Recourse Agreement" means the statement from _eska Spo_itelna a.s.,
dated 26 November, 1998 whereby _eska Spo_itelna a.s. declares, inter alia, its
consent to the transfer of a Participation Interest (as referred to therein) in
Nova TV from CME B.V. to the Borrower and that it has no claims whatsoever
against CME B.V. and the Borrower in respect of such transfer.
"Loan" means the aggregate principal amount for the time being outstanding
hereunder.
"Local Currency Collection Account" means the Borrower's account numbered
02.19.26.026 with ING Bank N.V., Amsterdam branch.
"Management Support Agreement" means the management support agreement dated 27
June 1996 and made between CME Development Corporation and Nova TV.
"Management Fees" means any management fees payable by Nova TV pursuant to the
Management Support Agreement or any replacement thereof.
"Network Access Agreement" means the network access agreement dated 27 June
1996 and made between CME B.V. and Nova TV.
"Network Access Fees" means any network access fees payable by Nova TV pursuant
to the Network Access Agreement or any replacement thereof.
"New Station" means a subsidiary of CME B.V. or CME Ltd. (other than (i) any
subsidiary of Nova TV, (ii) TVN and (iii) TV3) whose primary purpose is to
operate a television station.
"Notes" means the $100,000,000 CME Ltd. 9_% Senior Notes due 2004 and the 8_%
DM 140,000,000 Senior Notes due 2004.
"Notice of Drawdown" means a notice substantially in the form set out in the
Fourth Schedule (Notice of Drawdown).
"Nova TV" means _eska Nezavisla Televizni Spole_nost, spol. s.r.o., a limited
liability company
10
<PAGE>
established under the laws of the Czech Republic.
"Nova TV Licence" means the television broadcast licence issued by the Council
of the Czech Republic for Radio and Television Broadcasting to CET 21 on 9
February 1993 pursuant to which CET 21 is broadcasting.
"Obligors" means the Borrower and the Guarantors and any other person which
provides security or a guarantee at any time in respect of the obligations of
any other Obligor under any of the Facility Documents (and "Obligor" means any
of them).
"Original Financial Statements" means:
(i) in the case of CME Ltd. and CME B.V., its audited consolidated
financial statements for its financial year ended 31 December
1997;
(ii) in the case of Nova TV, its audited unconsolidated financial
statements for its financial year ended 31 December 1997; and
(iii) in the case of the Borrower and CME Czech II, its management
statements for the period ended 30 September, 1998.
"Partnership Agreement" means the Memorandum of Association and Investment
Agreement, dated 4 May 1993, originally among CME B.V., _eska Spo_itelna a.s.
and CET 21 and now among the Borrower and CET 21, as amended on 1 June 1993, 28
July 1994, 8 December 1994, 15 March 1996 15 March 1996, 17 July 1996, 14
November 1996, 17 December 1996, 3 February 1997, 24 April 1997, 21 May 1997
and 9 December 1997.
"Payment Instruction" means the payment instruction given pursuant to Clause
14.23 (Payment Instruction).
"Permitted Encumbrance" means in respect of any revenues or assets (other than
shares issued by CME N.V., 79% of the voting and economic interest in Nova TV,
all or any rights, title, benefit or interest of Nova TV in or to the Nova TV
Licence or the Service Agreement and all or any assets or revenues which are
expressed to be the subject of any encumbrance created pursuant to any of the
Facility Documents):
(i) any encumbrance arising by operation of law in the ordinary
course of business and securing amounts not more than 90 days
overdue;
(ii) any banker's right of set-off arising by operation of law in
the ordinary course of business or pursuant to the general
terms and conditions applicable to banking mandates or
deposit confirmations of bankers;
(iii) any encumbrance created by Nova TV over all or any of its
assets or revenues (which, for the avoidance of doubt, shall
exclude the Nova TV Licence and the Service Agreement);
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<PAGE>
(iv) any encumbrance arising out of title retention provisions in
a supplier's standard conditions of supply of goods acquired
by any Relevant Member of the Group in the ordinary course of
business;
(v) any encumbrance over property acquired by a Relevant Member
of the Group which already existed at the date of acquisition
of such property and was not created in contemplation of such
acquisition provided that the encumbrance is not extended nor
the amount secured thereby increased after the date of such
acquisition;
(vi) any encumbrance over the whole or any part of the assets of
any subsidiary of any Relevant Member of the Group acquired
after the date of this Agreement which was in existence prior
to the time that subsidiary became a subsidiary of such
Relevant Member of the Group and was not created in
contemplation of that acquisition provided that the
encumbrance is not extended nor the amount secured thereby
increased after the date of the acquisition; and
(vii) any encumbrance over any asset to the extent that the
aggregate principal amount secured by all such encumbrances
does not at any time exceed $10,000,000 or such greater
amount as the Facility Agent may agree from time to time.
"Potential Event" means any event that would constitute an Event of Default or
a Review Event but for the fact that notice is required to be given or time is
required to elapse or both.
"Programming Services Agreement" means the programme and film acquisition
support agreement dated 27 June 1996 and made between CME Programming Services
and Nova TV.
"Programming Fees" means any programming fees payable by Nova TV pursuant to
the Programming Services Agreement or any replacement thereof.
"Proportion" means, in relation to a Bank:
(a) whilst no Advances are outstanding hereunder, the proportion
borne by its Commitment to the Total Commitments (or, if the
Total Commitments are then zero, by its Commitment to the
Total Commitments immediately prior to their reduction to
zero); or
(b) whilst at least one Advance is outstanding hereunder, the
proportion borne by its share of the Loan to the Loan.
"Quotation Date" means, in relation to any period for which an interest rate is
to be determined hereunder, the day on which quotations would ordinarily be
given by prime banks in the London Interbank Market for deposits in dollars for
delivery on the first day of that period Provided that, if, for any such
period, quotations would ordinarily be given on more than one date, the
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<PAGE>
Quotation Date for that period shall be the last of those dates.
"Reduction Dates" means each of the dates specified in Clause 6.2 (Reduction).
"Reference Banks" means the principal London offices of ING Bank N.V., National
Westminster Bank PLC and Citibank N.A. or such other bank or banks as may from
time to time be appointed by the Facility Agent after consultation with CME
Ltd.
"Relevant Jurisdiction" means, in relation to:
(i) CME Ltd., Bermuda;
(ii) CME N.V., the Netherlands Antilles;
(iii) CME B.V., CME Czech II and the Borrower, The Netherlands;
(iv) Nova TV, the Czech Republic; and
(v) any other Obligor, its jurisdiction of its incorporation or
establishment.
"Relevant Member of the Group" means the Borrower, each of the Guarantors and
Nova TV.
"Relevant Payment" means any dividends distributable by Nova TV to any member
of the Group or any payments in respect of any agreement relating to the
provision of management services, network access or programming services by any
member of the Group to Nova TV or relating to the distribution of income or
profits to any member of the Group by Nova TV.
"Repayment Date" means, in relation to any Advance, the last day of the Term
thereof.
"Restricted Dividend" means any dividend declared or paid by Nova TV out of
income or profits derived from any of its financial years ending after 31
December 1998.
"Restricted Fee Payment" means any Fee Payment payable by Nova TV in relation
to income or profits derived from any of its financial years ending after 31
December 1998.
"Restricted Payment" means:
(a) any dividend or other distribution on any share capital of a
person (except dividends payable solely in share capital of
such person); or
(b) any payment on account of the purchase, redemption, retirement
or acquisition of:
(i) any share capital of such person; or
(ii) any option, warrant or other right to acquire share
capital of such
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<PAGE>
person (except any payment made therefor in share
capital of such person).
"Review Event" means any circumstances described in Clause 15.25 (i)-(vii)
(Review Events).
"Security Agency Agreement" means the security agency agreement of even date
herewith between the Obligors as at the date hereof, the Arranger, the Agents
and the Banks.
"Security Documents" means:
(i) the Borrower's Pledge of Bank Accounts;
(ii) CME Ltd.'s Pledge of Intercompany Loans;
(iii) the Borrower's Pledge of Intercompany Loans;
(iv) CME B.V.'s Pledge of Receivables and Intercompany Loans;
(v) the Agreement on Pledge of Dividends of Nova TV;
(vi) CME Programming Services' Pledge of Receivables;
(vii) CME Development Corporation's Pledge of Receivables;
(viii) the Borrower Pledge of Shares;
(ix) the Security Agency Agreement,
and each other agreement, document or instrument entered into from time to time
by any member of the Group in favour of the Security Agent and/or the Banks or
designated as a Security Document by the Facility Agent and the Borrower or
such member of the Group provided that such agreement, document or instrument
secures, inter alia, the obligations of the Borrower hereunder and/or under any
other Facility Document and has not been expressly released by the Security
Agent and/or the Banks.
"Service Agreement" means the agreement on cooperation in ensuring service for
television broadcasting dated 21 May 1997 and a supplement thereto of even date
therewith and made between Nova TV and CET 21.
"Studio 1+1" means the group of companies comprised of the following:
(i) Broadcasting Company "Studio 1+1", a limited liability
company incorporated under the laws of the Ukraine;
(ii) Limited liability company Prioritet Ltd., a limited liability
company
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<PAGE>
incorporated under the laws of the Ukraine;
(iii) Enterprise Intermedia, a legal entity incorporated in the
Ukraine;
(iv) Innova Film GmbH, a limited liability company incorporated
under the laws of the Federal Republic of Germany;
(v) International Media Services Ltd., a limited liability
company incorporated under the laws of Bermuda;
(vi) CME Ukraine Holding GmbH, a limited liability company
incorporated under the laws of Austria;
(vii) Ukraine Advertising Holding B.V., a limited liability company
incorporated under the laws of The Netherlands; and
(viii) CME Ukraine B.V., a limited liability company incorporated
under the laws of the Ukraine.
"Term" means, save as otherwise provided herein, in relation to any Advance,
the period for which such Advance is borrowed as specified in the Notice of
Drawdown relating thereto.
"Total Commitments" means the aggregate at the relevant time of the Banks'
Commitments.
"Transfer Certificate" means a certificate substantially in the form set out in
the Second Schedule (Form of Transfer Certificate) signed by a Bank and a
Transferee whereby:
(a) such Bank seeks to procure the transfer to such Transferee of
all or a part of such Bank's rights, benefits and obligations
hereunder as contemplated in Clause 25.3 (Assignments and
Transfers by Banks); and
(b) such Transferee undertakes to perform the obligations it will
assume as a result of delivery of such certificate to the
Facility Agent as is contemplated in Clause 25.5 (Transfers
by Banks).
"Transfer Date" means, in relation to any Transfer Certificate, the date for
the making of the transfer as specified in the schedule to such Transfer
Certificate.
"Transferee" means a bank to which a Bank seeks to transfer all or part of such
Bank's rights, benefits and obligations hereunder.
"TVN" means Federacja Sp. zo.o..
"TV3" means Budapesti Kommunikacios Rt.
"Year 2000 Compliant" means, in relation to any Computer System, that any
reference to or
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<PAGE>
use of a date before, on or after 31 December 1999 in the operation of that
Computer System will not have a material adverse effect on the use of that
Computer System. .
1.2 Interpretation Any reference in this Agreement to:
an "Agent" or any "Bank" shall be construed so as to include its and any
subsequent successors, Transferees and assigns in accordance with their
respective interests;
"authorised officer or officers" means the chief financial officer or any other
two authorised officers;
a "business day" shall be construed as a reference to a day (other than a
Saturday or Sunday) on which banks generally are open for business in
Amsterdam, London and New York City;
a "disposal" shall include any sale, lease, assignment or transfer and
"disposed of" shall be construed accordingly;
an "encumbrance" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof or any
agreement to give any security interest);
the "equivalent" on any given date in one currency (the "first currency") of an
amount denominated in another currency (the "second currency") is a reference
to the amount of the first currency which could be purchased with the amount of
the second currency at the spot rate of exchange quoted by the Facility Agent
at or about 9.15 a.m. on such date for the purchase of the first currency with
the second currency or, if no such spot rate of exchange is quoted by the
Facility Agent at or about such time on such date, the spot rate of exchange
quoted by the Facility Agent at or about 9:15 a.m.
on the immediately preceding business day;
"financial indebtedness" means, of any person, at any date, without duplication:
(a) all obligations of such person for the payment of borrowed
money;
(b) all reimbursement obligations of such person related to
letters of credit or acceptance credits, and all such
obligations of such person evidenced by bonds, debentures,
notes or other similar instruments;
(c) all obligations of such person to pay the deferred purchase
price of property or services (other than normal trade credit
which is not more than 90 days overdue);
(d) all obligations of such person as lessee which are
capitalised in accordance with generally accepted accounting
principles;
(e) all financial indebtedness of others secured by an
encumbrance on any asset of such person, whether or not such
financial indebtedness is assumed by such
16
<PAGE>
person;
(f) all financial indebtedness of others Guaranteed by such
person; and
(g) money owing in respect of any interest rate swap or
cross-currency or forward sale or purchase contract of
similar effect to any thereof entered into by that person;
a "holding company" of a company or corporation shall be construed as a
reference to any company or corporation of which the first-mentioned company or
corporation is a subsidiary;
"indebtedness" shall be construed so as to include any obligation (whether
incurred as principal or as surety) for the payment or repayment of money,
whether present or future, actual or contingent;
a "Material Adverse Change" shall be construed as a material adverse change in
the business or financial condition of the Borrower or any Relevant Member of
the Group which affects the Borrower's or such Relevant Member of the Group's
ability to perform or comply with all or any of its material obligations (which
shall include, for the avoidance of doubt, all payment obligations) under any
Facility Document. Without prejudice to the above, a "Material Adverse Change"
shall be deemed to occur if Consolidated Broadcast Cash Flow of CME B.V. or CME
Ltd. is for any twelve calendar month period:
(i) ending on 31 December 1998 less than $12,000,000 (or its
equivalent in any other currency); or
(ii) ending on the last day of any financial quarter of CME Ltd,
or CME B.V., as the case may be, ending after 31 December
1998, less than $15,000,000 (or its equivalent in any other
currency)
Provided that:
(a) for the twelve calendar month period ending 31 December 1998
Studio 1+1 shall be excluded from Consolidated Broadcast Cash
Flow of CME B.V. and CME Ltd.; and
(b) for each twelve month period ending on or prior to the end
ofthe third financial quarter in 1999 (in the case of TVN) or
2000 (in the case of TV3), TVN and/or TV3 (as the case may
be) shall be excluded from Consolidated Broadcast Cash Flow
of CME B.V. and CME Ltd.
a "month" is a reference to a period starting on one day in a calendar month
and ending on the numerically corresponding day in the next succeeding calendar
month save that, where any such period would otherwise end on a day which is
not a business day, it shall end on the next succeeding business day, unless
that day falls in the calendar month succeeding that in which it would
otherwise have ended, in which case it shall end on the immediately preceding
business
17
<PAGE>
day Provided that, if a period starts on the last business day in a calendar
month or if there is no numerically corresponding day in the month in which
that period ends, that period shall end on the last business day in that later
month (and references to "months" shall be construed accordingly);
any amount being "outstanding" in relation to any person shall include any
amount constituting any contingent liability of such person as well as any
actual liability, whether present or future and whether or not the relevant
amount has been advanced to or on behalf of such person;
a "person" shall be construed as a reference to any person, firm, company,
corporation, government, state or agency of a state or any association or
partnership (whether or not having separate legal personality) of two or more
of the foregoing;
"relevant indebtedness" shall have the meaning ascribed to it in Clause 15.6
(Cross Default);
"relevant party" shall be construed in accordance with Clause 13.1 (Financial
Condition of the Group).
a "subsidiary":
(i) means, in relation to any Relevant Member of the Group, each
person which is or is required to be consolidated with such
Relevant Member of the Group for the purposes of preparing
consolidated financial statements in accordance with GAAP;
and
(ii) of a company or corporation other than a Relevant Member of
the Group shall be construed as a reference to any company or
corporation:
(a) which is controlled, directly or indirectly, by the
first-mentioned company or corporation;
(b) more than half the issued share capital of which is
beneficially owned, directly or indirectly, by the
first-mentioned company or corporation; or
(c) which is a subsidiary of another subsidiary of the
first-mentioned company or corporation
and, for these purposes, a company or corporation shall be
treated as being controlled by another if that other company
or corporation is able to direct its affairs and/or to
control the composition of its board of directors or
equivalent body;
"tax" shall be construed so as to include any tax, levy, impost, duty or other
charge of a similar nature (including any penalty or interest payable in
connection with any failure to pay or any delay in paying any of the same);
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<PAGE>
"VAT" shall be construed as a reference to value added tax including any
similar tax which may be imposed in place thereof from time to time; and
the "winding-up", "dissolution" or "administration" of a company or corporation
shall be construed so as to include any equivalent or analogous proceedings
under the law of the jurisdiction in which such company or corporation is
incorporated or any jurisdiction in which such company or corporation carries
on business.
1.3 Currency Symbols "$" and "dollars" denote lawful currency of the United
States of America, "CZK" and "Czech Crowns" denote the lawful currency of the
Czech Republic and "DEM" denotes lawful currency of the Federal Republic of
Germany.
1.4 Amendments; times Save where the contrary is indicated, any reference in
this Agreement to:
(i) this Agreement or any other agreement or document (other than
the Basle Paper) shall be construed as a reference to this
Agreement or, as the case may be, such other agreement or
document as the same may have been, or may from time to time
be, amended, varied, novated or supplemented;
(ii) a statute shall be construed as a reference to such statute
as the same may have been, or may from time to time be,
amended or re-enacted; and
(iii) a time of day shall be construed as a reference to London time.
1.5 Headings Clause, Part and Schedule headings are for ease of reference only.
1.6 Singular and Plural In this Agreement, words and expressions importing the
singular shall, where the context permits or requires, include the plural and
vice versa.
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PART 2
THE FACILITY
2. The Facility
2.1 Grant of the Facility The Banks grant to the Borrower, upon the terms and
subject to the conditions hereof, a dollar revolving loan facility in a maximum
aggregate principal amount of $15,000,000.
2.2 Purpose and Application The Facility is intended to finance and refinance
the making of loans to CME B.V. for the funding of investments and capital
expenditures, general working capital and operating expenditures associated
with the Group's operations. Accordingly, the Borrower shall apply all amounts
raised by it hereunder in or towards satisfaction of such purposes and neither
the Agents, the Arranger and the Banks nor any of them shall be obliged to
concern themselves with such application.
2.3 Condition Precedent Documents Save as the Banks may otherwise agree, the
first Notice of Drawdown may only be delivered by the Borrower hereunder if the
Facility Agent has confirmed to the Borrower that it has received all of the
documents listed in the Third Schedule (Conditions Precedent) and that each is,
in form and substance, satisfactory to the Facility Agent. The Facility Agent
will promptly give notice of such satisfaction to the Borrower and the Banks.
2.4 Banks' Obligations Several The obligations of each Bank hereunder are
several and the failure by a Bank to perform its obligations hereunder shall
not affect the obligations of any of the Obligors towards any party hereto nor
shall any other party be liable for the failure by such Bank to perform its
obligations hereunder.
2.5 Obligor's Obligations With a view to ensuring the validity and
enforceability of the Agreement on Pledge of Dividends of Nova TV the present
and future, actual and contingent obligations of each of the Borrower and the
Guarantors under any or all of the Facility Documents and any and all other
documents or agreements entered into in connection therewith to any of the
Arranger, the Agents and the Banks shall be owed and due to (i) the Arranger,
such Agent or such Bank and (ii) the Security Agent jointly, so that any one or
more of the Arranger, such Agent or such Bank (unless any provision of any
Facility Document contemplates that the Security Agent shall act on behalf of
all of the Banks or an Instructing Group), as the case may be, or the Security
Agent may exercise the rights and remedies of the Arranger, such Agent or such
Bank Provided that nothing herein shall restrict the application of Clause 21
(Sharing) or Clause 3 (Application of Proceeds) of the Security Agency
Agreement.
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3. Utilisation of the Facility
3.1 Drawdown Conditions An Advance will be made by the Banks to the Borrower
if:
(a) not more than ten business days before and not later than
9.00 a.m. on the third business day before the proposed date
for the making of such Advance, the Facility Agent has
received from the Borrower a Notice of Drawdown therefor,
receipt of which shall oblige the Borrower to borrow the
amount therein requested on the date therein stated upon the
terms and subject to the conditions contained herein;
(b) the proposed date for the making of such Advance is a
business day falling one month or more before the Final
Maturity Date;
(c) the proposed amount of such Advance is (i) an amount of not
less than $2,500,000 and an integral multiple of $500,000
which is less than the amount of the Available Facility or
(ii) equal to the amount of the Available Facility;
(d) the proposed Term of such Advance is a period of one, three,
six or twelve months ending on or before the Final Maturity
Date Provided that if the Borrower fails to give notice of
its selection of the length of any Term the length of such
term shall be one month;
(e) neither of the events mentioned in Clause 5 (Market
Disruption and Alternative Interest Rates) shall have
occurred; and
(f) no Event of Default, Review Event or Potential Event has
occurred which is continuing unwaived and the
representations set out in Clause 11 (Representations)
which are to be repeated under Clause 11.27 (Repetition of
Representations) are true on and as of the proposed date
for the making of such Advance provided that this Clause
3.1(f) shall not apply to any Advance which is in the same
or a lesser amount as an existing Advance or Advances
falling due for repayment on the proposed date for the
making of such Advance and such Advance is to be applied in
refinancing such existing Advance or Advances (but without
prejudice to the rights of the Facility Agent and the Banks
under Clauses 15.22 (Acceleration and Cancellation), 15.23
(Advances Due on Demand) and 15.25 (Review Events)).
3.2 Each Bank's Participation Each Bank will participate through its Facility
Office in each Advance made pursuant to Clause 3.1 (Drawdown Conditions) in the
proportion borne by its Available Commitment to the Available Facility
immediately prior to the making of that Advance.
3.3 Reduction of Available Commitment If a Bank's Commitment is reduced in
accordance with the terms hereof after the Facility Agent has received the
Notice of Drawdown for an Advance, then the amount of that Advance shall be
reduced accordingly.
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PART 3
INTEREST
4. Payment and Calculation of Interest
4.1 Payment of Interest On the Repayment Date relating to each Advance and if
such Advance has a Term which exceeds six months, at the end of the six month
period commencing on the date of making such Advance the Borrower shall pay
accrued interest on that Advance.
4.2 Calculation of Interest The rate of interest applicable to an Advance from
time to time during its Term shall be the rate per annum which is the sum of
the Applicable Margin at such time and LIBOR on the Quotation Date therefor.
5. Market Disruption and Alternative Interest Rates If, in relation to any
Advance:
(a) the Facility Agent determines that at or about 11.00 a.m. on
the Quotation Date for the Term in respect of such Advance
the Telerate service is not available and none or only one of
the Reference Banks was offering to prime banks in the London
Interbank Market deposits in dollars for the proposed
duration of such Term; or
(b) before 3.00 p.m. on the Quotation Date for such Term the
Facility Agent has been notified by a Bank or each of a group
of Banks to whom in aggregate fifty per cent. or more of such
Advance if made would be owed that the rate at which such
deposits were being so offered does not accurately reflect
the cost to it of obtaining such deposits,
then, notwithstanding the provisions of Clause 4 (Payment and Calculation of
Interest):
(i) the Facility Agent shall notify the other parties
hereto of such event;
(ii) such Advance shall not be made; and
(iii) if the Facility Agent or the Borrower so requires,
within five days of such notification the Facility
Agent and the Borrower shall enter into
negotiations with a view to agreeing a substitute
basis for determining the rates of interest which
may be applicable to Advances in the future and any
such substitute basis that is agreed shall take
effect in accordance with its terms and be binding
on each party hereto Provided that the Facility
Agent may not agree any such substitute basis
without the prior consent of each Bank.
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PART 4
REPAYMENT, PREPAYMENT AND CANCELLATION
6. Repayment
6.1 Repayment The Borrower shall repay each Advance made to it in full on the
Repayment Date relating thereto.
6.2 Reduction The Total Commitments shall, on each of the dates set out below,
be reduced to the amount (subject to any further reduction to such amount in
accordance with Clause 6.6 (Restriction on Relevant Payments)) set opposite
such date (to the extent not already reduced in accordance herewith):
Reduction Date Reduced Total Commitments $
30 June 2000 11,250,000
30 November 2000 7,500,000
30 June 2001 3,750,000
30 November 2001 0
Each reduction of the Total Commitments shall reduce the Commitment of each
Bank rateably.
6.3 Repayments to allow Reductions The Borrower shall, on each of the Reduction
Dates specified in Clause 6.2 (Reduction), repay (subject always to Clause 17.4
(Broken Periods)) an amount of the Loan which shall ensure that the amount of
the Loan when aggregated with the amount of the Available Facility as at the
end of such Reduction Date shall be equal to or less than the amount set
opposite such Reduction Date in Clause 6.2 (Reduction).
6.4 Notice of Relevant Payments Whenever Nova TV declares a dividend or becomes
obliged to make a Fee Payment, CME B.V. shall, within five business days,
notify the Facility Agent of the amount and the date(s) for payment thereof and
provide the Facility Agent with evidence of such amount and date(s) in the form
of:
(i) in the case of a dividend, a copy of the annual audited
financial statements or the minutes of a meeting of the
shareholders of Nova TV certified, in each case, as true by a
duly authorised officer or officers of CME B.V.; or
(ii) in the case of a Fee Payment, a certificate of a duly
authorised officer or officers of CME B.V.
6.5 Application of Relevant Payments If Nova TV:
(i) pays a Restricted Dividend and the credit balance on the
Dollar Collection Account is less than the amount by which
the Total Commitments are then scheduled to be reduced on the
then next succeeding Reduction Date; or
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(ii) makes a Restricted Fee Payment and the aggregate of:
(a) the amount of all Restricted Dividends at that time
yet to be paid by Nova TV prior to the next
succeeding Reduction Date (such amount to be
calculated solely by reference to the evidence
delivered pursuant to Clause 6.4); and
(b) the credit balance on the Dollar Collection Account
is less than the amount by which the Total Commitments are
then scheduled to be reduced on the then next succeeding
Reduction Date
then CME B.V. shall promptly ensure that a dollar amount equal to the amount of
such Restricted Dividend or Fee Payment is credited to the Dollar Collection
Account.
