-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HSehtUbHm/kP6stKA0/+gVXSiUcs1Nr4fQCOn5Tz04cXTMsrYJ80SrKEtbXUxb9T S9JeVfVks9ZnCVPkyobP+w== 0000889812-97-000745.txt : 19970325 0000889812-97-000745.hdr.sgml : 19970325 ACCESSION NUMBER: 0000889812-97-000745 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970324 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL EUROPEAN MEDIA ENTERPRISES LTD CENTRAL INDEX KEY: 0000925645 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24796 FILM NUMBER: 97561099 BUSINESS ADDRESS: STREET 1: CLARENDON HOUSE CHURCH STREET STREET 2: HAMILTON HM CX CITY: BERMUDA STATE: D0 BUSINESS PHONE: 8092961431 MAIL ADDRESS: STREET 1: CCLARENDON HOUSE STREET 2: HAMILTON HM CX CITY: BERMUDA STATE: D0 10-K 1 ANNUAL REPORT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER: 0-24796 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) BERMUDA NOT APPLICABLE (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION) ------------------------ CLARENDON HOUSE CHURCH STREET HAMILTON HM CX BERMUDA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (441) 296-1431 (REGISTRANT'S TELEPHONE NUMBER) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: CLASS A COMMON STOCK, $0.01 PAR VALUE ------------------------ Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock of registrant held by non-affiliates of the registrant as of March 20, 1997 was approximately $606,826,465. ------------------------ Number of shares of Class A Common Stock outstanding as of March 20, 1997: 16,716,478 Number of shares of Class B Common Stock outstanding as of March 20, 1997: 7,149,475 ------------------------ DOCUMENTS INCORPORATED BY REFERENCE LOCATION IN FORM 10-K IN WHICH DOCUMENT DOCUMENT IS INCORPORATED - ---------------------------------------------- ------------------------------ Registrant's Proxy Statement Part III for the Annual Meeting of Shareholders to be held on May 2, 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ---- PART I Item 1. Business........................................................ 1 Item 2. Properties...................................................... 22 Item 3. Legal Proceedings............................................... 23 Item 4. Submission of Matters to a Vote of Security Holders............. 23 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................................... 24 Item 6. Selected Financial Data......................................... 24 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 27 Item 8. Financial Statements and Supplementary Data..................... 37 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................... 105 PART III Item 10. Directors and Executive Officers of the Registrant.............. 105 Item 11. Executive Compensation.......................................... 105 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................... 105 Item 13. Certain Relationships and Related Transactions.................. 105 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................................... 106 SIGNATURES i PART I ITEM 1. BUSINESS INTRODUCTION Central European Media Enterprises Ltd. ('CME') is a Bermuda corporation. CME, together with its subsidiaries (CME and its subsidiaries are collectively referred to as the 'Company,' and the term 'subsidiaries' includes each corporation or partnership in which CME has a direct or indirect equity or voting interest) owns, operates and develops private commercial television stations in Central and Eastern Europe and regional private commercial television stations in Germany. The Company is the leading television broadcaster in Central and Eastern Europe, broadcasting to an aggregate of 84.9 million people in six countries in the region and an additional 9.0 million people in Germany. The Company operates the leading national television station in the Czech Republic and the Company's television operations in Romania, Slovenia and the Slovak Republic command the leading audience share within their respective areas of broadcast reach. The Company recently commenced television broadcast operations in Ukraine and southern Poland and has television broadcast operations under development in other areas of Poland and in Hungary which, in the aggregate, potentially could reach an additional 32 million people. Unless otherwise noted, all statistical and financial information presented in this report has been converted into United States dollars using exchange rates as of December 31, 1996. All references to '$' or 'dollars' are to United States dollars, all references to 'Kc' are to Czech korunas, all references to 'ROL' are to Romanian lei, all references to 'SIT' are to Slovenia tolar, all references to 'Sk' are to Slovak korunas, all references to 'Zl' are to Polish zloty, all references to 'Hrn' are to Ukrainian hryvna and all references to 'DM' are to German marks. The exchange rates as of December 31, 1996 used in this report are 27.33 Kc/$; 4,035 ROL/$; 141.48 SIT/$; 31.90 Sk/$; 2.88 Zl/$; 1.89 Hrn/$ and 1.55 DM/$. The Company owns a 93.2% economic interest in Ceska Nezavisla Televizni Spolecnost s.r.o. ('Nova TV') in the Czech Republic, which has consistently achieved a 65% to 70% audience share. Nova TV continues to benefit from the growing television advertising market in the Czech Republic. Gross television advertising expenditures grew from approximately $96 million in 1994 to $165 million in 1996, according to the Company's estimates. During 1996, Nova TV recorded $109.2 million in net revenues and $53.1 million in broadcast cash flow, a 48.6% broadcast cash flow margin. Nova TV has achieved its success in part by providing a wide range of popular programming designed to appeal to a mass market audience, including a mix of locally produced news and entertainment formats and films and television series acquired from major international distributors. The Company is applying its experience with Nova TV to its broadcast operations in Romania, Slovenia, the Slovak Republic, Ukraine and Poland and intends to apply this operating strategy in new markets under development. In Romania, Slovenia and the Slovak Republic, the Company's broadcast operations, PRO TV, POP TV and Markiza TV have achieved the leading audience share in their areas of broadcast. PRO TV, POP TV and Markiza TV reach approximately 55%, 80% and 79% of their national markets, respectively. In Ukraine, the Company has acquired a 50.0% economic interest in the Studio 1 + 1 group of companies (the 'Studio 1 + 1 Group') which has a ten year license to provide programming and sell advertising for 63 hours of broadcasting per week on a Ukrainian public television station, UT-2, which reaches approximately 93% of Ukraine's population of 52.1 million. In Poland, the Company has a 33.0% interest in TVN which, in turn, has a 49.0% interest in TV Wisla. TV Wisla broadcasts to approximately 7.8 million people in southern Poland. TVN has an option to acquire an additional 27.0% interest in TV Wisla. In each of these markets, television advertising spending is growing rapidly. The Company seeks to further expand its reach in these markets through investing in additional regional licenses, affiliating with other broadcasters and reaching agreements with local cable operators. The Company continues to develop other broadcast opportunities. In February 1997, the Polish National Radio and Television Council awarded television broadcast licenses for northern Poland and television broadcast licenses covering the cities of Warsaw and Lodz in Poland to TVN. The Company estimates that these television broadcast licenses have a potential broadcast reach of approximately 11 million people. The Company and ITI, its partner in TVN, intend to develop a national television broadcast network in Poland, which will broadcast programming and sell advertising through affiliate stations, including TV Wisla and those broadcasting under the television broadcast licenses awarded to TVN in northern Poland and the cities of Warsaw and Lodz. The Company anticipates owning a 50.0% interest in this television broadcast network, which the Company anticipates to launch in the fourth quarter of 1997. In Hungary, the Company intends to apply for a national broadcast license with strategic partners in accordance with tender procedures which recently were announced. The Company also owns a dubbing and production studio in Hungary. The Company believes that its broadcast experience in the region, its proven programming strategy, its extensive knowledge of the political and economic climates in Central and Eastern Europe, and its proven ability to attract local strategic partners, position it to capitalize on these and other development opportunities. The Company has loans to, and a consulting agreement with, Radio Alfa a.s. ('Radio Alfa'), a national radio broadcaster in the Czech Republic. In October 1995, the Company relaunched Radio Alfa with a new entertainment driven program format. Under the new format, audience share was approximately 7.5% during the fourth quarter of 1996. Recent changes in the Czech broadcasting regulations have allowed the Company to directly hold an equity interest in Radio Alfa. The Company recently purchased a 62% interest in Radio Alfa, and has outstanding loans convertible into an additional equity interest which, when combined with its current 62% interest, would give the Company an 84% interest in Radio Alfa. The Company owns interests in four private regional television stations operating in Germany, including PULS, which broadcasts to six million people in the Berlin-Brandenburg area. These stations provide 'total local' programming, which involves delivering in-depth coverage of local and regional news and events, thereby distinguishing these stations from the national networks by being uniquely responsive to the distinct regional tastes of the respective local viewers. PULS, which has generated losses since its operations commenced in late 1993, is currently in discussions with potential investors which could bring additional broadcasting expertise, programming and capital to the station. Such an investment would be anticipated to significantly dilute the Company's equity interest in PULS and to decrease the Company's future funding obligations to PULS. Such investment also could result in a reduction of the carrying value and a corresponding charge against earnings related to the Company's equity investment in PULS and its other German operations. CORPORATE STRUCTURE Central European Medial Enterprises Ltd. was incorporated in June 1994 under the laws of Bermuda. The chart on the following page sets forth the functional corporate structure of the Company. 2 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CORPORATE STRUCTURE* Central European Media Enterprises Ltd. | | | Dutch and CME Development_____100.0%_____Netherlands_____100.0%_____CME Programming Corporation Antilles Services Inc. Holding Companies | | ___________________________________|_______________________________________ | | | | | | | | | | | | | | | | 100.0% 93.2%(1) 62.0%(2) 77.5%(3) | 72.0%(4) 80.0%(5) | | | | | | | | | | | | | | | | | German Nova TV Radio Alfa Media Pro | Pro Plus STS | Holding (Czech (Czech International | (POP TV) (Markiza TV) | Companies Republic) Republic) (PRO TV/ | (Slovenia) (Slovak | | PRO FM) | Republic) | |_______________________ (Romania) | | | | | ______________| | | | | | __________________________________| 58.0% 50.0% 50.0% | | | | | | | | | | | | | | | | | 50.0% | 95.0%(6)(7) 33.0%(6)(8) PULS FFF ____SFF____ | | | | | | | | | | | | | | | | | Studio 1+1 | Broadcast Broadcast 74.8% 33.3% 33.3% | Group | Oper. Under Oper. Under | | | | (Ukraine) | Develop. Develop. | | | | | 2002 Kft. TVN Nuremberg Leipzig Dresden | | (Hungary) (Poland) Station Station Station | | | | |_______ | | | | 9.5% 97.4% 49.0% | | | | | | MobilRom Videovox TV Wisla (Romania) (Hungary) - --------------- (1) The Company is in the process of registering its recent acquisitions of additional interests of Nova TV under Czech law, raising its economic interest in Nova TV from 66.0% to 93.2%. (2) The Company has outstanding loans to Radio Alfa which are convertible into an additional equity interest which, when combined with its current 62.0% interest, would give the Company an 84.0% interest in Radio Alfa. (3) The Company's partners in Romania hold options to purchase equity from the Company which, if exercised, would reduce the Company's equity interest to not less than 66%. (4) The Company owns 58.0% of the equity in Pro Plus, but has an effective 72.0% economic interest, as a result of its rights to 33.0% of the profits of MMTV and 33.0% of the profits of Tele 59. (5) The Company has an 80.0% economic interest and a 49.0% voting interest in STS. (6) The Company or its local partners have acquired television broadcast licenses (or are applying for television broadcast licenses) and are developing broadcast operations in these countries. (7) As a condition to bidding on a national broadcast license, the Company will be required to reduce its interest in 2002 Kft. to below 25.0%. (8) TVN, the Company's Polish subsidiary, in which it has a 33.0% equity interest has been awarded television broadcast licenses in northern Poland and the cities of Warsaw and Lodz. TVN currently owns 49.0% of TV Wisla and has an option which could increase TVN's equity interest in TV Wisla and has an option which could increase TVN's equity interest in TV Wisla to approximately 76.0%. * All interests indicated are economic interests; equity and/or voting interests may vary. 3 The Company's ownership interest in Nova TV is governed by the terms of a Memorandum of Association and Investment Agreement dated as of May 4, 1993 (the 'Nova Agreement') to which Ceska Sporitelna Bank ('CS') and CET 21 s.r.o. ('CET 21'), are also parties. In August 1996, the Company purchased CS's 22.0% economic interest in Nova TV and virtually all of CS's voting power in Nova TV (the 'Additional Nova TV Purchase'). In March 1997, the Company acquired an additional 5.2% interest in Nova TV through the retirement of a $5.2 million loan in exchange for such interest (the '1997 Nova TV Purchase'). The Company is in the process of registering the Additional Nova TV Purchase and the 1997 Nova TV Purchase pursuant to Czech law. On an ongoing basis, after giving effect to the Additional Nova TV Purchase and the 1997 Nova TV Purchase, the Company is entitled to 93.2% of the total profits of Nova TV and has 91.2% of the voting power in Nova TV. CET 21 and certain of its partners will own the remaining 6.8% of Nova TV, subject to the registration procedures. CET 21 has agreed to provide Nova TV with exclusive access to the use of the broadcast license to Nova TV. The Company has the right to appoint five of the seven members of Nova TV's Committee of Representatives, which directs the affairs of Nova TV. With respect to certain fundamental corporate decisions, including the declaration of dividends, a 67.0% vote of the voting interest is required. A representative of CET 21 has certain delay and veto rights on non-economic programming matters related directly to the broadcast license. The Company's interest in PRO TV is governed by a Cooperation Agreement (the 'Romanian Agreement') among CME Media Enterprises B.V. ('CME BV'), Adrian Sarbu ('Sarbu') and Ion Tiriac ('Tiriac'), forming Media Pro International S.A. ('Media Pro International'). Pursuant to the Romanian Agreement, the Company owns 77.5% of the equity of Media Pro International. Interests in profits of Media Pro International are equal to the partners' equity interests. Sarbu and Tiriac hold options (exercisable until August 1997 at a cost per unit equal to the cost per unit of the Company's original investment in Media Pro International) on a portion of the Company's equity which, if exercised, could reduce the Company's equity interest to not less than 66.0%. The Company has the right to appoint three of the five members of the Council of Administration which directs the affairs of Media Pro International. Although the Company has majority voting power in Media Pro International, with respect to certain financial and fundamental corporate matters the affirmative vote of either Sarbu or Tiriac is required. The Company recently exercised an option to purchase 49.0% of the equity of PRO TV, SRL, an affiliate station of Media Pro International. Messrs. Sarbu and Tiriac own substantially all of the remainder of PRO TV, SRL. PRO TV, SRL holds many of the licenses for the stations which comprise the PRO TV network. The Company also owns a 95.0% equity interest in Unimedia SRL ('Unimedia'), which owns a 10.0% equity interest in a consortium, MobilRom ('MobilRom'). In December 1996, MobilRom was awarded a license to operate a GSM cellular telephone network in Romania. Mr. Sarbu owns the remaining 5.0% of Unimedia. The Company's interest in POP TV is governed by a Partnership Agreement (the 'Slovenian Partnership Agreement') among CME BV, MMTV 1 d.o.o. Ljubljana ('MMTV') and Tele 59 d.o.o. Maribor ('Tele 59'), forming Produkcija Plus d.o.o. ('Pro Plus'). The Company owns 58.0% of the equity in Pro Plus, but has an effective economic interest of 72.0%, as a result of its right to 33.0% of the profits of MMTV and 33.0% of the profits of Tele 59 which, in turn, each have 21.0% equity interests in Pro Plus. The Company owns 10.0% of the equity of each of Tele 59 and MMTV. Voting power and interests in profits of Pro Plus are equal to the partners' equity interests. All major decisions concerning the affairs of Pro Plus are made by the general meeting of partners and require a 70.0% affirmative vote. Certain financial and fundamental corporate matters require an 85.0% affirmative vote of the partners. In July 1996, the Company, together with MMTV and Tele 59, entered into an agreement to purchase a 66.0% equity interest in Kanal A, a privately owned television station in Slovenia, which competes with POP TV (the 'Kanal A Agreement'), which would increase POP TV's broadcast reach to approximately 85% of the Slovenian population. There is currently an injunction in effect preventing the completion of the Kanal A Agreement. The Company's interest in Markiza TV is governed by a Participants Agreement dated September 28, 1995 (the 'Slovak Agreement') between CME BV and Markiza-Slovakia s.r.o. ('Markiza') forming Slovenska Televizna Spolocnost, s.r.o. ('STS'). Pursuant to the Slovak Agreement, the Company is 4 required to fund all of the capital requirements of, and holds a 49.0% voting interest and an 80.0% economic interest in, STS. Markiza, which holds the television broadcast license, and STS have entered into an agreement under which STS is entitled to conduct television broadcast operations pursuant to the license. On an ongoing basis, the Company is entitled to 80.0% of the profits of STS, except that until the Company is repaid its capital contributions plus a priority return at the rate of 6.0% per annum on such capital contributions, 50.0% of the profits will be paid to the Company and the remaining 50.0% of the profits will be paid pro rata to the partners based on their economic interests. A Board of Representatives directs the affairs of STS, the composition of which includes two designees of the Company and three designees of Markiza, however, all significant financial and operational decisions of the Board of Representatives require a vote of 80.0% of its members. In addition, certain fundamental corporate matters are reserved for decision by a general meeting of partners and require a 67.0% affirmative vote of the partners. In Ukraine, the Studio 1+1 Group consists of several entities in which the Company holds direct or indirect interests. CME BV, through a wholly-owned subsidiary, holds a 50% economic interest in each of Innova Film GmbH ('Innova') and International Media Services ('IMS'). In addition, this wholly-owned subsidiary anticipates that it will acquire an indirect 25% equity interest in Prioritet, a Ukrainian based company ('Prioritet'). Innova holds an indirect 30% equity interest in a separate Ukrainian based company which holds the license to broadcast programming and sell advertising on Ukranian National Channel Two ('UT-2') (the 'UT-2 License'). This Ukrainian based company has, in turn, assigned its right to sell advertising on UT-2 to Innova. In addition, Innova, IMS and Prioritet have entered into arrangements regarding advertising revenues generated on UT-2. Interests in profits of each entity in the Studio 1+1 Group are equal to equity interests held in such entities. All significant decisions of the entities in the Studio 1+1 Group are reserved for decision of the shareholders, requiring a majority vote (other than decisions of the shareholders of the Ukrainian based company which holds the UT-2 broadcast license, which require a 75% vote). Certain fundamental corporate matters of these entities require unanimous shareholder approval. The Company together with the Polish media group ITI, are partners in TVN Sp. z.o.o. ('TVN') in Poland. ITI holds 67.0% of the equity in TVN and the Company holds the remaining 33.0%. The governance provisions for TVN are set forth in a Shareholders Agreement dated as of May 25, 1995 between CME BV and ITI (the 'TVN Agreement'). Pursuant to the TVN Agreement, the economic interests of the Company and ITI are equivalent to their equity interests. A Supervisory Board directs the affairs of TVN, and is comprised of five designees of ITI and four designees of the Company. The affirmative vote of at least two ITI designees and two Company designees is required to approve certain significant financial and operational decisions. Certain fundamental corporate matters including the declaration of dividends and the termination or liquidation of TVN are reserved for decision by the shareholders of TVN, and require the affirmative vote of holders of at least 75% of the outstanding equity. In Hungary, the Company intends to apply for a national broadcast license with strategic partners in accordance with tender procedures which were recently announced. The Company currently owns 95.0% of the equity of 2002 Tanacsado es Szolgaltato Korlatolt Felelosegu Tarsasag ('2002 Kft'), however, as a condition to bidding on a national broadcast license, the Company will be required to reduce its interest in 2002 Kft to below 25.0%. In December 1996, CME BV acquired 2002 Kft's 97.4% equity interest in Videovox Studio Limited Liability Company, a Hungarian dubbing and production company ('Videovox'). The Company's present 58.0% ownership interest in the German limited partnership that operates PULS is held through wholly-owned intermediate entities and limited partnerships (the 'CME Partnerships'). The Company's interest in PULS is governed by a partnership agreement among the CME Partnerships and their partners (the 'PULS Partnership Agreement'). Currently, calls for capital contributions may be made by a 75.0% vote of the voting power of the partners in PULS, but this capital call would be binding only upon partners who voted in favor. A partner which does not make a contribution upon such a capital call will have its equity interest diluted. Since September 1995, the 5 partners have approved capital calls aggregating DM44,075,000 ($28,435,000) and the Company has been the only partner agreeing to fund virtually all these capital calls. The PULS Partnership Agreement provides that profits and losses of PULS are shared as follows: net losses are allocated to the partners in proportion of their capital contributions; cumulative net profits are allocated in the same proportion until such losses are recovered. Thereafter, once certain priority returns have been paid, the Company will be entitled to 58.0% of the profits of PULS. Pursuant to the PULS Partnership Agreement, the Company currently has effectively 50.4% of the voting power of PULS. In general, a 75% vote of the voting power of the partners of PULS is required with respect to certain financial matters and certain partnership matters, including, among other things, amendments to the partnership agreement, mergers, reorganizations and a transfer of all of PULS's assets and approval of the annual budget and financial plans. The Company has the right to appoint two of the nine members of the Supervisory Board of PULS. The partners of PULS have retained a financial advisor and are currently in discussions with one or more potential investors in PULS. Such an investor would be expected to acquire a significant equity interest in PULS and assume responsibility for PULS' operations. Such an investment would be anticipated to significantly dilute the Company's equity investment in PULS and to decrease the Company's future funding obligations to PULS. Such investment also could result in a material reduction of the carrying value of the Company's equity investment in PULS, which was $12.6 million as of December 31, 1996, and a corresponding charge against the Company's earnings in the period incurred. Regardless of whether a transaction with an investor is consummated, there is no assurance that the Company may not have to take a reduction of all or a portion of the carrying value of PULS. See 'Business--Operations in Germany: The German Stations--Recent Developments.' The Company's 37.4% equity interest in NMF Neue Medien Franken GmbH & Co. KG (the 'Nuremberg Station' or 'NMF'), was obtained by acquiring a 50.0% non-voting equity interest in Franken Funk & Fernsehen GmbH ('FFF'), which owns 74.8% of the equity in NMF, which directly owns the Nuremberg Station. The remaining 25.2% of NMF is owned by an unaffiliated individual. The Company's interest in the Nuremberg Station is governed by a so-called 'Silent Partner Agreement' under German law between the Company, Dr. Dietmar Straube, a managing director of the Company's German operations and the owner of the remaining 50.0% equity interest and 100% voting interest in FFF, and FFF. A Silent Partner Agreement gives the silent partner (the Company in this case) the economic benefits of an equity interest without a voting interest and without a physical instrument evidencing the interest. While the Company does not own shares of stock of FFF or have the right to elect any of its directors, the prior approval of the Company is required for certain significant transactions. The Company is entitled to 50.0% of FFF's profits and losses and 50.0% of the proceeds upon liquidation of its assets. However, Dr. Straube is entitled to a one-time preferred distribution of DM 1,860,000 ($1,200,000) out of the cumulative profits. The Company has a 49.0% equity and voting interest in Sachsen Funk & Fernsehen ('SFF') and the Company is entitled to distributions of 50.0% of the profits of SFF. Dr. Straube owns the remaining equity of SFF. SFF owns a 33.3% interest in both Leipzig Fernsehen (the 'Leipzig Station') and Dresden Fernsehen (the 'Dresden Station'). A reduction of the carrying value of PULS, or other factors, might cause the Company to reduce all or part of the carrying value of the Company's investments in FFF and SFF, which were $6.1 million and $1.6 million, respectively, as of December 31, 1996. CME Development Corporation is a wholly-owned subsidiary of the Company which provides development services to the Company. CME Programming Services, Inc. ('CMEPS') is a wholly-owned subsidiary of the Company which provides programming and production services to the Company's television broadcast operations in Central and Eastern Europe. CMEPS will also provide satellite transmission services to the Company's television stations in Central and Eastern Europe. 6 The Company's registered offices are located at Clarendon House, Church Street, Hamilton HM CX Bermuda and its telephone number is 441-296-1431. The Central European Media Enterprises group of companies also maintains offices at 18 D'Arblay Street, London W1V 3FP England, telephone number 44-171-292-7900. GENERAL The Company or its strategic and financial partners have been successful in obtaining broadcast rights and then in turn transforming these rights into operating television stations in a relatively short period of time. In many of the Company's markets the Company's broadcast operations have become the top rated stations within their broadcast reach in their first year of operation. License fees, if any, payable to governmental entities in connection with securing television licenses are usually minimal. A summary of the Company's broadcast operations appears below.