CME B.V. may comply with its obligations under this Clause by:
(1) ensuring that the Borrower issues an instruction to the
Facility Agent to convert the local currency amount of the
relevant Restricted Dividend or Fee Payment into dollars for
credit to the Dollar Collection Account;
(2) direct payment by CME B.V. of dollars to the Dollar Collection
Account; or
(3) by a combination of the foregoing.
If CME B.V. has not complied with such obligations within five business days of
notice from the Facility Agent requiring the same, the Facility Agent shall be
irrevocably entitled (and the Borrower hereby authorises the Facility Agent) to
convert any amounts standing to the credit of the Local Currency Collection
Account or the Guilder Account into dollars at the Facility Agent's relevant
spot rate of exchange and to credit the same to the Dollar Collection Account.
6.6 Restriction on Relevant Payments If Nova TV pays a Restricted Dividend
during a December/June period which is not calculated by reference to the
income or profits earned by Nova TV during the financial year preceding that in
which such December/June period begins and:
(i) (a) the amount of such Restricted Dividend, when aggregated
with (b) the credit balance on the Dollar Collection Account,
exceeds (c) the amount by which the Total Commitments are to
be reduced on the 30 June Reduction Date on which such
December/June period ends (the amount of (a) plus (b) less
(c) hereinafter called an "Excess Dividend Amount"); and
(ii) the amount by which the Total Commitments are then scheduled
to be reduced on the next 30 November Reduction Date exceeds
the amount of Restricted Dividend or Fee Payments at that
time yet to be paid in the July/November period ending on
such 30 November Reduction Date, calculated solely by
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reference to the evidence delivered pursuant to Clause 6.4
(such excess being hereinafter referred to as the "Relevant
Payment Shortfall")
then the amount to which the Total Commitments are scheduled to be reduced on
such 30 June Reduction Date shall be further reduced by the lesser of:
(1) such Excess Dividend Amount; and
(2) such Relevant Payment Shortfall
whereupon the provisions of Clause 6.5 shall apply to such Restricted Dividend.
6.7 Withdrawals from Accounts Withdrawals may not be made from the Dollar
Collection Account, the Local Currency Collection Account or the Guilder
Account by the Borrower if an Event of Default or Review Event has occurred
which is continuing unwaived (unless such amounts are applied in immediate
irreversible prepayment of the Loan) or if CME B.V. is under an obligation to
credit an amount to the Dollar Collection Account under Clause 6.5. Withdrawals
from the Dollar Collection Account may otherwise be made only if:
(i) after such withdrawal, the credit balance on the Dollar
Collection Account would not be less than the amount by which
the Total Commitments are then scheduled to be reduced on the
then next succeeding Reduction Date; or
(ii) the Total Commitments are simultaneously reduced by an amount
equal to the amount of such withdrawal.
In the case of (ii) above the proceeds of the relevant withdrawal must be
applied in immediate prepayment of the Loan to the extent necessary to ensure
that the amount of the Loan is not more than the amount of the Total
Commitments following such reduction. Nothing in this Clause 6 shall prevent
the withdrawal of any amounts standing to the credit of any account pursuant to
any Security Document for application in discharge of the Loan.
6.8 Calculation of Amounts of Relevant Payments The amount of any Restricted
Dividend or Fee Payment shall be calculated net of withholding on account of
tax and, if denominated in any currency other than dollars:
(i) at the Facility Agent's spot rate for the purchase of dollars
with such currency at 11.00 a.m. on (a) the day in question
or (b) if such Restricted Dividend or Fee Payment is one
referred to in Clauses 6.5 (other than Clause 6.5(ii)(a)) or
6.6(i), on the second business day prior to the date of
payment of such Restricted Dividend or Fee Payment; or
(ii) if CME B.V. has entered into any forward foreign exchange
contract in relation to such Restricted Dividend or Fee
Payment for the purchase of dollars with an amount equal to
the amount of such Restricted Dividend or Fee Payment, in
accordance with such contract.
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6.9 No Other Repayments The Borrower shall not repay all or any part of any
Advance outstanding hereunder except at the times and in the manner expressly
provided herein but shall, subject to the terms and conditions hereof, be
entitled to reborrow any amount repaid.
6.10 Netting If on any date:
(i) a Bank is obliged to participate in the making of an Advance;
and
(ii) a payment is due to be made to that Bank pursuant to Clause
6.1 (Repayment) by the Borrower,
then (without prejudice, for the avoidance of doubt, to the obligation of the
Borrower to repay such Advance in full on its Repayment Date, subject to the
provisions of this Agreement) the Facility Agent shall set off the amount
payable by such Bank in respect of such Advance and the amount payable by the
Borrower and only the net amount (if any) shall be payable by such Bank or, as
the case may be, the Borrower (and the Facility Agent shall promptly advise the
Borrower and such Bank of the net amount (if any) payable by such Bank to the
Borrower or by the Borrower to such Bank). Such Bank or, as the case may be,
the Borrower shall make such net amount (if any) available to the Facility
Agent in accordance with the provisions of this Agreement on the relevant date.
7. Prepayment and Cancellation
7.1 Prepayment The Borrower may, at any time, if it has given to the Facility
Agent not less than five business days' prior notice to that effect, prepay the
whole or any part of any Advance (being a minimum amount of $2,500,000 and an
integral multiple of $500,000) on any business day subject to the provisions of
Clause 17.4 (Broken Periods) and provided that the Borrower shall on the date
of prepayment of any Advance (or part thereof) pursuant to this Clause 7.1
(Prepayment) pay all interest accrued thereon up to the date of repayment
thereof.
7.2 Cancellation The Borrower may, at any time, by giving to the Facility Agent
not less than five business days' prior notice to that effect, cancel the whole
or any part (being a minimum amount of $2,500,000 and an integral multiple of
$500,000) of the Total Commitments; any such cancellation shall be applied in
reduction of the amount (until such amount is zero) to which the Total
Commitments are to be reduced pursuant to Clause 6.2 (Reduction) on any
Reduction Date by applying such amount in reduction of the amount by which
Total Commitments are to be reduced on each Reduction Date in chronological
order and shall reduce the Commitment of each Bank rateably.
7.3 Notice of Cancellation Any notice of prepayment or cancellation given by
the Borrower for the purposes of Clause 7.1 (Prepayment) or 7.2 (Cancellation)
shall be irrevocable and shall specify the date upon which such prepayment or
cancellation is to be made and the amount of such prepayment or cancellation
and, in the case of a notice of prepayment, shall oblige the Borrower to make
such prepayment on such date.
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7.4 Cancellation of a Bank's Commitment If any Bank claims indemnification from
the Borrower under Clause 8.2 (Tax Indemnity) or Clause 10.1 (Increased Costs),
the Borrower may, if no Potential Event, Event of Default or Review Event has
occurred which is continuing unwaived, within thirty days thereafter and by not
less than ten business days' prior notice to the Facility Agent (which notice
shall be irrevocable), cancel such Bank's Commitment whereupon such Bank shall
cease to be obliged to participate in further Advances and its Commitment shall
be reduced to zero.
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PART 5
RISK ALLOCATION
8. Taxes
8.1 Tax Gross-up All payments to be made by the Borrower or any Guarantor to
the Arranger, an Agent or any Bank under any Facility Document shall be made
free and clear of and without deduction for or on account of tax unless the
Borrower or such Guarantor is required to make such a payment subject to the
deduction or withholding of tax, in which case the sum payable by the Borrower
or such Guarantor in respect of which such deduction or withholding is required
to be made shall be increased to the extent necessary to ensure that, after the
making of the required deduction or withholding, such person receives and
retains (free from any liability in respect of any such deduction or
withholding) a net sum equal to the sum which it would have received and so
retained had no such deduction or withholding been made or required to be made.
8.2 Tax Indemnity Without prejudice to the provisions of Clause 8.1 (Tax
Gross-up), if any party to this Agreement (other than the Borrower or any
Guarantor) or an Agent on its behalf is required to make any payment on account
of tax (not being a tax imposed on and calculated by reference to the net
income paid to and received by such party's Facility Office by the jurisdiction
in which such party is incorporated or in which such party's Facility Office is
located) on or in relation to any sum received or receivable under any Facility
Document by such person or an Agent on its behalf (including any sum received
or receivable under this Clause 8) or any liability in respect of any such
payment is asserted, imposed, levied or assessed against such party or an Agent
on its behalf, the Borrower or the Guarantor from whom such sum was received or
receivable shall, upon demand of the Facility Agent, promptly indemnify such
party against such payment or liability, together with any interest, penalties,
costs and expenses payable or incurred in connection therewith.
8.3 Filings Each Bank and Agent shall cooperate with the Borrower in respect of
any application to the relevant revenue authorities by the completion and
execution of such certificates, claim forms or other documentation as such Bank
or Agent is reasonably able to complete and execute without incurring any
liability on its part and as the Borrower may reasonably request, to enable the
Borrower to obtain authorisation from the relevant revenue authorities to make
interest payments in full to such Bank or Agent without deduction or
withholding of tax. No additional amount shall be payable pursuant to Clause
8.1 (Tax Gross-up) or Clause 8.2 (Tax Indemnity) in respect of any deduction or
withholding for or on account of tax which would not have been required to be
deducted or withheld or which would not have arisen if the person to whom such
a payment was made or is payable had complied with the obligations expressed to
be assumed by it under this Clause 8.3 (Filings) if the Borrower has requested
the relevant Bank or Agent to complete and execute the relevant certificates,
forms or other documents, provided that the Borrower shall continue to be
liable to pay any amount or additional amount pursuant to Clause 8.1 (Tax Gross
Up) or Clause 8.2 (Tax Indemnity) which would not have been payable if the
relevant certificates, forms or other documents had been completed and
executed, notwithstanding that such liability arises after the Borrower has
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requested such completion and execution if the relevant Bank or Agent is taking
all reasonable steps open to it to effect such completion and execution in a
reasonably expeditious manner.
8.4 Tax credits If any Bank receives the benefit of any tax credit, refund or
allowance resulting from a payment which includes an additional amount paid by
the Borrower under Clause 8 (Taxes), it shall, to the extent that it can do so
without prejudice to the retention of the relevant benefit, pay to the Borrower
such part of that benefit as the Bank considers to be attributable to the
additional amount paid by the Borrower under Clause 8 (Taxes) which will leave
the Borrower in no less favourable a position that it would have been in if no
additional amount had been required to be paid provided that:
(a) the Bank shall be the sole judge of the amount of any such
benefit and of the date on which it is received;
(b) the Bank shall have a discretion as to the order and manner
in which it employs or claims tax credit, refunds and
allowances available to it and, in particular, shall be
entitled to arrange its tax affairs in whatever manner it
thinks fit; and
(c) the Bank shall not be obliged to disclose to the Borrower any
information regarding its tax affairs or tax computations.
8.5 Claims by Banks A Bank intending to make a claim pursuant to Clause 8.2
(Tax Indemnity) shall notify the Facility Agent of the event by reason of which
it is entitled to do so, whereupon the Facility Agent shall notify the Borrower
thereof Provided that nothing herein shall require such Bank to disclose any
confidential information relating to the organisation of its affairs.
9. Tax Receipts
9.1 Notification of Requirement to Deduct Tax If, at any time, the Borrower or
a Guarantor is required by law to make any deduction or withholding from any
sum payable by it under any Facility Document (or if thereafter there is any
change in the rates at which or the manner in which such deductions or
withholdings are calculated), the Borrower or such Guarantor shall promptly
notify the Facility Agent.
9.2 Evidence of Payment of Tax If the Borrower or a Guarantor makes any payment
under any Facility Document in respect of which it is required to make any
deduction or withholding, it shall pay the full amount required to be deducted
or withheld to the relevant taxation or other authority within the time allowed
for such payment under applicable law and shall deliver to the Facility Agent
for each Bank, within thirty days after it has made such payment to the
applicable authority (or, if later, within 10 business days of receipt), an
original receipt (or a certified copy thereof) issued by such authority
evidencing the payment to such authority of all amounts so required to be
deducted or withheld in respect of that Bank's share of such payment.
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10. Changes in Circumstances
10.1 Increased Costs If, by reason of (i) any change in law or in its
interpretation or administration and/or (ii) compliance with any Capital
Adequacy Requirement or any other request from or requirement of any central
bank or other fiscal, monetary or other authority:
(a) a Bank or any holding company of such Bank is unable to
obtain the rate of return on its capital which it would have
been able to obtain but for such Bank's entering into or
assuming or maintaining a commitment or performing its
obligations (including its obligation to participate in the
making of Advances) under this Agreement;
(b) a Bank or any holding company of such Bank incurs a cost as a
result of such Bank's entering into or assuming or
maintaining a commitment or performing its obligations
(including its obligation to participate in the making of
Advances) under this Agreement;
(c) there is any increase in the cost to a Bank or any holding
company of such Bank of funding or maintaining all or any of
the loans comprised in a class of loans formed by or
including such Bank's share of the Advances; or
(d) a Bank or any holding company of such Bank becomes liable to
make any payment on account of tax or otherwise (not being a
tax imposed on such Bank or such holding company and
calculated by reference to the net income paid to and
received by such Bank's Facility Office by the jurisdiction
in which such Bank or such holding company is incorporated or
in which such Facility Office is located) on or calculated by
reference to the amount of such Bank's share of the Advances
and/or to any sum received or receivable by it hereunder,
in each case in an amount which such Bank considers material then the Borrower
shall, from time to time on demand of the Facility Agent, promptly pay (without
duplication of amounts otherwise payable pursuant to Clause 8 (Taxes) or any
other provision of this Agreement) to the Facility Agent for the account of
that Bank amounts sufficient to hold harmless and indemnify that Bank or such
Bank's holding company from and against, as the case may be, (1) such reduction
in the rate of return of capital (or such proportion of such reduction as is,
in the reasonable opinion of that Bank, attributable to its obligations
hereunder), (2) such cost, (3) such increased cost (or such proportion of such
increased cost as is, in the opinion of that Bank, attributable to its
participating in the funding or maintaining of Advances) or (4) such liability,
each as referred to in paragraphs (a) to (d) above.
10.2 Exceptions Clause 10.1 shall not apply to any cost, reduction, increased
cost or liability:
(a) compensated for under Clause 8;
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(b) attributable to any breach by the relevant Bank (or its
holding company) of any applicable law or any request or
requirement of any central bank or other fiscal, monetary or
other authority; or
(c) relating to tax on a Bank's (or its holding company's) overall
net income.
10.3 Increased Costs Claims A Bank intending to make a claim pursuant to Clause
10.1 (Increased Costs) shall notify the Facility Agent of the event by reason
of which it is entitled to do so, whereupon the Facility Agent shall notify the
Borrower thereof Provided that nothing herein shall require such Bank to
disclose any confidential information relating to the organisation of its
affairs.
10.4 Illegality If, at any time, it is unlawful for a Bank to make, fund or
allow to remain outstanding all or part of its Commitment or its share of the
Advances, then that Bank shall, promptly after becoming aware of the same,
deliver to the Borrower through the Facility Agent a notice to that effect and:
(a) such Bank shall not thereafter be obliged to participate in
the making of any Advances and the amount of its Commitment
shall be immediately reduced to zero; and
(b) if the Facility Agent on behalf of such Bank so requires, the
Borrower shall repay the Bank's share of any outstanding
Advances on the Repayment Date relating thereto (or, if
earlier, the latest date permitted by applicable law)
together with accrued interest thereon and all other amounts
owing to such Bank hereunder.
10.5 Mitigation If circumstances are such that the Borrower is obliged to pay
any additional amounts for the benefit of a Bank pursuant to Clause 8.1 (Tax
Gross-up) or a Bank intends to claim indemnification from the Borrower under
Clause 8.2 (Tax Indemnity) or Clause 10.1 (Increased Costs) such Bank shall,
after consultation with the Facility Agent and the Borrower and to the extent
that it can do so lawfully and without prejudice to its own position, consider
what steps it might reasonably take (including a change in its Facility Office
or the transfer of its rights, benefits and obligations hereunder to another
financial institution acceptable to the Borrower and willing to participate in
the Facility) with a view to mitigating the effect of such circumstances on the
Borrower.
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PART 6
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
11. Representations
The Borrower and each of the Guarantors makes the representations and
warranties set out in Clause 11.1 (Status and Due Authorisation of Borrower and
the Guarantors) to Clause 11.25 (Security Documents) (provided that the
representations contained in Clause 11.17 (Ownership of Assets by the Borrower)
shall be made or repeated only in accordance with any Notice of Drawdown and in
accordance with Clause 11.27 (Repetition of Representations)) and the Borrower
and each of the Guarantors acknowledges that the Agents, the Arranger and the
Banks have entered into the Facility Documents in reliance on those
representations and warranties.
11.1 Status and Due Authorisation of the Borrower and the Guarantors It is a
corporation duly organised and (to the extent such concept is recognised) in
good standing under the laws of its Relevant Jurisdiction with power (i) to
enter into each of the Facility Documents, and each Intercompany Loan Agreement
to which it is expressed to be a party, (ii) to own its properties and to carry
on its business as it is now being conducted and (iii) to exercise its rights
and perform its obligations under each such Facility Document and each
Intercompany Loan Agreement to which it is expressed to be a party and all
corporate and other action required to authorise its execution of each such
Facility Document and Intercompany Loan Agreement and its performance of its
obligations thereunder has been duly taken.
11.2 Status and Due Authorisation of Nova TV Nova TV is a limited liability
company duly organised and (to the extent such concept is recognised) in good
standing under the laws of the Czech Republic with power (i) to enter into each
Facility Document to which it is a party and the Service Agreement, (ii) to own
its properties and conduct its business as it is now being conducted and (iii)
to exercise its rights and perform its obligations under each Facility Document
to which it is a party and the Service Agreement and all corporate and other
action required to authorise the owning of its properties and the conduct of
its business as it is now being conducted and its execution of each Facility
Document to which it is a party and the Service Agreement and its performance
of its obligations thereunder has been duly taken.
11.3 Withholding Tax Under the laws of the Czech Republic Nova TV is not
required to make any withholding for tax from any payment it may make to the
Borrower in respect of any dividends.
11.4 Claims Pari Passu The claims of the Agents, the Arranger and the Banks
against each Obligor and Nova TV under each of the Facility Documents and
against CME B.V. or the Borrower in relation to any claim that may arise as a
result of the enforcement of the Borrower's Pledge of Intercompany Loans will
rank at least pari passu with the claims of all the other unsecured and
unsubordinated creditors of such Obligor or Nova TV or CME B.V. under the laws
of the Relevant Jurisdiction of such Obligor or Nova TV or CME B.V. (as the
case may be) save those whose claims are preferred solely by any bankruptcy,
insolvency, liquidation or other similar laws of general application.
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11.5 Governing Law In any proceedings taken in any Relevant Jurisdiction in
relation to any Facility Document the law expressly chosen by the parties to
such Facility Document, as the governing law of such Facility Document, will be
recognised and enforced.
11.6 Validity and Admissibility in Evidence All acts, conditions and things
required to be done, fulfilled and performed in order (a) to enable each
Relevant Member of the Group lawfully to enter into, exercise its rights under
and perform and comply with the obligations expressed to be assumed by it in
each of the Facility Documents, in the Partnership Agreement, in the Service
Agreement and in each Intercompany Loan Agreement to which it is expressed to
be a party, (b) to ensure that the obligations expressed to be assumed by each
Relevant Member of the Group in each of the Facility Documents, the Partnership
Agreement, the Service Agreement and each Intercompany Loan Agreement are
legal, valid and binding and (c) to make each of the Facility Documents to
which it is a party, the Partnership Agreement, the Service Agreement and each
Intercompany Loan Agreement admissible in evidence in the Relevant Jurisdiction
of the Relevant Member(s) of the Group party to such Facility Document,
Partnership Agreement, Service Agreement or Intercompany Loan Agreement, have
been done, fulfilled and performed.
11.7 No Filing or Stamp Taxes Under the laws of each Relevant Jurisdiction no
filing, recording or enrolment with any court or other authority in such
Relevant Jurisdiction and no stamp, registration or similar tax is required to
be paid on or in relation to any of the Facility Documents, the Partnership
Agreement or the Service Agreement save for any filing, recording, enrolment,
stamp, registration, or other similar tax which has already been made or paid.
11.8 Binding Obligations The obligations expressed to be assumed by each
Relevant Member of the Group in each of the Facility Documents, the Partnership
Agreement, the Service Agreement and each Intercompany Loan Agreement are legal
and valid obligations binding on it in accordance with the terms thereof except
where the same may be limited by applicable bankruptcy, reorganisation,
insolvency, moratorium or similar laws affecting creditors' rights generally or
by equitable principles. 11.9 No Winding-up No Relevant Member of the Group has
taken any corporate action nor have any other steps been taken or legal
proceedings been started or (to the best of its knowledge and belief)
threatened (other than any steps or proceedings of a frivolous or vexatious
nature as determined by an independent reputable law firm) against any Relevant
Member of the Group for its winding-up, dissolution, administration or
re-organisation or for the appointment of a receiver, administrator,
administrative receiver, trustee or similar officer of it or of any or all of
its assets or revenues.
11.10 No Event of Default No Event of Default, Review Event or Potential Event
has occurred and is continuing.
11.11 No Material Defaults No Relevant Member of the Group is in breach of or
in default under any term of its constitutive documents, any agreement or
instrument to which it is a party or which is binding on it or any of its
assets or any term of any applicable law, ordinance, rule or regulation or any
order, judgment or decree of any court, arbitrator or governmental authority,
in each case, to an extent or in a manner which would reasonably be expected to
lead to a Material
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Adverse Change.
11.12 Original Financial Statements The Original Financial Statements of each
Relevant Member of the Group (other than CME N.V.) were prepared in accordance
with GAAP and (in conjunction with the notes thereto) fairly present in
conformity with GAAP the consolidated (or, as the case may be, unconsolidated)
financial condition of such Relevant Member of the Group (and, if applicable,
its subsidiaries) at the date as of which they were prepared and the results of
such Relevant Member of the Group's operations during the financial year or
other period to which they relate then ended.
11.13 No Material Adverse Change Since 31 December 1997, there has been no
Material Adverse Change.
11.14 Ownership of Assets by CME Ltd. Except as permitted by or in accordance
with the Security Documents, CME Ltd. is the absolute sole beneficial owner of
(i) all the outstanding shares of CME N.V., (ii) all of the rights and benefits
relating to CME Ltd.'s Bank Accounts (and the monies held therein) and (iii)
all outstanding Intercompany Loans made by it free (in each case) from
encumbrances and it has not granted (or agreed to grant) any rights of
pre-emption over the shares in CME N.V. or otherwise disposed (or agreed to
dispose) of the whole or any part of such shares, rights, benefits or
Intercompany Loans. Furthermore, CME Ltd.'s only assets are (a) shares in CME
N.V., (b) one share in CME Media Enterprises (UK), (c) shares in a company
incorporated in England (provided that promptly upon CME Ltd. becoming the
owner of such shares it shall contribute the loan of $ 22,497,750 made by it to
CME B.V. and referred to in the Sixth Schedule to such company as share premium
and all such shares except one shall be transferred to CME N.V. who shall
transfer the same to CME B.V.), (d) the monies from time to time standing to
the credit of CME Ltd.'s Bank Accounts, (e) the outstanding Intercompany Loans
secured in accordance with CME Ltd.'s Pledge of Intercompany Loans, (f) any
assets secured in favour of the Security Agent in accordance with Clause 14.6
(Ownership of Assets by CME Ltd.) and (g) the rights relating to each of the
foregoing and assets used solely in managing and administering CME Ltd. or the
aforementioned activities of CME Ltd..
11.15 Activities of CME N.V. CME N.V. is the absolute sole beneficial owner of
(i) all the outstanding shares in CME B.V., (ii) 1% of the outstanding share
capital of CME Medienbeteiligungen GmbH, (iii) cash raised by the issue of
further shares in CME N.V. as permitted hereunder and (iv) all intercompany
loans made by it as permitted hereunder and carries on no business other than
the holding of all the outstanding shares of CME B.V. and 1% of the outstanding
share capital of CME Medienbeteiligungen GmbH (and related management and
administering activities) and owns no assets other than the aforementioned
shares and assets and any assets used solely in managing and administering CME
N.V. or the aforementioned activities of CME N.V..
11.16 Ownership of Assets by CME B.V. and CME Czech II Except pursuant to the
Security Documents, CME B.V. is the absolute, sole beneficial owner of all of
the issued share capital of CME Czech II and CME Czech II is the absolute, sole
beneficial owner of all the issued share capital of the Borrower in each case
free from encumbrances, counterclaim or dispute and
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neither CME B.V. nor CME Czech II has granted (or agreed to grant) any rights
of pre-emption over or otherwise disposed (or agreed to dispose) of the whole
or any part of such shares.
11.17 Ownership of Assets by the Borrower Except pursuant to the Security
Documents, the Borrower is the absolute, sole beneficial owner of (i) at least
79% of the voting and economic interests in Nova TV and exclusively entitled to
all profit distributions relating to such economic interests, (ii) all of the
rights and benefits relating to each of the bank accounts (and the monies held
therein) secured under the Borrower's Pledge of Bank Accounts and (iii) all
Intercompany Loans made by it, free (in each case) from encumbrances, rights of
counter-claim (in the case of assets other than the bank accounts secured by
the Borrower's Pledge of Bank Accounts and rights relating thereto) or dispute
by any person (other than, in the case of any bank account, the relevant bank
at which such account is held) and:
(a) at least 79% of the voting and economic interests in Nova TV
remain free from any rights of pre-emption granted (or agreed
to be granted) to any person and have not been disposed of
(and are not subject to any agreement for disposal); and
(b) the Borrower has not subordinated or disposed of (or agreed
to subordinate or dispose of) the whole or any part of such
rights, benefits or Intercompany Loans referred to in (ii)
and (iii) above.
The Borrower owns no other assets other than voting and economic interests in
Nova TV, the monies from time to time standing to the credit of the bank
accounts secured under the Borrower's Pledge of Bank Accounts, the Intercompany
Loans secured in accordance with the Borrower's Pledge of Intercompany Loans
and the rights relating to any of the foregoing and assets used solely in
managing and administering the aforementioned activities of the Borrower and
those activities mentioned in Clause 14.7.