BROADCAST ECONOMIC TELEVISION BROADCAST OPERATIONS TERRITORY REACH (1) INTEREST - ------------------------------- ------------------ --------- -------- Nova TV........................ Czech Republic 10.2 93.2% (2) PRO TV......................... Romania 12.5 77.5% (3) POP TV......................... Slovenia 1.6 72.0% Markiza TV..................... Slovak Republic 4.3 80.0% Studio 1 + 1 Group............. Ukraine 48.5 50.0% TV Wisla....................... Poland 7.8 16.2% PULS........................... Berlin-Brandenburg 6.0 58.0% Nuremberg Station.............. Nuremberg 1.2 37.4% Leipzig Station................ Saxony 0.7 16.7% Dresden Station................ Saxony 1.1 16.7% --------- Totals.................... 93.9
- ------------------ (1) 'Broadcast Reach' measures the number of people in millions the Company's or the Company's local partners' broadcast signal can reach. (2) The Company has recently obtained additional interests in Nova TV which have raised the Company's economic interest in Nova TV from 66.0% to 93.2%. The Company is in the process of registering these additional interests pursuant to Czech law. (3) The Company's partners in Romania hold options to purchase equity in Media Pro International from the Company which, if exercised, could reduce the Company's equity interest to 66.0%. OPERATING ENVIRONMENT Private commercial television stations (those which derive the majority of their revenues from the sale of advertising) generally began broadcasting in the United States in the 1940s, in parts of Western Europe in the 1950s, but not until the 1980s and 1990s in Germany, and the 1990s in Central and Eastern Europe. Commercial television has become an important medium for advertisers in the more developed advertising markets. For example, in 1996, television advertising expenditures totaled $38 billion in the United States and an aggregate of $23 billion in the 16 countries in Western Europe. The Company believes that, over time, television advertising expenditures in Central and Eastern European countries, which are relatively low, will follow a pattern of development similar to that of Western Europe and the United States. 7 The following table sets forth the population and number of TV households for those countries of Central and Eastern Europe where the Company is focusing its efforts.
COUNTRY POPULATION (1) TV HOUSEHOLDS (2) - ------------------ -------------- ----------------- Czech Republic.... 10,300,000 4,000,000 Hungary........... 10,200,000 3,800,000 Poland............ 38,600,000 12,300,000 Romania........... 22,700,000 6,700,000 Slovak Republic... 5,400,000 1,800,000 Slovenia.......... 2,000,000 600,000 Ukraine........... 52,100,000 17,300,000 -------------- ----------------- Total........... 141,300,000 46,500,000 -------------- ----------------- -------------- -----------------
- ------------------ (1) Source: Economist Intelligence Unit Limited, December 1996. (2) Source: Zenith Media, January 1997, except for Ukraine: CIT Publications, November 1996. A TV Household is a residential dwelling with one or more television sets. Czech Republic The Czech Republic is a parliamentary democracy of approximately 10.3 million people, which the Company believes has developed a stable market economy and is moving toward eventual membership in the European Union. Prior to 1992, television advertising in the Czech Republic was limited to two public channels. Currently, there are four over-the-air television stations in the Czech Republic: two public stations which reach 96% and 83% of the population, respectively, and two private commercial stations, Nova TV and Prima TV, which reach 99% and 44% of the population, respectively. Since the onset of privatization activities in 1992, the television advertising market in the Czech Republic has expanded rapidly to approximately $165 million in 1996. The Czech media law, originally adopted in 1991, and revised in 1996, allowed for the creation of Nova TV and generally permits up to 10% of its broadcast time to be used for advertising compared with 1% of broadcast time on each public channel. It is currently estimated that at some point during prime time hours 60% to 70% of the Czech population watches television, as compared with 60% of the population of the United States. Romania Romania is a parliamentary democracy of approximately 22.7 million people, making it one of the largest potential markets in Central and Eastern Europe. Approximately 97% of Romanian households have television, and cable penetration is approximately 31%. According to the Company's estimates, television advertising totaled approximately $45 million in 1996. In 1992, the National Commission for Audio-Visual (the 'Romanian Media Commission') was established to grant broadcast licenses and regulate television, radio and cable. Currently, there are two public stations and two private stations competing with PRO TV. Of the public stations, TVR1 reaches the entire Romanian population and TVR2 reaches 60%. The two primary private competitors, Antena 1 and Tele 7ABC, reach approximately 15% and 9% of the population, respectively. Private broadcasters, such as PRO TV, are permitted to use up to 15% to 20% of their broadcast time for advertising, as compared to public broadcasters which are permitted to use only up to 7.5% of their time for advertising. PRO TV has a broadcast reach of 55% of the Romanian population. Slovenia Slovenia is a parliamentary democracy of 2.0 million people and had an estimated per capita GDP of $9,600 in 1996, the highest among the former Eastern bloc countries. Approximately 97% of Slovenian households have television. Television advertising increased 17% in 1996 to $35 million, and represented approximately 32.5% of total advertising expenditures. The licenses under which the stations which constitute the POP TV network operate are regulated pursuant to the Law on Public Media adopted in 1994 and pursuant to the Law on Telecommunications adopted in 1988. Private 8 broadcasters are permitted to use up to 20% of their broadcast time for advertising compared to 15% on public stations. Currently, there are two public stations and two private stations in Slovenia competing with the POP TV network. Historically, the Slovenian television market has been dominated by one of the public stations, SLO 1, which reaches 97% of the Slovenian population. In addition, cable television penetration in Slovenia is at a relatively high 35%. Slovak Republic The Slovak Republic has a population of 5.4 million people and 99% of households have television. The economy of the Slovak Republic has recently begun to respond to economic reform, with estimated GDP growth of 6.5% in 1996. The Company believes that as a market economy develops in the Slovak Republic, television advertising spending has the potential to grow significantly. Television advertising increased 28% in 1996 to $32 million, according to the Company's estimates, yet television advertising spending per capita in the Slovak Republic in 1996 still was less than half of that of the Czech Republic. The license under which Markiza TV operates is regulated pursuant to the Act on Radio and Television Broadcasting. Currently, there are two national public stations which compete with Markiza TV, each of which reach 98% of the population of the Slovak Republic. Ukraine Ukraine, a parliamentary democracy of 52.1 million people, is the largest market served by the Company. Approximately 94% of Ukrainian households have television, and cable penetration is approximately 6%. Although television advertising in Ukraine was only $20 million in 1996, the Company expects that Ukraine's television advertising market will grow rapidly as Ukraine develops an economy that fosters competition among providers of goods and services. The Studio 1+1 Group is permitted to use up to 15% of its broadcasting time for advertising and has a broadcast reach through UT-2 of 93% of Ukraine's population. Poland Poland is a parliamentary democracy of 38.6 million people and had an estimated per capita GDP of approximately $3,500 in 1996. Poland has the largest television advertising market of the former eastern bloc countries, other than Russia, with $385 million of television advertising expenditures in 1996. In 1996, television advertising expenditures increased by 15% from 1995. Approximately 98% of Polish households have television, and cable and satellite penetration are 23% and 16%, respectively. Competition in Poland consists of two national public broadcast channels, TVP1 and TVP2, with broadcast reaches of 98% and 96% of Poland's population, respectively, Polsat, the largest private broadcaster, with a broadcast reach of 74%, and 11 regional channels. Restrictions on advertising provide that public advertising on TV Wisla may not exceed 15% of daily broadcasting time and 12 minutes in any one hour. Germany Germany is currently Europe's largest television advertising market with television advertising expenditures of approximately $4.9 billion in 1996. In 1984, legislation was enacted which permitted the expansion of private national television stations and which reduced restrictions on advertising on private television stations. Since that time, television broadcasting in Germany has been conducted primarily by several well-established public and private national stations. Until 1993, there were no privately owned regional television stations in Germany. Efforts to broadcast television on a regional basis were limited to (i) ARD, one of the public station groups, which, in addition to their joint nationwide program provide programs intended for regional reception and (ii) the inclusion on certain national television broadcast stations of a program segment of 30 to 45 minutes in length in the early evening which focuses on a particular region's news and events. As a result, television advertising has been purchased and broadcast primarily on a national basis. 9 In 1993, certain of the 16 German states began to award private regional broadcasting licenses, such as those awarded to operate PULS, the Nuremberg Station, the Leipzig Station and the Dresden Station (collectively, the 'German Stations'). Licenses to broadcast regional television have been awarded to other broadcasters in Munich, Hamburg and Berlin. OPERATIONS IN THE CZECH REPUBLIC: NOVA TV General Nova TV is the leading commercial television broadcaster in the Czech Republic, broadcasting pursuant to a 12 year license awarded in February 1993. Nova TV's signal reaches 99% of the Czech Republic's population of approximately 10.3 million, including 4.0 million TV households. Nova TV generated $109 million in net advertising revenues in 1996. As the first private national station serving the Czech Republic, broadcasting a wide range of programming, including movies, comedies, dramatic series, soap operas, news and sports, Nova TV has built and maintained significant market share during its first three years of operations. According to independent surveys undertaken by GFK/AISA, an independent polling agency, for the period from January 1, 1996 through December 31, 1996, Nova TV achieved an overall 67% audience share of the Czech Republic television market. Audience share represents the percentage of televisions turned on at a particular time which are tuned to a particular television station. Programming Nova TV's programming strategy is to appeal to a mass market audience. The station broadcasts for 19 hours daily, including locally produced news, sports (including exclusive coverage of the Czech Republic's national soccer league), variety shows and other programming, as well as a broad range of popular films and series from international distributors. In 1996, Nova TV produced approximately 2,500 hours of original local programming, which primarily consists of a daily breakfast show, news broadcasts and news related shows, sports, game shows and music videos. In 1996, original local programming produced by the Company, together with Czech films and other Czech origin programming, comprised approximately 36% of Nova TV's broadcast time. Nova TV has acquired exclusive broadcasting rights in the Czech Republic or in the Czech language, to a number of successful American and Western European programs and films produced by such companies as Walt Disney, Sony Pictures, Twentieth Century Fox, Warner Bros., Canal+ and Paramount Pictures. Nova TV has the rights to broadcast over 13,000 internationally released films and television episodes during the next several years. Many of these films will not have been released in the Czech Republic prior to being broadcast by Nova TV. Nova TV has agreements with Reuters, CNN and WTN to receive foreign news reports and film footage to integrate into its news programs. All foreign language programs and films are dubbed into the Czech language. Advertising Nova TV derives its revenues principally from the sale of commercial advertising time. In the Czech Republic most television advertising is sold through independent agencies and media buying groups. Nova TV currently serves over 200 advertisers, including such large multi-national advertisers as Colgate-Palmolive, Jacobs Suchard, Procter & Gamble and Unilever. In 1996, no single advertiser accounted for more than 10% of Nova TV's revenues. Nova TV is permitted to broadcast advertising for up to 20% of its broadcast time in any one hour, subject to an overall daily limit of 10% of broadcast time. In addition, up to 60 minutes per day of broadcast time may be used for 'direct sales' advertising. Its primary competitor, CT1, a public television station, is restricted to 1% of daily broadcast time for advertising. The Council for Radio and Television Broadcasting in the Czech Republic (the 'Czech Radio and Television Council') makes certain distinctions between private and public broadcasters. For example, private broadcasters, such as Nova TV, are permitted to interrupt programming with advertising, while public broadcasters may not. 10 As the television advertising market in the Czech Republic continues to develop, the Company believes Nova TV is well positioned to capitalize on its much larger inventory of available advertising time. Competition Nova TV competes principally with CT1 for audience, programming and advertising. Nova TV competes on a more limited basis with CT2, a public network of regional frequencies which reaches approximately 83% of the Czech Republic's population and Prima TV, a privately owned and operated television station serving Prague and several other metropolitan areas which include approximately 44% of the country's population. There are no other significant television stations broadcasting Czech language programming to the Czech Republic. The Company believes that, for various technical, political and financial reasons, additional private national broadcast competition in the Czech Republic is unlikely in the near future. Limited competition for viewers also comes from foreign stations transmitted through cable and satellite television. At the present time, approximately 14% of all Czech Republic households have cable television and approximately 20% receive direct-to-home satellite television. The media authorities in the Czech Republic have licensed several companies to provide cable television services to the Czech Republic. The largest is Kable Plus, with over 325,000 subscribers. Czech authorities have required cable operators to carry all over-the-air broadcasting within their areas free of charge. Nova TV competes for revenues with other media, such as newspapers, radio, magazines, outdoor advertising, transit advertising, telephone directory advertising and direct mail. Regulation Nova TV and the terms of the license pursuant to which it operates are regulated by the Czech Radio and Television Council pursuant to recently amended legislation. The license was granted by the Czech Radio and Television Council to CET 21 for 12 years under terms which require CET 21 to cooperate with the Company in operating Nova TV. CET 21 has given Nova TV the exclusive access to the use of the license. Under Czech legislation or the license pursuant to which Nova TV operates, Nova TV is required to comply with certain restrictions on programming and advertising, none of which the Company believes have had a material adverse effect on Nova TV. If the Czech Republic becomes a member of the European Union, Nova TV may be subject to additional program content regulation. Regulations relating to the amount of advertising broadcast on television in the Czech Republic provide that advertising on Nova TV cannot exceed 20% of its broadcast time in any one hour subject to an overall limit on advertising of 10% of total daily broadcast time. In addition, up to 60 minutes per day of broadcast time may be used for 'direct sales' advertising. Advertising is not permitted during children's programming or the evening news. Restrictions on advertising content include that (i) tobacco advertising is prohibited, (ii) advertising targeted at children before or after children's programming is prohibited if such advertising promotes behavior that would endanger the health, physical or moral development of children, (iii) advertising of alcoholic beverages is restricted but not prohibited and (iv) members of the news department of Nova TV are prohibited from appearing in advertisements. There are also restrictions on the frequency of advertising breaks within a program. The Czech legislation pursuant to which CET 21 holds its license and pursuant to which Nova TV operates contains certain provisions concerning the relationship between the license holder and the broadcaster. The Czech Radio and Television Council recently conducted administrative procedures to review these relationships for all the private commercial broadcasting licenses granted pursuant to Czech legislation, including the license granted to CET 21. These procedures have been suspended. No determination adverse to Nova TV was made by the Czech Radio and Television Council. 11 RADIO ALFA In February 1995, the Company entered into the first of a series of loan and consulting agreements with Radio Alfa, one of two private Czech Republic national radio broadcasters. The Company has advanced a total of approximately Kc107,000,000 ($3,915,000) in loans to Radio Alfa under these agreements. In addition to receiving interest under these loans, the Company receives a consulting fee equal to 60% of the pre-tax profits of Radio Alfa and provides management advisory services to the radio station. Recent changes in the Czech broadcasting regulations have allowed the Company to directly hold an equity interest in Radio Alfa. The Company has purchased a 62% interest in Radio Alfa for a purchase price of Kc39,000,000 ($1,427,000). The Company has also paid Kc11,300,000 ($413,000) in order to purchase a Kc17,300,000 loan ($633,000) from one of the former shareholders of Radio Alfa. Certain of the Company's outstanding loans to, and interest in, Radio Alfa are convertible into an additional equity interest which, when combined with its current 62% interest, would give the Company an 84% interest in Radio Alfa. Radio Alfa, which was awarded a license in January 1993, had been operating as a 'news/information' station with an audience share of approximately 5%. In October 1995, the Company relaunched Radio Alfa with a greater proportion of entertainment-driven programming. Audience share was approximately 7.5% during the fourth quarter of 1996. Radio competition in the Czech Republic is provided by Czech public radio, one other national private radio station and over 40 local radio stations. OPERATIONS IN ROMANIA: PRO TV General PRO TV is a national television broadcast network in Romania which broadcasts its programming on, and sells advertising for, regional television stations operated under licenses held by PRO TV, SRL and Media Pro, SRL. PRO TV reaches approximately 55% of the Romanian population of 22.7 million, focusing primarily on Romania's urban areas. PRO TV broadcasts from studios located in Bucharest via digitally encoded satellite signals which deliver programming to terrestrial broadcast facilities throughout Romania. The Company anticipates that PRO TV will be able to increase its reach from current levels through additional regional licenses which have been granted to entities currently controlled by PRO TV, SRL and through affiliations with other local broadcasters and agreements with cable carriers. PRO TV broadcasts a wide range of programming, including movies, comedies, dramatic series, talk shows, news and reports. Independent research from Gallup Media in Romania shows that PRO TV is currently the top rated television station in its broadcast area, with an average television viewer share of approximately 42% during prime time for all of 1996. Media Pro International, through which PRO TV is operated, also operates PRO FM, a radio network broadcast through owned and affiliated stations to approximately 9.2 million people in Romania. Programming PRO TV's programming strategy is to appeal to a mass market audience. PRO TV broadcasts 24 hours of programming daily except Monday, when PRO TV broadcasts for 18 hours. Approximately 26% of PRO TV's programming is comprised of locally produced programming, including, news, sports (including coverage of Romania's Soccer League), a breakfast show and current affairs shows. PRO TV has secured exclusive broadcast rights in Romania to a large number of successful American and Western European programs and films produced by such companies as Sony Pictures, Warner Bros., Twentieth Century Fox, Paramount, CBS, MCA, MGM and Granada. PRO TV's library includes over 2,000 feature films and approximately 5,000 television episodes. Many of these films will not have been released in Romania prior to their broadcast on PRO TV. All foreign language programs and films are subtitled in Romanian. PRO TV also receives foreign news reports and film footage from Reuters and WTN to integrate into its news programs. 12 Advertising PRO TV derives revenues principally from the sale of commercial advertising time, most of which is sold through independent agencies. Advertisers include large multinational firms such as Coca-Cola, Colgate-Palmolive, Daewoo, Henkel, Pepsi, Philip Morris, Procter & Gamble, Unilever and Wrigley. PRO TV is permitted to broadcast advertising for up to 20% of its broadcast time in any hour, subject to an overall daily limit of 15% of broadcast time. An additional 5% of broadcast time may be used for 'direct sales' advertising. PRO TV's primary competitor, TVR 1, a public broadcaster, is restricted to 7.5% of daily broadcast time for advertising, and a maximum of 10% during any one hour. Both private and public broadcasters are subject to restrictions on the frequency of advertising breaks, as well as on the advertising of tobacco and alcohol, but restrictions on public stations are more severe. For example, private broadcasters can insert advertising during news programs while public broadcasters cannot. Competition Prior to the launch of PRO TV, TVR 1 was the dominant television station in Romania with its coverage of the entire population, a popular news show and limited entertainment programming. Other local competitors include public TVR 2, with a 40% reach, and privately-owned Antena 1 and Tele 7 ABC, covering about 20% and 9% of the population, respectively. Additional competitors include cable and satellite stations. PRO TV competes for advertising revenues with other media, such as newspapers, radio, magazines, outdoor advertising, telephone directory advertising and direct mail. Regulation Licenses for the television stations which show programming provided by PRO TV and which broadcast advertising sold by PRO TV are regulated by the Romanian Media Commission. In addition to its terrestrial television licenses which have been granted for seven year periods expiring in 2001 and 2002, PRO TV has been granted a seven year license to broadcast via satellite. Under regulation established by the Romanian Media Commission, PRO TV and the stations which broadcast programming and advertising provided by PRO TV are required to comply with certain restrictions on programming and advertising. These restrictions include the establishment of a target of at least 40% of programming to be of Romanian origin for television operators, such as PRO TV, which use satellite transmission. Regulations relating to the amount of advertising broadcast on television in Romania provide that advertising on PRO TV cannot exceed 20% of its broadcast time in any one hour, subject to an overall limit on advertising of 15% of total daily broadcast time. In addition, up to 5% of broadcast time may be used for 'direct sale' advertising. Restrictions on advertising content include that (i) tobacco advertising is restricted but not prohibited, (ii) advertising targeted at children or during children's programming must account for the overall sensitivity of that age group, (iii) advertising of alcoholic beverages is restricted but not prohibited and (iv) members of the news department of PRO TV are prohibited from appearing in advertisements. There are also restrictions on the placement of advertisements during programming. Recent Developments The Company owns a 95.0% equity interest in Unimedia which owns a 10.0% equity interest in MobilRom. In December 1996, MobilRom was awarded one of two national GSM cellular telephone licenses in Romania. The Company is currently evaluating its plans with respect to its interest in MobilRom. The Company does not anticipate exercising any managerial or operational control over MobilRom although one of the Company's employees serves on MobilRom's Board of Directors. See 'Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources.' 