11.18 Full Disclosure The factual information contained in the Information
Memorandum (other than sections 8 and 9 of the Information Memorandum dated
August 1997 thereof for which neither the Borrower nor any Guarantor is
accepting responsibility and save as disclosed to the Facility Agent in writing
prior to the date hereof) is at the date hereof (or in the case of the
Information Memorandum prepared in August 1997 and December 1997 were at the
date the same were prepared) accurate in all material respects and all
statements of opinion, projections and forecasts contained therein have been
made in good faith and based on estimates and assumptions which CME Ltd.
considers reasonable as at the date hereof (or in the case of the Information
Memorandum prepared in August 1997 and December 1997 which CME Ltd. considered
reasonable as at the date the same were prepared). Neither the Borrower nor any
Guarantor has omitted to state a material fact necessary to make the
information contained in the Information Memorandum (other than sections 8 and
9 of the Information Memorandum dated August 1997 which neither the Borrower
nor any Guarantor is accepting responsibility) relating to any Relevant Member
of the Group not misleading in any material respect as at the date hereof.
11.19 Encumbrances Save as permitted by Clause 14.9 (Negative Pledge), no
encumbrance
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exists over all or any of the present or future revenues or assets of any
Relevant Member of the Group.
11.20 No Obligation to Create Security The execution of each of the Facility
Documents and the exercise of the rights and performance of the obligations
thereunder by each party thereto will not result in the existence of nor oblige
any Relevant Member of the Group to create any encumbrance over all or any of
its present or future revenues or assets other than any Permitted Encumbrance.
11.21 Execution of the Facility Documents The execution of each of the Facility
Documents to which it is expressed to be a party and the Service Agreement by
any Relevant Member of Group and its exercise of its rights and performance of
its obligations thereunder do not and will not:
(a) conflict with any agreement, mortgage, bond or other
instrument or treaty to which it is a party or which is
binding upon it or any of its assets;
(b) conflict with its constitutive documents and rules and
regulations or with the Partnership Agreement; or
(c) conflict with any applicable law, ordinance, rule, regulation
or official or judicial order in any material respect.
11.22 Compliance with Law Each Relevant Member of the Group is conducting and
has conducted its business in compliance in all material respects with all
material applicable laws, regulations and authorisations of all relevant
governmental authorities (including without limitation the Securities and
Exchange Commission). Each Relevant Member of the Group has duly obtained all
material consents, licenses, approvals and authorisations from all relevant
governmental authorities and other third persons and has effected all
declarations, filings and registrations with all relevant governmental
authorities and other third persons necessary for the due execution, delivery
and performance by it of each of the Facility Documents, the Partnership
Agreement, the Service Agreement and each Intercompany Loan Agreement to which
it is a party and the continued conduct of its business except for those
relating to future operations and transactions which are expected to be
obtained as a matter of course and those which the failure to obtain would not
reasonably be expected to lead to a Material Adverse Change.
11.23 Exclusivity The Nova TV Licence has been issued to CET 21 exclusively.
Nova TV has the exclusive right to benefit from, use and enjoy the rights
associated with the Nova TV Licence and each of the Nova TV Licence and the
Service Agreement is in full force and effect and no notice of revocation,
cancellation or withdrawal thereof has been given by any relevant person and
neither Nova TV nor CET 21 is in breach of any of its obligations under the
Nova TV Licence or the Service Agreement. The execution of, the exercise of
rights and the performance by any Relevant Member of the Group of its
obligations under any of the Facility Documents will not conflict with, breach
or cause any default under the Nova TV Licence or the Service Agreement.
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11.24 Litigation, etc. Save as disclosed in the Eighth Schedule:
(i) as at the date hereof, there is no action, suit,
investigation, arbitration or other proceeding pending or, to
the best of the knowledge and belief of the Borrower and each
Guarantor, threatened against (a) any member of the Group
which other than Nova TV, would reasonably be expected to
result in, individually or in conjunction with any other
action, suit, investigation, arbitration or other proceeding,
a Material Adverse Change or (b) Nova TV or CET 21 ; and
(ii) as at any date after the date hereof, there is no action,
suit, investigation, arbitration or other proceeding pending
or, to the best of the knowledge and belief of the Borrower
and each Guarantor, threatened against any member of the
Group or CET 21 which would reasonably be expected to result
in, individually or in conjunction with any other action,
suit, investigation, arbitration or other proceeding, a
Material Adverse Change.
11.25 Security Documents Each of the Security Documents shall, as at the date
of delivery of the first Notice of Drawdown to the Facility Agent hereunder and
at all times when this representation and warranty is repeated thereafter,
create a first ranking, valid, perfected and enforceable security interest in
respect of the revenues and/or assets referred to therein subject, in the case
of the Agreement on Pledge of Dividends of Nova TV and any dividends which have
not been declared by Nova TV, to the due execution by the Borrower of a further
pledge of dividends pursuant to and in accordance with Clause 3.2 of the
Agreement on Pledge of Dividends of Nova TV (subject to any limitations arising
from administration, bankruptcy, insolvency, liquidation, reorganisation and
similar laws generally affecting the rights of creditors).
11.26 Repetition of Representations Each of the representations and warranties
contained in Clauses 11.1 (Status and Due Authorisation of Borrower) to 11.25
(Security Documents) (other than 11.3 (Withholding Tax), 11.13 (No Material
Adverse Change) and 11.18 (Full Disclosure)) shall be repeated on the date of
the making of any Advance to which Clause 3.1 (f) (Drawdown Conditions) applies
by reference to the facts and circumstances then existing and as if references
therein to "Original Financial Statements" in relation to any Relevant Member
of the Group was a reference to the most recent set of financial statements
delivered in relation to such Relevant Member of the Group pursuant to Clauses
12.1 (Annual Statements (CME Ltd. and CME B.V.)) and 12.2 (Annual Statements
(others)).
12. Financial Information
12.1 Annual Statements (CME Ltd. and CME B.V.) CME Ltd. shall as soon
as the same become available, but in any event within 100 days after the end of
each of its financial years, deliver to the Facility Agent in sufficient copies
for the Banks the consolidated financial statements of CME Ltd. and CME B.V.
for such financial year.
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12.2 Annual Statements (others) CME Ltd. shall, as soon as the same become
available, but in any event within 100 days of the end of each financial year
of each other Relevant Member of the Group (other than CME N.V.), deliver to
the Facility Agent in sufficient copies for the Banks the unconsolidated or, if
such Relevant Member of the Group (other than the Borrower and CME Czech II)
has any subsidiary, the consolidated financial statements of each such other
Relevant Member of the Group for such financial year.
12.3 Quarterly Statements (CME Ltd. and CME B.V.) CME Ltd. shall as soon as the
same become available, but in any event within 55 days after the end of each of
the first three quarters of each of its financial years, deliver to the
Facility Agent in sufficient copies for the Banks the consolidated financial
statements of CME Ltd. and CME B.V. for such period.
12.4 Quarterly Statements (others) CME Ltd. shall as soon as the same become
available, but in any event within 55 days after the end of each of the first
three quarters of each financial year of each other Relevant Member of the
Group (other than CME N.V.), deliver to the Facility Agent in sufficient copies
for the Banks the unconsolidated financial statements of each such other
Relevant Member of the Group for such period.
12.5 Other Information CME Ltd. shall from time to time on the request of the
Facility Agent, furnish the Facility Agent with such information about the
business or financial condition of any Relevant Member of the Group as the
Facility Agent may reasonably require. In respect of any information which is
provided other than in the form of a notice or a certificate, the Facility
Agent may request in writing that the Relevant Member of the Group who provided
such information gives the Facility Agent confirmation in a written statement
as to whether or not such information is incorrect or misleading in any
material respect. If the Facility Agent has not received such written statement
within ten business days of its request in writing, the Relevant Member of the
Group who provided such information shall be deemed to have provided the
Facility Agent with a written statement that such information is not incorrect
or misleading in any material respect.
12.6 Requirements as to Financial Statements CME Ltd. shall ensure that:
(a) each set of financial statements delivered by it pursuant to
this Clause 12 (Financial Information) is certified either by
the chief financial officer of CME Ltd. or by two other duly
authorised officers of CME Ltd. as fairly presenting the
consolidated or, as the case may be, unconsolidated financial
condition of the Relevant Member of the Group to which such
financial statements relate as at the end of the period to
which those financial statements relate and of the results of
their operations during such period;
(b) each set of financial statements delivered by it pursuant to
Clause 12.1 (Annual Statements (CME Ltd. and CME B.V.)) and
12.2 (Annual Statements (others)) has been audited by
reputable international accountants (including, without
limitation, KPMG, Arthur Andersen, Deloitte Touche Tohmatsu,
Ernst & Young and PricewaterhouseCoopers or any successors
thereto); and
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(c) each set of financial statements delivered by it pursuant to
Clauses 12.1 - 12.4 inclusive is accompanied by a Compliance
Certificate and, in the case of any annual statements, an
auditor's certificate in each case (i) confirming compliance
with Clause 13 (Financial Condition) in respect of or as at
the end of the relevant quarter to which such statements are
made up (ii) containing a calculation of the test set out in
the Fifth Schedule and (other than in the case of an
auditor's certificate) (iii) stating whether any Event of
Default, Review Event or Potential Event exists on the date
of such Compliance Certificate and, if any Event of Default,
Review Event or Potential Event then exists, specifying the
nature and extent thereof and the action (if any) which it is
taking or proposes to take with respect thereto as at the end
of the relevant quarter.
12.7 Accounting Policies The Borrower and each Guarantor shall ensure that each
set of financial statements delivered to the Facility Agent pursuant to this
Clause 12 (Financial Information) is prepared using accounting policies,
practices, procedures and reference period consistent with those applied in the
preparation of the corresponding Original Financial Statements unless, in
relation to any such set of financial statements, the Borrower or such
Guarantor notifies the Facility Agent that there have been one or more changes
in any such accounting policies, practices, procedures or reference period and
the auditors for the time being of the Borrower or Relevant Member of the Group
(in the case of annual statements) or the chief financial officer of CME Ltd.
(in any other case) provide:
(a) a description of the changes and the adjustments which would
be required to be made to those financial statements in order
to cause them to use the accounting policies, practices,
procedures and reference period upon which the relevant
Original Financial Statements were prepared; and
(b) sufficient information, in such detail and format as may be
reasonably required by the Facility Agent, to enable the
Banks to make an accurate comparison between the financial
position indicated by those financial statements and the
relevant Original Financial Statements,
and any reference in this Agreement to those financial statements shall be
construed as a reference to those financial statements as adjusted to reflect
the basis upon which the relevant Original Financial Statements were prepared.
13. Financial Condition
13.1 Financial Condition of the Group CME Ltd. shall ensure that the financial
condition of CME B.V., CME Ltd., the Borrower and Nova TV (each a "relevant
party") as evidenced by the most recent of the yearly and quarterly financial
statements of such relevant party delivered in accordance with Clause 12
(Financial Information) shall be such that:
(i) Leverage Ratio: At all times the ratio of Consolidated
Indebtedness of such relevant party to Consolidated Tangible
Net Worth of such relevant party as at
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the end of each financial year or the end of each financial
quarter of such relevant party ending during any period set
out below shall not exceed the ratio set opposite such period
under the name of such relevant party set out below Provided
that for the period up to and including the third financial
quarter in 2000 of each of CME B.V. and CME Ltd., TVN and TV
3 shall be excluded from the figures relating to CME B.V. and
CME Ltd.:
LEVERAGE RATIO
Period CME Ltd. CME B.V. Nova TV
1998 2.0:1 2.0:1 1.5:1
1999 2.0:1 2.0:1 1.25:1
2000 2.0:1 2.0:1 1.0:1
2001 2.0:1 2.0:1 1.0:1
(ii) Consolidated Broadcast Cash Flow Ratio: The ratio of
Consolidated Indebtedness of such relevant party as at the
end of each financial year or the end of each financial
quarter of such relevant party falling within any period set
out below to Consolidated Broadcast Cash Flow of such
relevant party in respect of any twelve calendar month period
which ends at the end of each such financial year or
financial quarter of such relevant party shall not exceed the
ratio set opposite such period under the name of such
relevant party set out below Provided that:
(a) for the twelve calendar month period ending 31
December 1998 Studio 1+1 shall be excluded from
Consolidated Broadcast Cash Flow of CME B.V. and CME
Ltd.; and
(b) for each twelve month period ending on or prior to
the end of the third financial quarter in 1999 (in
the case of TVN) or 2000 (in the case of TV3), TVN
and/or TV3 (as the case may be) shall be excluded
from Consolidated Broadcast Cash Flow of CME B.V.
and CME Ltd.
CONSOLIDATED BROADCAST CASH FLOW RATIO
Period CME Ltd. CME B.V. Nova TV
1 October - 31 7.0:1 7.0:1 1.25:1
December 1998
1 January - 31 6.5:1 6.5:1 1.25:1
March 1999
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1 April - 30 5.0:1 5.0:1 1.25:1
June 1999
1 July - 30 4.0:1 4.0:1 1.25:1
September 1999
1 October - 31 2.0:1 2.0:1 1.25:1
December 1999
2000 2.0:1 2.0:1 1.25:1
2001 2.0:1 2.0:1 1.25:1
(iii) Interest Coverage Ratio: The ratio of Net Cash Flow of the
Borrower to Total Interest Expense of the Borrower in respect
of any twelve calendar month period ending at the end of any
financial year or financial quarter which ends during any
year specified below shall not be less than that set opposite
such year below:
Year Ratio
1998 5.0:1.0
1999-2001 6.0:1.0
(iv) Debt Service Coverage Ratio: The ratio of Net Cash Flow of
the Borrower as at the end of any twelve calendar month
period ending at the end of any financial year or financial
quarter to Debt Service for the Borrower for such period
shall not be less than 2.00:1.
(v) Maximum Financial Indebtedness The principal amount of
financial indebtedness of Nova TV shall not exceed the
greater of CZK 1,000,000,000 and the equivalent in Czech
Crowns of $32,787,000 (being the dollar equivalent of CZK
1,000,000 calculated at CZK 30.5: $1) at any time.
13.2 Definitions In this Clause 13 (Financial Condition) (subject
to Clause 13.3):
(a) "Consolidated Broadcast Cash Flow" means, in respect of any
relevant party and any twelve month period, the
Consolidated Net Revenues of such relevant party
for such period less the sum of:
(i) consolidated operating expenses (other than
depreciation and amortisation and, in the
case of Nova TV, any Fee Payment) of such
relevant party and each of its subsidiaries
for such period;
(ii) consolidated selling and general and administrative
expenses of such relevant party and each of
its subsidiaries for such period; and
(iii) cash paid for programme rights by such relevant party
and each of its
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subsidiaries during such period to any
person other than such relevant party or
any subsidiary of such relevant party;
(b) "Consolidated Indebtedness" means, in relation to any
relevant party, all consolidated indebtedness of
such relevant party and each of its subsidiaries
(other than Permitted Debt and all indebtedness owed
in respect of the provision of any goods or services
in the ordinary course of trading which are due for
payment within twelve months and all dividends and
taxes declared as due and payable but including the
CS Loan);
(c) "Consolidated Net Revenues" means, in relation to any
relevant party, all revenues after discounts to
advertisers of such relevant party and each of its
subsidiaries on a consolidated basis;
(d) "Consolidated Tangible Net Worth" means, in relation
to any relevant party, the excess of the
Consolidated Total Tangible Assets of such relevant
party over the Consolidated Total Liabilities of
such relevant party;
(e) "Consolidated Total Liabilities" means, in relation to any
relevant party, the aggregate on a consolidated
basis of such relevant party's and each of its
subsidiaries' current liabilities and long-term
liabilities other than, in relation to CME Ltd. and
CME B.V., any Permitted Debt;
(f) "Consolidated Total Tangible Assets" means, in relation to
any relevant party, the total assets of such
relevant party and each of its subsidiaries on a
consolidated basis less any amount attributable to
goodwill, programming rights (after amortisation),
licences, organisation costs and development costs
and any other intangible asset (after amortisation);
(g) "Debt Service" means, in respect of any period and in relation
to the Borrower the sum of all scheduled reductions
in the Total Commitments to be implemented in
accordance with Clause 6.2 (Reduction) and Total
Interest Expense of the Borrower paid or accrued
during such period;
(h) "Net Cash Flow" means, in respect of any period and in
relation to the Borrower the sum of:
(i) dividends received and interest income received from
loans made by the Borrower to any other
member of the Group, the aggregate
principal amount of all loans made by the
Borrower to CME B.V. as at the beginning of
such period less the aggregate principal
amount of all loans made by the Borrower to
CME B.V. as at the end of such period (if
such figure is a positive number),
Management Fees, Network Access Fees,
Programming Fees, royalties and other cash
received (excluding any cash received as a
result of disposal of any asset or revenue
(other than assets which are obtained and
held for resale)) by the Borrower during
such period; less
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(ii) overheads and other cash expenses of the Borrower
and any Restricted Payments of the
types referred to in paragraph (a) of the
definition thereof by the Borrower other
than Total Interest Expense of the
Borrower;
(i) "Permitted Debt" means:
(1) in relation to CME Ltd., all financial indebtedness
in respect of the Notes and all other
financial indebtedness of CME Ltd. which is
subordinated to the satisfaction of the
Facility Agent to the rights of the
Arranger, the Agents and the Banks
hereunder and under the Facility Documents;
and
(2) in relation to CME B.V., all Intercompany Loans made
to it by CME Ltd.; and
(j) "Total Interest Expense" means, in respect of any
period in relation to the Borrower, the amount of
all interest, commissions, discounts and other fees
in respect of financial indebtedness of the Borrower
incurred or payable by the Borrower including
capitalised interest, during such period.
13.3 New Stations For the purposes of each of the definitions in
paragraphs (a) to (f) inclusive each New Station which was formed,
incorporated or acquired (whichever is the later) directly or
indirectly by CME B.V. or CME Ltd. during the twelve month period
ending on the last day of any financial year or financial quarter (as
the case may be) in relation to which such definition is to be
calculated shall be excluded from such calculation.
13.4 Accounting Terms All accounting expressions which are not
otherwise defined herein shall be defined in accordance with GAAP.
14. Covenants
14.1 Restricted Payments CME Ltd. shall ensure that:
(a) neither the Borrower nor CME B.V. will pay, make or declare any
Restricted Payment (except that the Borrower may
make any Restricted Payment of the type referred to
in paragraph (a) of the definition thereof provided
that no Event of Default or Review Event has
occurred which is continuing or would occur as a
result of the making of such Restricted Payment);
and
(b) the Borrower will not issue any further shares or other equity
after the date hereof unless, at the time of such
issue, such shares or other equity is the subject of
fully perfected, first ranking security in favour of
the Security Agent on behalf of the Banks from time
to time to the satisfaction of the Facility Agent.
14.2 Consolidations and Mergers CME Ltd. shall ensure that no Relevant
Member
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of the Group will consolidate or merge with or into any person
without the consent of an Instructing Group (such consent not to be
unreasonably withheld or delayed). It will be unreasonable to withhold
consent to a merger or consolidation between Nova TV and CET 21 (a
"Nova merger") if:
(i) after the Nova merger takes effect the Borrower will own
directly not less than 79% of the equity and economic
interests in the surviving or principal entity resulting from
the Nova merger and such entity will own the Nova TV License;
(ii) no Event or Default or Review Event will result from the Nova
merger; and
(ii) an Instructing Group is satisfied in its sole and absolute
discretion that the Nova merger will not result in a Material
Adverse Change nor adversely affect the interests of the
Banks.
14.3 Sales of Assets Without prejudice to Clause 14.11 (Limitation on
Loans and Advances), CME Ltd. shall ensure that no Relevant Member of
the Group will sell, assign, abandon, lease or otherwise dispose of,
directly or indirectly, all or any part of its assets or revenues
Provided that:
(i) CME Ltd. may dispose of:
(a) its one share in CME Media Enterprises (UK) to any
person;
(b) cash by way of loan to CME B.V. in accordance
herewith or by way of subscription for an
equity participation in CME N.V. or by way
of any Restricted Payment not prohibited
hereunder or by way of payments not
prohibited hereunder in respect of any
financial indebtedness; or
(c) any assets used in the course of the management or
administration of the business of CME Ltd
as described in Clauses 11.14 (Ownership of
Assets of CME Ltd.);
(ii) CME N.V. may dispose of:
(a) 1% of the outstanding share capital of CME
Medienbeteiligungen GmbH to CME B.V.;
(b) cash by way of loan to CME B.V. or by way
of subscription for an equity participation
in CME B.V. or by way of any Restricted
Payment not prohibited hereunder; or
(c) any assets used in the course of the management or
administration of the business of CME N.V.
as described in Clauses 11.15 (Activities
of CME N.V.) and 14.4 (Changes in Business)
Provided that CME N.V. shall not be permitted to sell, assign,
abandon, lease or otherwise dispose of any of its
shares in CME B.V.;
(iii) CME B.V. and CME Czech II may dispose of:
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(a) any assets in the ordinary course of business of the
disposing entity on an arm's length basis
at fair market value including (in the case
of CME B.V.) the disposal of equity
interests in any person held by CME B.V. or
CME Czech II excluding, for the avoidance
of doubt:
(i) shares and voting rights in the Borrower;
and
(ii) disposals of shares and voting rights in CME
Czech II by CME B.V.;
(b) assets in exchange for other assets comparable or
superior as to type;
(c) obsolete assets;
(d) any assets which in any financial year do not exceed
20% of CME B.V.'s or CME Czech II's (as the
case may be) Consolidated Total Tangible
Assets as determined from the latest
relevant annual audited financial
statements delivered to the Facility Agent
pursuant to Clause 12 (Financial
Information); or
(e) cash by way of loan to any member of the Group or by
way of subscription for an equity interest
in any member of the Group or by way of any
Restricted Payment not prohibited hereunder
or by way of payments not prohibited
hereunder in respect of any financial
indebtedness;
(iv) the Borrower may dispose of:
(a) its equity participation in Nova TV (provided that
no such disposal shall be permitted if, as
a result, the Borrower would cease to own,
beneficially, 79% of the equity and
economic interests in Nova TV) but only if
the proceeds thereof are applied in
permanent reduction or discharge of the CS
Loan;
(b) cash by way of (i) any Restricted Payment permitted
hereunder or (ii) any loan to CME B.V. in
accordance with Clause 14.11 (Limitation on
Loans and Advances); or
(c) any assets used in the course of the management or
administration of the business of the
Borrower as described in Clauses 11.17
(Ownership of Assets by the Borrower) and
14.7 (Activities of the Borrower);
(v) Nova TV may dispose of:
(a) any assets (other than any right, title or interest
in or in relation to the Nova TV Licence or
the Service Agreement) in the ordinary
course of its business on an arm's length
basis at fair market value;
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(b) any assets which in any of its financial years do not
exceed 5% of its Consolidated Total
Tangible Assets (other than any right,
title or interest in or in relation to the
Nova TV Licence or the Service Agreement),
in each case determined from its latest
relevant annual audited financial
statements delivered to the Facility Agent
pursuant to Clause 12 (Financial
Information); or
(c) cash by way of any Restricted Payment or by way of
payments not prohibited hereunder in
respect of any financial indebtedness.
14.4 Changes in Business CME Ltd. shall ensure that none of itself,
CME B.V., CME Czech II and Nova TV will:
(i) make any change in the nature or in the present method of
conducting business which could reasonably be
expected to result in a Material Adverse Change; or
(ii) (in the case of Nova TV only) engage in any business
other than business of the same general type as now
conducted by it under and/or in accordance with the
Nova TV Licence and the Service Agreement,
and shall ensure that CME N.V. shall not carry on any business other
than holding all the outstanding share capital of CME B.V. and 1% of
the outstanding share capital in CME Medienbeteiligungen GmbH and
shall not own any assets other than those specified in Clause 11.15
(Activities of CME N.V.).
14.5 Maintenance of Nova TV Licence and Intellectual Property Rights
CME Ltd. shall ensure that Nova TV will ensure that each of the Nova
TV Licence and the Service Agreement is preserved, renewed and kept in
full force and effect and that the "Nova" name is not sold or used by
any person other than a member of the Group or by way of the
merchandising of any products.
14.6 Ownership of Assets by CME Ltd. CME Ltd. shall not:
(i) own any assets or revenues unless such assets and revenues
(other than rights to receive dividends and the
shares owned by it in CME N.V., CME Ltd.'s Bank
Accounts, the one share owned by it in CME Media
Enterprises (UK) Ltd and shares in a company
incorporated in England (provided that promptly upon
CME Ltd. becoming the owner of such shares it shall
contribute the loan of $ 22,497,750 made by it to
CME B.V. and referred to in the Sixth Schedule to
such company as share premium and all such shares
except one shall be transferred to CME N.V. who
shall transfer the same to CME B.V.) are the subject
of fully perfected first-ranking security in favour
of the Security Agent to secure the claims of the
Agents, Arranger and the Banks and each of them
under the Facility Documents or are used solely in
the management and administering of its activities
referred to in Clause 11.14 (Ownership of Assets By
CME Ltd.); or
(ii) grant or permit to exist any rights of pre-emption in respect
of the shares of
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CME N.V.
14.7 Activities of the Borrower Without prejudice to any other
provision hereof, the Borrower shall not engage in any business or
activity or incur any liability (other than operating expenses up to a
maximum of $10,000 per financial year of the Borrower) or own any
revenues or assets whatsoever other than as stated in Clause 11.17
(Ownership of Assets by the Borrower) or enter into any agreement,
instrument or arrangement whatsoever other than:
(i) the execution, delivery and performance of its obligations
under, and the exercise of the rights granted to it
by, the Facility Documents to which it is a party
and the transactions hereby and thereby
contemplated;
(ii) for the purposes of documenting the making of, or the making
of, Intercompany Loans and Restricted Payments
permitted hereunder;
(iii) in order to manage its voting and economic rights or interests
in Nova TV and matters incidental thereto; or
(iv) any agreement, instrument or arrangement solely for the
purpose of effecting the sale and transfer to any
other person of its voting and economic interests in
Nova TV provided that such voting and economic
interests following such sale are no less than 79%.
14.8 Loans to CME N.V., the Borrower, and Nova TV None of CME N.V.,
the Borrower and Nova TV will incur (or permit to subsist) any
financial indebtedness other than:
(i) in the case of Nova TV, financial indebtedness not exceeding
in aggregate the greater of CZK 1,000,000,000 and
the equivalent in Czech Crowns of $32,787,000 (being
the dollar equivalent of CZK 1,000,000,000
calculated at CZK 30.5: $1) from any person, such
financial indebtedness to be used solely for the
business and operations of Nova TV and not for the
purposes of making any Restricted Payment, payment
of any Management Fees, Network Access Fees or
Programming Fees or for the purpose of making any
loan or providing financial indebtedness to any
other person; and
(ii) in the case of CME N.V. and the Borrower, financial
indebtedness incurred under the Facility Documents
or (in the case of the Borrower) pursuant to the
application of Clause 6.5 (Application of Relevant
Payments), and the Borrower shall ensure within
sixty days of the date hereof that its constitutive
documents are amended to ensure that it does not
have power to incur any financial indebtedness other
than financial indebtedness permitted under the
Facility Documents or pursuant to the application of
Clause 6.5 (Application of Relevant Payments).