13 OPERATIONS IN SLOVENIA: POP TV General POP TV is a national television broadcast network in Slovenia which provides its programming to, and sells advertising for, MMTV, Tele 59 and an additional affiliate, TV Robin. POP TV reaches approximately 80% of the population of Slovenia, including Ljubljana, the capital of Slovenia, and Maribor, Slovenia's second largest city. POP TV currently is negotiating affiliation agreements with other regional television broadcasters to expand its broadcast reach in Slovenia. POP TV broadcasts a wide range of programming, including movies, comedies, dramatic series, talk shows, news and sports. Independent industry research shows that in the areas of Slovenia in which POP TV can be seen POP TV had an average television viewer share of approximately 49% for 1996, the largest television market share in these areas. Programming POP TV's programming strategy is to appeal to a mass market audience. POP TV provides an average of 18 hours of programming daily. Local programming includes a nightly news program and a daily game show. POP TV has secured exclusive program rights in Slovenia to a large number of successful American and Western European programs and films from many of the major studios, including X-Files, ER, Friends, The Bodyguard, Forever Young and Robin Hood: Prince of Thieves. Many of these films will not have been released in Slovenia prior to their broadcast on POP TV. All foreign language programs and films are subtitled in Slovenian. Advertising POP TV derives revenues principally from the sale of commercial advertising time. Advertisers include large multinational firms such as Coca Cola, Henkel, Johnson & Johnson and Wrigley. Private commercial television stations are permitted to broadcast advertising for up to 20% of daily broadcast time compared with 15% for public television stations in Slovenia. Both private and public television broadcasters in Slovenia are subject to restrictions on the frequency of advertising breaks, as well as on the advertising of tobacco and alcohol. Competition Historically, the television market in Slovenia has been dominated by SLO 1, a public television station. SLO 1 is entertainment oriented while the other public station, SLO 2, focuses on information and culture. SLO 1 reaches 97% of the Slovenian population, and SLO 2 reaches 96% of the Slovenian population. Two private television stations which compete with POP TV in Slovenia have achieved a relatively small share of the market. In July 1996, the Company, together with MMTV and Tele 59, entered into an agreement to purchase a 66% equity interest in Kanal A, a privately owned television station in Slovenia in competition with POP TV, which agreement would increase POP TV's broadcast reach to 85%. There is currently an injunction in effect preventing the completion of the Kanal A Agreement. See 'Legal Proceedings'. POP TV also competes with foreign television stations, particularly Croatian, Italian, German and Austrian stations. Cable penetration at 32% is relatively high compared with other countries in Central Europe and approximately 32% of households have satellite dishes. In addition, POP TV competes for revenues with other media, such as newspapers, radio, magazines, outdoor advertising, telephone directory advertising and direct mail. Regulation The licenses granted to MMTV and Tele 59 have been granted for 10 year terms expiring in 2003. Under Slovenian television regulations, POP TV and its affiliate stations are required to comply with a number of restrictions on programming and advertising. These restrictions include that 10% of the station's broadcast time must be internally produced programming, certain films and other programs 14 may only be broadcast between 11:00 pm and 6:00 am, and POP TV news editors, journalists and correspondents must not reflect a biased approach toward news reporting. Regulations relating to the amount of advertising broadcast on television in Slovenia provide that advertising on POP TV cannot exceed 20% of its daily broadcast time. Advertising is not permitted during news, documentary and children's programming which is not in excess of 30 minutes or during religious programming. There are also restrictions on the frequency of advertising breaks during films and other programs. Restrictions on advertising content include a prohibition on tobacco advertising and on the advertising of alcoholic beverages other than low alcohol content beer. OPERATIONS IN THE SLOVAK REPUBLIC: MARKIZA TV General Markiza TV, in which the Company owns an 80% economic interest, was launched as a national television station in the Slovak Republic on August 31, 1996. According to third party estimates, Markiza TV reaches approximately 79% of the Slovak Republic's population of 5.4 million people, including virtually all of its major cities. The Company intends to increase Markiza TV's broadcast reach by adding additional transmitters or affiliates. According to independent industry research, Markiza TV had an average television viewer share of approximately 51% for its broadcast reach areas for the portion of 1996 during which it broadcast, representing the highest market share in these areas. Programming Markiza TV's programming strategy is to appeal to a mass market audience. Markiza TV provides an average of 18 hours of programming daily. Approximately 47% of Markiza TV's programming is locally produced, including news, current affairs, game shows, variety shows and a weekly sitcom. Markiza TV has secured exclusive broadcast rights in the Slovak Republic to a large number of top rated United States and European programs produced by major studios including Warner Bros., Twentieth Century Fox, MCA, and BBC. Markiza TV's library includes over 1,000 films and nearly 3,000 television episodes. All foreign language programming is dubbed in either Slovak or Czech. Markiza TV also receives foreign news reports and film footage from CNN, Reuters and WTN, which it integrates into Markiza TV's news programs. Advertising Markiza TV derives revenues principally from the sale of commercial advertising time. Advertisers include large multinational firms such as Henkel, Jacobs Suchard, Master Foods, Nestle, Procter & Gamble, Unilever and Wrigley. Private commercial television stations are permitted to broadcast advertising for up to 10% of total daily broadcast time and up to 20% of broadcast time in any single hour. Competition The Slovak Republic is served by two public television stations, STV1 and STV2, which dominated the ratings until Nova TV began broadcasting in 1994. Nova TV's signal reaches a portion of the Slovak Republic where it had a 17% audience share in 1996. Markiza TV also competes with VTV, a private satellite broadcaster; public television stations located in Austria, the Czech Republic and Hungary, which stations' signals reach the Slovak Republic; additional foreign private television stations; and foreign satellite stations. Competitors have indicated a possibility of legal action to challenge the Company's partnership arrangements with Markiza TV in connection with the formation of STS. Regulation Markiza TV's broadcast operations are subject to regulations imposed by the Act on Radio and Television Broadcasting, the Act on Advertising and conditions contained in the license granted by the Council of the Slovak Republic for Broadcasting and Television Transmission (the 'Slovak Television Council'). The license to operate Markiza TV was granted by the Slovak Television Council to the 15 Company's local partner in STS, for a period of 12 years under terms which require the Company's local partner to enter into a partnership with the Company to found STS. Under the license pursuant to which Markiza TV operates, Markiza TV is required to comply with several restrictions on programming. These restrictions include that of Markiza TV's monthly broadcast time: 40% must be Slovak production (increasing to a minimum of 51% within three years from commencement of broadcasting); 10% must be programming for children; broadcasts of first performance films and series must have a minimum of 51% European production (of which there must be a minimum of 8% Slovak production) and no more than 45% United States production; and no more than 40% of foreign first performance films and series may be in the Czech language (decreasing to 20% by the fourth year of broadcasting). Markiza TV's programming is required to be consistent with the Slovak Constitution and not promote violence, hate, intolerance, the intentional use of indecent language or immoral behavior. Programming endangering the psychological or moral growth of children and youth cannot be broadcast between 6:00 am and 10:00 pm, and Markiza TV's news broadcasts must be objective and balanced and clearly differentiate between opinion and news. If the Slovak Republic becomes a member of the European Union, Markiza TV may be subject to additional program content regulation. Under both the license pursuant to which Markiza TV operates and Slovak statutes, Markiza TV must comply with certain limitations in its broadcast of advertising, none of which the Company believes will have a material adverse effect on Markiza TV. Regulations relating to the amount of advertising broadcast on Markiza TV provide that advertising may not exceed 20% of broadcast time in any single hour, subject to an overall advertising limit of 10% of total daily broadcast time. In addition, up to one hour daily, not exceeding 20% in any one hour, may be used for 'direct sales' advertising. The news may not be sponsored and news staff may not appear in advertisements. Restrictions on advertising content include that (a) tobacco advertising is prohibited, (b) advertising for children or in which children perform and which promotes behavior endangering the health, psychological or moral development of children is prohibited, and (c) advertising which endangers morals or consumer's interest in health, safety and environmental protection are also prohibited. The advertisement of beer is permitted, however, advertisement of other alcoholic beverage remains prohibited. There are also restrictions on the frequency of advertising breaks within a program. Recent Developments The Slovak parliament recently announced a tender procedure for the privatization of STV2 under which bids were required to be submitted by the end of February 1997. Markiza, the Company's local partner in Markiza TV, submitted a bid for a television broadcast license to operate Markiza TV on the STV2 frequencies in exchange for its current frequencies because STV2 has a broadcast reach greater than the current reach of Markiza TV. A successful bid by Markiza for the television broadcast license on STV2 would have no effect on its partnership with the Company. 16 OPERATIONS IN UKRAINE: STUDIO 1 + 1 GROUP General The Company owns a 50% economic interest in the Studio 1+1 Group, which has the right pursuant to a ten-year television broadcast license held by a Ukrainian-based member of the Studio 1+1 Group to broadcast programming and sell advertising on UT-2, one of Ukraine's public television stations, for 63 hours per week, including during prime time. UT-2 reaches approximately 93% of Ukraine's population. The Studio 1+1 Group began broadcasting on UT-2 in January 1997. Prior to that time, the Studio 1+1 Group had been broadcasting programming for approximately 50 hours per week on Ukrainian National Channel One ('UT-1') pursuant to a contractual, rather than license, right, which contract was to expire in 2000. The Studio 1+1 Group was required to relinquish its right to broadcast programming on UT-1 in order to acquire the license to broadcast on UT-2. The Company continues to hold a 30% equity interest in Gravis, a company which operates two terrestrial television stations in the capital city of Kiev. Gravis currently generates only limited revenues. Programming The Studio 1+1 Group's programming strategy is to appeal to a mass market audience. The Studio 1+1 Group has secured exclusive territorial or local language broadcast rights in Ukraine to a large number of successful American and Western European programs and films from many of the major studios, including Warner Bros., Universal and Paramount. All foreign language programs and films (other than those in the Russian language) are dubbed into the Ukrainian language. During 1996, the Studio 1+1 Group broadcast primarily foreign programming. During 1997, the Company intends to increase the percentage of its programming that is locally produced, including talk shows and entertainment shows. Advertising The Studio 1+1 Group derives revenues principally from the sale of commercial advertising time. Advertisers include Coca-Cola, Master Foods, Nestle, Procter & Gamble and Wrigley. The Studio 1+1 Group is permitted to sell 15% of its overall broadcast time for advertising. UT-2, like other broadcasters, is subject to restrictions on the frequency of advertising breaks, as well as on the advertising of tobacco and alcohol. Although television advertising in Ukraine was only $20 million in 1996, the Company expects that Ukraine's television advertising market will grow rapidly as Ukraine develops an economy that fosters competition among providers of goods and services. Competition Ukraine is served by four television stations, including UT-1 and UT-2, which are Ukrainian public stations, and ICTV, a private network. The Studio 1+1 Group, through UT-2, has a broadcast reach of 93% of the Ukrainian population. UT-1 and ICTV reach 98% and 28% of Ukraine's population, respectively. Regulation The Studio 1+1 Group provides programming to UT-2 pursuant to a ten-year television broadcast license expiring in December 2006. Broadcasts of the Studio 1+1 Group's programming and advertising on UT-2 are regulated by the State Committee on Television and Radio of Ukraine and the National Council on Television and Radio of Ukraine (the 'Ukraine National Council'). These agencies enforce Ukraine's developing media laws, which include restrictions on the content of programming and advertising and limitations on the amount and placement of advertising in programs. The Company does not expect these restrictions to have a material adverse impact on the Studio 1+1 Group. Competitors and others opposed to the Ukraine National Council's award of the UT-2 License have indicated a possibility of legal or administrative actions to challenge the UT-2 License. However, the 17 Company believes that the Ukraine National Council's decision to grant Studio 1+1 the UT-2 License would be upheld. There can be no assurance, however, as to the outcome of such proceedings, if initiated. OPERATIONS IN POLAND General TVN acquired its initial interest in TV Wisla in September 1996, although TV Wisla began broadcasting in December 1994. The Company owns a 33.0% interest in TVN, which in turn, owns a 49% interest in TV Wisla. TV Wisla operates a television station in southern Poland with a broadcast reach of approximately 7.8 million people. TVN holds an option to increase its ownership in TV Wisla to 76%. The Company anticipates that TV Wisla will become part of a national Polish television broadcast network to be formed by the Company and ITI, the Company's partner in TVN. See 'Operations in Poland--Recent Developments.' Programming TV Wisla's programming strategy is to appeal to a mass market audience. Currently, TV Wisla provides approximately 19 hours of programming per day. TV Wisla has secured exclusive programming rights in Poland to such popular shows as Falcon Crest, StarTrek-Next Generation, Sudden Impact, Arthur, Batman Returns, Rain Man and others from Warner Bros., Paramount, MGM and Mediaset. Advertising TV Wisla derives revenues principally from the sale of commercial advertising time. Advertisers include a number of local, national and international companies such as Benkiser, Henkel and S.C. Johnson. Restrictions on advertising provide that advertising on TV Wisla may not exceed 15% of daily broadcasting time and 12 minutes in any one hour. Competition Competition in Poland consists of two national public broadcast channels, TVP 1 and TVP 2, with broadcast reaches of 98% and 96% of Poland's population, respectively, Polsat, the largest private broadcaster, with a broadcast reach of 74%, and 11 regional public channels. Cable and satellite stations currently have 20% and 14% market penetration respectively. Additional competition for advertising revenues includes other media, such as newspapers, radio, magazines, outdoor advertising, telephone directory advertising and direct mail. Regulation Television broadcasting in Poland is subject to regulations imposed by the Act on Communications (the 'Polish Communications Act') and regulated by the Polish National Radio and Television Council (the 'Polish Television Council'). The Polish Communications Act restricts the foreign ownership and voting power of license holders to 33%. In addition, Polish nationals residing in Poland must comprise the majority of the managing boards of such license holders. The license granted to TV Wisla contains restrictions on programming and advertising. Programming produced in Poland is required to account for 40% of programming. In addition, TV Wisla must produce itself or commission at least 15% of annual programming, and programming produced by Polish producers not associated with TV Wisla must account for 10% of annual programming. Restrictions on advertising provide that advertising on TV Wisla may not exceed 15% of daily broadcasting time and 12 minutes in any one hour. The licenses recently awarded to TVN in northern Poland, Warsaw and Lodz also contain restrictions on programming and advertising. Programming produced in Poland is required to account 18 for 30% of programming in 1997 and 1998, 35% in 1999 and 40% in 2000 and thereafter. In addition, TVN must produce itself or commission at least 10% of annual programming, and programming produced by Polish producers not associated with TVN must account for 15% of annual programming. Recent Developments In February 1997, the Polish Television Council awarded television broadcast licenses for northern Poland and television broadcast licenses covering the cities of Warsaw and Lodz in Poland to TVN. The Company estimates that these television broadcast licenses have a potential broadcast reach of approximately 11 million people. The Company and ITI, its partner in TVN, intend to develop a national television broadcast network in Poland, which will broadcast programming and sell advertising through affiliate stations, including TV Wisla and those broadcasting under the television broadcast licenses awarded to TVN in northern Poland, Warsaw and Lodz. The Company anticipates owning a 50% interest in this television broadcast network, which the Company anticipates will be launched in the fourth quarter of 1997. The network is expected to broadcast 19 hours of acquired and self-produced programming daily. The Company intends to broadcast the television network signal through terrestrial transmitters as well as via digitally encoded satellite signals. The Company expects to expand the signal to reach 80-85% of the population of Poland. These are forward-looking statements. The timing of this launch and the potential reach of the network depend upon the timely completion of broadcast facilities, sourcing programming, obtaining access to transmitters and recruiting and retaining qualified staff. OPERATIONS IN GERMANY: THE GERMAN STATIONS General The Company owns interests in four regional television stations operating in Germany: PULS, the Nuremberg Station, the Leipzig Station and the Dresden Station (collectively, the 'German Stations'). The German Stations reach an aggregate of approximately 9.0 million people including the capital city of Berlin. Germany is served on a nationwide basis by three major over-the-air private commercial television stations and two major over-the-air public television stations. German television broadcasters include several other private television stations, regional members of the public network ARD, providers of regional windows, and television stations delivered only by cable or satellite. Programming The German Stations currently broadcast a 'total local' programming schedule which consists of in-depth local coverage of news and events in their respective regions. The objective of 'total local' is to provide an alternative to the public and private national broadcasters by being uniquely responsive to the distinct regional tastes of local viewers. PULS's program schedule currently consists of 7 hours of original programming per day. On most days, this 7 hour schedule is repeated once during the day (with some news broadcasts repeated more than once). The Nuremberg Station broadcasts original programming for 4.5 hours each day and repeats this programming. The program schedules of the Leipzig Station and the Dresden Station consist of 2.5 hours of original programming per day and repeats this programming. In addition, there is a commercial videotext service which broadcasts the remainder of the day on the Nuremberg Station and the Leipzig and Dresden Stations. Advertising The German Stations have local sales forces which work closely with local advertising agencies and customers in their regions. Advertisers on the German Stations include area department stores, food chains, furniture stores and automobile dealers. 