14.9 Negative Pledge CME Ltd. shall ensure that no Relevant Member of
the Group will create, assume or suffer to exist any encumbrance on
any of its revenues or assets now owned or hereafter acquired by it,
except for:
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(i) a Permitted Encumbrance granted to any person other than the
holders of the Notes or any of them or any person on
their or its behalf; and
(ii) any security interest created pursuant to the Facility
Documents.
14.10 Limitation on Sale-Leasebacks CME Ltd. shall ensure that no
Relevant Member of the Group will enter into any arrangement with any
person providing for the leasing by it of any property that has been
or is to be sold or transferred by it to such person more than 60 days
after the acquisition thereof or the completion of construction and
commencement of full operation thereof.
14.11 Limitation on Loans and Advances CME Ltd. shall ensure that none
of the Relevant Members of the Group will make or commit to make, or
allow to remain outstanding any advance, loan or extension of credit
to, or enter into any Guarantee (other than any Guarantee hereunder)
with respect to the obligations of, any person, except:
(i) extensions of trade credit in the ordinary course of business;
(ii) loans and advances by any Relevant Member of the Group (other
than the Borrower and CME N.V.) to its officers and
directors (or its employees) Provided that such
loans and advances are:
(a) approved by the chief financial officer of such
Relevant Member of the Group as the case
may be, for travel, entertainment or
relocation expenses in the ordinary course
of business; and
(b) not in excess, in aggregate, of $3,000,000 or
equivalent thereof from time to time; and
(iii) (without prejudice to Clause 14.8 (Loans to CME N.V., the
Borrower, and Nova TV) and except as a result of the
application of Clause 6.5 (Application of Relevant
Payments)) loans and advances:
(a) by CME Ltd. to CME B.V. (provided such loans comply
with Clause 14.12 (Terms of Intercompany
Loans) and are subject to an Intercompany
Loan Agreement) and Guarantees issued by
CME Ltd. to any person in respect of any
indebtedness of any member of the Group;
(b) by CME B.V. or CME Czech II to any member of the
Group (other than the Borrower, CME N.V. or
CME Ltd.) and Guarantees issued by CME B.V.
or CME Czech II to any person in respect of
any indebtedness of any member of the Group
(other than the Borrower, CME N.V. or CME
Ltd) Provided that any such loans or
advances made by CME B.V. or CME Czech II
to Nova TV (1) shall be made on
commercially reasonable terms which are on
terms which are as good as or better for
the Nova TV than the terms that it could
have obtained from a commercial lender in
an arms' length transaction and (2) shall
not cause a breach of any provision hereof;
or
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(c) by CME N.V. to CME B.V; or
(d) by the Borrower to CME B.V. under an Intercompany
Loan Agreement by way of the making of a
loan of the proceeds of any amounts drawn
down hereunder or of any amount held by it
which is not required to be placed in the
Dollar Collection Account in accordance
with Clause 6.5 (Application of Relevant
Payments) or which is held by it (whether
in the Local Currency Collection Account,
the Guilder Account or otherwise) and which
is not required to be converted into
dollars and transferred to the Dollar
Collection Account in accordance with
Clause 6.5 (Application of Relevant
Payments) provided that all right, title
and interest of the Borrower in or to such
indebtedness referred to in this Clause
14.11(iii)(d) shall be secured in favour of
the Security Agent to secure the claims of
the Agents, Arranger and the Banks and each
of them under the Facility Documents to the
satisfaction of the Facility Agent; or
(e) by CME B.V. or CME Czech II to any person who is
party to a joint venture or similar
arrangement with a member of the Group; or
(f) by Nova TV to Radio Alpha a.s. in an aggregate
principal amount outstanding at any time
not exceeding $1,000,000 (or its equivalent
in another currency).
14.12 Terms of Intercompany Loans CME Ltd. shall ensure that:
(i) all Intercompany Loans made are governed by Dutch law or
such other law as may be agreed by the Facility
Agent in its sole and absolute discretion (and the
Facility Agent hereby agrees that the Intercompany
Loans referred to in the Sixth Schedule
(Intercompany Indebtedness) from CME Ltd. to CME
B.V. and any future loan from CME Ltd. to CME B.V.
may be governed by Bermudan law);
(ii) all Intercompany Loans made by the Borrower with the
proceeds of any Advance shall produce earnings for
the Borrower which exceed the cost to the Borrower
of borrowing such Advance and shall mature on a date
which is no later than the final maturity date of
the Facility (whether in the normal course, by
default or otherwise);
(iii) all Advances are used for the making or refinancing of
Intercompany Loans to CME B.V. provided that, to the
extent any such Intercompany Loan is funded by an
Advance, the proceeds of repayment of any such
Intercompany Loan shall be used only either to repay
Advances or to make another Intercompany Loan to CME
B.V.; and
(iv) it shall not demand repayment of the principal amount of any
Intercompany Loan which is outstanding at the date
hereof when any amount is due or owing (whether
present or future, actual or contingent) under the
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Facility Documents or any of them or the Arranger,
the Agents and the Banks or any of them remain under
any actual or contingent obligations under the
Facility Documents or any of them unless such the
principal amount to be repaid is demanded solely for
the purpose of making scheduled payments of interest
(excluding, without limitation, default interest) in
respect of the Notes and then only when such amount
is due or is about to become due and the amount
repaid as a result of such demand is promptly
applied solely for such purpose.
14.13 Transactions with Affiliates CME Ltd. shall ensure that none of
the Relevant Members of the Group will:
(i) enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property or the
rendering of any service, with any member of the
Group or assume or suffer to exist any employment or
consulting contract with any Affiliate referred to
in paragraph (b) of the definition thereof except
any transaction or contract which is in the ordinary
course of business, and which is upon fair and
reasonable terms no less favourable than those that
would be obtained in a comparable arm's length
transaction with a person not a member of the Group
or an Affiliate referred to in paragraph (b) of the
definition thereof and which is otherwise not
prohibited hereunder;
(ii) make any advance or loan to any Affiliate referred to in
paragraph (b) of the definition thereof or to any
trust of which any Affiliate referred to in
paragraph (b) of the definition thereof is a
beneficiary, or to any person on the guarantee of
either of the foregoing; or
(iii) pay any fees (other than reasonable directors' fees or
expenses) or expenses to, or reimburse or assume any
obligation for the reimbursement of any expenses
incurred by any Affiliate referred to in paragraph
(b) of the definition thereof,
Provided that nothing contained in this Clause 14.13 (Transactions
with Affiliates) shall be deemed to prohibit any Relevant Member of
the Group (i) from entering into or performing any consulting,
management, stock option or employment agreements with an employee of
such Relevant Member of the Group or (ii) from making loans and
advances permitted by Clause 14.11 (Limitations on Loans and
Advances).
14.14 Bank Accounts The Borrower and CME Ltd. will ensure that it
shall not have any bank accounts, except those bank accounts pledged
in favour of the Security Agent and/or the Banks under the Borrower's
Pledge of Bank Accounts, CME Ltd.'s Bank Accounts and those opened
after providing the Facility Agent with five business days' prior
written notice of details thereof provided that neither the Borrower
nor CME Ltd. shall permit any funds to be credited to any such account
unless such account and all right, title and interest in or to the
same have been secured in favour of the Security Agent to secure the
claims of the Agents, Arranger and the Banks and each of them under
the Facility Documents to the satisfaction of the Facility Agent.
14.15 Enforcement of Rights under the Licence CME Ltd. shall ensure
that Nova
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TV shall use its best efforts to ensure that CET 21 shall,
diligently enforce and protect all its rights under the Nova TV
Licence and use its reasonable endeavours to pursue to the extent
necessary, appropriate and economically feasible any claims it may
have against any third parties in relation thereto.
14.16 Untrue Representations After the delivery of any Notice of
Drawdown and before the making of the Advance requested therein, the
Borrower shall notify the Facility Agent of the occurrence of any
event which results in or may reasonably be expected to result in any
of the representations contained in Clause 11 (Representations) and
which are to be repeated on the making of such Advance being untrue at
or before the time of the making of such Advance.
14.17 Claims Pari Passu CME Ltd. shall ensure that at all times the
claims of the Agents, the Arranger and the Banks against each Obligor
and Nova TV under each of the Facility Documents to which it is a
party and against CME B.V. and the Borrower in relation to any claim
that may arise as a result of the enforcement of the Borrower's Pledge
of Intercompany Loans rank under the laws of the Relevant Jurisdiction
of such Obligor, Nova TV or CME B.V. (as the case may be) at least
pari passu with the claims of all its other unsecured and
unsubordinated creditors save those whose claims are preferred by any
bankruptcy, insolvency, liquidation or other similar laws of general
application.
14.18 Distribution of Profits etc. CME Ltd. shall ensure that no
Relevant Member of the Group shall enter into or permit the
continuance of any partnership, profit-sharing or royalty agreement or
other arrangement whereby the Borrower's or Nova TV's income or
profits are, or might be:
(i) shared with any person (other than a shareholder); or
(ii) distributed in such a manner that the Borrower's proportion
of such income or profits is reduced in any way or
in such a manner whereby the timing or amount of any
such distribution would be altered from that which
would be the case absent the entering into such
partnership, profit-sharing, royalty or other
arrangement
or (save as stated herein) enter into or permit to subsist any
arrangement whereby Nova TV is restricted in distributing its income
or profits or paying Management Fees, Network Access Fees or
Programming Fees to any member of the Group.
14.19 Compliance with Laws CME Ltd. shall ensure that each Relevant
Member of the Group shall comply in all material respects with all
material applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities necessary in connection with
the entering into of the Facility Documents and/or the normal course
of its business, (including its business conducted in connection with
the Nova TV Licence or the Service Agreement), except where the
necessity of compliance therewith is being contested in good faith by
appropriate proceedings.
14.20 Insurance CME Ltd. shall ensure that each Relevant Member of the
Group will maintain insurance with responsible and reputable insurers
in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses, in similar locations and
owning similar properties.
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14.21 Notice of Defaults and Litigation CME Ltd. will give the
Facility Agent prompt written notice of:
(i) the occurrence of any Event of Default, Review Event or
Potential Event;
(ii) the filing or commencement of any action, suit or proceeding
which either (a) would reasonably be expected to
result in a judgment of an amount of $5,000,000 or
more against any Relevant Member of the Group or (b)
relates to the Nova TV Licence or the Service
Agreement;
(iii) any change in the rate of withholding tax on dividend
distributions or in the laws, rules or regulations
relating to exchange controls in the Czech Republic
of which any Relevant Member of the Group is aware;
(iv) any default under the Nova TV Licence or the Service
Agreement or an amendment thereof or waiver of any
provision thereof; and
(v) the receipt of any notice by CET 21 (in relation to the Nova
TV Licence) from any government, court, any
regulatory authority in relation to any default
thereunder or any amendment or waiver of any
provision thereof enclosing a copy of such notice,
and, upon receipt of a written request to that effect from the
Facility Agent, confirm to the Facility Agent that, save as previously
notified to the Facility Agent or as notified in such confirmation, no
Event of Default, Review Event or Potential Event, filing or
commencement or change in such rate of withholding tax or laws, rules
or regulations or default, amendment, waiver or giving of any such
notice under or in relation to the Nova TV Licence or the Service
Agreement has occurred.
14.22 Compliance Generally CME Ltd. shall ensure that each Relevant
Member of the Group will obtain, maintain and comply in all material
respects with the terms of (and if requested by the Facility Agent,
supply certified copies to the Facility Agent of) any material
consent, licence, approval or authorisation required for the conduct
of its business or in connection with the entering into and
performance of its obligations under the Facility Documents to which
it is a party and the Service Agreement.
14.23 Payment Instruction The Borrower will give an irrevocable
payment instruction to Nova TV to transfer all Relevant Payments to be
paid by Nova TV to the Borrower:
(i) in dollars to the Dollar Collection Account; or
(ii) in any other currency to the Local Currency Collection Account.
14.24 Further Assurances The Borrower and CME Ltd. shall, and CME Ltd.
shall ensure that each other Relevant Member of the Group shall,
without prejudice to any provision of any Security Document, execute
and file all such further documents and instruments, and perform such
other acts, as the Facility Agent may reasonably determine are
necessary or advisable (on the basis of advice received from reputable
independent legal counsel) to maintain the security interests granted
to the Security
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Agent and/or the Banks in the Security Documents and to maintain the
priority of such security interests purported to be granted pursuant
to the Security Documents or, in the case of the security interests
created by CME Ltd., to ensure that the claims of the Arranger, the
Agents and the Banks under the Facility Documents against CME Ltd.
rank in priority to the claims of the holders of the Notes.
14.25 Ensuring Compliance Each Relevant Member of the Group shall vote
its ownership interests in Nova TV and/or enter into management
agreements, network access agreements and/or programming services
agreements with Nova TV so that (to the extent available) sufficient
dividend, management fee, network access fee and programming fee
income is paid to the Borrower by Nova TV to ensure that the Borrower
is able to comply with its covenants and obligations hereunder.
14.26 Notification of Acquisitions If Nova TV acquires any equity
interest in any person or (without prejudice to any limitation on
disposals contained herein) disposes of any equity interest in any
person, CME Ltd shall forthwith notify the Facility Agent of such
acquisition or disposal together with the percentage equity interest
in such person acquired or disposed of by Nova TV.
14.27 Amendment, Redemption and Defeasance of the Notes CME Ltd.
shall not at any time:
(i) redeem the Notes in whole or in part (other than with the net
cash proceeds of the issue of common stock by CME
Ltd.);
(ii) make any modification or amendment of any of the terms and
conditions of the Notes which would result in:
(a) the principal amount of any Note becoming payable
prior to its stated maturity; or
(b) an increase in the amount of interest payable on any
Note; or
(c) the bringing forward of the timing of the payment of
such interest,
or make any other amendment which would result in any Relevant Member
of the Group being unable to comply with all or any of its obligations
under any Facility Document or Intercompany Loan Agreement or restrict
or prevent Nova TV from making any Restricted Payment without the
prior written consent of the Facility Agent or as otherwise permitted
hereunder.
14.28 Further Security CME Ltd. shall procure that each member of the
Group shall notify the Facility Agent in respect of any agreement
replacing the Management Support Agreement, the Network Access
Agreement and the Programming Services Agreement relating to Nova TV
or any other agreements relating to the provision of management
services, network access or programming services by any member of the
Group to Nova TV or relating to the distribution of income or profits
to any member of the Group by Nova TV and execute such security
documentation as the Facility Agent may reasonably request to enable
the Security Agent and the Banks to obtain a fully perfected first
ranking security interest over the benefit of such agreements.
14.29 CME Ltd.'s Bank Accounts CME Ltd. shall ensure that no more than
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$5,000,000 in aggregate is standing to the credit of CME Ltd.'s Bank
Accounts at any time unless the aggregate balance standing to the
credit of CME Ltd.'s Bank Accounts which exceeds $5,000,000 at such
time is derived from the issue by CME Ltd. of any share capital or the
incurrence of any financial indebtedness (other than any financial
indebtedness incurred for the purpose of refinancing any existing
financial indebtedness of CME Ltd.) provided that such aggregate
balance is reduced to below $5,000,000 within 30 days from the date on
which such proceeds were credited to such account.
14.30 Year 2000 Requirements CME Ltd. shall ensure that all Computer
Systems of each Relevant Member of the Group shall be, by no later
than 31 December 1999, Year 2000 Compliant (save to the extent that
any non-compliance would not result in a Material Adverse Change).
14.31 Taking Security Interest in Nova TV CME Ltd. shall ensure that,
if and when a valid and enforceable security interest in the
Borrower's economic or other interest(s) in Nova TV may or can be
vested in the Security Agent on behalf of the Arranger, the Agents and
the Banks, the Borrower shall, at the request of the Security Agent,
grant such security interest provided that the granting of such
security interest does not have a material adverse effect on the
business of Nova TV as a result of regulatory, political or public
sensitivities.
14.32 Amendment of the Partnership Agreement CME Ltd. shall ensure
that the Borrower shall:
(i) as soon as reasonably practicable after the date hereof and in
any event by no later than 30 September 1999 convene
a general meeting of Nova TV and pass a resolution
which has the effect of deleting Clause 14.3 of the
Partnership Agreement; and
(ii) shall not at any time exercise its voting rights in Nova TV or
otherwise take any action to wind-up or dissolve
Nova TV.
15. Events of Default
Each of Clause 15.1 (Failure to Pay) to Clause 15.21 (Discontinuation
of Broadcasting) describes circumstances which constitute an Event of
Default for the purposes of this Agreement. Clause 15.22 (Acceleration
and Cancellation), Clause 15.23 (Advances due on Demand) and Clause
15.24 (Length of Terms) deal with the rights of the Agents and the
Banks after the occurrence of an Event of Default.
15.1 Failure to Pay The Borrower or any of the Guarantors fails to pay
any sum due from it under any Facility Document at the time (or in the
case of any sum other than principal, within five business days of the
time), in the currency and in the manner specified herein.
15.2 Misrepresentation Any representation or written statement made or
deemed to be made by any Relevant Member of the Group in any Facility
Document or in any notice or certificate delivered by it pursuant
thereto is or proves to have been incorrect or misleading in any
material respect when made or deemed to be made.
15.3 Specific Covenants The Borrower or any Relevant Member of the
Group fails
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duly to perform or comply with any of the obligations expressed to be
assumed by it in Clause 12 (Financial Information) or Clause 14
(Covenants) and such failure, if capable of remedy, is not remedied
within 15 days after the Borrower or any Relevant Member of the Group
becomes aware of such failure Provided that such 15 day period shall
not apply to a breach of Clause 14.4 in relation to CME N.V. (Changes
in Business).
15.4 Other Obligations Any Relevant Member of the Group or CET 21
fails duly to perform or comply with any other obligation expressed to
be assumed by it in any Facility Document or the Service Agreement and
such failure, if capable of remedy, is not remedied within 30 days
after the Facility Agent has given written notice thereof to the
Borrower.
15.5 Financial Condition At any time any of the requirements of Clause
13.1 (Financial Condition of the Group) (other than Clause 13.1(v)
(Financial Condition of the Group)) is not satisfied or there is a
breach of Clause 13.1(v) (Financial Condition of the Group) which is
not remedied for 10 business days.
15.6 Cross Default Any financial indebtedness of any Relevant Member
of the Group in respect of any amount at the time outstanding which,
when aggregated with all other amounts then outstanding to which this
Clause 15.6 (Cross Default) applies, exceeds $1,000,000 ("relevant
indebtedness") is not paid when due (or within any originally
applicable grace period), any relevant indebtedness of any Relevant
Member of the Group is declared to be or otherwise becomes due and
payable prior to its specified maturity or any creditor or creditors
of any Relevant Member of the Group become entitled to declare any
relevant indebtedness of any Relevant Member of the Group due and
payable prior to its specified maturity.
15.7 Insolvency and Rescheduling Any Relevant Member of the Group or
CET 21 is unable to pay any relevant indebtedness as it falls due,
commences negotiations in contemplation of actual or potential default
with any one or more of its creditors with a view to the general
readjustment or rescheduling of any relevant indebtedness or makes a
general assignment for the benefit of or a composition with its
creditors.
15.8 Winding-up Any Relevant Member of the Group or CET 21 takes any
corporate action or other steps are taken or legal proceedings (other
than frivolous or vexatious steps or proceedings as determined by an
independent reputable law firm) are started for its winding-up,
dissolution, administration or re-organisation or for the appointment
of a liquidator, receiver, administrator, administrative receiver,
conservator, custodian, trustee or similar officer of it or of any or
all of its revenues and assets and (if such steps or proceedings are
being contested in good faith on the basis of legal advice from a
reputable law firm and sufficient reserves have been made in
accordance with GAAP to discharge the relevant claim) such steps or
proceedings are not discharged within 30 days.
15.9 Judgments, Execution or Distress Any judgement in excess of
$5,000,000 (or equivalent in any other currency) or any execution or
distress is levied against, or an encumbrancer takes possession of,
the whole or any part of, the property, undertaking or assets of any
Relevant Member of the Group having a book value which, when
aggregated with the book value of all other property, undertaking or
assets to which this Clause 15.9 (Judgments, Execution or Distress)
applies, exceeds $5,000,000 and (if such judgement or execution is
being contested in good faith on the basis of legal advice
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from a reputable law firm and sufficient reserves have been made in
accordance with GAAP to discharge the relevant claim) such judgement or
execution is not discharged within 45 days.
15.10 Analogous Events Any event occurs which under the laws of any
jurisdiction has a similar or analogous effect to any of those events
mentioned in Clause 15.7 (Insolvency and Rescheduling), Clause 15.8
(Winding-up) or Clause 15.9 (Judgments, Execution or Distress).
15.11 Exclusivity CET 21 is not the exclusive holder of the Nova TV
Licence and/or Nova TV is not, together with CET 21, exclusively
entitled to benefit therefrom.
15.12 Loss of Nova TV Licence The Nova TV Licence is lost, revoked,
cancelled or withdrawn, or lapses or CET 21 or any Relevant Member of
the Group is served with a notice of default in respect of the Nova TV
Licence and the same is not renewed or such notice of default is not
revoked within 30 days on terms not materially prejudicial to the
operation of the business of any Relevant Member of the Group unless
the Facility Agent has received a legal opinion within such 30 day
period from a reputable law firm confirming that such revocation,
cancellation or withdrawal or notice of default has no foundation in
law and CET 21 or the Relevant Member of the Group shall be entitled
to have such revocation, cancellation or withdrawal or notice of
default reversed or discharged and CET 21 or the Relevant Member of
the Group is taking all steps open to it diligently to have such
revocation, cancellation or withdrawal or notice of default reversed
or discharged.
15.13 Governmental Intervention By or under the authority of any
government, (a) the management of any Relevant Member of the Group is
wholly or partially displaced or the authority of any Relevant Member
of the Group in the conduct of a material part of its business is
wholly or partially curtailed or (b) all or any of the issued shares
or equity interests of any Relevant Member of the Group or the whole
or any material part of their material revenues or assets is seized,
nationalised, expropriated or compulsorily acquired.
15.14 Repudiation Any Relevant Member of the Group or CET 21
repudiates any Facility Document, the Partnership Agreement, the
Service Agreement or any Intercompany Loan Agreement to which it is
expressed to be a party or does or causes to be done any act or thing
which has the effect of repudiating any Facility Document, the
Partnership Agreement, the Service Agreement or any Intercompany Loan
Agreement to which it is expressed to be a party or _eska Spo_itelna
a.s. repudiates the Limited Recourse Agreement.
15.15 Ownership of CME Ltd. Any person or group of persons acting in
concert (which does not have control at the date hereof) acquires
control of CME Ltd., whether directly or indirectly (and for this
purpose "control" of CME Ltd. includes the holding of more than 50% of
the voting rights attaching to the issued shares of CME Ltd., the
power to appoint and/or remove all or a majority of the members of the
board of directors of CME Ltd. or otherwise directly or indirectly to
control or have the power to control the affairs and policies of CME
Ltd.).
15.16 Ownership of CME B.V. and CME N.V. Either CME N.V. or CME B.V.
ceases to be a wholly owned (directly or indirectly) subsidiary of CME
Ltd..
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15.17 Ownership of Borrower The Borrower ceases to be a wholly owned
(directly or indirectly) subsidiary of CME B.V..
15.18 Partnerships Interests The Borrower ceases to own a direct
equity interest equal to at least 79% of the voting rights and
economic interest of Nova TV or such interest is not or ceases to be
freely transferable; or any member of the Group shall agree to any
change in Clauses 10.6 - 10.8 of the Partnership Agreement or any
other provision of the Partnership Agreement that would in the
reasonable opinion of the Facility Agent:
(i) cause a material adverse change in the profit distribution of
Nova TV;
(ii) cause the Borrower to incur any further liability under the
Partnership Agreement; or
(iii) amend any provision which allows any decision to be taken by
members holding 79% of the voting rights in Nova TV;
or
(iv) impair the free transferability of any voting or economic
rights or interests in Nova TV.
15.19 Material Adverse Change Any event or series of events occurs and
continues which could reasonably be expected to result in a Material
Adverse Change.
15.20 Security Any of the Security Documents does not or ceases to
constitute perfected first ranking security in respect of the assets
intended to be secured thereby or such security is not or ceases to be
enforceable in accordance with its terms (subject to any limitations
arising from administration, bankruptcy, insolvency, liquidation,
reorganisation and similar laws generally affecting the rights of
creditors) or the shares in the Borrower are not or cease to be freely
transferable upon any enforcement of the Borrower Pledge of Shares or
are freely transferable but not, as a result of any event or
circumstance occurring or arising after the date hereof, without the
occurrence upon such transfer of any adverse effect on the validity or
continuance of the Nova TV Licence or on the ownership by the Borrower
of 79% of the voting and economic interest in Nova TV and (in case of
any of the foregoing) the same, if capable of remedy, is not so
remedied within 30 days of written notice thereof from the Facility
Agent to CME Ltd.
15.21 Discontinuation of Broadcasting The television station which at
the date hereof is operating under the name "Nova TV" voluntarily
ceases to be broadcast in the whole or any part of the Czech Republic
or such television station ceases involuntarily to be broadcast in the
whole or any part of the Czech Republic and, if such involuntary
cessation is capable of remedy, the same is not so remedied within 15
days of commencement of such cessation.
15.22 Acceleration and Cancellation Upon the occurrence of an Event of
Default or at any time thereafter if the same is still continuing, the
Facility Agent may (and, if so instructed by an Instructing Group,
shall) by written notice to the Borrower:
(a) declare the Advances to be immediately due and payable
(whereupon the same
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shall become so payable together with accrued
interest thereon and any other sums then owed by the
Borrower hereunder) or declare the Advances to be due
and payable on demand of the Facility Agent; and/or
(b) declare that the Facility shall be cancelled, whereupon the
same shall be cancelled and the Commitment of each
Bank shall be reduced to zero.
15.23 Advances Due on Demand If, pursuant to Clause 15.23
(Acceleration and Cancellation), the Facility Agent declares the
Advances to be due and payable on demand of the Facility Agent, then,
and at any time thereafter, the Facility Agent may (and, if so
instructed by an Instructing Group, shall) by written notice to the
Borrower require repayment of the Advances on such date as it may
specify in such notice (whereupon the same shall become due and
payable on such date together with accrued interest thereon and any
other sums then owed by the Borrower hereunder) or withdraw its
declaration with effect from such date as it may specify in such
notice.
15.24 Length of Terms If, pursuant to Clause 15.23 (Acceleration and
Cancellation), the Facility Agent declares the Advances to be due and
payable on demand of the Facility Agent, the Term in respect of any
such Advance shall, if the Facility Agent subsequently demands payment
before the scheduled Repayment Date in respect of such Advance, be
deemed (except for the purposes of Clause 17.4 (Broken Periods)) to be
of such length that it ends on the date that such demand is made.
15.25 Review Events
If at any time:
(i) any act, condition or thing required to be done, fulfilled or
performed in order:
(a) to enable any Relevant Member of the Group or CET 21
lawfully to enter into, exercise its rights
under and perform the obligations expressed
to be assumed by it in any Facility
Document, the Partnership Agreement, the
Service Agreement or any Intercompany Loan
Agreement to which it is expressed to be a
party;
(b) to make each Facility Document, the Partnership
Agreement, the Service Agreement or any
Intercompany Loan Agreement to which it is
expressed to be a party admissible in
evidence in the Relevant Jurisdiction of
the Relevant Member(s) of the Group party
to such agreement
is not done, fulfilled or performed; or
(ii) it is or has become unlawful for any Relevant Member of the
Group or CET 21 to perform or comply with any
or all of its obligations under any Facility
Document, the Partnership Agreement, the Service
Agreement or any Intercompany Loan Agreement to
which it is expressed to be a party;
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(iii) any of the obligations of any Relevant Member of the Group or
CET 21 under any Facility Document, the Partnership
Agreement, the Service Agreement or any Intercompany
Loan Agreement to which it is expressed to be a
party or of _eska Spo_itelna a.s. under the Limited
Recourse Agreement are not or cease to be legal and
valid and binding except where the same may be
limited by applicable bankruptcy, reorganisation,
insolvency, moratorium or similar laws affecting
creditors' rights generally or by equitable
principles; or
(iv) the Partnership Agreement or the Service Agreement is
terminated or CET 21 or Nova TV commits or fails
to undertake any act or thing which could reasonably
be expected to result in the termination of the
Service Agreement; or
(v) any amendment is made to the Service Agreement which has an
adverse effect on Nova TV or on its rights and
benefits thereunder without the prior written
consent of the Banks;
(vi) CME Ltd. terminates the appointment of Mr Michel Delloye or
Mr John A. Schwallie unless a replacement person is
found whom the Facility Agent reasonably considers
to be appropriate within 45 days of such person's
employment being terminated; or
(vii) without prejudice to Clause 14.2 (Consolidations and Mergers),
at any time prior to the Final Maturity Date CET 21
disposes of, or agrees to dispose of, to any person
(other than Nova TV) the ownership or use of all or
any rights in respect of the Nova TV Licence or all
or any rights in relation to the Nova TV Licence
which may have been contributed to Nova TV or the
Borrower fails diligently to ensure (having regard
to the interests of the Banks) that CET 21 complies
with its obligations under Clause 10.6 - 10.8 of the
Partnership Agreement
then, and in any such case and at any time thereafter so long as such
event is continuing, the Facility Agent shall, if so instructed by an
Instructing Group, (and the Facility Agent may without the instruction
of an Instructing Group if it considers such action to be advisable in
order to protect the rights of the Agents, the Arranger, the Banks or
any of them under any Facility Document) by written notice to the
Borrower:
(a) declare the Advances to be immediately due and payable
(whereupon the same shall become so payable together
with accrued interest thereon and any other sums
then owed by the Borrower hereunder) or declare the
Advances to be due and payable on demand of the
Facility Agent; and/or
(b) declare that the Facility shall be cancelled, whereupon the
same shall be cancelled and the Commitment of each
Bank shall be reduced to zero.
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PART 7
GUARANTEE
16. Guarantee and Indemnity
16.1 Guarantee Each Guarantor jointly and severally irrevocably and
unconditionally guarantees to the Agents, the Arranger and the Banks
the due and punctual observance and performance of all the terms,
conditions and covenants on the part of the Borrower contained in this
Agreement and agrees to pay to the Facility Agent from time to time on
demand any and every sum or sums of money which the Borrower is at any
time liable to pay to the Agents, the Arranger and the Banks or any of
them under or pursuant to this Agreement and which has become due and
payable but has not been paid at the time such demand is made.
16.2 Indemnity The Guarantors jointly and severally irrevocably and
unconditionally agree as a primary obligation to indemnify the Agents,
the Arranger and the Banks from time to time on demand by the Facility
Agent from and against any loss incurred by the Agents, the Arranger
and the Banks or any of them as a result of any of the obligations of
the Borrower under or pursuant to this Agreement being or becoming
void, voidable, unenforceable or ineffective as against the Borrower
for any reason whatsoever, whether or not known to the Agents, the
Arranger and the Banks or any of them or any other person, the amount
of such loss being the amount which the person or persons suffering it
would otherwise have been entitled to recover from the Borrower.
16.3 Additional Security The obligations of the Guarantors contained
in this Clause 16 (Guarantee and Indemnity) shall be in addition to
and independent of every other security which the Agents, the Arranger
and the Banks or any of them may at any time hold in respect of the
Borrower's obligations hereunder.
16.4 Continuing Obligations The obligations of the Guarantors
contained in this Clause 16 (Guarantee and Indemnity) shall constitute
and be continuing obligations notwithstanding any settlement of
account or other matter or thing whatsoever and shall not be
considered satisfied by any intermediate payment or satisfaction of
all or any of the obligations of the Borrower under this Agreement and
shall continue in full force and effect until final payment in full of
all amounts owing by the Borrower hereunder and total satisfaction of
all the Borrower's actual and contingent obligations hereunder.
16.5 Obligations not Discharged Neither the obligations of the
Guarantors contained in this Clause 16 (Guarantee and Indemnity) nor
the rights, powers and remedies conferred in respect of the Guarantors
upon the Agents, the Arranger and the Banks or any of them by this
Agreement or by law shall be discharged, impaired or otherwise
affected by:
(a) the winding-up, dissolution, administration or re-organisation
of the Borrower or any other Guarantor or any other
person or any change in its status, function,
control or ownership;
(b) any of the obligations of the Borrower or any other Guarantor
or any other person hereunder or under any other
security taken in respect of any of its obligations
hereunder being or becoming illegal, invalid,
unenforceable or ineffective in any respect;
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(c) time or other indulgence being granted or agreed to be granted
to the Borrower or any other Guarantor in respect of
its obligations hereunder or under any such other
security;
(d) any amendment to, or any variation, waiver or release of, any
obligation of the Borrower or any other Guarantor
hereunder or under any such other security;
(e) any failure to take, or fully to take, any security
contemplated hereby or otherwise agreed to be taken
in respect of the Borrower's or any other
Guarantor's obligations hereunder;
(f) any failure to realise or fully to realise the value of, or
any release, discharge, exchange or substitution of,
any security taken in respect of the Borrower's or
any other Guarantor's obligations hereunder; or
(g) any other act, event or omission which, but for this Clause
16.5 (Obligations not Discharged), might operate to
discharge, impair or otherwise affect any of the
obligations of the Guarantors herein contained or
any of the rights, powers or remedies conferred upon
the Agents, the Arranger and the Banks or any of
them by this Agreement or by law.
16.6 Settlement Conditional Any settlement or discharge between the
Guarantors and the Agents, the Arranger and the Banks or any of them
shall be conditional upon no security or payment to the Agents, the
Arranger and the Banks or any of them by the Borrower or any other
person on behalf of the Borrower being avoided or reduced by virtue of
any provisions or enactments relating to bankruptcy, insolvency,
liquidation or similar laws of general application for the time being
in force and, if any such security or payment is so avoided or
reduced, the Agents, the Arranger and the Banks shall each be entitled
to recover the value or amount of such security or payment from the
Guarantors subsequently as if such settlement or discharge had not
occurred.
16.7 Exercise of Rights Neither the Agents, the Arranger and the Banks
nor any of them shall be obliged before exercising any of the rights,
powers or remedies conferred upon them in respect of the Guarantors by
this Agreement or by law:
(a) to make any demand of the Borrower or any Guarantor;
(b) to take any action or obtain judgment in any court against the
Borrower or any Guarantor;
(c) to make or file any claim or proof in a winding-up or
dissolution of the Borrower or any Guarantor; or
(d) to enforce or seek to enforce any other security taken in
respect of any of the obligations of the
Borrower hereunder.
16.8 Deferral of Guarantor's Rights Each Guarantor agrees that, so
long as any amounts are or may be owed by the Borrower hereunder or
the Borrower is under any actual or contingent obligations hereunder
such Guarantor shall not exercise, any rights
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which it may at any time have by reason of performance by it of its
obligations hereunder:
(i) to be indemnified by the Borrower; and/or
(ii) to claim any contribution from any other guarantor of the
Borrower's obligations hereunder; and/or
(iii) to take the benefit (in whole or in part and whether by way of
subrogation or otherwise) of any rights of the
Agents, the Arranger and the Banks hereunder or of
any other security taken pursuant to, or in
connection with, this Agreement or the benefit of
any monies held, received or receivable by all or
any of the Agents, the Arranger and the Banks.
16.9 Suspense Accounts All moneys received, recovered or realised by a
Bank by virtue of Clause 16.1 (Guarantee) or Clause 16.2 (Indemnity)
may, in that Bank's discretion, be credited to a suspense account
(bearing a competitive interest rate) and may be held in such account
for so long as such Bank thinks fit pending the application from time
to time (as such Bank may think fit) of such moneys in or towards the
payment and discharge of any amounts owing by the Borrower to such
Bank hereunder provided that such Bank will apply such moneys in
payment and discharge of amounts owing by the Borrower to such Bank
forthwith in the event that such moneys are of an amount equal to or
greater than all the amounts owing by the Borrower, the Guarantors and
each of them under each of the Facility Documents.
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PART 8
DEFAULT INTEREST AND INDEMNITY
17. Default Interest and Indemnity
17.1 Default Interest Periods If any sum due and payable by the
Borrower or a Guarantor under any Facility Document is not paid on the
due date therefor in accordance with the provisions of Clause 19
(Payments) or if any sum due and payable by the Borrower or a
Guarantor under any judgment of any court in connection therewith is
not paid on the date of such judgment, the period beginning on such
due date or, as the case may be, the date of such judgment and ending
on the date upon which the obligation of the Borrower or such
Guarantor to pay such sum (the balance thereof for the time being
unpaid being herein referred to as an "unpaid sum") is discharged
shall be divided into successive periods, each of which (other than
the first) shall start on the last day of the preceding such period
and the duration of each of which shall (except as otherwise provided
in this Clause 17) be selected by the Facility Agent.
17.2 Default Interest During each such period relating thereto as is
mentioned in Clause 17.1 (Default Interest Periods) an unpaid sum
shall bear interest at the rate per annum which is the sum from time
to time of two per cent., the Applicable Margin at such time and LIBOR
on the Quotation Date therefor Provided that:
(a) if, for any such period, LIBOR cannot be determined,
the rate of interest applicable to such unpaid sum
shall be the rate per annum which is the sum of two
per cent., the Applicable Margin at such time and
the rate per annum determined by the Facility Agent
to be equal to the arithmetic mean (rounded upwards,
if not already such a multiple, to the nearest whole
multiple of one-sixteenth of one per cent.) of the
rates notified by each of the Reference Banks to the
Facility Agent before the last day of such period to
be those which express as a percentage rate per
annum the cost to it of funding from whatever
sources it may select its portion of such unpaid sum
for such period; and
(b) if such unpaid sum is all or part of an Advance which becomes
due and payable on a day other than the last day of
the Term thereof, the first such period applicable
thereto shall be of a duration equal to the
unexpired portion of that Term and the rate of
interest applicable thereto from time to time during
such period shall be that which exceeds by two per
cent. the rate which would have been applicable to
it had it not so fallen due.
17.3 Payment of Default Interest Any interest which shall have accrued
under Clause 17.2 (Default Interest) in respect of an unpaid sum shall
be due and payable and shall be paid by the Borrower at the end of the
period by reference to which it is calculated.
17.4 Broken Periods If any Bank or the Facility Agent on its behalf
receives or recovers all or any part of such Bank's share of an
Advance otherwise than on the last day of the Term thereof, the
Borrower shall pay to the Facility Agent on demand for
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account of such Bank an amount equal to the amount of any resulting
loss or expense incurred by such Bank including (without limitation)
any loss incurred in obtaining, liquidating or employing deposits
from third parties (but excluding any loss of margin) Provided that
such Bank shall have delivered to the Borrower a certificate as to
the amount of such loss or expense and setting forth in reasonable
detail the calculation thereof.
17.5 Borrowers' Indemnity The Borrower undertakes to indemnify:
(a) each of the Agents, the Arranger and the Banks against any
cost, claim, loss, expense (including legal fees) or
liability together with any VAT thereon, which any
of them may sustain or incur as a consequence of the
occurrence of any Event of Default or Review Event
or any default by any Obligor in the performance of
any of the obligations expressed to be assumed by it
in any Facility Document; and
(b) each Bank against any loss it may suffer or incur as a result
of its funding or making arrangements to fund its
portion of an Advance requested by the Borrower
hereunder but not made by reason of the operation of
any one or more of the provisions hereof (other than
default by, or gross negligence of, a Bank or an
Agent).
17.6 Unpaid Sums as Advances Any unpaid sum shall (for the purposes of
this Clause 17 (Default Interest and Indemnity) and Clause 10.1
(Increased Costs)) be treated as an advance and accordingly in this
Clause 17 (Default Interest and Indemnity) and Clause 10.1 (Increased
Costs) the term "Advance" includes any unpaid sum and "Term", in
relation to an unpaid sum, includes each such period relating thereto
as is mentioned in Clause 17.1 (Default Interest Periods).
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PART 9
PAYMENTS
18. Currency of Account and Payment
18.1 Currency of Account The dollar is the currency of account and
payment for each and every sum at any time due from the Borrower or
any Guarantor under the Facility Documents Provided that:
(a) each payment in respect of costs and expenses shall be made
in the currency in which the same were incurred; and
(b) each payment pursuant to Clause 8.2 (Tax Indemnity) or Clause
10.1 (Increased Costs) shall be made in the currency
specified by the party claiming thereunder.
18.2 Currency Indemnity If any sum due from the Borrower or a
Guarantor under any Facility Document or any order or judgment given
or made in relation hereto has to be converted from the currency (the
"first currency") in which the same is payable thereunder or under
such order or judgment into another currency (the "second currency")
for the purpose of (a) making or filing a claim or proof against the
Borrower or such Guarantor, (b) obtaining an order or judgment in any
court or other tribunal or (c) enforcing any order or judgment given
or made in relation hereto, the Borrower or such Guarantor shall
indemnify and hold harmless each of the persons to whom such sum is
due from and against any loss suffered or incurred as a result of any
discrepancy between (i) the rate of exchange used for such purpose to
convert the sum in question from the first currency into the second
currency and (ii) the rate or rates of exchange at which such person
may in the ordinary course of business purchase the first currency
with the second currency upon receipt of a sum paid to it in
satisfaction, in whole or in part, of any such order, judgment, claim
or proof Provided that if such conversion from the first currency into
the second currency results in a windfall for any person indemnified
by the Borrower or a Guarantor by this Clause 18.2 (Currency
Indemnity), such person shall pay such windfall to the Borrower or
such Guarantor.
19. Payments
19.1 Payments to the Facility Agent On each date on which this
Agreement requires an amount denominated in dollars to be paid by the
Borrower or a Guarantor or any of the Banks hereunder, the Borrower or
such Guarantor, or, as the case may be, such Bank shall make the same
available to the Facility Agent by payment in dollars and in same day
funds (or in such other funds as may for the time being be customary
in New York City for the settlement in New York City of international
banking transactions in dollars) to the Facility Agent's account
number 001.1.643.293 SWIFT number: CHAS US33, reference
CBSA/HE.03.06/CME with Chase Manhattan Bank, New York, N.Y. (or such
other account or bank as the Facility Agent may have specified for
this purpose).
19.2 Alternative Payment Arrangements If, at any time, it shall become
impracticable (by reason of any action of any governmental authority
or any change in
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law, exchange control regulations or any similar event) for the
Borrower or a Guarantor to make any payment hereunder in the manner
specified in Clause 19.1 (Payments to the Facility Agent), then the
Borrower or such Guarantor may agree with each or any of the Banks
alternative arrangements for the payment direct to such Bank of
amounts due to such Bank hereunder Provided that, in the absence of
any such agreement with any Bank, the Borrower or such Guarantor
shall be obliged to make all payments due to such Bank in the manner
specified herein. Upon reaching such agreement the Borrower or such
Guarantor and such Bank shall immediately notify the Facility Agent
thereof and shall thereafter promptly notify the Facility Agent of
all payments made direct to such Bank.
19.3 Payments by the Facility Agent Save as otherwise provided herein,
each payment received by the Facility Agent for the account of another
person pursuant to Clause 19.1 (Payments to the Facility Agent) shall:
(a) in the case of a payment received for the account of the
Borrower, be made available by the Facility Agent to
the Borrower by application:
(i) first, in or towards payment the same day of any
amount then due from the Borrower
hereunder to the person from whom the
amount was so received; and
(ii) secondly, in or towards payment the same day to such
account of CME B.V. with such bank in
New York City as CME B.V. shall have
previously notified to the Facility Agent
for this purpose; and
(b) in the case of any other payment, be made available by the
Facility Agent to the person for whose account such
payment was received (in the case of a Bank, for the
account of the Facility Office) for value the same
day by transfer to such account of such person with
such bank in New York City as such person shall have
previously notified to the Facility Agent.
19.4 No Set-off All payments required to be made by the Borrower or a
Guarantor hereunder shall be calculated without reference to any
set-off or counterclaim and shall be made free and clear of and
without any deduction for or on account of any set-off or
counterclaim.
19.5 Clawback Where a sum is to be paid hereunder to the Facility
Agent for account of another person, the Facility Agent shall not be
obliged to make the same available to that other person until it has
been able to establish to its satisfaction that it has actually
received such sum, but if it does so and it proves to be the case that
it had not actually received such sum, then the person to whom such
sum was so made available shall on request refund the same to the
Facility Agent together with an amount sufficient to indemnify the
Facility Agent against any cost or loss it may have suffered or
incurred by reason of its having paid out such sum prior to its having
received such sum.
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20. Set-Off
20.1 Contractual Set-off On or after the occurrence of an Event of
Default or Review Event which is continuing, the Borrower and each
Guarantor authorises each Bank to apply any credit balance to which
the Borrower or such Guarantor is entitled on any account of the
Borrower or such Guarantor with that Bank in satisfaction of any sum
due and payable from the Borrower or such Guarantor to such Bank under
any Facility Document but unpaid; for this purpose, each Bank is
authorised to purchase with the moneys standing to the credit of any
such account such other currencies as may be necessary to effect such
application.
20.2 Set-off not Mandatory No Bank shall be obliged to exercise any
right given to it by Clause 20.1 (Contractual Set-off).
21. Sharing
21.1 Redistribution of Payments If, at any time, the proportion which
any Bank (a "Recovering Bank") has received or recovered (whether by
payment, the exercise of a right of set-off or combination of accounts
or otherwise) in respect of its portion of any payment (a "relevant
payment") to be made under this Agreement by the Borrower for account
of such Recovering Bank and one or more other Banks is greater (the
portion of such receipt or recovery giving rise to such excess
proportion being herein called an "excess amount") than the proportion
thereof so received or recovered by the Bank or Banks so receiving or
recovering the smallest proportion thereof, then:
(a) such Recovering Bank shall inform the Facility Agent of such
receipt or recovery and pay to the Facility
Agent an amount equal to such excess amount;
(b) there shall thereupon fall due from the Borrower to such
Recovering Bank an amount equal to the amount
paid out by such Recovering Bank pursuant to
paragraph (a) above, the amount so due being, for
the purposes hereof, treated as if it were an unpaid
part of such Recovering Bank's portion of such
relevant payment; and
(c) the Facility Agent shall treat the amount received by it from
such Recovering Bank pursuant to paragraph (a) above
as if such amount had been received by it from the
Borrower in respect of such relevant payment and
shall pay the same to the persons entitled thereto
(including such Recovering Bank) pro rata to their
respective entitlements thereto,
Provided that to the extent that any excess amount is attributable to
a payment to a Bank pursuant to paragraph (a)(i) of Clause 19.3
(Payments by the Facility Agent) such portion of such excess amount as
is so attributable shall not be required to be shared pursuant hereto.
21.2 Repayable Recoveries If any sum (a "relevant sum") received or
recovered by a Recovering Bank in respect of any amount owing to it by
the Borrower under the Facility Agreement becomes repayable and is
repaid by such Recovering Bank, then:
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(a) each Bank which has received a share of such relevant sum by
reason of the implementation of Clause 21.1
(Redistribution of Payments) shall, upon request of
the Facility Agent, pay to the Facility Agent for
account of such Recovering Bank an amount equal to
its share of such relevant sum; and
(b) there shall thereupon fall due from the Borrower to each such
Bank an amount equal to the amount paid out by it
pursuant to paragraph (a) above, the amount so due
being, for the purposes hereof, treated as if it
were the sum payable to such Bank against which such
Bank's share of such relevant sum was applied.
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PART 10
FEES, COSTS AND EXPENSES
22. Commitment Commission and Fees
22.1 Commitment Commission The Borrower shall pay to the Facility
Agent for account of each Bank a commitment commission on the amount
of such Bank's Available Commitment from day to day during the period
beginning on the date hereof and ending on the day one month before
the Final Maturity Date, such commitment commission to be calculated
at the rate of 0.75 per cent. per annum and payable in arrear on the
last day of each successive period of three months which ends during
such period, on the date on which any prepayment of all of a Bank's
share of the Loan is made hereunder (but only to the extent of such
Bank's share of such commitment commission) and on the Final Maturity
Date.
22.2 Fees The Borrower shall pay to the Arranger the fees specified in
the letter dated on or at about the date hereof from the Arranger to
the Borrower at the times, and in the amounts, specified in such
letter.
22.3 Agency Fee The Borrower shall pay to the Facility Agent for its
own account the agency fees specified in the letter dated on or at
about the date hereof from the Facility Agent to the Borrower at the
times, and in the amounts, specified in such letter.
23. Costs and Expenses
23.1 Transaction Expenses The Borrower shall, from time to time on
demand of the Facility Agent, reimburse the Agents and Arranger for
all its reasonable out-of-pocket costs and expenses (including legal
fees and fees and costs of any consultant (technical or otherwise))
together with any VAT thereon incurred by it in connection with any
due diligence required in connection with this Facility (whether
before or after execution thereof), the negotiation, preparation and
execution of each of the Facility Documents and the completion of the
transactions therein contemplated Provided that the Arranger and
Agents shall consult with the Borrower before incurring costs and
expenses which in aggregate exceed $30,000.
23.2 Preservation and Enforcement of Rights The Borrower shall, from
time to time on demand of the Facility Agent, reimburse the Agents and
Arranger and the Banks for all costs and expenses (including legal
fees and the fees and costs of any consultant (technical or
otherwise)) together with any VAT thereon incurred in or in connection
with the preservation and/or enforcement of any of the rights of the
Agents, the Arranger and the Banks under any of the Facility
Documents. Each of the Agents and the Banks shall, unless an Event of
Default or Review Event has occurred and is continuing, consult with
CME Ltd. before incurring costs under this Clause 23.2 (Preservation
and Enforcement of Rights) which would, when aggregated with all other
such costs incurred by such Agent or such Bank in any calender year,
exceed $10,000.
23.3 Stamp Taxes The Borrower shall pay all stamp, registration and
other taxes to which any of the Facility Documents or any judgment
given in connection therewith is or at any time may be subject and
shall, from time to time on demand of the Facility
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Agent, indemnify the Agents, the Arranger and the Banks against any
liabilities, costs, claims and expenses resulting from any failure to
pay or any delay in paying any such tax.
23.4 Banks' Liabilities for Costs If the Borrower fails to perform any
of its obligations under this Clause 23 (Costs and Expenses), each
Bank shall, in its Proportion, indemnify the Agents and Arranger
against any loss incurred by any of them as a result of such failure
and the Borrower shall forthwith reimburse each Bank for any payment
made by them pursuant to this Clause 23.5 (Banks' Liabilities for
Costs).
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PART 11
AGENCY PROVISIONS
24. The Agents, the Arranger and the Banks
24.1 Appointment of the Facility Agent The Arranger and each Bank
hereby appoints each of the Agents to act as its agent in connection
with the Facility Documents and authorises such Agent to exercise such
rights, powers, authorities and discretions as are specifically
delegated to such Agent by the terms of the Facility Documents
together with all such rights, powers, authorities and discretions as
are reasonably incidental thereto.
24.2 Agents' Discretions Each of the Agents may:
(a) assume, unless it has, in its capacity as agent for the Banks,
received notice to the contrary from any other party
hereto, that (i) any representation made by the
Borrower or any Guarantor in connection with the
Facility Documents is true, (ii) no Event of
Default, Review Event or Potential Event has
occurred, (iii) none of the Obligors is in breach of
or default under its obligations under any Facility
Document and (iv) any right, power, authority or
discretion vested under the Facility Documents upon
an Instructing Group, the Banks or any other person
or group of persons has not been exercised;
(b) assume that the Facility Office of each Bank is that
identified with its signature below (or, in the case
of a Transferee, at the end of the Transfer
Certificate to which it is a party as Transferee)
until it has received from such Bank a notice
designating some other office of such Bank to
replace its Facility Office and act upon any such
notice until the same is superseded by a further
such notice;
(c) engage and pay for the advice or services of any lawyers,
accountants, surveyors or other experts whose advice
or services may to it seem necessary, expedient or
desirable and rely upon any advice so obtained;
(d) rely as to any matters of fact which might
reasonably be expected to be within the knowledge of
any Obligor upon a certificate signed by or on
behalf of such Obligor;
(e) rely upon any communication or document believed by it to be
genuine;
(f) refrain from exercising any right, power or discretion vested
in it as agent under the Facility Documents unless
and until instructed by an Instructing Group as to
whether or not such right, power or discretion is to
be exercised and, if it is to be exercised, as to
the manner in which it should be exercised;
(g) refrain from acting in accordance with any instructions of an
Instructing Group to begin any legal action or
proceeding arising out of or in connection with any
Facility Document until it shall have received such
security as it may require (whether by way of
payment in advance or otherwise)
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for all costs, claims, losses, expenses (including
legal fees) and liabilities together with any VAT
thereon which it will or may expend or incur in
complying with such instructions; and
(h) refrain from doing anything which would or might in its
opinion be contrary to any relevant law of any
jurisdiction or any relevant directive or regulation
of any agency or of any state or which would or
might otherwise render it liable to any person, and
may do anything which is, in its opinion, necessary
to comply with any such law, directive or
regulation.