19 Competition The German Stations compete primarily with three over-the-air private commercial national television stations, SAT.1, RTL and PRO 7, and two over-the-air public national television stations, ZDF and ARD (an association of regional public broadcasters). Under applicable regulations, the public television stations may broadcast advertising only before 8:00 pm., Monday through Saturday, and they are limited to an annual average of 20 minutes of advertising per day. The German Stations also compete with approximately 25 stations delivered through cable or satellite. Each of the German Stations also compete with other media, such as newspapers, radio, magazines, outdoor advertising, transit advertising, telephone directory advertising and direct mail. Some of their competitors are public operations or are larger and have greater financial, marketing and other resources than the Company. Regulation The German Stations, and the terms of the licenses pursuant to which they operate, are regulated by the German states in which they are situated. These regulations are based on an inter-state treaty and, therefore, generally are similar in each state. Under German regulations, the German Stations are required to comply with a number of restrictions on programming and advertising, none of which the Company believes has had a material adverse effect on these television stations. German regulations prohibit programming that might offend public morals or that violates measures designed to protect children. In addition, the majority of programming consisting of films, series and documentary features is required to be of European content. The license under which PULS operates requires that the station broadcast at least 7 hours of non-repeated original programming each day and that 30% of programming broadcast between 5:00 pm and 11:00 pm be of regional character. In addition, PULS must cooperate with local independent producers; it may not enter into arrangements favoring licensed productions over programming produced or commissioned by the station. PULS also has agreed to construct a second studio and establish further permanent and mobile facilities in Potsdam, a city in the state of Brandenburg. Each of the licenses under which the German Stations operates require regulatory approval to alter the overall type and mix of programming broadcast on the stations. Regulations relating to the amount of advertising broadcast on the German Stations provide that advertising may not interrupt religious services, shows for children, or news or political features of less than 30 minutes. Advertising may be shown only after program segments of at least 20 minutes and movies exceeding 45 minutes may be interrupted by advertising only once for each complete block of 45 minutes. The total amount of advertising may not exceed 20% of daily broadcast time, and spot advertising may not exceed 15% of daily broadcast time or 20% of a given one hour period. Restrictions on advertising content include prohibitions on advertising contrary to health, consumer safety or the environment, on political and religious advertising and on advertising employing persons who regularly present news or political features. Recent Developments The partners of PULS have retained a financial advisor and are currently in discussions with potential investors in PULS. Such an investor would be expected to acquire a significant equity interest in PULS and assume responsibility for PULS's operations. Such an investment would be anticipated to significantly dilute the Company's equity interest in PULS and to decrease the Company's future funding obligations to PULS. Such investment also could result in a material reduction of the carrying value of the Company's equity investment in PULS, which was $12.6 million as of December 31, 1996, and a corresponding charge against the Company's earnings in the period incurred. Regardless of whether a transaction with a strategic investor is consummated, there is no assurance that the Company may not have to take a reduction of all or a portion of the carrying value of PULS. In addition, a reduction of the carrying value of PULS, or other factors, might cause the Company to reduce all or 20 part of the carrying value of the Company's investments in FFF and SFF, which were $6.1 million and $1.6 million, respectively, as of December 31, 1996. BROADCAST OPERATIONS UNDER DEVELOPMENT The Company continues to pursue and develop opportunities for television broadcasting throughout Central and Eastern Europe and other areas and continues to evaluate the economic viability of commencing broadcast operations in such areas. There can be no assurance that the Company will successfully pursue the development of these broadcast operations or that these broadcast operations will generate profits in the future. The Company, together with local partners, is actively engaged in developing operations in Hungary, as discussed below. Hungary In January 1997, the Hungarian National Radio and Television Commission (the 'Hungarian Television Commission') announced tender procedures for the award of two national television broadcast licenses. Each license would be for a ten-year term and would provide a broadcast reach of approximately 87% of the population of Hungary. The Hungarian media law provides that consortiums bidding for these licenses must consist of at least three entities. No entity will have the right to own greater than 49% of any consortium and at least 26% of the ownership interests must be owned by domestic entities. The Company currently is forming a consortium in order to bid for these licenses. The tender procedures require bids to be submitted no later than April 10, 1997, with awards to be announced 60 days thereafter. If the Company's consortium is awarded one of these licenses, it would be required to commence broadcasting 90 days thereafter. The Company owns 95% of 2002 Kft, a broadcasting company in Hungary which has been awarded a local microwave (MMDS) license. If developed, operations under the license would have a potential broadcast reach of approximately 200,000 homes in Budapest. As a condition to bidding for one of the two national television broadcast licenses, the Company will be required to reduce its ownership of 2002 Kft to below 25%. The satisfaction of this condition would not have a material adverse effect on the Company. A subsidiary of 2002 Kft acquired Videovox, a company engaged in the dubbing of foreign language programming, films, videos and commercials into Hungarian, which was privatized by the Hungarian government in May 1996. In December 1996, as part of a restructuring, CME BV acquired a direct 97.4% interest in Videovox from 2002 Kft. The acquisition of Videovox is an integral component of the Company's plans to develop broadcast operations in Hungary because (i) a significant percentage of programming and films which the Company likely would broadcast in Hungary will be of foreign origin and (ii) Videovox owns a facility which can be converted into television studios. Hungary has one of the more advanced economies in Central and Eastern Europe with a relatively high GDP per capita estimated at $4,400 in 1996. The Hungarian television advertising market grew 18% to $188 million in 1996. Over 97% of households in Hungary have television and approximately 40% of households have cable television, the largest cable penetration in the region. Per capita television advertising expenditures are significantly greater than the average in Central and Eastern Europe, but are still relatively low when compared to Western Europe. The Company believes that as a market economy continues to develop in Hungary, television advertising expenditures will continue to grow. 21 PROGRAMMING SERVICES Through CMEPS, the Company provides an array of program-related services to its television operations in Central and Eastern Europe, including program acquisition, production, distribution (including satellite transmission), promotion, schedule advisory services, and coordination of viewer research. Currently, CMEPS assists the Company's broadcast operations and broadcast operations under development in obtaining programming from American and Western European film and television studios. As the Company has expanded its broadcast operations in Central and Eastern Europe, the Company has begun to use CMEPS to reduce overall program costs by centralizing the purchase of rights to films and programming. CMEPS will also create a program exchange service among the Company's broadcast operations and will provide opportunities for co-production and co-financing of programming among these broadcast operations. In addition, CMEPS advises the Company's broadcast operations in connection with locally produced programming. SEASONALITY The experience of the television industry is that advertising sales tend to be lowest during the third quarter of each calendar year which includes the summer holiday schedule (typically July and August) and highest during the fourth quarter of each calendar year. EMPLOYEES As of December 31, 1996, (i) the Company had a central staff of 54 employees, (ii) Nova TV had 444 employees, (iii) PRO TV had approximately 659 employees, (iv) POP TV had approximately 147 employees, (v) Markiza TV had approximately 380 employees, (vi) the Studio 1+1 Group had approximately 253 employees, (vii) TV Wisla had approximately 148 employees, (viii) Videovox had approximately 71 employees, (ix) Radio Alfa had 26 employees, (x) PULS had approximately 143 employees, (xi) the Nuremberg Station had approximately 79 employees and (xii) the Leipzig Station and the Dresden Station together had 94 employees. None of the Company's employees or the employees of any of its subsidiaries are covered by a collective bargaining agreement. The Company believes that its relations with its employees are good, and that its subsidiaries' relations with their employees are good. ITEM 2. PROPERTIES The Central European Media Enterprises Ltd. group of companies leases office space in London, in three separate locations. One lease covers approximately 4,347 square feet of space and expires in 2004, except that the Company can terminate the lease at its option in 1999, subject to penalty. The second lease, for 2,205 square feet of office space in a nearby building, expires in 2006. A third lease of 2,600 square feet of office space in another nearby building expires in 1998. Nova TV is party to a capitalized lease for a building in Prague for its main studios and principal offices. The studios and offices total approximately 65,000 square feet. Modern studio facilities have been constructed in the building. This capitalized lease provides for rental payments to be made including principal and interest by Nova TV of $3,934,000 in each of 1997, 1998 and 1999. Through December 31, 1996, Nova TV has made principal payments of $2,868,000 to be applied for the purchase of this facility. The term of the lease is for one year, but is renewable for additional one year periods at the option of Nova TV. PULS leases studios and offices, totalling approximately 40,000 square feet, located at the base of Berlin's government operated broadcasting tower. This lease expires in December 1999. The Nuremberg Station leases studios and offices, totalling approximately 37,000 square feet, in an industrial center north of Nuremberg. This lease expires in 2001. CME BV has entered into an agreement on behalf of Media Pro International for the purpose of acquiring the facility in Bucharest which contains PRO TV's studios for a purchase price of approximately $1.8 million. The Company owns a portion of a building in Ljubljana which contains POP TV's studios and offices which occupy 2,000 square meters (approximately 21,528 square feet). Videovox owns the building in Budapest in which its studios are located. The building contains 5,605 square meters (approximately 22 60,332 square feet). STS owns its principal office facility in Bratislava which provides STS with 4,350 square meters of office space (approximately 46,823 square feet). In June 1995 the Company, through its wholly-owned subsidiary CMEPS, obtained leasehold rights to a 33 Mhz transponder on the Eutelsat HB3 Satellite which is scheduled to be launched in the fourth quarter of 1997. The Satellite Transponder, which has been leased through British Telecommunications plc for a 12 year period, will give the Company's stations the capability of distributing programs to their terrestrial television transmitters as well as to cable television systems throughout the Central and Eastern European region. The Company paid a deposit of $850,000 toward future transponder lease obligations. The annual charge for the lease is approximately $4.4 million, beginning after the launch of the satellite. The obligations of CMEPS under the transponder lease are guaranteed by CME. ITEM 3. LEGAL PROCEEDINGS In July 1996, the Company, together with MMTV and Tele 59, entered into an agreement to purchase a 66% equity interest in Kanal A, a privately owned television station in Slovenia. Scandinavian Broadcasting System SA ('SBS'), which claims to have certain rights to the equity of Kanal A pursuant to various agreements, has challenged the validity of the Kanal A Agreement in a United Kingdom court. Both the Company and SBS have been granted injunctions by the United Kingdom courts preventing SBS, in the case of the Company, and the Company, in the case of SBS, from taking certain actions either to enforce such entity's claim to equity in Kanal A or to block the claim of the other entity to equity in Kanal A. The Company has instituted action in a Slovenian court requesting that courts in Slovenia resolve these claims. Various competitors of PULS and the Nuremberg Station have instituted legal action against the media authorities for Berlin-Brandenburg and the Nuremberg area seeking to overturn their decisions to award broadcast licenses to PULS and the Nuremberg Station, respectively. These actions were instituted in 1993 and 1994, and there have been no decisions in relation thereto in the last 12 months. Similar action has been instituted by other applicants for the licenses awarded to the Company's local partner in Leipzig and Dresden. An unfavorable decision in any of these actions could have an adverse effect on the Company. One of the owners of CET 21 has filed a claim in the Regional Commercial Court in Prague challenging the transfer by four other owners of CET 21 of a portion of their interests in CET 21 to Vladimir Zelezny. This owner of CET 21 interests alleges that the proper procedures were not followed prior to the interests being transferred to Dr. Zelezny. A preliminary injunction was sought with respect to the transfer of these ownership interests and was denied by the Czech Republic Court of Appeals. The underlying claim is still before the Court. The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. The Company is not presently a party to any such litigation which could reasonably be expected to have a material adverse effect on its business or operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Class A Common Stock began trading on the Nasdaq National Market on October 13, 1994 under the trading symbol 'CETV.' On March 20, 1997, the last reported sales price for the Class A Common Stock was $33.25. The following table sets forth the high and low sales prices for the Class A Common Stock for each quarterly period during the last two fiscal years of the Company and for the first quarter of 1997, as reported by the Nasdaq National Market:
PRICE PERIOD HIGH LOW - ----------------------------------------- -------- -------- 1995 First Quarter............................ $ 14.125 $ 7.750 Second Quarter........................... 16.000 9.875 Third Quarter............................ 27.250 13.750 Fourth Quarter........................... 25.750 17.750 1996 First Quarter............................ 24.500 19.750 Second Quarter........................... 30.000 22.000 Third Quarter............................ 32.000 20.750 Fourth Quarter........................... 31.750 25.375 1997 First Quarter (through March 20, 1997)... 37.250 30.750
At March 20, 1997, there were 40 holders of record (including brokerage firms and other nominees) of the Class A Common Stock and 15 holders of record of the Class B Common Stock. There is no established public trading market for the Class B Common Stock. DIVIDEND POLICY The Company has not declared or paid and has no present intention to declare or pay in the foreseeable future any cash dividends in respect to any class of its Common Stock. See 'Management's Discussion and Analysis of Financial Condition and Results of Operations.' The Company's ability to pay cash dividends is primarily dependent upon receipt of dividends or distributions from its subsidiaries over which it has limited control. RECENT SALES OF UNREGISTERED SECURITIES In October 1996, the Company executed a Promissory Note in favor of Ronald S. Lauder pursuant to which Mr. Lauder agreed to make loans of up to $20.0 million to the Company (the 'Lauder Loan'). The Lauder Loan carried interest of 2.0% over LIBOR and provided Mr. Lauder with warrants exercisable for up to 100,000 shares of Class A Common Stock. The Lauder Loan was repaid in accordance with its terms at the consummation of the offering of 5,520,000 shares of Class A Common Stock (the '1996 Offering'). Based on the aggregate advances made by Mr. Lauder of $14.0 million, Mr. Lauder has received warrants exercisable for 70,000 shares of the Class A Common Stock at an exercise price of $30.25 per share, which warrants will be exercisable for 4 years commencing on October 2, 1997. The issuance of such warrants were exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof, being that such transaction was by an issuer not involving any public offering. ITEM 6. SELECTED FINANCIAL DATA (Selected Financial Data begins on the following page and ends on the page immediately preceding Item 7). 24 SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The selected financial information presented below for the five years ended December 31, 1996 is derived from the audited Consolidated Financial Statements of the Company. In the opinion of the Company, such information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such data on a basis consistent with that of the audited data presented herein. The following selected financial information should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto as of December 31, 1996, 1995 and 1994, included elsewhere herein.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 1992 1993 1994 1995 1996 ----- ------- -------- ------------ ------------ OPERATING DATA: Net revenues................................. $ -- $ -- $ 53,566 $ 98,919 $ 135,985 Total station operating costs and expenses... -- 1,802 36,083 52,542 85,101 Selling, general and administrative expenses................................... 20 811 6,009 7,725 21,357 Corporate operating and development expenses................................... 171 2,708 3,699 10,669 15,782 Amortization of goodwill and allowance for development costs.......................... -- -- 985 3,442 2,940 Non-cash stock compensation charge........... -- -- 5,833 858 -- Dutch capital registration tax............... -- -- -- 1,375 809 ----- ------- -------- ------------ ------------ Total operating expenses..................... 191 5,321 52,609 76,611 125,989 ----- ------- -------- ------------ ------------ Operating (loss) income...................... (191) (5,321) 957 22,308 9,996 Equity in loss of unconsolidated affiliates................................. (141) (3,671) (13,677) (14,816) (17,867) Interest and other income.................... -- 64 179 1,238 2,876 Interest expense............................. -- (140) (1,992) (4,959) (4,670) Foreign currency exchange gains (losses)..... -- (176) (245) 324 (2,861) ----- ------- -------- ------------ ------------ (Loss) income before provision for income taxes...................................... (332) (9,244) (14,778) 4,095 (12,526) Provision for income taxes................... -- -- (3,331) (16,340) (16,405) ----- ------- -------- ------------ ------------ Loss before minority interest in consolidated subsidiaries............................... (332) (9,244) (18,109) (12,245) (28,931) Minority interest in loss (income) of consolidated subsidiaries.................. 7 884 (2,396) (6,491) (1,072) ----- ------- -------- ------------ ------------ Net loss..................................... $(325) $(8,360) $(20,505) $ (18,736) (30,003) ----- ------- -------- ------------ ------------ ----- ------- -------- ------------ ------------ Net loss per common share.................... $ (1.28) (1.55) ------------ ------------ Weighted average shares outstanding.......... 14,678,000 19,373,000 ------------ ------------ ------------ ------------ Cash dividends declared...................... $ -- $ -- $ -- $ -- $ -- OTHER DATA: Broadcast cash flow (1)...................... $ -- $ -- $ 12,233 $ 38,182 $ 36,942 Net cash (used in) provided by operating activities................................. (14) (3,826) (1,532) 1,943 (6,619) Number of television broadcast operations at the end of period.......................... -- 1 3 5 10
25
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 1992 1993 1994 1995 1996 ----- ------- -------- ------------ ------------ BALANCE SHEET DATA: Current assets............................... $ -- $ 4,773 $ 71,447 $ 116,728 $ 146,159 Total assets................................. -- 17,824 115,332 222,027 365,130 Total debt and advances from affiliates...... -- 6,178 32,592 22,972 55,702 Shareholders' equity......................... -- 3,464 62,631 138,936 249,320
- ------------------ (1) 'Broadcast cash flow,' which is commonly used as a measure of performance for broadcast companies, as used herein, is defined as net broadcast revenues, less broadcast operating expenses excluding depreciation and amortization, broadcast selling, general and administrative expenses, and cash program rights costs. Cash program rights costs represent cash payments for current programs payable and such payments do not necessarily correspond to program use. Broadcast cash flow should not be considered as a substitute measure of operating performance, or liquidity prepared in accordance with generally accepted accounting principles. Broadcast cash flow is only presented for the periods in which broadcasting took place and only for the Company's consolidated broadcast subsidiaries. See 'Management's Discussion and Analysis of Financial Condition and Results of Operations.' 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company is the leading television broadcaster in Central and Eastern Europe, broadcasting to an aggregate of 84.9 million people in six countries in the region and an additional 9.0 million people in Germany. The Company operates the leading national television station in the Czech Republic and the Company's operations in Romania, Slovenia and the Slovak Republic command the leading audience share within their respective areas of broadcast reach. The Company recently commenced operations in Ukraine and southern Poland and has operations under development in other areas of Poland and Hungary which, in the aggregate, potentially could reach an additional 32 million people. The Company's strategy is to continue capitalizing on the substantial market opportunities created by the emergence of private commercial television and the corresponding significant growth of television advertising expenditures in these markets. The Company's revenues are derived principally from the sale of television advertising to local, national and international advertisers. To a limited extent, the Company also engages in certain barter transactions in which its broadcast operations exchange unsold commercial advertising time for goods and services. The Company experiences seasonality, with advertising sales tending to be lowest during the third quarter of each calendar year, which includes the summer holiday schedule (typically July and August), and highest during the fourth quarter of each calendar year. The primary expenses incurred in operating broadcast stations are programming costs, employee salaries, broadcast transmission expenses and selling, general and administrative expenses. Certain of the Company's operations do not require the direct incurrence of broadcast transmission expenses. License fees payable to governmental entities in connection with securing television licenses from government authorities, if any, are usually minimal. However, the Company incurs significant development expenses, including funding and negotiating with local partners, researching and preparing license applications, preparing business plans and conducting pre-operating activities as well as restructuring existing affiliate entities which hold the licenses. The Company conducts all of its operations through subsidiaries. Accordingly, the primary internal sources of the Company's cash are dividends and other distributions from its subsidiaries. The Company's ability to obtain dividends or other distributions is subject to, among other things, restrictions on dividends under applicable local laws and foreign currency exchange regulations of the jurisdictions in which its subsidiaries operate. The subsidiaries' ability to make distributions to the Company is also subject to the legal availability of sufficient operating funds which are not needed for operations, obligations or other business plans and, in some cases, the approval of the other partners, stockholders or creditors of these entities. The laws under which the Company's currently operating subsidiaries are organized provide generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital and required reserves and after the recovery of accumulated losses. SELECTED COMBINED FINANCIAL INFORMATION--BROADCAST CASH FLOW The following table is not required by US generally accepted accounting principles ('GAAP') or intended to replace the Consolidated Financial Statements prepared in accordance with GAAP. This table sets forth certain combined operating data for the years ended December 31, 1996, 1995 and 1994 for national television broadcast stations or networks. The financial information included below departs materially from GAAP because it aggregates the revenues and operating income of certain entities not consolidated on the Consolidated Financial Statements with those of the Company's consolidated operations. This supplemental information is presented solely for additional analysis and not as a presentation of results of operations of each component, nor as combined or consolidated financial data presented in accordance with GAAP. Regional television stations in Germany are not included in this analysis as these operations are dissimilar from those of national television broadcast 27 entities. The investments in the German operations are accounted for under the equity method and operating data for these companies is set forth in Note 14 to the Consolidated Financial Statements. The Company accounts for its 80% economic interest in Markiza TV using the equity method of accounting. Under this method of accounting, the Company's interest in net earnings or losses of Markiza TV is included in the consolidated earnings and an adjustment is made to the carrying value at which the investment is recorded on the consolidated balance sheet. The following supplementary unaudited combined information includes certain financial information of Markiza TV on a line-by-line basis, similar to that of the Company's consolidated entities, which include Nova TV, PRO TV and POP TV. Management service charges are not included in the combined operating data below as these are eliminated in the Consolidated Financial Statements. POP TV and PRO TV began operations in December 1995 and Markiza TV began operations in August 1996. The Company believes that this unaudited combined and combining operating data provides useful disclosure.
YEAR ENDED DECEMBER 31, --------------------------------- $000s 1996(1) 1995 1994 - --------------------------------------------- -------- -------- -------- Combined Operating Data: Net revenues................................. $141,587 $ 98,919 $ 53,566 Total station operating costs and expenses... (93,409) (52,542) (36,083) Selling, general and administrative expenses................................... (21,192) (7,725) (6,009) -------- -------- -------- Station operating income..................... 26,986 38,652 11,474 Depreciation of assets....................... 14,691 7,251 3,773 Amortization of programming rights........... 24,000 16,319 10,403 Cash program rights costs.................... (28,735) (24,040) (13,417) -------- -------- -------- Broadcast cash flow.......................... 36,942 38,182 12,233 Broadcast cash flow margin................... 26.1% 38.6% 22.8% Broadcast cash flow attributable to the Company.................................... $ 34,447(2) $ 24,667 $ 8,074 NOVA TV YEAR ENDED DECEMBER 31, --------------------------------- $000s 1996 1995 1994 - --------------------------------------------- -------- -------- -------- Operating Data: Net revenues................................. $109,242 $ 98,305 $ 53,566 Total station operating costs and expenses... (54,578) (49,894) (36,083) Selling, general and administrative expenses................................... (9,247) (5,533) (6,009) -------- -------- -------- Station operating income..................... 45,417 42,878 11,474 Depreciation of assets....................... 8,024 6,904 3,773 Amortization of programming rights........... 16,207 16,077 10,403 Cash program rights costs.................... (16,520) (21,070) (13,417) -------- -------- -------- Broadcast cash flow.......................... 53,128 44,789 12,233 Broadcast cash flow margin................... 48.6% 45.6% 22.8% Broadcast cash flow attributable to the Company.................................... $ 46,753(2) $ 29,561 $ 8,074
28
YEAR ENDED DECEMBER 31, 1996 ---------------------------------------------------------------------------- TOTAL $000s NOVA TV PRO TV POP TV SUBTOTAL(3) MARKIZA TV ADJUSTED(1) - --------------------------------------------- -------- -------- -------- ----------- ---------- ----------- Operating Data: Net revenues................................. $109,242 $ 15,803 $ 9,080 $ 134,125 $ 7,462 $ 141,587 Station operating expense.................... (54,578) (16,497) (12,764) (83,839) (9,570) (93,409) Selling, general and administrative expenses................................... (9,247) (6,351) (3,989) (19,587) (1,605) (21,192) -------- -------- -------- ----------- ---------- ----------- Station operating income..................... 45,417 (7,045) (7,673) 30,699 (3,713) 26,986 Depreciation of assets....................... 8,024 2,678 2,516 13,218 1,473 14,691 -------- -------- -------- ----------- ---------- ----------- EBITDA....................................... 53,441 (4,367) (5,157) 43,917 (2,240) 41,677 Amortization of programming rights........... 16,207 3,725 1,667 21,599 2,401 24,000 Cash program rights costs.................... (16,520) (4,648) (2,904) (24,072) (4,663) (28,735) -------- -------- -------- ----------- ---------- ----------- Broadcast cash flow.......................... 53,128 (5,290) (6,394) 41,444 (4,502) 36,942 Broadcast cash flow margin................... 48.6% -- -- 30.9% -- 26.1% Broadcast cash flow attributable to the Company.................................... $ 46,753(2) $ (4,100) $ (4,604) $ 38,049 $ (3,602) $ 34,447
- ------------------ (1) Represents combined operating data for national television broadcast entities, including Markiza TV, on a line-by-line basis, which is accounted for using the equity method of accounting in the accompanying consolidated financial statements, and does not include regional television stations in Germany, because these operations are dissimilar from those of national television broadcast entities. (2) Reflects the Additional Nova TV Purchase on August 1, 1996 as if such acquisition had been effective from January 1, 1996. (3) Includes consolidated television broadcast entities only. 'Broadcast cash flow' is a broadcasting industry measure of performance and defined as net broadcast revenues, less broadcast operating expenses excluding depreciation and amortization, broadcast selling, general and administrative expenses, and cash program rights costs. 'Broadcast cash flow margin' is broadcast cash flow divided by net broadcast revenues. 'Broadcast cash flow attributable to the Company' is broadcast cash flow which is attributable to the Company based on the Company's effective economic interest in Nova TV, PRO TV, POP TV and Markiza TV as of December 31, 1996 which was 88.0%, 77.5%, 72.0% and 80.0%, respectively. The Company acquired the additional 22% economic interest in Nova TV on August 1, 1996 pursuant to the Additional Nova TV Purchase (which is in the process of being registered under Czech law). Cash program rights costs represent cash payments for current programs payable and such payments do not necessarily correspond to program use. The Company has included broadcast cash flow because it is commonly used in the broadcast industry as a measure of performance. Broadcast cash flow should not be considered as a substitute measure of operating performance or liquidity prepared in accordance with GAAP. In 1996, broadcast cash flow for the Company's national television broadcast entities (including Markiza TV) was $36,942,000. In 1996, Nova TV's broadcast cash flow increased by 19% to $53,128,000 from $44,789,000 in 1995; while broadcast cash flow attributable to the Company from Nova TV would have increased by 58%, or $17,192,000, had the Additional Nova TV Purchase (See Note 1 to the Consolidated Financial Statements) been effective from January 1, 1996, compared to $29,561,000 in 1995. Nova TV's stronger broadcast cash flow was primarily the result of increased net revenues and lower programming rights costs during the period. Lower program rights costs in 1996 were in part the result of Nova TV's 1995 investment in programming for future periods to achieve lower program costs. As anticipated by the Company, for 1996, Nova TV's broadcast cash flow continued to 29 be partially offset by negative broadcast cash flow of PRO TV ($5,290,000), POP TV ($6,394,000) and Markiza TV ($4,502,000) as these stations continue to develop operations and invest in programming for future periods. APPLICATION OF ACCOUNTING PRINCIPLES Although the Company conducts operations largely in foreign currencies, the Company prepares its financial statements in United States dollars and in accordance with GAAP. The Company's consolidated operating statements include the results of Nova TV, PRO TV, POP TV, Videovox, Radio Alfa and 2002 Kft and separately set forth the minority interest attributable to other owners of these subsidiaries. POP TV and PRO TV began operations in December 1995, Videovox was acquired by the Company in May 1996, and Radio Alfa was acquired in December 1996. The results of other broadcast operations, PULS, FFF, SFF, Markiza TV and TVN are accounted for using the equity method which reflects the Company's share of the net income or losses in those operations. The Company's investment in MobilRom is recorded at the lower of cost and market value. The Company's investments in broadcast operations under development, including the Studio 1+1 Group and other broadcast development opportunities are reflected on the balance sheet as development costs. FOREIGN CURRENCY The Company and its subsidiaries generate revenues primarily in Czech korunas ('Kc'), Romanian lei ('ROL'), Slovenian tolar ('SIT'), Slovak korunas ('Sk'), Hungarian forints ('HUF'), Ukrainian hryvna ('Hrn'), Polish zloty ('Zl') and German marks ('DM'), and incur substantial operating expenses in those currencies. The Romanian lei, Slovenian tolar, Ukranian hryvna and Slovak koruna are managed currencies with limited convertibility. The Company also incurs operating expenses of programming in United States dollars and other foreign currencies. For entities operating in economies considered non-highly inflationary, including Nova TV, POP TV, Markiza TV, Videovox, Radio Alfa, 2002 Kft, TVN and certain Studio 1+1 Group entities, balance sheet accounts are translated from foreign currencies into United States dollars at the relevant period end exchange rate; statement of operations accounts are translated from foreign currencies into United States dollars at the weighted average exchange rates for the respective periods. The resulting translation adjustments are reflected in a component of shareholders' equity with no effect on the consolidated statements of operations. PRO TV and certain Studio 1+1 Group entities operate in economies qualifying as highly inflationary. Accordingly, non-monetary assets are translated at historical exchange rates and monetary assets are translated at current exchange rates. Translation adjustments are included in the determination of income. Currency translation adjustments relating to transactions of the Company in currencies other than the functional currency of the entity involved are reflected in the operating results of the Company. The exchange rates at the end of, and during, the periods indicated were as follows:
INCOME STATEMENT BALANCE SHEET ----------------------------- --------------------------- YEAR ENDED AT DECEMBER 31, DECEMBER 31, --------------- ---------------- 1996 1995 MOVEMENT 1996 1995 MOVEMENT ------ ------ -------- ------ ------ -------- Czech koruna equivalent of $1.00........ 27.33 26.60 2.7% 27.21 26.57 2.4% German mark equivalent of $1.00......... 1.55 1.43 8.4% 1.50 1.44 4.2% Hungarian forint equivalent of $1.00.... 162 n/a n/a 151 n/a n/a Polish zloty equivalent of $1.00........ 2.88 n/a n/a 2.70 n/a n/a Romanian lei equivalent of $1.00........ 4,035 2,578 56.5% 3,204 2,402(1) 33.4% Slovak koruna equivalent of $1.00....... 31.90 n/a n/a 31.14 n/a n/a Slovenian tolar equivalent of $1.00..... 141.48 125.99 12.3% 136.45 125.99(2) 8.3% Ukrainian hryvna equivalent of $1.00.... 1.89 n/a n/a 1.83(3) n/a n/a
(Footnotes on next page) 30 (Footnotes from previous page) - ------------------ (1) Average exchange rate from December 1, 1995 through December 31, 1995 only. (2) Average exchange rate from December 15, 1995 through December 31, 1995 only. (3) Hryvna became the currency of Ukraine in September 1996. The Company's results of operations and financial position during 1996 were impacted by changes in foreign currency exchange rates since 1995. In the highly inflationary economy in Romania, PRO TV indexes sales contracts to the United States dollar in order to minimize the effects of Romanian lei devaluation. As shown above, all operating currencies have weakened against the United States dollar in 1996. The underlying Czech koruna and Slovenian tolar assets and liabilities of Nova TV and POP TV, decreased by 2.7% and 12.3% in dollar terms during 1996, respectively, due to foreign exchange movements. PRO TV's monetary assets and liabilities decreased by up to 56.5% during 1996 depending on the time they remained outstanding during the period. Nova TV's operating income, together with interest costs and minority interest in income, is approximately 2.4% lower than would be the case had the weighted average exchange rate for 1996 remained the same as in 1995. If the weighted average exchange rate for 1996 were the same as in 1995, PRO TV's and POP TV's operating losses, including interest costs and minority interest, would have decreased by 33.4% and 8.3% in dollar terms, respectively (subject to certain adjustments to PRO TV's profit and loss items which are derived from non-monetary assets and liabilities). Similarly, the Company's equity in losses in unconsolidated affiliates in Germany (PULS, FFF and SFF), would have decreased 4% in dollar terms. 31 Results of Operations 1996 compared to 1995 The Company's net revenues rose to a new high for the third consecutive year, rising by $37,066,000, or 37%, to $135,985,000 in 1996 from $98,919,000 in 1995. This increase was primarily attributable to the increase in revenues of PRO TV and POP TV, which were operational for all of 1996 compared to one month in 1995, and the increase in Nova TV's net revenues. PRO TV and POP TV posted net revenues of $15,803,000 and $9,080,000 in 1996, respectively, and Nova TV's net revenues increased $10,937,000, or 11%, to $109,242,000 in 1996 from $98,305,000 in 1995. Nova TV's increase in net revenue was primarily attributable to the continued growth of the total advertising market in the Czech Republic and Nova TV's ability to maintain an audience share of 65% to 70%. To a lesser extent, Videovox, a Hungarian dubbing company, purchased in May 1996, also contributed to the increase in the Company's net revenues with net revenues of $1,707,000 for 1996. Total station operating costs and expenses increased $32,559,000, or 62%, to $85,101,000 in 1996 from $52,542,000 in 1995. The increase in total station operating costs and expenses was primarily attributable to PRO TV, POP TV, and Videovox's total station operating costs and expenses which were $16,497,000, $12,764,000 and $2,112,000 in 1996, respectively, and, to a lesser extent, an increase in Nova TV's total station operating costs and expenses of $4,684,000, or 9%, to $54,578,000 in 1996. The increase in Nova TV's total station operating costs and expenses is primarily the result of an enhancement in the production quality of self-produced programs necessary to maintain Nova TV's audience share. Station selling, general and administrative expenses increased $13,632,000, or 176%, to $21,357,000 in 1996 from $7,725,000 in 1995. This increase was primarily attributable to additional station selling, general and administrative expenses for PRO TV and POP TV. From 1995, Nova TV's station selling, general and administrative expenses increased by $3,714,000, or 67%, to $9,247,000 due to increased marketing efforts in 1996 and the write-off of bad debts totaling $1,300,000, from co-producers of certain game shows broadcast on Nova TV in the fourth quarter of 1996. Corporate operating costs and development expenses for 1996 and 1995 were $15,782,000 and $10,669,000, respectively, increasing $5,113,000, or 48%. The increase was primarily attributable to the Company's increased scope of operations over the same period in 1995, which includes the Company's new operations in Poland, Ukraine, and Hungary, the launch of Markiza TV in August 1996 and development activities in other countries. Amortization of goodwill and allowance for development costs decreased $502,000, or 15%, to $2,940,000 in 1996 from $3,442,000 in 1995. The decrease was primarily the result of an allowance for development activities in Poland during 1995, partially offset by amortization related to the Additional Nova TV Purchase and, to a lesser extent, the amortization of goodwill and license acquisition costs related to investments in PRO TV and POP TV in December 1995. A stock compensation charge of $0 and $858,000 was recognized in 1996 and 1995, respectively. The stock compensation charge was related to shares granted to a former officer of the Company. The Company incurred $809,000 and $1,375,000 in capital registration taxes for 1996 and 1995, respectively. Operating income decreased $12,312,000, or 55%, to $9,996,000 in 1996 from $22,308,000 in 1995. The decrease in the Company's operating results was primarily attributable to operating losses of PRO TV and POP TV, and, to a lesser extent, increased corporate and development expenses, partially offset by the increase in operating income of Nova TV over the same period in 1995. Equity in loss of unconsolidated affiliates increased by $3,051,000, or 21%, to $17,867,000 in 1996 from $14,816,000 in 1995, primarily attributable to the launch of Markiza TV in August 1996, partially offset by reduced losses at FFF. The Company's share of the losses of Markiza TV for 1996 totaled $3,583,000. The Company's share of losses in PULS and FFF decreased by $1,045,000, or 7% in 32 1996. The Company's share of losses in PULS, including goodwill amortization, for 1996 remained at approximately the same level despite the Company's increase in ownership from 48.5% at December 31, 1995 to 58.0% at December 31, 1996. In 1996, PULS began a new local programming format which resulted in reduced operating costs and slightly increased net revenues. In addition, losses at FFF have also decreased as a result of a similar change in its programming format and slightly increased net revenues. Interest and other income increased $1,638,000, or 132%, to $2,876,000 for 1996 from $1,238,000 in 1995. The increase in interest income is primarily attributable to the net cash proceeds from the Company's 1996 public offering of Class A Common Stock which was completed in November 1996 (the '1996 Offering'). Interest expense decreased $289,000, or 5.8%, to $4,670,000 in 1996 from $4,959,000 in 1995. This is primarily attributable to lower debt levels at Nova TV, including the early repayment of debt, during 1996 compared to 1995; partially offset by interest expense from debt incurred to make the Additional Nova TV Purchase. The foreign currency exchange loss of $2,861,000 in 1996 is primarily attributable to the US dollar denominated borrowings of PRO TV and POP TV and the devaluation during 1996 of the Romanian lei and the Slovenian tolar, respectively, against the dollar. Movements in these currencies in 1995 had less of an impact on the Company because PRO TV and POP TV commenced operations in December 1995. Provision for income taxes was $16,405,000 for 1996 and $16,340,000 for 1995. The income tax provision in 1996 and 1995 primarily related to income taxes payable in the Czech Republic on Nova TV's pre-tax profits which have increased due to higher operating income at Nova TV, offset by an income tax rate of 41% in 1995 and a lower income tax rate of 39% in 1996. Minority interest in income (loss) of consolidated subsidiaries was $1,072,000 in 1996 and $6,491,000 in 1995. This decrease was primarily the result of the Additional Nova TV Purchase, together with losses for PRO TV and POP TV. Primarily as a result of these factors, the net loss of the Company was $30,003,000 and $18,736,000 for 1996 and 1995, respectively. 1995 compared to 1994 The Company's net revenues increased $45,353,000, or 85%, to $98,919,000 in 1995 from $53,566,000 in 1994. This increase was attributable primarily to the increase in advertising revenues earned by Nova TV as a result of growth in the television advertising market in the Czech Republic and, to a lesser extent, increased market share in that market. In addition, the increase in the 1995 figure was partially attributable to the fact that PRO TV and POP TV commenced broadcasting in December 1995. Since the Company has a non-controlling ownership interest in PULS and FFF, losses incurred by PULS and FFF are accounted for under the equity method and, therefore, no revenues are presented in respect of these entities. Station operating expenses increased $16,459,000, or 46%, to $52,542,000 in 1995 from $36,083,000 in 1994. As a percentage of net revenues, station operating costs and expenses decreased from 67% in 1994 to 53% in 1995. These expenses represent the costs associated with the operations of Nova TV, PRO TV and POP TV, including amortization of programming rights of $16,319,000 and $10,403,000 and depreciation of station assets and amortization of other intangibles of $7,251,000 and $3,773,000 for the years ended 1995 and 1994, respectively. The increase in station operating costs and expenses was primarily attributable to the expanding Nova TV operations and Nova TV broadcasting for the full year in 1995 compared with 11 months during 1994, as well as the launches of PRO TV and POP TV in December 1995. Station operating costs and expenses as a percentage of net revenues decreased due to revenues growing at a faster rate than such costs and expenses. Station selling, general and administrative expenses increased $1,716,000, or 29%, to $7,725,000 in 1995 from $6,009,000 in 1994. As a percentage of net revenues, station selling, general and 33 administrative expense decreased from 11% in 1994 to 8% in 1995. This decrease in station selling, general and administrative expenses as a percentage of net revenues was a result of fixed costs being spread over a larger revenue base, certain start-up expenses associated with Nova TV early in 1994 not recurring in 1995, and offset in part by the operations of PRO TV and POP TV commencing in December 1995. Total corporate operating expenses in 1995 and 1994 were $10,669,000 and $3,699,000 respectively, increasing $6,970,000, or 188%. The increase was primarily attributable to the Company's increased scope of operations and the increased number of development projects in 1995. Amortization of goodwill and allowance for development costs increased $2,457,000 to $3,442,000 in 1995 from $985,000 in 1994. The increase was primarily due to additional development efforts in Poland, Romania and Slovenia. The non-cash stock compensation charge of $5,833,000 and $858,000 recognized in 1994 and in 1995, respectively, relates to shares and options granted to officers and employees of the Company. Under the terms of the Company's contracts with its former President, the Company issued 454,703 shares of Class A Common Stock to a trust nominated by him. Upon his departure in August 1995, 194,872 shares remained unvested. The Company and the former President agreed that 18,000 of these unvested shares vested on December 31, 1996. In 1995, $858,000 was recognized as expense to account for the vesting of 64,958 shares under the original plan and the 18,000 unvested shares which remained eligible for vesting, all of which vested prior to December 31, 1996. Operating income increased $21,351,000 as the Company generated operating income before minority interest of $22,308,000 in 1995 compared to $957,000 in 1994. The overall increase in the Company's operating results was attributable to continued improved performance at Nova TV in the comparative periods. Equity in loss of unconsolidated affiliates increased $1,139,000, or 8%, to $14,816,000 in 1995 from $13,677,000 in 1994. The increase in losses was due to an increase in the Company's share of losses in PULS as a result of increased investment in PULS and the recognition of a full year of losses for FFF for 1995 compared to a partial year for 1994. The Company invested in FFF in April of 1994. Interest and other income increased $1,059,000 to $1,238,000 in 1995 from $179,000 in 1994. This increase was primarily attributable to the interest earned on the proceeds of issuance of common stock of the Company on October 13, 1994 and November 9, 1995. Interest expense increased $2,967,000 to $4,959,000 in 1995 from $1,992,000 in 1994. This increased interest expense was primarily due to interest on bank loans and a capital lease on the building at Nova TV for a full year in 1995 compared to a partial year for 1994, and partially to interest payments related to a loan from Ronald S. Lauder, the principal shareholder of the Company. Provision for income taxes was $16,340,000 in 1995 and $3,331,000 in 1994. The increase in 1995 income tax provision primarily relates to income taxes payable in the Czech Republic on Nova TV pre-tax profits which were $39,050,000 in 1995 and $10,276,000 in 1994. Minority interest in income of consolidated subsidiaries was $6,491,000 in 1995 and $2,396,000 in 1994. This increase reflected the increased profitability of Nova TV, offset, in part, by losses for PRO TV and POP TV. The net loss of the Company was $18,736,000 and $20,505,000 in 1995 and 1994, respectively. The decrease in losses was attributable to the increased profits of Nova TV offset by increases in the Company's share of losses in PULS and FFF, higher development costs and the effect of increased station operating expenses and selling, general and administrative expenses resulting from the launches of PRO TV and POP TV in December 1995. 