24.3 Agents' Obligations Each of the Agents shall:
(a) promptly inform each Bank of the contents of any notice or
document received by it in its capacity as Agent
from an Obligor under any Facility Document;
(b) promptly notify each Bank of the occurrence of any Event of
Default or Review Event or any default by an Obligor
in the due performance of or compliance with its
obligations under any Facility Document of which the
Facility Agent has notice from any other party
hereto;
(c) save as otherwise provided herein, act as agent under the
Facility Documents in accordance with any
instructions given to it by an Instructing Group,
which instructions shall be binding on the other
Agent, the Arranger and the Banks; and
(d) if so instructed by an Instructing Group, refrain from
exercising any right, power or discretion vested in
it as agent under the Facility Documents.
24.4 Agents' Excluded Obligations Notwithstanding anything to the
contrary expressed or implied herein, none of the Agents and the
Arranger shall:
(a) be bound to enquire as to (i) whether or not any
representation made by an Obligor in connection with
any Facility Document is true, (ii) the occurrence
or otherwise of any Event of Default, Review Event
or Potential Event, (iii) the performance by an
Obligor of its obligations under any Facility
Document or (iv) any breach of or default by an
Obligor of or under its obligations under any
Facility Document;
(b) be bound to account to any Bank for any sum or the profit
element of any sum received by it for its own
account;
(c) be bound to disclose to any other person any information
relating to any member of the Group if such
disclosure would or might in its opinion constitute
a breach of any law or regulation or be otherwise
actionable at the suit of any person; or
(d) be under any obligations other than those for which express
provision is made herein.
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24.5 Indemnification Each Bank shall, in its Proportion, from time to
time on demand by either Agent indemnify such Agent against any and
all costs, claims, losses, expenses (including legal fees) and
liabilities together with any VAT thereon which such Agent may incur,
otherwise than by reason of its own gross negligence or wilful
misconduct, in acting in its capacity as agent under the Facility
Documents.
24.6 Exclusion of Liabilities Neither the Agents and the Arranger nor
any of them accepts any responsibility for the accuracy and/or
completeness of the Information Memorandum or any other information
supplied by any member of the Group in connection herewith or for the
legality, validity, effectiveness, adequacy or enforceability of any
Facility Document and neither the Agents and the Arranger nor any of
them shall be under any liability as a result of taking or omitting to
take any action in relation to any Facility Document, save in the case
of gross negligence or wilful misconduct.
24.7 No Actions Each of the Banks agrees that it will not assert or
seek to assert against any director, officer or employee of either of
the Agents or any Arranger any claim it might have against any of them
in respect of the matters referred to in Clause 24.6 (Exclusion of
Liabilities).
24.8 Business with the Group The Agents, the Arranger and each of
their respective Affiliates falling within paragraph (a) of the
definition thereof may accept deposits from, lend money to and
generally engage in any kind of banking or other business with any
member of the Group.
24.9 Resignation Each of the Agents may resign its appointment
hereunder at any time without assigning any reason therefor by giving
not less than thirty days' prior written notice of such resignation
and its resignation under the Security Agency Agreement to each of the
other parties hereto and to the Security Agency Agreement Provided
that no such resignation shall be effective until a successor for such
Agent is appointed hereunder and under the Security Agency Agreement
in accordance with the succeeding provisions of this Clause 24 (The
Agents, the Arranger and the Banks).
24.10 Successor Agent If either of the Agents gives notice of its
resignation hereunder pursuant to Clause 24.9 (Resignation), then any
reputable and experienced bank or other financial institution may be
appointed as a successor to such Agent both hereunder and under the
Security Agency Agreement by an Instructing Group (with the prior
written consent of CME Ltd., such consent not to be unreasonably
withheld or delayed) during the period of such notice but, if no such
successor is so appointed, such Agent may appoint such a successor
itself. Such appointment shall take effect upon:
(a) (in the case of the Security Agent) all of the Security and
title to the Security and all of the Security
Agent's rights, benefits and obligations under the
Facility Documents having been validly transferred
to such successor; and
(b) such successor having confirmed its agreement to be bound by
the provisions of this Agreement, the Security
Agency Agreement and all other related agreements to
which the such Agent is a party and having executed
and delivered to the Security Agent or outgoing
Security Agent (and such Security Agent having
countersigned) an Accession Undertaking
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substantially in the form set out in the Schedule to
the Security Agency Agreement.
24.11 Rights and Obligations If a successor to either of the Agents is
appointed under the provisions of Clause 24.10 (Successor Agent), then
(a) the retiring Agent shall be discharged from any further obligation
hereunder but shall remain entitled to the benefit of the provisions
of this Clause 24 (The Facility Agent, the Arranger and the Banks) and
(b) its successor and each of the other parties to the Facility
Documents shall have the same rights and obligations amongst
themselves as they would have had if such successor had been a party
hereto.
24.12 Own Responsibility It is understood and agreed by each Bank that
it has itself been, and will continue to be, solely responsible for
making its own independent appraisal of and investigations into the
financial condition, creditworthiness, condition, affairs, status and
nature of each member of the Group and, accordingly, each Bank
warrants to each of the Agents and the Arranger that it has not relied
on and will not hereafter rely on the Agents and the Arranger or any
of them:
(a) to check or enquire on its behalf into the adequacy,
accuracy or completeness of any information provided
by any member of the Group in connection with the
Facility Documents or the transactions therein
contemplated (whether or not such information has
been or is hereafter circulated to such Bank by the
Agents and the Arranger or any of them); or
(b) to assess or keep under review on its behalf the financial
condition, creditworthiness, condition, affairs,
status or nature of any member of the Group.
24.13 Agency Division Separate In acting as agent hereunder for the
Banks, each of the Agents shall be regarded as acting through its
agency division which shall be treated as a separate entity from any
other of its divisions or departments and, notwithstanding the
foregoing provisions of this Clause 24 (The Facility Agent, the
Arranger and the Banks), any information received by some other
division or department of such Agent may be treated as confidential
and shall not be regarded as having been given to such Agent's agency
division.
24.14 Confidential Information Notwithstanding anything to the
contrary expressed or implied herein and without prejudice to the
provisions of Clause 24.13 (Agency Division Separate), each of the
Agents shall not as between itself and the Banks be bound to disclose
to any Bank or other person any information which is supplied by any
member of the Group to such Agent in its capacity as agent hereunder
for the Banks and which is identified by such member of the Group at
the time it is so supplied as being confidential information Provided
that the consent of the relevant member of the Group to such
disclosure shall not be required in relation to any information which
in the opinion of such Agent relates to an Event of Default, Review
Event or Potential Event or in respect of which the Banks have given a
confidentiality undertaking in a form satisfactory to such Agent and
the relevant member of the Group.
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PART 12
ASSIGNMENTS AND TRANSFERS
25. Assignments and Transfers
25.1 Binding Agreement This Agreement shall be binding upon and enure
to the benefit of each party hereto and its or any subsequent
successors, Transferees and assigns.
25.2 No Assignments and Transfers by the Borrower or Guarantors None
of the Borrower and the Guarantors shall be entitled to assign or
transfer all or any of its rights, benefits and obligations hereunder.
25.3 Assignments and Transfers by Banks Any Bank may, at any time (a)
assign or transfer (in accordance with Clause 25.5 (Transfers by
Banks) in the case of a transfer) all or any of its rights, benefits
and obligations hereunder to any holding company of it or to any
subsidiary of any holding company of it or (b) with the prior consent
of CME Ltd., such consent not to be unreasonably withheld or delayed,
assign to any other financial institution all or any of its rights and
benefits hereunder or transfer in accordance with Clause 25.5
(Transfers by Banks) to any other bank all or any of its rights,
benefits and obligations hereunder Provided that no such assignment or
transfer shall be permitted under (a) or (b) above if such assignment
or transfer (i) shall be in relation to an aggregate principal amount
of less than $1,000,000 or (ii) would require, in the reasonable
opinion of CME Ltd., CME Ltd. to file a registration statement with
the Securities and Exchange Commission.
25.4 Assignments by Banks If any Bank assigns all or any of its rights
and benefits hereunder in accordance with Clause 25.3 (Assignments and
Transfers by Banks), then, unless and until the assignee has agreed
with the Agents, the Arranger, the Borrower and the other Banks that
it shall be under the same obligations towards each of them as it
would have been under if it had been an original party hereto as a
Bank and has become a party to the Security Agency Agreement as a Bank
(whereupon such assignee shall become a party hereto as a "Bank"), the
Agents, the Arranger, the Borrower and the other Banks shall not be
obliged to recognise such assignee as having the rights against each
of them which it would have had if it had been such a party hereto.
25.5 Transfers by Banks If any Bank wishes to transfer all or any of
its rights, benefits and/or obligations hereunder as contemplated in
Clause 25.3 (Assignments and Transfers by Banks), then such transfer
may be effected by the delivery to the Facility Agent of a duly
completed and duly executed Transfer Certificate in which event, on
the later of the Transfer Date specified in such Transfer Certificate
and the fifth business day after (or such earlier business day
endorsed by the Facility Agent on such Transfer Certificate falling on
or after) the date of delivery to the Facility Agent of such Transfer
Certificate and an Accession Undertaking substantially in the form set
out in the Schedule to the Security Agency Agreement duly completed
and duly executed by the relevant transferor and transferee and
countersigned by the Security Agent:
(a) to the extent that in such Transfer Certificate the Bank party
thereto seeks to transfer its rights, benefits and
obligations hereunder, the Borrower, the Guarantors
and such Bank shall be released from further
obligations
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towards one another hereunder and their respective
rights against one another shall be cancelled (such
rights and obligations being referred to in this
Clause 25.5 (Transfers by Banks) as "discharged
rights and obligations");
(b) the Borrower, the Guarantors and the Transferee party thereto
shall assume obligations towards one another and/or
acquire rights against one another which differ from
such discharged rights and obligations only insofar
as the Borrower, the Guarantors and such Transferee
have assumed and/or acquired the same in place of
the Borrower, the Guarantors and such Bank;
(c) the Agents, the Arranger, such Transferee and the other Banks
shall acquire the same rights and benefits and
assume the same obligations between themselves as
they would have acquired and assumed had such
Transferee been an original party hereto as a Bank
with the rights, benefits and/or obligations
acquired or assumed by it as a result of such
transfer; and
(d) such Transferee shall become a party hereto as a "Bank".
25.6 Transfer Fees On the date upon which a transfer takes effect
pursuant to Clause 25.5 (Transfers by Banks) the Transferee in respect
of such transfer shall pay to the Facility Agent for its own account a
transfer fee of $1000.
25.7 Disclosure of Information Subject to the signature of a
Confidentiality Agreement, any Bank may disclose to any actual or
potential assignee or Transferee or to any person who may otherwise
enter into contractual relations with such Bank in relation to this
Agreement such information about the Borrower and the Group as such
Bank shall consider appropriate.
25.8 Increased Costs, etc. If, at any time, any Bank assigns or
transfers any of its rights, benefits and obligations hereunder or
changes its Facility Office and, at the time of such assignment,
transfer or change (as the case may be) there arises an obligation on
the part of the Borrower under Clause 8 (Taxes) or Clause 10 (Changes
in Circumstances) to pay to such Bank or its assignee or transferee or
to any fiscal authority or other person any amount in excess of the
amount it would have then been obliged to pay but for such assignment,
transfer or change (as the case may be), then the Borrower shall not
be obliged to pay the amount of such excess Provided that this Clause
25.8 (Increased Costs, etc.) shall not apply in the case of any
assignment, transfer or change (as the case may be) made at the
request of the Borrower.
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PART 13
MISCELLANEOUS
26. Calculations and Evidence of Debt
26.1 Basis of Accrual Interest and commitment commission shall accrue
from day to day and shall be calculated on the basis of a year of 360
days (or, in any case where market practice differs, in accordance
with market practice) and the actual number of days elapsed.
26.2 Quotations If on any occasion a Reference Bank or Bank fails to
supply the Facility Agent with a quotation required of it under the
foregoing provisions of this Agreement, the rate for which such
quotation was required shall be determined from those quotations which
are supplied to the Facility Agent.
26.3 Evidence of Debt Each Bank shall maintain in accordance with its
usual practice accounts evidencing the amounts from time to time lent
by and owing to it hereunder.
26.4 Control Accounts The Facility Agent shall maintain on its books a
control account or accounts in which shall be recorded (a) the amount
of any Advance made or arising hereunder and each Bank's share
therein, (b) the amount of all principal, interest and other sums due
or to become due from the Borrower to any of the Banks hereunder and
each Bank's share therein and (c) the amount of any sum received or
recovered by the Facility Agent hereunder and each Bank's share
therein.
26.5 Prima Facie Evidence In any legal action or proceeding arising
out of or in connection with this Agreement, the entries made in the
accounts maintained pursuant to Clause 26.3 (Evidence of Debt) and
Clause 26.4 (Control Accounts) shall be prima facie evidence of the
existence and amounts of the specified obligations of the Borrower.
26.6 Certificates of Banks A certificate of a Bank as to (a) the
amount by which a sum payable to it hereunder is to be increased under
Clause 8.1 (Tax Gross-up) or (b) the amount for the time being
required to indemnify it against any such cost, payment or liability
as is mentioned in Clause 8.2 (Tax Indemnity), Clause 10.1 (Increased
Costs) or Clause 17.4 (Broken Periods) shall, in the absence of
manifest error, be prima facie evidence of the existence and amounts
of the specified obligations of the Borrower.
27. Remedies and Waivers, Partial Invalidity
27.1 Remedies and Waivers No failure to exercise, nor any delay in
exercising, on the part of the Agents, the Arranger and the Banks or
any of them, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or
remedy prevent any further or other exercise thereof or the exercise
of any other right or remedy. The rights and remedies herein provided
are cumulative and not exclusive of any rights or remedies provided by
law.
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27.2 Partial Invalidity If, at any time, any provision hereof is or
becomes illegal, invalid or unenforceable in any respect under the law
of any jurisdiction, neither the legality, validity or enforceability
of the remaining provisions hereof nor the legality, validity or
enforceability of such provision under the law of any other
jurisdiction shall in any way be affected or impaired thereby.
28. Notices
28.1 Communications in Writing Each communication to be made hereunder
shall be made in writing and, unless otherwise stated, shall be made
by telex, letter or fax.
28.2 Delivery Any communication or document to be made or delivered by
one person to another pursuant to this Agreement shall (unless that
other person has by fifteen days' written notice to the Facility Agent
specified another address) be made or delivered to that other person
at the address identified with its signature below (or, in the case of
a Transferee, at the end of the Transfer Certificate to which it is a
party as Transferee) and shall be deemed to have been made or
delivered when despatched (in the case of any communication made by
fax or telex) or (in the case of any communication made by letter)
when left at that address or (as the case may be) ten days after being
deposited in the post postage prepaid in an envelope addressed to it
at that address Provided that any communication or document to be made
or delivered to an Agent shall be effective only when received by such
Agent and then only if the same is expressly marked for the attention
of the department or officer identified with such Agent's signature
below (or such other department or officer as such Agent shall from
time to time specify for this purpose).
28.3 English Language Each communication and document made or
delivered by one party to another pursuant to this Agreement shall be
in the English language or accompanied by a translation thereof into
English certified (by an officer of the person making or delivering
the same) as being a true and accurate translation thereof.
29. Amendments
29.1 Amendment Procedures The Facility Agent shall, if it has the
prior written consent of an Instructing Group and the Borrower, from
time to time agree in writing to amend this Agreement or to waive,
prospectively or retrospectively, any of the requirements of this
Agreement and any amendments or waivers so agreed shall be binding on
all the Banks, the Arranger, the Borrower and the Guarantors Provided
that:
(a) no such waiver or amendment shall subject any party hereto to
any new or additional obligations without the
consent of such party;
(b) without the prior written consent of all the Banks, no such
amendment or waiver shall:
(i) amend or waive any provision of Clause 21 (Sharing)
or this Clause 29 (Amendments);
(ii) reduce the proportion of any amount received or
recovered (whether by
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way of set-off, combination of accounts or
otherwise) in respect of any amount due
from the Borrower hereunder to which any
Bank is entitled;
(iii) change the principal amount of or currency of any
Advance, or defer the term of the
Facility or the Term of any Advance;
(iv) change the Applicable Margin, change the amount or
currency or defer the date for any payment
of interest, fees or any other amount
payable hereunder to all or any of the
Agents, the Arranger and the Banks;
(v) amend the definition of Instructing Group; or
(vi) amend any provision which contemplates the need for
the consent or approval of all the Banks;
and
(c) notwithstanding any other provisions hereof, the Facility
Agent shall not be obliged to agree to any
such amendment or waiver if the same would:
(i) amend or waive any provision of this Clause 29
(Amendments), Clause 23 (Costs and Expenses)
or Part 10 (Agency Provisions); or
(ii) otherwise amend or waive any of the Agents' rights
hereunder or subject either Agent or the
Arranger to any additional obligations
hereunder.
29.2 Amendment Costs If the Borrower or any Guarantor requests any
amendment or waiver in accordance with Clause 29.1 (Amendment
Procedures) then the Borrower shall, on demand of the Facility Agent,
reimburse the Agents, the Arranger and the Banks for all reasonable
costs and expenses (including legal fees) together with any VAT
thereon incurred by the Agents, the Arranger and the Banks and each of
them in responding to or complying with such request.
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PART 14
LAW AND JURISDICTION
30. Law and Jurisdiction
30.1 English Law This Agreement shall be governed by, and shall be
construed in accordance with, English law.
30.2 English Courts Each of the parties hereto irrevocably agrees for
the benefit of each of the Agents, the Arranger and the Banks that the
courts of England shall have jurisdiction to hear and determine any
suit, action or proceedings, and to settle any disputes, which may
arise out of or in connection with this Agreement (respectively
"Proceedings" and "Disputes") and, for such purposes, irrevocably
submits to the jurisdiction of such courts.
30.3 New York Courts Each of the Borrower and the Guarantors
irrevocably agrees that the courts of the State of New York and the
courts of the United States of America, in each case sitting in the
County of New York, shall have jurisdiction to hear and determine any
Proceedings and to settle any Disputes and, for such purposes,
irrevocably submits to the jurisdiction of such courts.
30.4 Appropriate Forum Each of the Borrower and the Guarantors
irrevocably waives any objection which it might now or hereafter have
to the courts referred to in Clause 30.2 (English Courts) and Clause
30.3 (Courts in New York) being nominated as the forum to hear and
determine any Proceedings and to settle any Disputes and agree not to
claim that any such court is not a convenient or appropriate forum.
30.5 Service of Process Each of the Borrower and the Guarantors agrees
that the process by which any Proceedings are begun may be served on
it by being delivered (a) in connection with any Proceedings in
England, to CME Development Corporation at 18 D'Arblay Street, London
W1V 3FP, London or other its registered office for the time being and
(b) in connection with any Proceedings in New York, to CT Corporation
Systems at 1633 Broadway, New York 10019, New York or other its
principal place of business in New York for the time being. If the
appointment of either of the persons mentioned in this Clause 30.5
(Service of Process) ceases to be effective the Borrower or such
Guarantor shall immediately appoint a further person in England or, as
the case may be, New York to accept service of process on its behalf
in England or, as the case may be, New York and, failing such
appointment within 15 days, the Facility Agent shall be entitled to
appoint such a person by notice to the Borrower or such Guarantor.
Nothing contained herein shall affect the right to serve process in
any other manner permitted by law.
30.6 Non-exclusive Submissions The submission to the jurisdiction of
the courts referred to in Clause 30.2 (English Courts) and Clause 30.3
(Courts in New York) shall not (and shall not be construed so as to)
limit the right of the Agents, the Arranger and the Banks or any of
them to take Proceedings against the Borrower or any Guarantor in any
other court of competent jurisdiction nor shall the taking of
Proceedings in any one or more jurisdictions preclude the taking of
Proceedings in any other jurisdiction (whether concurrently or not) if
and to the extent permitted by applicable law.
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30.7 Consent to Enforcement Each of the Borrower and the Guarantors
hereby consents generally in respect of any Proceedings to the giving
of any relief or the issue of any process in connection with such
Proceedings including the making, enforcement or execution against any
property whatsoever (irrespective of its use or intended use) of any
order or judgment which may be made or given in such Proceedings.
30.8 Waiver of Immunity To the extent that the Borrower or any
Guarantor may in any jurisdiction claim for itself or its assets
immunity from suit, execution, attachment (whether in aid of
execution, before judgment or otherwise) or other legal process and to
the extent that in any such jurisdiction there may be attributed to
themselves or their assets such immunity (whether or not claimed),
each of the Borrower and Guarantors hereby irrevocably agrees not to
claim and hereby irrevocably waives such immunity to the full extent
permitted by the laws of such jurisdiction and, in particular, to the
intent that in any proceedings taken in New York the foregoing waiver
of immunity shall have effect under and be construed in accordance
with the United States Foreign Sovereign Immunities Act of 1976.
AS WITNESS the hands of the duly authorised representatives of the
parties hereto the day and year first before written.
81
<PAGE>
THE THIRD SCHEDULE
Conditions Precedent
1. A copy, certified a true copy by a duly authorised officer of CME
Ltd., of the constitutional documents (including but without
limitation amended Articles of Association and the Partnership
Agreement) of each Obligor.
2. A copy, certified a true copy by a duly authorised officer of CME
Ltd., of corporate authorities of each Obligor approving the
execution, delivery and performance of each Facility Document to which
it is expressed to be a party and the terms and conditions thereof and
authorising a named person or persons to sign such Facility Documents
and any documents to be delivered by it pursuant thereto.
3. A certificate of a duly authorised officer of CME Ltd. setting out
the names and signatures of the persons authorised to sign, on behalf
of each Obligor each Facility Document to which it is expressed to be
a party and any documents to be delivered by it pursuant thereto.
4. A copy, certified a true copy by or on behalf of CME Ltd., of each
such law, decree, consent, licence, approval, registration or
declaration as is, in the opinion of counsel to the Banks, necessary
to render each of the Facility Documents legal, valid, binding and
enforceable, to make this Agreement admissible in evidence in the
jurisdiction of incorporation of each Obligor and to enable each
Obligor to perform its obligations thereunder.
5. An original executed copy of each Facility Document and a copy,
certified by a duly authorised officer of CME B.V., of the Limited
Recourse Agreement, the CS Loan Agreement, the Nova TV Licence, the
Management Support Agreement, the Network Access Agreement, the
Programming Services Agreement and the Service Agreement
6. Evidence that all fees, costs and expenses due under the Agreement
on or prior to first drawdown have been paid.
7. An opinion of Clifford Chance, Prague, the Facility Agent's Czech
counsel satisfactory in form and substance to the Facility Agent and
in substantially the form distributed to the Banks prior to the
signing of this Agreement.
8. A legal opinion of the Facility Agent's Delaware and Bermudian
counsel satisfactory in form and substance to the Facility Agent and
in substantially the form distributed to the Banks prior to the
signing of this Agreement.
9. A legal opinion of the Facility Agent's Netherlands Antilles
counsel satisfactory in form and substance to the Facility Agent and
in substantially the form distributed to the Banks prior to the
signing of this Agreement.
10. A legal opinion of Clifford Chance, Amsterdam, the Facility
Agent's Dutch counsel satisfactory in form and substance to the
Facility Agent and in substantially the form distributed to the Banks
prior to the signing of this Agreement.
11. An opinion of Clifford Chance, solicitors to the Facility Agent,
in substantially
82
<PAGE>
the form distributed to the Banks prior to the signing of this
Agreement.
12. A copy, certified a true copy by a duly authorised officer of CME
Ltd., of the Original Financial Statements of each Relevant Member of
the Group.
13. A compliance certificate in the form referred to in Clause 12.6
(Requirements as to financial statements) duly signed by a duly
authorised officer of CME Ltd..
14 Evidence of adoption by Czech Republic II, as sole shareholder of
the Borrower of a shareholders' resolution to undertake to amend the
articles of incorporation of the Borrower (i) in order to limit the
operations of the Borrower in accordance herewith and (ii) in
accordance with clause 3.7 of the Borrower Pledge of Shares in order
to allow for a transfer of voting rights to the pledgee thereunder.
15. Confirmation that the irrevocable payment instruction referred to
in Clause 14.23 (Payment Instruction) has been delivered and
countersigned by Nova TV in accordance herewith.
16. Evidence of perfection of all security created pursuant to the
Security Documents and evidence that all filings, registrations and
recordings have been made and all fees payable in connection therewith
have been paid.
17. Evidence that CME Development Corporation has agreed to act as the
agent of the Borrower and the Guarantors for the service of process in
England and that CT Corporation Systems has agreed to act as the agent
of the Borrower and the Guarantors for the service of process in New
York.
18. A Board Resolution of CME Ltd stating that the execution of the
Facility Agreement would not restrict any payments of principal or
interest under the Notes.
19. Proof of registration of the pledge of the shares in the Borrower
in the Borrower's shareholders register, satisfactory in form and
substance to the Facility Agent.
83
<PAGE>
THE FIFTH SCHEDULE
Applicable Margin Financial Tests
For the purposes of determining the Applicable Margin at any time,
each of the Leverage Ratio of CME Ltd. and the Consolidated Broadcast
Cash Flow Ratio of Nova TV shall be determined by reference to the
most recent set of quarterly or annual financial statements delivered
by CME Ltd. pursuant to Clause 12 (Financial Information) as confirmed
by a compliance certificate duly signed by two duly authorised
officers of CME Ltd.
The Applicable Margin will then be determined by reference to such
ratios in accordance with the table below:
<TABLE>
<CAPTION>
Leverage Ratio of CME Ltd.
<S> <C> <C> <C> <C>
Consolidated Broadcast Cash Flow Ratio Nova TV greater than 1.5 1.25 less than 1.5 1.0 less than 1.25 less than 1.0
greater than 0.75 3.75% 3.75% 3.75% 3.75%
0.50 less than 0.75 3.75% 3.75% 3.25% 3.25%
0.25 less than 0.50 3.75% 3.25% 3.25% 2.75%
less than 0.25 3.75% 3.25% 2.75% 2.50%
</TABLE>
Any change in the Applicable Margin shall take effect on the date on
which the relevant quarterly or annual financial statements to be
delivered pursuant to Clause 12 (Financial Information) are actually
delivered by CME Ltd. to the Facility Agent Provided that if the
financial statements are not delivered within the time limits
stipulated in Clause 12 (Financial Information) then the Applicable
Margin from the date such financial statements should have been
delivered shall be 3.75%.
In case the figures for the Leverage Ratio of CME Ltd. or the
Consolidated Broadcast Cash Flow Ratio of Nova TV fall within
different ranges set out in the table above the highest range shall be
taken as applicable.
84
<PAGE>
The Borrower
CME CZECH REPUBLIC B.V.
By:
Address: 18 D'Arblay Street
London W1V 3FP
United Kingdom
Tel: + 44 171 292 7900
Fax: + 44 171 292 7948
Attn: John Diess/Erik Moe
The Guarantors
CME CZECH REPUBLIC II B.V.
By:
Address: 18 D'Arblay Street
London W1V 3FP
United Kingdom
Tel: + 44 171 292 7900
Fax: + 44 171 292 7948
Attn: John Diess/Erik Moe
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
By:
Address: 18 D'Arblay Street
London W1V 3FP
United Kingdom
Tel: + 44 171 292 7900
Fax: + 44 171 292 7948
Attn: John Diess/Erik Moe
CENTRAL EUROPEAN MEDIA ENTERPRISES N.V.
By:
Address: 18 D'Arblay Street
London W1V 3FP
United Kingdom
Tel: + 44 171 292 7900
Fax: + 44 171 292 7948
Attn: John Diess/Erik Moe
85
<PAGE>
CME MEDIA ENTERPRISES B.V.
By:
Address: 18 D'Arblay Street
London W1V 3FP
United Kingdom
Tel: + 44 171 292 7900
Fax: + 44 171 292 7948
Attn: John Diess/Erik Moe
The Facility Agent and the Security Agent
ING BANK N.V.
By:
Address: CBSA,
HE 03.06
P O Box 1800
1000 BV Amsterdam
Tel: + 31 20 563 5305
Fax: + 31 20 563 5329
Attn: The Manager
The Arranger and the Bank
ING BANK N.V.
By:
Address: Bijlmerplein 888
1102 MG Amsterdam Zuidoost
The Netherlands
Tel: + 31 20 565 1114
Fax: + 31 20 563 5505
Attn: Manager, Media Finance Group
86
<PAGE>
Ceska nezavisla televizni spolecnost, spol. s r. o.
with its registered office at Vladislavova 20, 113 13 Prague 1
IDN: 49616668
TAX-IDN: 001-49616668
bank: Ceska sporitelna a.s.
bank account: 817754-018/0800
represented by Dr. Vladimir Zelezny the General Director and the Executive
(hereinafter only as "CNTS")
and
CET 21, spol. s r. o.
with its registered office at V jame 12, 110 00 Prague 1
IDN: 45800456
TAX-IDN: 001-45800456
bank. Komercni banka, a. s.
bank account: 10006-71501021/0100
represented by prof. Josef Alan, the Executive and Mr. Vlastimil Venclik, the
Executive
(hereinafter only as "CET 21")
have agreed, on the basis of Section 269, paragraph 2, of the Commercial Code,
upon this
CONTRACT
on cooperation in ensuring service for television broadcasting
Article 1
1) The contracting parties confirm that the holder of license no. 001/1993, and
the television broadcasting operator, with a license as per Act No.
468/1991, Coll., as amended, is CET 21, and that the license, no. 001/1993,
is nontransferrable.
2) The contracting parties are aware that the exclusive responsibility of CET
21 for programming as per Act No. 468/1991, Coll., as amended, is not
affected by this contract.
3) The contracting parties are aware that CNTS is authorized, in accordance
with legal regulations, to engage in business to the following extent:
production and sale of blank media for audio or audio/visual
recordings, and sale or rental of recorded audio and audio/
visual media
agency activity in the cultural field
production of audio/visual works
purchase of merchandise with the purpose of its resale and sale
to the extent specified by the business license for uncertified
entrepreneurial activity
advertising and promotional activity
publishing and printing
mediation in the cultural field
mediation in business relations
organizational and technical support of television broadcasting
production of television and audio/visual programs
advertising agency activity
mediation activity in the fields of business, industry, and
investment
consulting activities in the media field
Article 2
1) The contracting parties have agreed that there follow from the preceding
arrangements the rights and obligations of CNTS to ensure, according to this
contract, service for the television broadcasting that is conducted on the basis
of the license issued to CET 21, and that CNTS is authorized to keep an agreed
income from this activity. 2) The activity aforementioned in paragraph 1 will be
carried out, on the basis of the authorization granted it, by CNTS, with the
exception that follows from Article 6, at its own expense. 3) CNTS undertakes to
carry out the activity aforementioned in paragraph 1 in accordance with
generally binding legal regulations, as well as with the content of the license,
the holder of which is CET 21.
Article 3
CET 21 is obligated not to interfere with the business activities of CNTS,
whereby the rights of CET 21, as a partner on the basis of the partnership
contract, are not affected.
Article 4
1) CNTS is the exclusive subject of the rights and obligations arising during
its activity (Article 2, paragraph 1), regardless of whether the rights and
obligations involved are based on the contract or the law. CNTS is authorized to
enforce and legally exercise the thus arising rights in his own name; at the
same time, CNTS is materially responsible for any breach of such obligations,
and may be sued for any such breach. This also relates to possible disputes the
subject of which is the protection of the person of an individual, a violation
of economic competition, and the acquisition and ensuring of broadcasting of
televised reports and programs. 2) In the event of damage arising from a breach
of this contract, the legal relationship between CNTS and CET 21, with respect
to compensation for damages, is governed by Section 373 and those that follow in
the Commercial Code. If CET 21, as the license holder and operator of television
broadcasting, suffers material losses as a consequence of having covered the
costs of damages caused to a third party or having paid a fine stipulated by law
for a breach of obligation caused by CNTS, CNTS undertakes to pay to CET 21
compensation for such material loss.
Article 5
If obligations to which CET 21, as the license holder and operator of television
broadcasting, is bound by law or license, are breached by broadcasting on TV
NOVA, CET 21 is, in accord with license no. 001/1993, authorized to intervene in
the programming through persons appointed by the general meeting of CET 21 and
whose names will be announced by CET 21 to CNTS immediately after their
appointment.
Article 6
1) On behalf of CET 21, as the license holder and operator of television
broadcasting, CNTS will be closing contracts with Czech Radio Communications on
the providing of radio communication services, and will also be representing CET
21 in other matters with Czech Radio Communications, as well as covering all
payments for radio communication services and bearing the related costs. 2) On
behalf of CET 21, as the license holder and operator of television broadcasting,
CNTS will be closing contracts with protective organizations that represent
authors and performing artists and will also be representing CET 21 in other
matters with protective organizations, as well as covering all appropriate
payments stipulated in these contracts and bearing the related costs.
Article 7
1) CET 21 undertakes to take all steps necessary to retain, as well as
extend, license no. 001/1993.
2) CNTS undertakes to cooperate in the manner necessary to fulfill the
objectives stated in paragraph 1.
Article 8
Pursuant to Article 5, both contractual parties have agreed that the
editors-in-chief of TV NOVA will be appointed by CET 21, in accord with Act No.
81/1966 Coll., as amended.
Article 9
If the conditions of license no. 001/1993 or a portion thereof are terminated,
or if there are modifications of this license or amendments to laws that would
require modification of the contents of this contract, the contractual parties
undertake to include an agreed upon appendix to this contract, which will take
into account the newly developed situation.
Article 10
CNTS will submit a proposal on the inclusion of this contract into the
collection on file at the court at which CNTS is registered in the Commercial
Code.
Article 11
1) This contract is effective until 30 January 2005, or as long as the
license for operating television broadcasting, no. 001/1993 or another
such license, held by CET 21, remains valid.
2) This contract will be automatically extended in the event that the
effectiveness of the license is extended or a new license is granted to
CET 21.
3) This contract becomes effective on the date of its signing by the contractual
parties. 4) As soon as this contract becomes effective, the contract closed on 4
October 1996, as amended by
amendments and supplements of later dates, becomes ineffective.
5) This contract is executed in four copies, of which each contractual
party will receive two copies.
In Prague, on 21 May 1997
- ------------------ ------------------
CNTS CET21
<PAGE>
Ceska nezavisla televizni spolecnost, spol. s r. o.
with its registered office at Vladislavova 20, 113 13 Prague 1
IDN: 49616668
TAX-IDN: 001-49616668
bank: Ceska sporitelna a.s.
bank account: 817754-018/0800
represented by Dr. Vladimir Zelezny the General Director and the Executive
(hereinafter only as "CNTS")
and
CET 21, spol. s r. o.
with its registered office at V jame 12, 110 00 Prague 1
IDN: 45800456
TAX-IDN: 001-45800456
bank. Komercni banka, a. s.
bank account: 10006-71501021/0100
represented by prof. Josef Alan, the Executive and Mr. Vlastimil Venclik, the
Executive
(hereinafter only as "CET 21")
have agreed on this
SUPPLEMENT
to the contract closed on 21 May 1997
Article 1
1) For properly executed and performed activity, for which CNTS is
authorized and obligated by the contract closed on 21 May 1997, as
amended, CNTS is entitled remuneration in the amount of the revenues from
the sale of advertising time, sponsorship of broadcast programs, and
related activities connected with television broadcasting, lowered by the
total costs and by 100,000 CZK monthly, not including VAT.
2) In the event that revenues from the sale of advertising time, sponsorship
of broadcast programs, and similar activities are lower than the total
costs expended for the activity that CNTS is authorized to provide,
according to the contract from 21 May 1997, as amended, CNTS is
authorized to deduct the difference from the revenues gained from
advertising time, sponsorship of broadcast programs, and similar
activities in upcoming periods, unless otherwise agreed upon by the
contractual parties.
3) The total costs, as stated in this article, are understood mainly as costs
for the organizational and technical ensuring of production and the
expiditing of programs of TV NOVA, the production of programs,
including the commission, delivered for the broadcasting of TV NOVA,
and the administrative, management, and financial costs connected with
the operation that are necessary for ensuring the problem-free
operation of TV NOVA station. In the event that costs are incurred
directly by CET 21, as the license holder (for example, charges for
transmission of the signal by Czech Radio Communications Inc., fees due
to broadcasting for TV NOVA and other protective organizations, costs
for legal disputes), these costs will be transferred to CNTS by means
of re-invoicing.
Article 3
1) Apart from the aforementioned, the contents of the contract closed on 21 May
1997 remain unchanged. 2) This contract becomes effective and valid on the date
of its signing by both contractual parties.
In Prague, on 21 May 1997
- -------------------- ---------------------
CNTS CET 21
<PAGE>
================================================================================
STOCK PURCHASE AGREEMENT
between
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
and
RSL CAPITAL LLC
dated as of December 3, 1998
================================================================================
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 3, 1998, by and
among, RSL Capital LLC, a New York limited liability company (the "Buyer"), and
Central European Media Enterprises Ltd., a company organized under the laws of
Bermuda (the "Company").
RECITALS:
WHEREAS, Ronald S. Lauder, the non-executive Chairman of the
Company, owns all the capital stock of and is the Chairman of the Buyer;
WHEREAS, the Company has requested to the Buyer to commit to
subscribe for 1,515,000 newly issued shares of the Company's Class B Common
Stock, $.01 par value per share ("Class B Shares"), at a price of $15 per share
(subject to adjustment as provided herein), and the Buyer has agreed to make
such a commitment on the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, all capitalized terms used herein without definition
are used as defined in Section 8;
NOW THEREFORE, and in consideration of the foregoing and the
covenants and conditions hereof, the Company and the Buyer (the "Parties") agree
as follows:
AGREEMENT:
SECTION 1
SUBSCRIPTION AND ISSUANCE OF CLASS B SHARES
1.1 Commitment. Subject to the terms and conditions of this
Agreement, upon written notice by the Company given on or prior to December 31,
1998 (the "Expiration Date"), the Buyer agrees to subscribe for 1,515,000 Class
B Shares, for a subscription price per share of $15.00 (the "Per Share Price"),
subject to adjustment as set forth in Section 1.4, and an aggregate subscription
price of $22,725,000 (the "Subscription Price").
1.2 Commitment Fee. In consideration of the Buyer's
willingness to agree to subscribe for the Class B Shares, the Company shall pay
the Buyer a sum of $227,250 (the "Commitment Fee"), payable in cash on the
earlier of the Closing Date and January 4, 1999.
<PAGE>
1.3 Exercise of Commitment; Issuance and Sale of Shares. (a)
The Company may exercise the commitment set forth in Section 1.1 by delivering
to the Buyer a written notice in the form set forth in Exhibit A hereto (an
"Exercise Notice") to such effect on or prior to the Expiration Date.
(b) The closing of the subscription and purchase of the Class
B Shares (the "Closing") shall take place on the tenth Business Day following
the receipt by Buyer of the Exercise Notice (the "Closing Date") at 10:00 a.m.
at the offices of Debevoise & Plimpton, 875 Third Avenue, New York, New York, or
at such other time and place as the Parties shall agree.
(c) At the Closing, subject to the satisfaction of the
conditions set forth in Section 2, (i) the Buyer shall pay or cause to be paid
the Subscription Price to the Company by wire transfer of immediately available
funds to the account of the Company designated at least two Business Days prior
to the Closing Date and (ii) concurrently therewith the Company shall issue and
deliver to the Buyer (or to an Affiliate of the Buyer designated by the Buyer no
less than two Business Days prior to the Closing Date) one or more certificates
(as shall be designated by the Buyer) representing 1,515,000 Class B Shares, and
shall take all such other actions as may be required to vest legal title to the
Class B Shares in the Buyer (or such Affiliate), free and clear of all Liens,
restrictions on sales or pre-emptive rights.
1.4 Post-Closing Adjustment. (a) Subject to paragraphs (b) and
(c) below, on November 19, 1999 (the "Adjustment Date"), the Company will issue
to the Buyer (or to an Affiliate of the Buyer designated in writing by the Buyer
no less than two Business Days prior to the Adjustment Date), for no additional
consideration, such number of additional Class B Shares that, when added to the
1,515,000 Class B Shares issued to the Buyer on the Closing Date, will result in
the average Per Share Price for all Class B Shares issued to the Buyer (and any
Affiliate of the Buyer) pursuant to this Agreement being equal to the average of
the last reported trading price of the Company's Class A Common Stock, $.01 par
value per share, (the "Class A Shares") on NASDAQ (the "Final Trading Price")
for each NASDAQ trading day during the period from and including November 13,
1998 to and including November 12, 1999 (the "Measurement Period").
(b) If the last reported trading price of the Class A Shares
on NASDAQ equals or exceeds $15.00 for twenty or more consecutive NASDAQ trading
days during the Measurement Period, then there will be no adjustment to the Per
Share Price and no additional Class B Shares will be issued pursuant to
paragraph (a) of this Section 1.4.
2
<PAGE>
(c) The maximum number of additional Class B Shares issuable
to the Buyer (or an Affiliate of the Buyer) pursuant to this Section 1.4 shall
be 757,500 (corresponding to a Per Share Price of $10.00).
(d) In the event that any additional Class B Shares are issued
to the Buyer (or an Affiliate of the Buyer) pursuant to this Section 1.4, the
Company will deliver to the Buyer (or its Affiliate), on the Adjustment Date,
one or more certificates (as instructed by the Buyer) representing additional
Class B Shares and take all such other actions as may be required to vest legal
title to such additional Class B Shares in the Buyer (or its Affiliate), free
and clear of all Liens, restrictions on sales or pre-emptive rights.
1.5 Legend. (a) Except as provided in Section 1.5(b), each
certificate for Class B Shares issued to the Buyer shall be stamped or otherwise
imprinted with a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED. NEITHER THESE SECURITIES NOR ANY INTEREST OR
PARTICIPATION THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED,
ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND THE
APPLICABLE RULES AND REGULATIONS THEREUNDER.
(b) The legend requirements of Section 1.5(a) shall terminate
(i) when and so long as the Class B Shares in question shall have been
effectively registered under the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "Securities Act") and disposed
of pursuant thereto or (ii) when the Company shall have received an opinion of
counsel reasonably satisfactory to it that such legend is not required in order
to ensure compliance with the Securities Act.
SECTION 2
CONDITIONS
The obligations of the Buyer to consummate the transactions
contemplated hereby and to pay the Subscription Price to the Company shall be
subject to the fulfillment on or prior to the Closing Date of the following
additional conditions, which the Company agrees to use reasonable efforts to
cause to be fulfilled:
2.1 Representations, Performance. (a) The representations and
warranties of the Company contained in Section 3 shall be true and correct in
all material respects at
3
<PAGE>
and as of the date hereof, and shall be repeated and shall be true and correct
in all material respects on and as of the Closing Date with the same effect as
though made on and as of the Closing Date.
(b) The Company shall have in all material respects duly
performed and complied with all agreements, covenants and conditions required by
this Agreement to be performed or complied with by the Company prior to or on
the Closing Date.
(c) The Company shall have delivered to the Buyer a
certificate in the form set forth in Exhibit B hereto, dated the Closing Date
and signed by a duly authorized officer of the Company.
2.2 Delivery of Shares. At the Closing, the Company shall have
delivered all of the certificates for the Class B Shares as provided in Section
1.3 hereof.
2.3 Consents. All Consents of any Governmental Authority
required to be made or obtained by the Company in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby shall have been made or obtained.
2.4 Injunction, etc. The consummation of the transactions
contemplated hereby shall not have been restrained, enjoined or otherwise
prohibited or made illegal by any applicable Law, including any order,
injunction, decree or judgment of any court or other Governmental Authority; and
no such Law that would have such an effect shall have been promulgated, entered,
issued or determined by any court or other Governmental Authority to be
applicable to this Agreement. No action or proceeding shall be pending or
threatened by any Governmental Authority or other Person on the Closing Date
before any court or other Governmental Authority to restrain, enjoin or
otherwise prevent the consummation of the transactions contemplated hereby, or
to recover any material damages or obtain other material relief as a result of
such transactions, or that otherwise relates to the application of any such Law.
2.5 No Material Adverse Effect. No event, occurrence, fact,
condition, change, development or effect shall exist or have occurred or come to
exist or been threatened since September 30, 1998 that, individually or in the
aggregate, has had or resulted in, or could reasonably be expected to become or
result in, a Material Adverse Effect.
2.6 Opinion of Counsel. The Buyer shall have received an
opinion, addressed to it and dated the Closing Date, from counsel to the
Company, in the form set forth in Exhibit C hereto.
4
<PAGE>
2.7 Corporate and Other Proceedings. All corporate proceedings
of the Company in connection with the transactions contemplated by this
Agreement, and all documents and instruments incident thereto, shall be
satisfactory in form and substance to the Buyer and its counsel, and the Buyer
and its counsel shall have received all such docu ments and instruments, or
copies thereof, certified if requested, as may be reasonably requested.
2.8 Change of Control. No Change of Control of the Company
shall have occurred.
2.9 Buyer Expenses. The Company shall have reimbursed the
Buyer for its reasonable out-of-pocket expenses referred to in Section 9.4
hereof.
2.10 Commitment Fee. The Company shall have paid the
Commitment Fee as provided in Section 1.2 hereof.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer, as of the
date hereof and as of the Closing Date, as follows:
3.1 Corporate Existence and Power. The Company is a company
duly organized, validly existing and in good standing under the laws of Bermuda
and has all corporate, partnership or other applicable powers and all material
governmental licenses, authorizations, consents, and approvals required to carry
on its business as now conducted.
3.2 Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Company of this
Agreement is within the Company's corporate powers, have been duly authorized by
all necessary corporate action, require no action by or in respect of, or filing
with, any governmental body, agency or official and do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the organizational documents of the Company or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Company or result
in the creation or imposition of any Lien on any asset of the Company or any of
its Subsidiaries.
3.3 Title to Shares, Capitalization, etc. (a) Upon delivery of
the Class B Shares as provided for in Section 1.3 and Section 1.4, (i) such
Class B Shares will be duly authorized and validly issued, (ii) the Buyer (or
its Affiliate, as the case may be) will
5
<PAGE>
acquire good and valid title to all such Class B Shares, free and clear of any
Lien other than any Lien created by the Buyer (or such Affiliate), and (iii)
such Class B Shares shall be fully paid and nonassessable.
(b) The authorized capital of the Company consists of (i)
100,000,000 Class A Shares, of which 18,070,789 are issued and outstanding, and
(ii) 15,000,000 Class B Shares, 6,062,329 of which are issued and outstanding
prior to the issuance contemplated by Section 1.3 hereof and 7,577,329 of which
will be issued and outstanding upon the consummation of such issuance. All of
the issued and outstanding Class A Shares and Class B Shares have been duly
authorized and validly issued, are fully paid and nonassessable.
(c) There are no preemptive or similar rights on the part of
any holders of any class of securities of the Company. Except for (i) this
Agreement, (ii) the options and warrants previously granted to the Buyer, (iii)
the options to purchase Class A Shares granted under the 1994 Amended and
Restated Stock Option Plan, (iv) the options to purchase Class A Shares granted
under the 1995 Amended and Restated Stock Option Plan, (v) the options to
purchase 32,500 Class A Shares granted to Herbert S. Schlosser, and (vi) the
warrants to purchase 100,000 Class A Shares granted to each of MAWA Holding
N.V., Lavender Foundation and Staffordshire Corporation N.V., there are no
subscription, option, warrant, conversion or other rights, agreements,
commitments, arrangements or understandings of any kind obligating the Company
or any Subsidiary or any other Person, contingently or otherwise, to issue or
sell, or cause to be issued or sold, any Class A Shares or any securities
convertible into or exchangeable for any Class A Shares, and no authorization
therefor has been given. There are no outstanding contractual or other rights or
obligations to or of the Company or any Subsidiary or any other Person to
repurchase, redeem or otherwise acquire any outstanding shares or other equity
interests of the Company or any Subsidiary.
3.4 Binding Effect. This Agreement has been duly and validly
executed and delivered by the Company, and assuming the due authorization,
execution and delivery by the Buyer, constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors rights generally and by general principles of equity.
3.5 SEC Reports and Financial Statements. (a) The Company has
filed all required forms, reports and documents with the Securities Exchange
Commission (hereinafter collectively referred to as the "Company Reports")
required to be filed by it pursuant to the Securities Act and the Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder (the
"Exchange Act"), all of which have
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complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act.
(b) None of the Company Reports, including, without
limitation, any financial statements or schedules included therein, at the time
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(c) The consolidated balance sheets and the related
consolidated statements of income, cash flow and shareholders' equity (including
without limitation the related notes thereto) of the Company and its
consolidated Subsidiaries included in the financial statements contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the
"Company 10-K") and in the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1998, June 30, 1998 and September 30, 1998 (the
"Company 10-Qs"), present fairly the consolidated financial position of the
Company and its consolidated Subsidiaries as of their respective dates, and the
results of consolidated operations and cash flows for the periods then ended,
all in conformity with United States generally accepted accounting principles
applied on a consistent basis, except as otherwise noted therein and in the case
of unaudited financial statements subject to normal year-end audit adjustments,
and except for certain footnote disclosures required by United States generally
accepted accounting principles.
3.6 Absence of Undisclosed Liabilities. Except for liabilities
reflected or reserved against in the consolidated balance sheet of the Company
and its Subsidiaries as of September 30, 1998 or reflected in the notes thereto,
or as has been disclosed in the Company Reports, none of the Company and its
Subsidiaries has any liabilities or obligations (absolute or accrued or
contingent, whether accrued or unaccrued and whether due or to become due) other
than liabilities and obligations incurred in the ordinary course of business
since September 30, 1998 or liabilities or obligations which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
3.7 Litigation. There is no action, suit or proceeding pending
against, or to the knowledge of the Company threatened against or affecting, the
Company or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable probability
of an adverse decision that would have a Material Adverse Effect or which in any
manner draws into question the validity or enforceability of this Agreement.
3.8 Taxes. Each of the Company and its Subsidiaries has filed
or caused to be filed all income tax returns and all other material tax returns
which are required to
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be filed and has paid (i) all taxes shown to be due and payable on such returns
and (ii) all taxes shown to be due and payable on any assessments of which it
has received notice made against it or any of its property and all other taxes,
fees or other governmental charges imposed on it or any of its property and no
tax Lien has been filed, and no claim is being asserted, with respect to any
such tax, fee or other charge (other than any (x) taxes, fees or other charges
with respect to which the failure to pay, in the aggregate, would not have a
Material Adverse Effect or (y) taxes, fees or other charges the amount or
validity of which are currently being contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves in
accordance with United Stated generally accepted accounting principles have been
maintained).
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
4.1 Organization and Authorization. The Buyer is a limited
liability company duly organized, validly existing and in good standing under
the laws of New York and the execution, delivery and performance by the Buyer of
this Agreement are within the Buyer's limited liability company powers and have
been duly authorized by all necessary limited liability company action.
4.2 Binding Effect. This Agreement has been duly and validly
executed and delivered by the Buyer and, assuming the due authorization,
execution and delivery by the Company, constitutes the valid and binding
obligation of the Buyer enforceable against the Buyer in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors rights generally and by general principles of equity.
4.3 Purchase for Investment. The Buyer is purchasing the Class
B Shares solely for investment, with no present intention to resell such Class B
Shares. The Buyer hereby acknowledges that the Class B Shares have not been
registered pursuant to the Securities Act and may not be transferred in the
absence of such registration or an exemption therefrom under such Act.