34 LIQUIDITY AND CAPITAL RESOURCES Cash (used in) provided by operating activities was ($6,619,000) in 1996 and $1,943,000 in 1995. This change was primarily attributable to tax payments by Nova TV and the inclusion of full-year losses for PRO TV and POP TV. Accounts receivable increased by $4,867,000, or 15%, to $37,342,000, net of currency fluctuations, at December 31, 1996, from $32,475,000 at December 31, 1995. This increase is primarily attributable to increased sales at Nova TV and the addition of accounts receivable at PRO TV and POP TV launched in December 1995. Current liabilities increased $14,053,000 or 30%, to $60,506,000 at December 31, 1996 from $46,453,000 at December 31, 1995, principally as a result of increased accounts payable and increased accrued liabilities related to the Company's new operations, PRO TV and POP TV, offset by reduced tax liabilities. Cash used in investing activities increased by $27,573,000 or 40%, to $95,936,000 in 1996 from $68,363,000 in 1995, primarily due to funding of the newly launched station, Markiza TV (included in investments in unconsolidated affiliates) and higher capitalized development costs. The Company's investment in unconsolidated affiliates increased to $56,599,000 at December 31, 1996 from $12,433,000 at December 31, 1995. This is primarily a result of an increase of investments in PULS of DM 28,861,000 ($18,620,000), FFF of DM3,000,000 ($1,935,000), SFF of DM 1,500,000 ($968,000), Markiza TV of $29,323,000 and the Polish operations of $11,500,000, partially offset by the Company's share of losses in PULS of $10,279,000 (excluding goodwill amortization of $1,543,000), FFF of $1,949,000, SFF of $325,000, Markiza TV of $3,583,000 (including license acquisition costs amortization of $182,000) and the Polish operations of $188,000. The investments reflect additional capital calls agreed in 1996 of DM 26,575,000 ($17,145,000) for PULS of which DM 26,361,000 ($17,007,000) is to be funded by the Company and of which DM 2,000,000 ($1,290,000) remained outstanding as of December 31, 1996. During 1996, the Company provided equity funding to Markiza TV of $25,609,000 and loans of $9,000,000. These loans are registered with the Slovakian central bank and will mature in 2001 and carry an interest rate of 6.0% per annum. In 1996 the Company invested $17,801,000 in property, plant and equipment (compared to $23,196,000 in 1995) and $18,936,000 in development activities (compared to $12,325,000 in 1995). The reduction in investment in property, plant and equipment for 1996 reflects the fact that PRO TV and POP TV are no longer start up operations. The higher capitalized development costs principally relate to investments in the Studio 1+1 Group. Cash provided by financing activities for the year ended December 31, 1996 was $127,609,000. The largest cash inflow was $144,348,000 from the 1996 Offering before related expenses. Cash outflows consist primarily of loans to affiliates. The Company's operations to date have been financed primarily through public offerings of shares of Class A Common Stock completed in October 1994 (the 'IPO') and November 1995 and the 1996 Offering which raised net proceeds of approximately $68,800,000, $86,600,000 and $143,600,000, respectively. Prior to the IPO, the Company relied on certain affiliates for capital in the form of both debt and equity financing. The Company was paid a dividend of approximately $1,400,000 in 1995 by Nova TV. In 1996, the Company was paid a total of approximately $8,447,000 in dividends by Nova TV. Primarily as a result of the 1996 Offering and the results of operations of Nova TV in 1995 and 1996, the Company had cash of $78,507,000 at December 31, 1996 ($53,210,000 at December 31, 1995) and marketable securities of $2,896,000 at December 31, 1996 ($10,652,000 at December 31, 1995) available to finance its future activities. The Company has made and will continue to make investments to develop broadcast operations in Central and Eastern Europe. The Company currently is developing broadcast operations in Ukraine and Poland and intends to bid for a national broadcast license in Hungary. The Company's cash needs for those investment activities may exceed cash generated from operations, resulting in external financing requirements. 35 On August 1, 1996, the Company entered into the Additional Nova TV Purchase for the purchase of CS's 22% economic interest and virtually all of CS's voting rights in Nova TV for a purchase price of Kc 1 billion ($36,590,000). The Company also entered into a loan agreement with CS to finance 85% of the purchase price. The remainder of the purchase price Kc150,000,000 million ($5,488,000) was paid by the Company on November 15, 1996 out of the Company's cash balances. The loan from CS was drawn in August 1996 and is expected to be drawn in April 1997 in the amounts of Kc450,000,000 ($16,464,000) and Kc400,000,000 ($14,636,000), respectively to fund purchase payments due at those times, and the loan bears an interest rate of 12.9% annually. Quarterly repayments on the loan are required in the amount of Kc22,500,000 ($823,000) during the period from November 1997 through November 1998, Kc42,500,000 ($1,555,000) during the period from February 1999 through August 2002, and Kc 20,000,000 ($732,000) during the period from November 2002 through November 2003. The Company expects that Nova TV's future cash requirements will continue to be satisfied through operating cash flows and available borrowing facilities. Nova TV currently has two loan facilities with CS. The first facility consists of a long term loan due on December 30, 1999 in the principal amount of Kc180,000,000 ($6,586,000) and bears interest at a rate of 2.5% over the bank's prime rate, currently 12.5%. Principal payments of Kc60,000,000 ($2,195,000) are due each year on this facility. In January 1996 Nova TV paid the Kc60,000,000 ($2,195,000) due on this facility for 1996. The second facility is a line of credit, obtained in November 1995, for an amount up to Kc250,000,000 ($9,147,000) bearing interest at a rate 0.5% over Prague Interbank Offer Rate ('PRIBOR'). This facility was unutilized at December 31, 1996. These loans are secured by Nova TV's equipment, vehicles and receivables. PRO TV has two borrowing facilities with Tiriac Bank in Romania which were obtained in July 1996. The first facility consists of $2,000,000 line of credit substantially payable by July 31, 1997. The line of credit bears interest at a rate of 5% over LIBOR (5.72% at December 31, 1996). At December 31, 1996 $1,709,000 was borrowed under this facility. The second facility is a long term loan for $4,000,000 due July 31, 2001. The long term loan bears interest at 5% over LIBOR (5.72% at December 31, 1996) and is repaid in installments starting July 31, 1997. At December 31, 1996 $2,758,000 was borrowed under this facility. These facilities are secured by PRO TV's equipment and vehicles. Notwithstanding these borrowing facilities, the Company believes that it will be required to provide additional funding to PRO TV in 1997. PULS, in which the Company has a substantial equity investment, continues to require additional cash funding to meet ongoing operating deficits. The Company estimates total cash funding required for PULS to be approximately $7,097,000 through June 1997. None of the investors in PULS, including the Company, have further contractual obligations to invest additional capital in this station. The partners of PULS have retained a financial advisor and are currently in discussions with potential investors in PULS. Such an investment would be expected to acquire a significant equity interest in PULS and assume responsibility for PULS' operations. Such an investor would be anticipated to significantly dilute the Company's equity interest in PULS and to decrease the Company's future funding obligations to PULS. Furthermore, such investment also could result in a material reduction of the carrying value of the Company's equity investment in PULS which was $12.6 million at December 31, 1996 and a corresponding charge against the Company's earnings. Regardless of whether a transaction with an investor is consummated, there is no assurance that the Company may not have to take a reduction of all or a portion of the carrying value of PULS. In addition, a reduction of the carrying value of PULS, or other factors, might cause the Company to reduce all or part of the carrying value of the Company's investments in FFF (the parent company of the Nuremberg Station) and SFF (through which the Company owns its interests in the Leipzig Station and the Dresden Station), which were $6.1 million and $1.6 million, respectively, as of December 31, 1996. The laws under which the Company's currently operating subsidiaries and affiliates are organized provide generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves and after the recovery of accumulated losses. In the case of the Company's Dutch and Netherlands Antilles subsidiaries, the Company's voting power is sufficient to compel the making of distributions. The Company's voting power is sufficient to compel Nova TV to make distributions. In the case of PRO TV, distributions may 36 be paid from the profits of PRO TV subject to a reserve of 5% of annual profits until the aggregate reserves equal 20% of PRO TV's registered capital. A majority vote can compel PRO TV to make distributions. In the case of POP TV, the Company's voting power is not sufficient to compel the payment of dividends. There are no legal reserve requirements in Slovenia. In the case of Markiza TV, distributions may be paid from net profits subject to an initial reserve requirement of 10% of net profits until the reserve fund equals 5% of registered capital. Subsequently, the reserve requirement is equal to 5% of net profits until the reserve fund equals 10% of registered capital. The Company's voting power in Markiza TV is not sufficient to compel the distribution of dividends. In the case of PULS, the PULS Partnership Agreement provides that if profits are available for distribution, 66 2/3% of the partnership interest may require that 40% of such profits be placed in reserves until DM16,700,000 ($10,774,000) are reserved. All profits in excess thereof must be distributed. The agreement relating to FFF does not contain restrictions on distributions out of available profits. The laws of countries where the Company is developing operations contain restrictions on the payment of dividends. Except for the Company's working capital requirements and completing the funding of existing television broadcast operations and the mobile telecommunications venture in Romania (MobilRom), the Company's future cash needs will depend on management's acquisition and development decisions. The Company is actively engaged in the development of additional broadcast operations and investing in existing broadcasting companies throughout Central and Eastern Europe. The Company incurs limited expenses in identifying and pursuing broadcast opportunities before any investment decision is made. The Company anticipates making additional investments in other broadcast operations, supplemented by capital raised from local financial strategic partners as well as local debt and lease financing, to the extent that it is available and appropriate for each project. The Company's aggregate funding commitment with respect to MobilRom is up to $12.0 million, of which approximately $3.6 million has been funded to date. The Company believes that its current cash balances, cash generated from Nova TV and local financing of broadcast operations and broadcast operations under development should be adequate to satisfy the Company's operating and capital requirements for its current operations through 1997. In order to fund the development and build out of new broadcast opportunities in Central and Eastern Europe, the Company currently is actively exploring significant additional financing at the CME level. If the Company is unsuccessful in raising such additional funds, the Company may not be able to acquire additional broadcast rights or complete the development of additional broadcast opportunities. Statements made in this section, 'Liquidity and Capital Resources,' regarding future investments in existing television broadcast operations and the development of new television broadcast operations (including the amount and nature thereof), business strategies and the future need for additional funds from outside sources, are forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements herein. Important factors that contribute to such risks include the Company's success in obtaining additional broadcast licenses, the cost of developing these opportunities into television broadcast operations, the ability to acquire programming, the ability to attract audiences, the rate of development of advertising markets in these countries and general market and economic conditions. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Financial Statements and Supplementary data begin on the following page and end on the page immediately preceding Item 9.) 37 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Central European Media Enterprises Ltd.: We have audited the accompanying consolidated balance sheets of Central European Media Enterprises Ltd. as of December 31, 1995 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Central European Media Enterprises Ltd. as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with United States generally accepted accounting principles. ARTHUR ANDERSEN & CO. Hamilton, Bermuda March 24, 1997 38 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ($000s)
DECEMBER 31, -------------------- NOTE 1996 1995 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents.................. 4 $ 78,507 $ 53,210 Investments in marketable securities....... 4 2,896 10,652 Restricted cash............................ 5 2,749 4,216 Accounts receivable (net of allowances of $3,200, $1,105)......................... 37,342 32,475 Program rights costs....................... 4 12,675 9,219 Value-added tax recoverable................ 182 733 Amounts due from unconsolidated affiliates.............................. 13 1,066 -- Advances to affiliates..................... 13 4,119 953 Other short-term assets.................... 7 850 -- Prepaid expenses........................... 5,773 5,270 -------- -------- TOTAL CURRENT ASSETS.................... 146,159 116,728 Investment in unconsolidated affiliates...... 56,599 12,433 Investments.................................. 3,600 -- Loans to affiliates.......................... 13 17,766 6,272 Property, plant & equipment (net of depreciation of $22,317, $10,281).......... 6 58,982 51,699 Program rights costs......................... 4 14,266 10,496 Broadcast license costs and other intangibles (net of amortization of $1,579, $1,007).... 4 3,097 2,365 License acquisition costs (net of amortization of $854, $54)................. 4 3,923 4,723 Goodwill..................................... 4 35,338 1,510 Organization costs (net of amortization of $950, $507)................................ 4 934 1,337 Development costs (net of allowance of $996, $4,373).................................... 4 19,105 10,127 Deferred taxes............................... 8 868 559 Other assets................................. 7 4,493 3,778 -------- -------- TOTAL ASSETS............................ $365,130 $222,027 -------- -------- -------- --------
The accompanying notes are an integral part of these consolidated balance sheets. 39 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED BALANCE SHEETS--(CONTINUED) DECEMBER 31, 1996 AND 1995 ($000s)
DECEMBER 31, -------------------- NOTE 1996 1995 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................... $ 18,775 $ 12,956 Accrued liabilities........................ 17,010 9,804 Duties and other taxes payable............. 3,312 288 Income taxes payable....................... 8 9,948 15,946 Current portion of obligations under capital leases.......................... 12 1,794 2,111 Current portion of credit facilities....... 10 7,106 2,661 Investments payable........................ 1,955 -- Advances from affiliates................... 13 606 2,687 -------- -------- TOTAL CURRENT LIABILITIES............... 60,506 46,453 Deferred income taxes........................ 8 2,142 2,317 Obligations under capital leases............. 12 7,120 8,747 Long-term portion of credit facilities....... 10 22,488 6,766 Investments payable.......................... 14,633 -- Other liabilities............................ 305 173 Minority interest in consolidated subsidiaries............................... 4 8,616 18,635 SHAREHOLDERS' EQUITY: Preferred Stock, $0.01 par value: authorized: 5,000,000 shares; issued and outstanding: none....................... -- -- Class A Common Stock, $0.01 par value: authorized: 30,000,000 shares; issued and outstanding: 16,664,143 at December 31, 1996, and 10,294,549 shares at December 31, 1995....................... 167 103 Class B Common Stock, $0.01 par value: authorized: 15,000,000 shares; issued and outstanding: 7,191,475 at December 31, 1996, and 8,078,297 shares at December 31, 1995....................... 72 81 Additional paid-in capital................. 330,315 187,997 Class A Treasury stock of $0.01 par value: none at December 31, 1996 and 176,872 at December 31, 1995....................... -- (2,476) Accumulated deficit........................ (78,004) (48,001) Cumulative currency translation adjustment.............................. (3,230) 1,232 -------- -------- TOTAL SHAREHOLDERS' EQUITY.............. 249,320 138,936 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................ $365,130 $222,027 -------- -------- -------- --------
The accompanying notes are an integral part of these consolidated balance sheets. 40 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED STATEMENTS OF OPERATIONS ($000s EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- NOTE 1996 1995 1994 ---- -------- -------- -------- Gross revenues.......................... $170,114 $121,113 $ 64,389 Discounts and Agency Commissions........ (34,129) (22,194) (10,823) -------- -------- -------- Net revenues............................ 4 135,985 98,919 53,566 Station Expenses: Other operating costs and expenses.... 50,188 28,972 21,907 Amortization of programming rights.... 21,599 16,319 10,403 Depreciation of station fixed assets and other intangibles.............. 13,314 7,251 3,773 -------- -------- -------- Total station operating costs and expenses........................... 85,101 52,542 36,083 Selling, general and administrative expenses........................... 21,357 7,725 6,009 Corporate Expenses: Corporate operating costs and development expenses............... 15,782 10,669 3,699 Stock compensation charge............. 15 -- 858 5,833 Amortization of goodwill and allowance for development costs.............. 2,940 3,442 985 Capital registration tax.............. 8(b) 809 1,375 -- -------- -------- -------- 19,531 16,344 10,517 Operating income........................ 9,996 22,308 957 Equity in loss of unconsolidated affiliates............................ 14 (17,867) (14,816) (13,677) Interest and other income............... 2,876 1,238 179 Interest expense........................ (4,670) (4,959) (1,992) Foreign currency exchange (loss)/gain... 4 (2,861) 324 (245) -------- -------- -------- Net (loss) income before provision for income taxes.......................... (12,526) 4,095 (14,778) Provision for income taxes.............. 8 (16,405) (16,340) (3,331) -------- -------- -------- Net loss before minority interest....... (28,931) (12,245) (18,109) Minority interest in loss of consolidated subsidiaries............. (1,072) (6,491) (2,396) -------- -------- -------- NET LOSS................................ $(30,003) $(18,736) $(20,505) -------- -------- -------- -------- -------- -------- Per share data:......................... 4 Net loss per share...................... $ (1.55) $ (1.28) -------- -------- -------- -------- Weighted average number of common shares outstanding (000s).................... 19,373 14,678 -------- -------- -------- --------
The accompanying notes are an integral part of these consolidated financial statements. 41 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM DECEMBER 31, 1993 TO DECEMBER 31, 1996 ($000s)
CLASS CLASS CUMULATIVE A B ADDITIONAL CURRENCY COMMON COMMON PAID-IN TREASURY DEFERRED ACCUMULATED TRANSLATION STOCK STOCK CAPITAL STOCK COMPENSATION DEFICIT(1) ADJUSTMENT TOTAL ------ ------ ---------- -------- ------------ ----------- ----------- -------- BALANCE, December 31, 1993.............. $ -- $ -- $ 12,500 $ -- $ -- $ (8,760) $ (276) $ 3,464 Capital contributed by Shareholders, net of related costs of $7,681...... 59 81 73,120 -- -- -- -- 73,260 Services contributed by Shareholders.... -- -- 169 -- -- -- -- 169 Stock compensation charge (Note 15)............................. -- -- 9,167 -- (3,334) -- -- 5,833 Foreign Currency Translation Adjustment............................ -- -- -- -- -- -- 410 410 Net loss................................ -- -- -- -- -- (20,505) -- (20,505) ------ ------ ---------- -------- ------------ ----------- ----------- -------- BALANCE, December 31, 1994.............. 59 81 94,956 -- (3,334) (29,265) 134 62,631 Capital contributed by Shareholders including $6,500 loan converted, less related costs of $5,426........ 44 -- 93,041 -- -- -- -- 93,085 Stock compensation charge Charge.............................. -- -- -- -- 858 -- -- 858 Reduction in stock compensation charge (Note 15).................. -- -- -- (2,476) 2,476 -- -- -- Foreign Currency Translation Adjustment.......................... -- -- -- -- -- -- 1,098 1,098 Net loss.............................. -- -- -- -- -- (18,736) -- (18,736) ------ ------ ---------- -------- ------------ ----------- ----------- -------- BALANCE, December 31, 1995.............. 103 81 187,997 (2,476) -- (48,001) 1,232 138,936 Retirement of Treasury Stock.......... (2) -- (2,474) 2,476 -- -- -- -- Capital contributed by Shareholders, less related costs of $8,177(2)..... 66 (9) 144,792 -- -- -- -- 144,849 Foreign Currency Translation Adjustment.......................... -- -- -- -- -- -- (4,462) (4,462) Net loss.............................. -- -- -- -- -- (30,003) -- (30,003) ------ ------ ---------- -------- ------------ ----------- ----------- -------- BALANCE, December 31, 1996.............. $167 $ 72 $330,315 $ -- $ -- $ (78,004) $ (3,230) $249,320 ------ ------ ---------- -------- ------------ ----------- ----------- -------- ------ ------ ---------- -------- ------------ ----------- ----------- --------
- ------------------ (1) Of the accumulated deficit of $78,004,000 at December 31, 1996, $50,248,000 represents accumulated losses in unconsolidated affiliates. (2) Includes transfers between Class A and Class B Common Stock in the year. The accompanying notes are an integral part of these consolidated financial statements. 42 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS ($000s)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss..................................... $(30,003) $(18,736) $(20,505) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Equity in loss of unconsolidated affiliates............................... 17,867 14,816 13,677 Depreciation & amortization (excluding amortization of barter programs)......... 33,288 23,705 14,176 Minority interest in income (loss) of consolidated subsidiaries................ 1,072 6,491 2,396 Services contributed by shareholders....... -- -- 169 Valuation allowance for development costs.................................... 714 3,388 985 Stock compensation charge.................. -- 858 5,833 Changes in assets & liabilities: Accounts receivable........................ (4,881) (18,176) (12,950) Related party receivable................... -- 115 263 Program rights paid........................ (24,072) (24,040) (13,417) Value-added tax recoverable................ 551 (710) 1,121 Dividends paid to minority shareholders.... (3,575) (612) -- Advances to affiliates..................... (3,334) (337) -- Production costs........................... -- -- 355 Prepaid expenses........................... (415) (1,780) (673) Other assets............................... (1,838) (3,639) (5) Accounts payable........................... 3,931 1,180 646 Accrued liabilities........................ 7,227 6,197 2,698 Income & other taxes payable............... (3,151) 13,223 3,699 -------- -------- -------- Net cash provided by (used in) operating activities............................. (6,619) 1,943 (1,532) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in unconsolidated affiliates.... (52,977) (19,220) (19,268) Investments................................ (3,600) -- -- Investments in marketable securities....... 7,756 (2,927) (7,725) Restricted cash............................ 1,467 (2,616) (1,072) Acquisition of fixed assets................ (17,801) (23,196) (13,298) Acquisition of minority shareholders' interest................................. (5,607) -- -- Purchase of business....................... (4,895) (1,510) -- Payments for license acquisition costs..... -- (4,777) -- Payments for organization costs............ (48) (1,032) -- Payments for broadcast license costs and other intangibles........................ (1,295) (760) (790) Development costs.......................... (18,936) (12,325) (2,175) -------- -------- -------- Net cash used in investing activities.... (95,936) (68,363) (44,328) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Credit facilities.......................... 3,045 (6,140) 14,398 Payments under capital leases.............. (1,636) (1,570) -- Loans to affiliates........................ (16,705) (6,272) (1,396) Advances received from affiliates.......... -- 2,687 7,457 Loans received from affiliates............. -- -- 3,546 Repayment of advances from affiliates...... -- -- (7,216) Repayment of advances by affiliates........ (2,081) -- (9,336) Shareholder loans.......................... -- -- 6,500 Capital contributed by shareholders........ 144,849 86,585 73,260 Other liabilities.......................... 137 173 -- Investments by minority shareholders in consolidated subsidiaries................ -- 2,000 -- -------- -------- -------- Net cash provided by financing activities............................. 127,609 77,463 87,213 -------- -------- -------- IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH....................................... 243 165 (281) Net increase in cash and cash equivalents............................ 25,297 11,208 41,072 CASH AND CASH EQUIVALENTS, beginning of period..................................... 53,210 42,002 930 -------- -------- -------- CASH AND CASH EQUIVALENTS, end of period..... $ 78,507 $ 53,210 $ 42,002 -------- -------- -------- -------- -------- -------- SUPPLEMENTAL INFORMATION Cash paid for interest................... $ 4,590 $ 4,942 $ 1,891 -------- -------- -------- -------- -------- -------- Income taxes............................. $ 22,048 $ 2,922 $ -- -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these consolidated financial statements. 43 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 1. ORGANIZATION AND BUSINESS Central European Media Enterprises Ltd., a Bermuda corporation ('CME'), was formed in June 1994. Through its predecessor companies, CME has been in operation since 1991. CME, together with its subsidiaries (CME and its subsidiaries are collectively referred to as the 'Company'), develops, owns and operates national and regional commercial television stations and networks in Central and Eastern Europe and regional commercial television stations in Germany. In the Czech Republic, as of December 31, 1996, the Company owned an 88% economic interest in Ceska Nezavisla Televizni Spolecnost s.r.o. ('Nova TV'), the leading private national television station in the Czech Republic. On August 1, 1996, the Company increased its economic interest in Nova TV to 88% from 66% through the acquisition of a 22% economic interest in Nova TV from Ceska Sporitelna Bank ('CS') (the 'Additional Nova TV Purchase'). The Company is in the process of registering the Additional Nova TV Purchase pursuant to Czech law. On an ongoing basis, after giving effect to the Additional Nova TV Purchase, the Company is entitled to 88% of the total profits of Nova TV and has 86% of the voting power in Nova TV. CET 21 had a 12% equity interest in Nova TV. During 1996, the Company entered into an agreement to lend the General Director of Nova TV funds to finance his purchase of shares in CET 21 in order to increase his ownership in CET 21. In March 1997, the Company acquired an additional 5.2% interest in Nova TV through the retirement of the loan (Note 16). In 1995, in the Czech Republic, the Company entered into loan ('Radio Alfa Loan') and consulting agreements with Radio Alfa ('Radio Alfa'), one of two private Czech Republic national radio broadcasters. Radio Alfa was re-launched in October 1995. The Radio Alfa Loan may be converted into an equity interest in Radio Alfa of up to 21.7%. During December 1996, the Company purchased a 62% ownership interest from Radio Alfa's other shareholders for a purchase price of Kc 37,500,000 ($1,372,000). If the Radio Alfa Loan is converted to an equity interest, the Company would have an 83.7% equity ownership interest in Radio Alfa. In Romania, the Company and two local partners, Adrian Sarbu and Ion Tiriac operate PRO TV, a commercial television network launched in December 1995, through Media Pro International S.A. ('Media Pro International'). The Company holds a 77.5% equity interest in Media Pro International, although the Company's partners hold options exercisable through October 1997 which, if exercised, would reduce the Company's interest to not less than 66%. In September 1996, the Company acquired a 95% equity interest in Unimedia SRL ('Unimedia'), which acquired a 10% equity interest in a consortium, MobilRom, which obtained one of two GSM licenses in Romania in December 1996 and is expected to commence operations in June 1997. In Slovenia, the Company launched POP TV in December 1995 together with MMTV d.o.o. Ljubljana ('MMTV') (formerly known as Boutique MMTV) and Tele 59 d.o.o. Maribor ('Tele 59'), through the formation of Produkcija Plus d.o.o. ('Pro Plus'). POP TV provides programming to and sells advertising for MMTV, Tele 59 and an additional affiliate, Robin TV. The Company owns 58% of the equity of Pro Plus, but has an effective economic interest of 72%, as a result of a 33% economic interest in MMTV and a 33% economic interest in Tele 59, each of which have a 21% interest in Pro Plus. In July 1996, the Company, together with MMTV and Tele 59 entered into an agreement to purchase a 66% equity interest in Kanal A (Note 12). In the Slovak Republic, the Company has an 80% economic and a 49% voting interest in Slovenska Televizna Spolocnost s.r.o. ('STS') which launched Markiza TV as a national television station on August 31, 1996. In Hungary, the Company holds a 97.4% ownership interest in Videovox Studio Limited Liability Company ('Videovox'), a Hungarian dubbing and production company acquired in May 1996. 44 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 1. ORGANIZATION AND BUSINESS--(CONTINUED) The Company owns a 58% non-controlling interest in PULS ('PULS'), a regional television station based in Berlin, Germany. The Company owns a 50% interest (non-voting profit participation) in Franken Funk & Fernsehen GmbH ('FFF'), which owns 74.8% of a regional television station in Nuremberg, Germany, NMF Neue Medien Franken GmbH and Co., K.G. ('NMF'). The Company has a 49% non-controlling interest, and a 50% economic interest in Sachsen Funk und Fernsehen GmbH, Germany ('SFF') which owns a 33.33% equity interest in Sachsen Fernsehen Betriebs KG, which operates regional television stations in Leipzig and Dresden, Germany. The partners of PULS have retained a financial advisor and are currently in discussions with potential investors in PULS. Such an investor would be expected to acquire a significant equity interest in PULS and assume responsibility for PULS' operations. Such an investment would be anticipated to significantly dilute the Company's equity investment in PULS and to decrease the Company's future funding obligations to PULS. Such investment also could result in a material reduction of the net realizable carrying value of the Company's equity investment in PULS, which was $12,591,000 as of December 31, 1996, and a corresponding charge against the Company's earnings in the period incurred. Regardless of whether a transaction with a strategic investor is consummated, there is no assurance that the Company may not have to take a reduction of all or a portion of the net realizable carrying value of PULS. A reduction of the net realizable carrying value of PULS, or other factors, might cause the Company to reduce all or part of the net realizable carrying value of the Company's investments in FFF and SFF, which were $6,069,000 and $1,561,000, respectively, as of December 31, 1996. As of December 31, 1996 and as of the date of the financial statements, the Company does not consider the value of PULS, FFF and SFF to be impaired, based on discussions with potential investors to date. In Poland, the Company together with the Polish media group ITI, formed TVN Sp.z.o.o. ('TVN'). ITI holds 67% of the equity in TVN and the Company holds the remaining 33%. In February 1997, TVN was awarded television broadcast licenses for Northern Poland and the cities of Warsaw and Lodz in Poland. Also in 1996, TVN exercised an option pursuant to which it acquired a 49% interest in Televisja Wisla Sp.z.o.o. ('TV Wisla'), which operates a television station in southern Poland. In Ukraine, the Company recently acquired a 50% interest in a group of companies (collectively, the 'Studio 1+1 Group'), which has the right through 2006 to broadcast programming and sell advertising on one of Ukraine's public television stations, UT-2. The Company's investment in the Studio 1+1 Group of $17,029,000, as of December 31, 1996, is classified in development costs in the accompanying financial statements. The Studio 1+1 Group has not had material operations through December 31, 1996. 2. PRO FORMA RESULTS OF ACQUISITIONS The pro forma effects of the Additional Nova TV Purchase, as if this transaction occurred at the beginning of 1995, are as follows:
1996 1995 -------- -------- Net revenues ($000).... $135,985 $98,919 Net loss ($000)........ (33,110) (21,260) Net loss per share..... (1.71) (1.45)
This pro forma information includes the effects of the amortization of goodwill related to the transaction, as well as interest expense associated with related borrowings. The operations of Videovox were not material in 1995 or 1996. 45 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 3. FINANCING OF OPERATING AND CAPITAL NEEDS In 1996, the Company raised cash contributions of $151,800,000 from a public offering of common stock, less underwriting costs and issue and other related expenses of approximately $8,177,000, from the issue of 5,520,000 shares of Class A Common Stock. In 1995, the Company raised cash contributions of $92,000,000 from a public offering of common stock, less underwriting costs and issue and other related expenses of approximately $5,426,000, from the issue of 4,000,000 shares of Class A Common Stock. In 1994, the Company raised cash contributions of $73,260,000 from shareholders, primarily from its initial public offering, which raised $76,475,000 from the issue of 5,462,500 shares of Class A Common Stock, less underwriting costs and issue and other related expenses of approximately $7,681,000. Proceeds from the above public offerings and other equity raised have been used to fund the Company's activities and to repay certain loans and advances from affiliates. The Company had cash of $78,507,000 and marketable securities of $2,896,000 at December 31, 1996 to enable it to finance its future activities. Dividends from Consolidated Subsidiaries and Unconsolidated Affiliates The Company conducts all of its operations through subsidiaries. Accordingly, the primary internal source of the Company's cash available for operations will ultimately be dividends and other distributions from its subsidiaries. Each of these subsidiaries was formed under the laws of, and has its operations in, a country other than Bermuda, the jurisdiction of the Company. In addition, each of the operating subsidiaries receives the majority of its revenues in the local currency of the jurisdiction in which it is situated. As a consequence, the Company's ability to obtain dividends or other distributions is subject to, among other things, restrictions on dividends under applicable local laws and foreign currency exchange regulations of the jurisdictions in which its subsidiaries operate. The laws under which the Company's currently operating subsidiaries and affiliates are organized provide generally that dividends may be declared by the partners or shareholders out of yearly profits subject to the maintenance of registered capital, required reserves and after the recovery of accumulated losses. In the case of the Company's Dutch and Netherlands Antilles subsidiaries, the Company's voting power is sufficient to compel the making of distributions. The Company's voting power is sufficient to compel Nova TV to make distributions. In the case of PRO TV, distributions may be paid from the profits of PRO TV subject to a reserve of 5% of annual profits until the aggregate reserves equal 20% of PRO TV's registered capital. A majority vote can compel PRO TV to make distributions. In the case of POP TV, the Company's voting power is not sufficient to compel the payment of dividends. There are no legal reserve requirements in Slovenia. In the case of Markiza TV, distributions may be paid from net profits subject to an initial reserve requirement of 10% of net profits until the reserve fund equals 5% of registered capital. Subsequently, the reserve requirement is equal to 5% of net profits until the reserve fund equals 10% of registered capital. The Company's voting power in Markiza TV is not sufficient to compel the distribution of dividends. In the case of PULS, the PULS Partnership Agreement provides that if profits are available for distribution, 66 2/3% of the partnership interest may require that 40% of such profits be placed in reserves until DM16,700,000 ($10,774,000) are reserved. All profits in excess thereof must be distributed. The agreement relating to FFF does not contain restrictions on distributions out of available profits. The laws of countries where the Company is developing operations contain restrictions on the payment of dividends. 46 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 3. FINANCING OF OPERATING AND CAPITAL NEEDS--(CONTINUED) General While losses from operating and development activities are expected to continue in 1997, management believes that the Company's liquidity and capital resources at December 31, 1996, including the proceeds of the 1996 Offering, potential corporate and local debt facilities, the financial commitments of local majority and minority shareholders or partners in its various operating entities, are adequate to fund existing operations through 1997. The Company believes that its ability to raise funding through the public and private equity and debt markets will provide funding for the Company's planned expansion in 1997. 47 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The significant accounting policies are summarized as follows: Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company's wholly-owned subsidiaries, and the accounts of Nova TV, PRO TV, POP TV, Videovox, Radio Alfa and 2002 Kft as consolidated entities, and reflect the interests of the minority owners of these companies. The accounts of PULS, FFF, SFF, Markiza TV and TVN, in which the Company has non-controlling ownership interests, are included in the accompanying consolidated financial statements as investments in unconsolidated affiliates under the equity method. The Company's investment in MobilRom is accounted for at the lower of cost or market value. Acquisitions have been accounted for using the purchase method. Cash and Cash Equivalents Cash and cash equivalents includes unrestricted cash in banks and highly liquid investments with maturities of less than three months when purchased. Investments in Marketable Securities The Company accounts for Investments in Marketable Securities under Statement of Financial Accounting Standards (SFAS) No.115 'Accounting for Certain Investments in Debt and Equity Securities'. In connection with the adoption of this pronouncement, debt and equity securities held by the Company that may be sold in response to changes in interest rates, prepayments, and other factors have been classified as available-for-sale. Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity (on an after tax basis). Gains and losses on the disposition of securities are recognized on the specific identification method in the period in which they occur. There were no significant realized or unrealized gains or losses as of December 31, 1996 and 1995. Revenue Recognition Revenues primarily result from the sale of advertising time and are recognized in the period in which advertising is aired. Barter Transactions Revenue from barter transactions (television advertising time provided in exchange for goods and services) is recognized as income when commercials are broadcast, and programming, merchandise or services received are charged to expense or capitalized as appropriate when received or used. Barter revenues of $6,354,000, $3,647,000 and $2,841,000 have been recognized for the years ended December 31, 1996, 1995 and 1994, respectively. The Company records barter transactions at the estimated fair market value of the production or services received. In cases where bartered programs can only be obtained through a barter agreement the Company values the barter at the value of the asset given up. In other cases where the Company has elected to enter into barter agreements as an alternate method of payment, strictly for economic reasons, the Company values the barter agreement at the value of the asset received. If merchandise or services are received prior to the broadcast of a commercial, a liability is recorded. Likewise, if a commercial is broadcast first, a receivable is recorded. At December 31, 1996 and 1995, barter 48 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) receivables were $361,000 and $587,000, and are included in accounts receivable in the accompanying consolidated balance sheets. Property, Plant and Equipment Property, plant and equipment is carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line and accelerated methods over the estimated useful lives of the related assets (Note 6). Assets Held Under Capital Leases Assets held under capital leases are accounted for in accordance with SFAS No. 13, 'Accounting for Leases', and recorded in Property, Plant and Equipment. The related liability is included in obligations under capital lease. Program Rights and Production Costs Program rights acquired by the Company under license agreements and the related obligations incurred are recorded as assets and liabilities when the license period begins, and the assets are amortized to expense using straight-line and accelerated methods based on the estimated period of usage, ranging from one to five years. Amortization estimates for program rights are reviewed periodically and adjusted prospectively. Program rights costs of $70,584,000 in 1996 and $44,896,000 in 1995 are shown net of amortization of $43,643,000 and $25,181,000 at December 31, 1996 and 1995, respectively. Payments made for program rights in which the license period has not begun before year end are classified as prepaid expenses and are $2,854,000 and $2,688,000 at December 31, 1996 and 1995, respectively. Production costs for self-produced programs are capitalized, and expensed when first broadcast except where the programming has potential to generate future revenues. When this is the case, production costs are capitalized and amortized on the same basis as programming obtained from third parties. Goodwill Goodwill represents the Company's excess cost over the fair value of net assets acquired and is being amortized on a straight-line basis over the estimated useful life of the assets. Amounts recognized to date have been amortized over periods ranging from 2 to 8 1/2 years from the original date of acquisition. During March 1995, the Financial Accounting Standards Board issued SFAS No. 121, 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of'. This statement establishes financial accounting and reporting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. This statement is effective for financial statements for fiscal years beginning after December 15, 1995 and was adopted by the Company in 1996. The effect of the adoption was not material. 