SECTION 5
COVENANTS OF THE COMPANY
On and after the date hereof to the Closing Date (and in case
of Section 5.5, to the Adjustment Date), except as expressly permitted or
required by this Agreement:
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5.1 Conduct of Business. The Company will, and will cause each
Subsidiary to:
(a) carry on its business in, and only in, the ordinary course
of business consistent with its past practice;
(b) not increase any obligations of the Company or any
Subsidiary with respect to Indebtedness, prepay any accounts payable,
delay payment of any trade payables other than in the ordinary course
of business, or make any other cash payments other than in the ordinary
course of business consistent with its past practice;
(c) comply in all material respects with all Laws applicable
to it or any of its properties, assets or business;
(d) not merge or consolidate with, or agree to merge or
consolidate with, or purchase substantially all of the assets of, or
otherwise acquire, any business, business organization or division
thereof, or any other Person;
(e) promptly advise the Buyer in writing of any event,
occurrence, fact, condition, change, development or effect that,
individually or in the aggregate, could have or result in a Material
Adverse Effect or a breach of this Section 5.1; and
(f) not agree or otherwise commit to take any of the actions
described in the foregoing paragraphs (a) through (e).
5.2 Access and Information. The Company will give the Buyer
and its Representatives full access during reasonable business hours to all of
the Company's and its Subsidiaries' respective properties, assets, books,
contracts, commitments, reports and records, and furnish to them all such
documents, records and information and copies of any work papers relating
thereto as the Buyer shall from time to time reasonably request. The Company
will keep the Buyer generally informed as to the affairs of the Business.
5.3 Financial Statements and Reports. The Company will deliver
to Buyer:
(a) From the date hereof to and including the Closing Date,
monthly management reports in scope and detail consistent with those
management reports that have historically been distributed to the
Company's senior management and have previously been delivered to the
Buyer, and timely prepare, and promptly deliver to the Buyer, monthly
financial statements, to be in scope and detail con-
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sistent with such monthly financial statements as historically
distributed to the Company's senior management and as previously
delivered to the Buyer. Each such financial statement shall present
fairly the financial position, assets and lia bilities of the Company
as at the date thereof and the results of its operations and its cash
flows for the period then ended, in accordance with accounting policies
and procedures consistent with those historically used by the Company
in the preparation of such monthly financial statements;
(b) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and
proxy statements so mailed; and
(c) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) and reports on
Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower
shall have filed with the Securities and Exchange Commission.
5.4 Public Announcements. Except as required by applicable
Law, the Company shall not, and shall not permit any Subsidiary to, make any
public announcement in respect of this Agreement or the transactions
contemplated hereby without the prior written consent of the Buyer.
5.5 Price Per Share Calculation; Additional Class B Shares.
(a) Not later than one day prior to the Adjustment Date, the Company shall
deliver to Buyer its determination of the Final Trading Price for each day
during the Measurement Period, the average of all such Final Trading Prices, and
the number of additional Class B Shares, if any, to be issued to the Buyer on
the Adjustment Date pursuant to Section 1.4.
(b) The Company shall cause to be reserved 757,500 of Class B
Shares for issuance and delivery to the Buyer on the Adjustment Date in
accordance with Section 1.4 hereof. All such Class B shares shall be duly
authorized and, when issued upon the Per Share Price adjustment, shall be
validly issued, fully paid and nonassessable, free and clear of all Liens,
restrictions on sale and preemptive rights.
5.6 Further Actions. (a) The Company shall use all reasonable
efforts to take or cause to be taken all actions, and to do or cause to be done
all other things, necessary, proper or advisable in order for the Company to
fulfill and perform its ob ligations in respect of this Agreement, or otherwise
to consummate and make effective the transactions contemplated hereby.
(b) The Company shall, as promptly as practicable, (i) make,
or cause to be made, all filings and submissions required under any Law, and
give such reasonable
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undertakings as may be required in connection therewith, and (ii) use all
reasonable efforts to obtain or make, or cause to be obtained or made, all
Consents of any Governmental Authority necessary to be obtained or made by it,
in each case in connection with this Agreement, the sale and transfer of the
Class B Shares pursuant hereto, or the consummation of the other transactions
contemplated hereby.
(c) The Company shall coordinate and cooperate with the Buyer
in exchanging such information and supplying such reasonable assistance as may
be reasonably requested by the Buyer.
(d) At all times prior to the Closing Date, the Company shall
promptly notify the Buyer in writing of any fact, condition, event or occurrence
that could result in the failure of any of the conditions contained in Section 2
to be satisfied, promptly upon becoming aware of the same.
SECTION 6
INDEMNIFICATION
In the event that the Buyer or any of its officers, directors
or controlling Persons (each, an "Indemnified Party") becomes involved in any
capacity in any action, proceeding or investigation brought by or against any
Person, including, without limitation, the Company or any equity holders or
creditors of the Company, in connection with or as a result of any matter
referred to in this Agreement, including but not limited to the purchase by the
Buyer of Class B Shares, the Company periodically will reimburse such
Indemnified Party for all of its out-of-pocket legal, expert and other expenses
(including the out-of-pocket cost of any investigation and preparation) incurred
in connection therewith. The Company also will indemnify and hold each
Indemnified Party harmless against any and all losses, claims, damages,
expenses, actions, demands, assessments, costs, judgments, awards, fines,
sanctions, penalties, amounts paid in settlement, or liabilities ("Damages") to
any such Person in connection with or as a result of any matter referred to in
this Agreement and without regard to the exclusive or contributory negligence of
any of the Indemnified Parties, except to the extent that any such Damages is
finally judicially determined to have resulted from the gross negligence,
willful misconduct or bad faith of such Indemnified Party in connection with the
subject matter of this Agreement (and in the event of such a determination, the
Indemnified Party will reimburse the Company for any expenses advanced to such
Indemnified Party by the Company pursuant to the immediately preceding
sentence). If for any reason the foregoing indemnification is unavailable to any
Indemnified Party or insufficient to hold it harmless, then the Company shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Damages in such proportion as is appropriate to reflect the relative
economic interests of the Company and its equity holders, on the one hand, and
such Indemnified Party, on the other hand, in the matters contemplated by this
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Agreement as well as the relative fault of the Company, on the one hand, and
such Indemnified Party, on the other hand, with respect to such loss, claim,
damage or liability and any other relevant equitable considerations. The
reimbursement, indemnity and contribution obligations of the Company under this
Section 7 will be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliate of any
Indemnified Party and the directors, agents, advisors, employees and controlling
Persons of such Indemnified Party and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and Personal
representatives of the Company, such Indemnified Party, any such Affiliate and
any such Person. The Company will not be responsible, in connection with any one
action or proceeding (or separate but substantially similar proceedings arising
out of the same general allegations), for the fees and expenses of more than one
firm of attorneys at any time for all Indemnified Parties, except to the extent
local counsel, in addition to its regular counsel, is required to effectively
defend against such action, provided if counsel to the Indemnified Parties
reasonably determines that there is a conflict of interest among the Indemnified
Parties, then the Indemnified Party with respect to which such conflict of
interest relates may employ separate counsel at the cost and expense of the
Company. The Company also agrees that neither any Indemnified Party nor any of
such Affiliates, directors, agents, advisors, employees or controlling Persons
will have any liability based on its or their exclusive or contributory
negligence or otherwise to the Company, any Person asserting claims on behalf or
in the right of the Company, or any other Person in connection with or as a
result of any matter referred to in this Agreement except to the extent that any
Damages incurred by the Company result from the gross negligence, willful
misconduct or bad faith of such Indemnified Party in connection with the subject
matter of this Agreement. Prior to entering into any agreement or arrangement
with respect to, or effecting, any merger, statutory exchange or other business
combination or proposed sale, exchange, dividend or other distribution or
liquidation of all or a significant portion of its assets in one or a series of
transactions or any significant recapitalization, or reclassification of its
outstanding securities, the Company shall notify the Indemnified Parties in
writing thereof (if not previously so notified) and, if requested by the
Indemnified Parties, shall arrange in connection therewith alternative means of
providing for the obligations of the Company set forth in this Section 7
including the assumption of such obligations by another party, insurance, surety
bonds or the creation of an escrow, in each case in an amount and upon terms and
conditions satisfactory to the Indemnified Parties.
SECTION 7
TERMINATION
This Agreement shall terminate on January 1, 1999 if no
Exercise Notice is given on or prior to December 31, 1998. In addition, this
Agreement may be terminated at any time prior to the Closing:
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(a) by the written agreement of the Company and the Buyer;
(b) upon notice given by the Buyer if the Company breaches any
material covenant or agreement in this Agreement or any other document
or agreement delivered pursuant to this Agreement or in furtherance of
the transactions con templated herein (collectively, the "Transaction
Documents") or if any representation or warranty made by the Company in
or pursuant to any Transaction Document is false in any material
respect when made; or
(c) upon notice given by either the Company or the Buyer if
consummation of the transactions contemplated hereby would violate, in
whole or in part, any nonappealable final order, decree or judgment of
any court or governmental body having competent jurisdiction.
If this Agreement is terminated as provided in this Section 7, this Agreement
shall become null and void and of no further force or effect, except for Section
1.2 relating to the payment of the Commitment Fee, Section 5.4 relating to
publicity, Section 6 relating to indemnification and Section 9.4 relating to
certain expenses. Nothing in this Section 7 shall be deemed to release either
Party from any liability for any breach by such Party of the terms and
provisions of this Agreement or to impair the right of either Party to compel
specific performance by the other Party of its obligations under this Agreement.
SECTION 8
DEFINITIONS
In this Agreement, the following terms shall have the
following respective meanings:
"Adjustment Date" shall have the meaning assigned to it in
Section 1.4(a).
"Affiliate" means, with regard to any person, any other person
who, individually or as a part of a "group" for purposes of Section
13(d) of the Securities Exchange Act, controls, is controlled by or is
under common control with, such person.
"Agreement" means this Stock Purchase Agreement, including any
exhibits and schedules hereto, as it may be supplemented or amended
from time to time in accordance with its terms.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or
required by law to close.
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"Buyer" shall have the meaning assigned to it in the preamble.
"Change of Control of the Company" means the occurrence of any
of the following events:
(a) any "Person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more
Permitted Holders, is or becomes the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to
acquire within one year), directly or indirectly, of more than
eighteen percent (18%) of the total voting power of the equity
securities of the Company and obtains the contractual right to
elect or designate for election a majority of the Board of
Directors of the Company; or
(b) Permitted Holders cease to beneficially own,
directly or indirectly, such amount of the equity securities
of the Company that gives them over 50% of the total voting
power of such securities.
"Class A Shares" shall have the meaning assigned to it in
Section 1.4(a).
"Class B Shares" shall have the meaning assigned to it in the
recitals.
"Closing" shall have the meaning assigned to it in Section
1.3(b).
"Closing Date" shall have the meaning assigned to it in
Section 1.3(b).
"Commitment Fee" shall have the meaning assigned to it in
Section 1.2.
"Commitment Letter" means the letter, dated November 12, 1998,
from the Buyer to the Company relating to the subject matter of this
Agreement.
"Company" shall have the meaning assigned to it in the
preamble.
"Company 10-K" shall have the meaning assigned to it in
Section 3.5(c).
"Company 10-Qs" shall have the meaning assigned to it in
Section 3.5(c).
"Consent" means any consent, approval, authorization, waiver,
permit, grant, franchise, concession, agreement, license, certificate,
exemption, order, registration, declaration, filing, report or notice
of, with or to any Person.
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"Damages" shall have the meaning assigned to it in Section 7.
"Exchange Act" shall have the meaning assigned to it in
Section 3.5(a).
"Exercise Notice" shall have the meaning assigned to it in
Section 1.3(a).
"Expiration Date" shall have the meaning assigned to it in
Section 1.1.
"Final Trading Price" shall have the meaning assigned to it in
Section 1.4(a).
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government including, without limitation,
the European Union.
"Indebtedness", as applied to any Person, means, without
duplication, (i) all indebtedness for borrowed money, (ii) all
obligations evidenced by a note, bond, debenture, letter of credit,
draft or similar instrument, (iii) that portion of obli gations with
respect to capital leases that is properly classified as a liability on
a balance sheet in conformity with GAAP, (iv) notes payable and drafts
accepted representing extensions of credit, (v) any obligation owed for
all or any part of the deferred purchase price of property or services,
which purchase price is due more than six months from the date of
incurrence of the obligation in respect thereof, and (vi) all
indebtedness and obligations of the types described in the foregoing
clauses (i) through (vi) to the extent secured by any Lien on any
property or asset owned or held by that Person regardless of whether
the indebtedness secured thereby shall have been assumed by that Person
or is nonrecourse to the credit of that Person.
"Indemnified Party" shall have the meaning assigned to it in
Section 7.
"Law" means all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common law),
codes, rules, regulations, ordinances or orders of any Governmental
Authority and (ii) orders, decisions, injunctions, judg ments, awards,
Consents and decrees of or agreements with any Governmental Authority.
"Lien" means any lien, mortgage, pledge, charge, security
interest or encumbrance of any kind.
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"Material Adverse Effect" means a material adverse effect on
the financial condition, business, operations, assets (taken as a
whole), liabilities (taken as a whole) or prospects of the Company and
its Subsidiaries, taken as a whole, or on the ability of the Company to
perform its obligations hereunder, provided that the results of
Company's investments and operations in Poland shall be excluded from
the determination of a Material Adverse Effect.
"Measurement Period" shall have the meaning assigned to it in
Section 1.4(a).
"NASDAQ" means The Nasdaq National Market of The Nasdaq Stock
Market operated by The Nasdaq Stock Market, Inc., a wholly-owned
subsidiary of the National Association of Security Dealers, Inc.
"Party" shall have the meaning assigned to it in the recitals.
"Per Share Price" shall have the meaning assigned to it in
Section 1.1.
"Permitted Holders" means Ronald S. Lauder and Persons with
respect to whom Ronald S. Lauder possesses the power to direct such
Person's management and policies, whether through the ownership of
voting securities, by contract or otherwise (which power shall be
deemed to exist upon the ownership of more than 50% of any class of
voting securities or equity interest in any such Person).
"Person" means, an individual, corporation, partnership,
association, trust or other entity or organization, including a
government or political subdivision or any agency or instrumentality
thereof.
"Representatives" as to any Person, means its accountants,
counsel, consultants (including actuarial, environmental and industry
consultants), officers, directors, employees, agents and other advisors
and representatives.
"Securities Act" shall have the meaning assigned to it in
Section 1.5(b).
"Subscription Price" shall have the meaning assigned to it in
Section 1.1.
"Subsidiary" means, as to any Person, any corporation,
association, partnership or other business entity of which more than
50% of the total voting power of shares of capital stock or other
interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or
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controlled, directly or indirectly, by (i) such Person or (ii) one or
more Subsidiaries of such Person.
"Transaction Documents" shall have the meaning assigned to it
in Section 7(b).
SECTION 9
MISCELLANEOUS
9.1 Amendments and Waivers. This Agreement cannot be altered
or otherwise amended except prior to the Closing pursuant to an instrument in
writing signed by Buyer and the Company. Any of the terms and conditions of this
Agreement may be waived in writing at any time on or prior to the Closing by the
Party entitled to the benefits thereof.
9.2 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Company and the Buyer and their respective
heirs, personal representatives, successors and assigns, provided that any
assignment, by operation of law or otherwise, by the Company shall require the
prior written consent of the Buyer and any purported assignment or other
transfer without such consent shall be void and unenforceable.
9.3 Notices. All notices, requests and other communications to
any Party hereunder shall be in writing (including bank wire, telex, facsimile
transmission or similar writing) and shall be effective (i) if given by mail, 72
hours after such communication is deposited in the mail with first class postage
prepaid, or (ii) if given by any other means, when delivered at the address
specified below in this Section 9.3.
The Company: Central European Media Enterprises Ltd.
c/o CME Development Corporation
18 D'Arblay Street
London W1V 3FP
United Kingdom
Attention: Legal Department
telecopy number: 011-44-171-292-7948
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with a copy to:
Rosenman & Colin
575 Madison Avenue
New York, New York 10022
Attention: Robert Kohl, Esq.
telecopy number: 212-940-8776
The Buyer: RSL Capital LLC
767 Fifth Avenue, Suite 4200
New York, N.Y. 10153
Attention: Ronald S. Lauder
telecopy number: 212-572-6758
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Attention: Louis Begley
telecopy number: 212-909-6836
9.4 Expenses. The Company shall reimburse the Buyer for its
reasonable out-of-pocket expenses (including fees and disbursements of Debevoise
& Plimpton, counsel for the Buyer) incurred in connection with the preparation
of the Transaction Documents. The Company shall indemnify the Buyer against any
transfer taxes, docu mentary taxes, assessments or charges made by any
Governmental Authority by reason of the execution, delivery, amendment or
enforcement of any of the Transaction Documents.
9.5 Survival of Representations and Warranties. The
representations and warranties made by the Company and Buyer hereunder or in
connection herewith shall survive until the second anniversary of the Closing,
provided that the representations and warranties of the Company contained in
Sections 3.1, 3.2, 3.3 and 3.8 shall survive with out limitation (subject, in
the case of Section 3.8, to any statutes of limitations applicable to the
particular tax at issue).
9.6 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without, to
the extent permitted by law, invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not, to the
extent permitted by law, invalidate or render unenforceable such provision in
any other jurisdiction.
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9.7 Integration. This Agreement represent the entire agreement
of the Company and the Buyer with respect to the subject matter hereof, and
supersede any and all prior arrangements and understandings, oral or written,
relating to the subject matter hereof; provided that Section 2 of the Commitment
Letter (concerning payment of certain fees) and Exhibit B thereto (concerning
indemnification and other maters set forth therein) shall continue in full force
and effect.
9.8 No Third Party Beneficiaries. Except as provided in
Section 6, nothing in this Agreement shall confer any rights upon any Person or
entity which is not a Party or a successor or permitted assignee of a Party to
this Agreement.
9.9 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be considered an original but all of
which together shall constitute one and the same instrument.
9.10 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL FOR ALL PURPOSES BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK, WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR RULES OF CONFLICT OF
LAWS TO THE EXTENT SUCH PRINCIPLES OR RULES WOULD REQUIRE OR PERMIT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES
OF AMERICA SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF,
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT RELATING THERETO, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE
EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW.
9.11 Trial Without Jury. EACH OF THE COMPANY AND THE BUYER
AGREES THAT ANY LITIGATION GROWING OUT OF ANY
19
<PAGE>
CONTROVERSY WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT OF THIS
AGREEMENT, ANY NOTE OR ANY OTHER LOAN DOCUMENT WILL BE TRIED BY A JUDGE SITTING
WITHOUT A JURY AND HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY SUCH LEGAL PROCEEDING.
IN WITNESS WHEREOF, the Parties have caused this Agreement to
be executed as of the date first above written:
CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By:
-------------------------------------
Name: Michel Delloye
Title: President and Chief
Executive Officer
RSL CAPITAL LLC
By:
-------------------------------------
Name: Ronald S. Lauder
Title: Chairman
20
<PAGE>
Exhibit A
EXERCISE NOTICE
Pursuant to Section 1.3 of the Stock Purchase Agreement, dated
as of December __, 1998, by and among, RSL Capital LLC, a New York limited
liability company (the "Buyer"), and Central European Media Enterprises Ltd., a
company organized under the laws of Bermuda (the "Company"), the Company hereby
notifies the Buyer that it wishes to exercise the commitment set forth in
Section 1.1 of such Agreement and issue and sell to Buyer 1,515,000 Class B
Shares for the consideration set forth in such Agreement.
This notice is the Exercise Notice referred to in Section 1.3
of such Agreement.
WITNESS the signature of the undersigned this __ day of
________ 199_.
CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By:
-------------------------------------
Name:
Title:
<PAGE>
Exhibit B
OFFICER'S CERTIFICATE
The undersigned ________________, hereby certifies that he is
the _______________ of Central European Media Enterprises Ltd., a company
organized under the laws of Bermuda (the "Company"), and that, as such, he is
authorized to execute and deliver this Certificate on behalf of the Company and,
with reference to the Stock Purchase Agreement, dated as of December __, 1998,
by and among, RSL Capital LLC, a New York limited liability company (the
"Buyer") and the Company (the "Stock Purchase Agreement"), further certifies,
represents and warrants on behalf of the Company as follows (each capitalized
term used herein without definition having the meaning specified in the Stock
Purchase Agreement):
1. As of the date hereof, the representations and warranties
of the Company set forth in Section 2 of the Stock Purchase
Agreement are true and correct in all material respects.
2. All of the agreements, covenants and conditions required by
the Stock Purchase Agreement to be performed or complied with
by the Company on or prior to the Closing Date have been duly
performed and complied with in all material respects.
WITNESS the signature of the undersigned this __ day of
________ 199_ [insert Closing Date].
CENTRAL EUROPEAN MEDIA
ENTERPRISES LTD.
By:
--------------------------------------
Name:
Title:
<PAGE>
Exhibit C
OPINION OF COUNSEL
A. OPINION OF A BERMUDA COUNSEL
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of Bermuda, and has full corporate power and
authority to own its properties and conduct its business.
2. The Stock Purchase Agreement has been duly authorized, executed and
delivered by the Company, and is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
and similar laws affecting the rights of creditors generally and by general
equitable principles.
3. The Class B Shares have been duly and validly authorized by the
Company and, when such Class B Shares are issued and delivered on the Closing
Date, all such Class B Shares will be duly and validly issued, fully paid and
non-assessable and the issuance of such Class B Shares is not subject to any
presently existing preemptive or other similar rights.
[Need to expand to cover Class B Shares to be issued following the price
adjustment]
4. The execution and delivery by the Company of the Stock Purchase
Agreement, and the performance by the Company of its obligations thereunder,
will not contravene or conflict with the Bermuda Companies Act of 1981, any
other Bermuda law or regulation, any judgment, order, decree, rule or regulation
of any Bermuda court or arbitrator or governmental agency or body having
jurisdiction over the Company or any of its respective properties or assets, or
the memorandum of association or by-laws of the Company.
B. OPINION OF A NEW YORK COUNSEL
1. Assuming that the Stock Purchase Agreement has been duly authorized,
executed and delivered by the Company, the Stock Purchase Agreement is a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium and similar laws affecting the
rights of creditors generally and by general equitable principles.
<PAGE>
2. The execution and delivery by the Company of the Stock Purchase
Agreement, and the performance by the Company of its obligations thereunder,
will not contravene or conflict with any United States Federal or New York
statute or regulation, any judgment, order, decree, rule or regulation of any
United States Federal or New York court or arbitrator or governmental agency or
body having jurisdiction over the Company or any of its respective properties or
assets.
24
<PAGE>
Subsidiaries as at March 22, 1999
Company Name Jurisdiction of Organization
Media Pro International S.A. Romania
Media Vision S.R.L. Romania
Video Vision International S.R.L. Romania
Pro TV S.R.L. Romania
International Media Services Ltd. Bermuda
Innova Film GmbH Germany
Enterprise "Intermedia" Ukraine
Limited Liability Company "Prioritet" Ukraine
Broadcasting Company "Studio 1+1" Ukraine
Ukraine Advertising Holding B.V. Netherlands
Ceska Nezavisla Televizni Spolecnost, spol. s.r.o. Czech Republic
Nova Consulting a.s. Czech Republic
Nova Holding a.s. Czech Republic
CET 21 spol. s.r.o. Czech Republic
Slovenska Televizna Spolocnost, spol. s.r.o. Slovakia
MKTV Rt (Iris TV) Hungary
BK Rt (TV3) Hungary
Videovox Kft Hungary
GammaSat Media Investment Holding Kft Hungary
Magyarhang Kft Hungary
MM TV 1, d.o.o. Slovenia
Tele 59, d.o.o. Slovenia
Meglic Telecom, d.o.o. Slovenia
Produkcija Plus, d.o.o. Slovenia
Idea d.o.o. Slovenia
CME Media Enterprises B.V. Netherlands
CME Czech Republic B.V. Netherlands
CME Czech Republic II B.V. Netherlands
CME Germany B.V. Netherlands
CME Hungary B.V. Netherlands
CME Poland B.V. Netherlands
CME Romania B.V. Netherlands
CME Slovakia B.V. Netherlands
CME Slovenia B.V. Netherlands
CME Ukraine B.V. Netherlands
<PAGE>
Company Name Jurisdiction of Organization
CME Media Enterprises UK UK
CME Ukraine Holding GmbH Austria
CME Development Corporation USA
CME Programming Services Inc. USA
CME Programming Services B.V. Netherlands
Central European Media Enterprises N.V. Netherlands Antilles
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 333-1560 and 333-60295.
ARTHUR ANDERSEN & CO.
Hamilton, Bermuda
March 29, 1999
<PAGE>
POWER OF ATTORNEY
-----------------
Each person whose signature appears below, constitutes and appoints Michel
Delloye, Frederic T. Klinkhammer and John A. Schwallie, and each of them, with
full power to act without the other, such person's true and lawful
attorney-in-fact, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign the Annual
Report on Form 10-K for the fiscal year 1998 of Central European Media
Enterprises Ltd., a Bermuda corporation, and any and all amendments to such
Annual Report on Form 10-K and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform each and every act and
thing necessary or desirable to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, thereby ratifying
and confirming all that said attorneys-in-fact, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
March 8, 1999
/s/ Ronald S. Lauder /s/ Michel Delloye
-------------------- ------------------
Ronald S. Lauder Michel Delloye
/s/ Robert R. Grusky /s/ Herbert S. Schlosser
-------------------- ------------------------
Robert R. Grusky Herbert S. Schlosser
/s/ Peter R. Goldscheider /s/ Nicolas G. Trollope
------------------------- -----------------------
Peter R. Goldscheider Nicolas G. Trollope
/s/ John A. Schwallie
----------------------- ---------------------
Frederic T. Klinkhammer John A. Schwallie
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 44,373
<SECURITIES> 71
<RECEIVABLES> 44,507
<ALLOWANCES> (3,270)
<INVENTORY> 0
<CURRENT-ASSETS> 155,108
<PP&E> 116,759
<DEPRECIATION> (50,477)
<TOTAL-ASSETS> 385,466
<CURRENT-LIABILITIES> 107,193
<BONDS> 183,604
0
0
<COMMON> 257
<OTHER-SE> 65,450
<TOTAL-LIABILITY-AND-EQUITY> 385,466
<SALES> 182,367
<TOTAL-REVENUES> 182,367
<CGS> 0
<TOTAL-COSTS> 217,112
<OTHER-EXPENSES> (3,398)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,398)
<INCOME-PRETAX> (65,146)
<INCOME-TAX> (15,856)
<INCOME-CONTINUING> (81,158)
<DISCONTINUED> (44,094)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (125,252)
<EPS-PRIMARY> (5.19)
<EPS-DILUTED> (5.19)
</TABLE>