49 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) License Acquisition Costs License acquisition costs reflect the excess of the Company's investment above the Company's share of net assets received from newly formed, consolidated entities and reflect the amounts paid to secure exclusive rights to the licenses. It is amortized over the lives of the related licenses which range from 5 to 10 years. License acquisition costs are reviewed for impairment whenever events or circumstances provide evidence that suggests that the carrying amount of license acquisition costs may not be recoverable. At December 31, 1996 and 1995, $4,777,000 and $4,777,000, respectively, has been capitalized and $854,000 and $54,000, respectively, has been amortized. Broadcast License Costs and Other Intangibles The costs of acquiring licenses to broadcast are capitalized and amortized over the life of the related license. As of December 31, 1996 and 1995, $1,756,000 and $1,804,000, respectively, has been capitalized in the accompanying consolidated financial statements related to the Company's 12 year broadcast license in the Czech Republic, and $534,000 and $392,000 has been amortized through December 31, 1996 and 1995, respectively. Other intangibles, which include the cost of acquiring software and other intangible assets, are capitalized and amortized over their estimated useful lives. At December 31, 1996 and 1995, $2,920,000 and $1,568,000, respectively, has been capitalized, and $1,045,000 and $615,000, respectively, has been amortized. Organization Costs The Company has capitalized $1,884,000 and $1,844,000 in costs incurred in connection with the organization and incorporation of consolidated subsidiaries at December 31, 1996 and 1995, respectively, which will be amortized over four years. Amortization of $950,000 and $507,000 has been provided through December 31, 1996 and 1995, respectively. Development Costs In the course of its activities the Company incurs external costs in connection with the development of new license opportunities for the Company. These costs are capitalized and shown as an asset on the balance sheet where separately identifiable. It is the Company's policy to account for these assets at the lower of cost or estimated realizable value. As part of an ongoing review of the valuation of such assets, management assesses their carrying value. If this review indicates that the assets will not be recoverable through potential future operations, the carrying values of these assets are reduced to their estimated recoverable value by the recording of an allowance. As of December 31, 1996 and 1995, the Company had incurred capitalizable costs of $20,101,000 and $14,500,000, respectively, which have been reduced by an allowance of $996,000 and $4,373,000, respectively. As a result of its review, management has determined that such assets are fairly stated at December 31, 1996 and 1995. Fair Value of Financial Instruments Effective December 31, 1995, the Company accounts for the Fair Value of Financial Instruments under SFAS No. 107, 'Disclosures about Fair Value of Financial Instruments'. To meet the reporting requirements of SFAS No. 107, the Company calculates the fair value of financial instruments and includes this additional information in the notes to financial statements when the fair value is different from book value of those financial instruments. When the fair value is equal to the book value, no additional disclosure is made. The Company uses quoted market prices whenever available to calculate 50 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) these fair values. When quoted market prices are not available, the Company uses standard pricing models for various types of financial instruments which take into account the present value of estimated future cash flows. At December 31, 1996 and 1995, the carrying value of all financial instruments (primarily loans payable and receivable) approximated fair value. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, 'Accounting for Income Taxes.' This statement requires a liability approach for measuring deferred taxes based on temporary differences between the financial statement and income tax bases of assets and liabilities existing at each balance sheet date using enacted rates for the years in which the taxes are expected to be paid or recovered. Deferred income taxes are provided on temporary differences between financial statement and taxable income. The primary sources of these differences are depreciation, amortization and capital lease payments. Foreign Currency Translation The Company has applied the provisions of SFAS No. 52 'Foreign Currency Translation' in translating the financial statements of its entities from German marks ('DM'), Czech korunas ('Kc'), Romanian lei ('ROL'), Slovenian tolars ('SIT'), Slovak korunas ('Sk'), Hungarian forints ('HUF'), Polish Zloty ('Zl') and Ukrainian Hryvna ('Hrn') to U.S. dollars. Transactions denominated in foreign currencies are recorded at the exchange rate in effect at the date of the transaction. The financial statements of Nova TV, POP TV, Markiza TV, Videovox, Radio Alfa, 2002 Kft, TVN and certain Studio 1+1 Group entities, which operate in economies that are considered non-highly inflationary, are measured using the local currency as the functional currency. Income and expense items are translated at average monthly rates of exchange. Gains and losses from currency translations of these affiliates are included in net earnings. Assets and liabilities of these affiliates are translated at the rates of exchange at the balance sheet date. The resultant translation adjustments are included as cumulative currency translation adjustment as a component of shareholders' equity. PRO TV and certain Studio 1+1 Group entities operate in economies qualifying as highly inflationary. Accordingly, non-monetary assets and liabilities are translated at historical exchange rates and monetary assets and liabilities are translated at current exchange rates. Translation adjustments are included in the determination of income. 51 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Year end exchange rates and average exchange rates for the respective periods are as follows:
INCOME STATEMENT BALANCE SHEET ----------------------------- --------------------------- YEAR ENDED AT DECEMBER 31, DECEMBER 31, --------------- ---------------- 1996 1995 MOVEMENT 1996 1995 MOVEMENT ------ ------ -------- ------ ------ -------- Czech koruna equivalent of $1.00........ 27.33 26.60 2.7% 27.21 26.57 2.4% German mark equivalent of $1.00......... 1.55 1.43 8.4% 1.50 1.44 4.2% Hungarian forint equivalent of $1.00.... 162 n/a n/a 151 n/a n/a Polish zloty equivalent of $1.00........ 2.88 n/a n/a 2.70 n/a n/a Romanian lei equivalent of $1.00........ 4,035 2,578 56.5% 3,204 2,402(1) 33.4% Slovak koruna equivalent of $1.00....... 31.90 n/a n/a 31.14 n/a n/a Slovenian tolar equivalent of $1.00..... 141.48 125.99 12.3% 136.45 125.99(2) 8.3% Ukrainian hryvna equivalent of $1.00.... 1.89 n/a n/a 1.83(3) n/a n/a
- ------------------ (1) Average exchange rate from December 1, 1995 through December 31, 1995 only. (2) Average exchange rate from December 15, 1995 through December 31, 1995 only. (3) Hryvna became the currency of Ukraine in September 1996. In the accompanying notes, $ equivalents of Kc, ROL, SIT, Sk, HUF, DM, Zl and Hrn amounts have been included in brackets at December 31, 1996 or 1995 rates, as applicable, for illustrative purposes only. Future amounts are shown at December 31, 1996 exchange rates. Stock-Based Compensation During October 1995, the Financial Accounting Standards Board issued SFAS No. 123, 'Accounting for Stock-Based Compensation'. This statement establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 encourages entities to adopt a fair value based method of accounting for stock compensation plans. However, SFAS No. 123 also permits the Company to continue to measure compensation costs under pre-existing accounting pronouncements. If the fair value based method of accounting is not adopted, SFAS No. 123 requires pro forma disclosures of net income (loss) and net income (loss) per common share in the notes to the financial statements. The Company has elected to provide the necessary pro forma disclosures beginning in 1996 (Note 11). Net Loss Per Share Net loss per share was computed by dividing the Company's net loss by the weighted average number of Common Shares (both Class A and Class B) and common share equivalents outstanding during the year ended December 31, 1996 and 1995. The impact of outstanding options and warrants has not been included in the computation of net loss per share, as the effect of their inclusion would be anti-dilutive. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements 52 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates. Recently Issued Accounting Standards In March 1997, the Financial Accounting Standards board issued SFAS No. 128, 'Earnings Per Share'. This statement establishes standards for computing and presenting earnings per share ('EPS'), replacing the presentation of currently required primary EPS with a presentation of Basic EPS. For entities with complex capital structures, the statement requires the dual presentation of both Basic EPS and Diluted EPS on the face of the statement of operations. Under this new standard, Basic EPS is computed based on weighted average shares outstanding and excludes any potential dilution. Diluted EPS reflects potential dilution from the exercise or conversion of securities into common stock or from other contracts to issue common stock and is similar to the currently required fully diluted EPS. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods, and earlier application is not permitted. When adopted, the Company will be required to restate its EPS data for all prior periods presented. The Company does not expect the impact of the adoption of this statement to be material to previously reported EPS amounts. Reclassifications Certain reclassifications were made to prior period amounts to conform to current period classifications. 53 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 5. RESTRICTED CASH Restricted cash at December 31, 1996 and 1995 is $2,749,000 and $4,216,000, respectively. Restricted cash at December 31, 1996 consists of (1) $1,600,000 of cash restricted in connection with DM 2,000,000 letter of credit issued on behalf of FFF ('FFF Letter of Credit') in relation to leasing commitments in that entity and (2) $1,149,000 held by the Romanian customs authority for imports into Romania. Restricted cash at December 31, 1995 consists of (1) $1,600,000 of cash restricted in connection with the FFF Letter of Credit, (2) $2,000,000 restricted in connection with an extended offer to purchase an entity in Hungary and (3) $616,000 pledged on behalf of a loan obtained by an affiliated entity in Romania. 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
DECEMBER 31, USEFUL ------------------ LIVES 1996 1995 ------ ------- ------- YEARS $000 $000 Land and buildings held under capital leases..................................... 25 19,803 17,899 Leasehold improvements....................... 4-15 3,894 3,873 Station machinery, fixtures and equipment.... 4-8 52,605 37,893 Other equipment.............................. 4-8 3,754 -- Construction in progress..................... -- 1,243 2,315 ------- ------- 81,299 61,980 Less--Accumulated depreciation............... (22,317) (10,281) ------- ------- 58,982 51,699 ------- ------- ------- -------
7. OTHER ASSETS Other assets consist of the following:
DECEMBER 31, -------------- 1996 1995 ----- ----- $000 $000 Current: Satellite transponder...................... 850 -- ----- ----- ----- ----- Long-term: Advances for technical equipment........... 3,970 2,591 Satellite transponder...................... -- 850 Other...................................... 523 337 ----- ----- 4,493 3,778 ----- ----- ----- -----
In June 1995 the Company, through CME Programming Services Inc., obtained leasehold rights for a 12 year period to a 33 Mhz transponder on the Eutelsat HB3 Satellite which the Company anticipates will be launched in the fourth quarter of 1997. The Company paid a deposit of $850,000 toward future transponder lease obligations. The annual charge for the lease is approximately $4.4 million, beginning after the launch of the satellite and lease obligations are guaranteed by CME. 54 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 8. INCOME AND CAPITAL TAXES PAYABLE (a) Provision for income taxes relates primarily to the profits of Nova TV.
DECEMBER 31, ------------------------- 1996 1995 1994 ------ ------ ----- $000 $000 $000 Current income taxes......................... 16,826 15,473 2,428 Deferred income taxes........................ (421) 867 903 ------ ------ ----- 16,405 16,340 3,331 ------ ------ ----- ------ ------ -----
Income taxes are provided on Nova TV profits, which cannot be offset against losses incurred in PRO TV, POP TV, Videovox, PULS, FFF, SFF, TVN and Markiza TV or against corporate costs incurred in other jurisdictions. The effective income tax rate in the Czech Republic is 39%, 41% and 42% for the years ended December 31, 1996, 1995 and 1994, respectively. Nova TV's net operating losses brought forward from 1993 were fully utilized to offset profits in 1994. These factors represent the difference between the Company's income tax charge and the federal rate of income tax applied to the Company's loss before tax. At the present time no income, profit, capital or capital gain taxes are levied in Bermuda and, accordingly, no provision for such taxes has been recorded by the Company. In the event that such taxes are levied, the Company has received an undertaking from the Bermuda Government exempting it from all such taxes until March 28, 2016. Deferred income tax assets relate to the following timing differences:
DECEMBER 31, ---------------- 1996 1995 ------ ------ $000 $000 Provisions against receivables............... 1,045 891 Accelerated amortization of programming licenses................................... 856 529 Other........................................ 12 30 ------ ------ 1,913 1,450 Valuation allowance on deferred tax asset.... (1,045) (891) ------ ------ 868 559 ------ ------ ------ ------
A full valuation allowance is provided for provisions against receivables in 1996 and 1995 due to the delay in obtaining a tax deduction for such amounts in the Czech Republic. Deferred income tax liabilities relate to the following timing differences:
DECEMBER 31, ---------------- 1996 1995 ------ ------ $000 $000 Depreciation and amortization................ 1,491 1,503 Lease payments............................... 382 595 Other........................................ 269 219 ------ ------ 2,142 2,317 ------ ------ ------ ------
Net operating losses incurred in 1995 and 1996 in Germany, Romania, Slovenia, Slovakia, Poland and Hungary are available for offset against taxable income in those countries in the future. Net 55 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 operating losses experienced in these jurisdictions in certain years may not be fully available for offset against taxable income in the future in those countries. A valuation allowance has been provided for all net operating loss carryforwards as it is more likely than not, for a variety of reasons, including the uncertainties in the tax regimes, that they may not be utilized. (b) Capital Registration Tax Capital registration tax is payable on the contribution of capital to certain subsidiaries of CME. It has been included within corporate expenses for 1996 and 1995, as it is not dependent upon the level of income, in the amount of $809,000 and $1,375,000, respectively. 9. SHAREHOLDER LOAN On September 9, 1994, the Company borrowed $6,500,000 from Ronald S. Lauder (the 'Principal Shareholder Loan'), who is also a director of the Company. The Principal Shareholder Loan was evidenced by an unsecured Term Promissory Note due September 30, 1996, bearing interest at a rate of 10% per annum. In addition, Mr. Lauder received warrants to purchase 250,000 shares of Class A Common Stock at an exercise price of $16.10 per share. These warrants are exercisable for five years, commencing one year after their date of issue. Concurrent to the equity offering of 4,000,000 shares of Class A Common Stock on November 9, 1995 (the '1995 Offering'), Mr. Lauder purchased 297,346 shares of Class A Common Stock at the price to the public in the 1995 Offering, less underwriting discounts and commissions, in exchange for the Principal Shareholder Loan of $6,500,000. Between October 2 and October 21, 1996 the Company borrowed up to $14,000,000 from Mr. Lauder (the 'Lauder Loan'). The Lauder Loan was evidenced by an unsecured Term Promissory Note due the earlier of (1) a public offering or (2) October 1, 1998, bearing interest at a rate of LIBOR plus 2%. This loan was repaid on November 14, 1996. In addition, Mr. Lauder received warrants to purchase 70,000 shares of Class A Common Stock at an exercise price of $30.25 per share. The warrants are exercisable for four years commencing one year after their date of issue. 56 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 10. LOAN AND OVERDRAFT OBLIGATIONS Group loan obligations and overdraft facilities consist of the following:
DECEMBER 31, ---------------- 1996 1995 ------ ------ $000 $000 CME B.V. Ceska Sporitelna Loan........................ (a) 16,464 -- Tele 59 Loan................................. (b) 903 -- Nova TV Long-term investment loan.................... (c) 6,586 8,877 Line of credit loan.......................... (d) -- -- PRO TV Operating bank loan.......................... (e) -- 250 Operating bank loan.......................... (e) -- 300 Line of credit............................... (f) 1,709 -- Long term loan............................... (g) 2,758 -- Overdraft facilities......................... (h) 969 -- POP TV Unsecured short-term loans................... (i) 205 -- ------ ------ 29,594 9,427 Less current maturities...................... (7,106) (2,661) ------ ------ 22,488 6,766 ------ ------ ------ ------
CME B.V. (a) On August 1, 1996, the Company entered into the Additional Nova TV Purchase for the purchase of CS's 22% economic interest and virtually all of CS's voting rights in Nova TV for a purchase price of Kc 1 billion ($36,590,000). The Company has also entered into a loan agreement with CS to finance 85% of the purchase price. The remainder of the purchase price of Kc150,000,000 ($5,488,000) was paid by the Company on November 15, 1996. The CS loan was drawn in August 1996 and will be drawn in April 1997 in the amounts of Kc450,000,000 ($16,464,000) and Kc400,000,000 ($14,636,000), respectively, to fund purchase payments due at those times, and the loan bears an interest rate of 12.9% annually. Quarterly repayments on the loan are required in the amount of Kc22,500,000 ($823,000) during the period from November 1997 through November 1998, Kc42,500,000 ($1,555,000) during the period from February 1999 through August 2002, and Kc20,000,000 ($732,000) during the period from November 2002 through November 2003. (b) The Company entered into a loan agreement on November 21, 1996 with Tele 59 to finance a loan to Tele 59 from SKB banka d.d (SKB). The principal amount of this loan is DM1,400,000 ($903,000). Under this agreement, the Company will reimburse Tele 59 for payments made to SKB and Tele 59 is required to repay the loan from the Company with any income received. The loan bears interest at 7.8% per annum. Nova TV (c) The long-term investment loan was obtained from CS bank, an investor in Nova TV, to be used for the purchase of equipment. The loan originally had a maximum facility of Kc300,000,000 ($10,977,000) which was fully utilized at December 31, 1994. Principal payments of Kc60,000,000 ($2,195,000) are 57 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 10. LOAN AND OVERDRAFT OBLIGATIONS--(CONTINUED) due on this loan each year and were paid accordingly in 1995 and 1996. The loan bears interest at 2.5% above the bank's prime rate (prime rate currently 12.5%). The long-term investment loan is secured by the Nova TV's equipment, vehicles and 50% of its receivables. (d) The line of credit loan, also obtained from CS bank, has a maximum facility of Kc250 million ($9,147,000) bearing interest of PRIBOR plus 0.5%. This facility was unutilized at December 31, 1995 and 1996. The line of credit is secured by the remaining 50% of receivables. PRO TV (e) In exchange for certain assets, PRO TV assumed two loans from an affiliated entity, payable to Tiriac Bank, which is partially owned by a PRO TV investor. These loans were repaid in 1996. (f) The line of credit, obtained from Tiriac Bank, provides a maximum facility of $2,000,000 bearing interest at 6 month LIBOR plus 5%. This line of credit is substantially repayable by July 31, 1997 and is secured by assets with a book value of $2,575,000 (g) The long-term loan, also obtained from Tiriac Bank, has a maximum facility of $4,000,000, bearing interest at 6 month LIBOR plus 5%. This loan is payable in monthly installments of $83,500 beginning July 31, 1997 through June 30, 2001, the final installment being $75,500. The loan is secured by assets representing $3,357,000 and 70% of the assets purchased with the loan up to a value of $2,800,000. (h) Overdraft facilities are either secured by cash balances in lei or are unsecured and are due within 1997. POP TV (i) The unsecured short-term loans consist of three separate facilities which bear interest of Consumer Price Index plus 12%, three months' arithmetical average of Slovene retail price increase ('TOM') plus 21%, and TOM plus 18%. At December 31, 1996, maturities of debt are as follows:
TOTAL $000 ------ 1997.... 7,106 1998.... 6,607 1999.... 9,416 2000.... 6,465 ------ 29,594 ------ ------
58 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 11. STOCK OPTION PLAN The Company adopted the 1994 Stock Option Plan in 1994 and the 1995 Stock Option Plan in August 1995. Under the 1994 Stock Option Plan, the Compensation Committee is authorized to grant options for up to 900,000 shares of the Company's Class A Common Stock. Under the 1995 Stock Option Plan the Compensation Committee is authorized to grant options for up to 1,200,000 shares of the Company's Class A Common Stock. The Stock Option Plans allow grants to consultants and non-affiliated directors. The maximum term of the options granted under the Stock Option Plans is ten years. Options granted may be either incentive stock options under the Internal Revenue Code of 1986, as amended (the 'Code'), or non-qualified stock options. Under the Stock Option Plans, non-affiliated directors are automatically granted each year options to purchase 10,000 shares of Class A Common Stock. The Compensation Committee has granted substantially all options to purchase the 900,000 shares of Class A Common Stock created by the 1994 Stock Option Plan and 851,620 shares of Class A Common Stock under the 1995 Stock Option Plan. The 1995 Stock Option Plan includes options to purchase 117,000 shares of Class A Common Stock granted to the President and Chief Executive Officer of the Company and 23,900 shares of Class A Common Stock granted to the Vice President-Finance and Chief Financial Officer. Under both plans the option exercise price equals the stock's market price on date of grant. The 1994 plan options vest after two years and expire after ten years. The 1995 plan was revised in February 1997 so that options granted under this plan will vest after two years and will expire after ten years. This change will be applied retrospectively and the following tables have been prepared under the revised 1995 plan. A summary of the status of the Company's two stock option plans at December 31, 1996 and 1995 and changes during the years is presented in the table and narrative below:
1996 1995 ----------------------------------------- ----------------------------------------- WTD. AVG. WTD. AVG. EXERCISE OPTION EXERCISE OPTION SHARES PRICE PRICE $ SHARES PRICE PRICE $ --------- ------------ ------------ --------- ------------ ------------ Outstanding at start of year......... 1,049,600 13.81 0.20-20.00 354,500 6.10 0.20-14.00 Granted........ 636,800 21.51 20.75-21.75 756,600 16.44 14.00-20.00 Exercised...... (139,644) 8.78 0.20-14.63 (55,000) 0.20 0.20 Forfeited...... (12,653) 20.00 20.00 (6,500) 14.63 14.63 --------- ------ --------- ------ Outstanding at end of year.. 1,534,103 17.41 0.20-21.75 1,049,600 13.81 0.20-20.00 --------- ------ --------- ------ --------- ------ --------- ------
At December 31, 1996 and 1995, 528,356 and 122,250 shares were exercisable, respectively. One of the Company's directors was awarded 25,000 options on August 3, 1995 which were granted outside of both the 1994 Amended and Restated Option Plan and the 1995 Stock Option Plan. Half of his shares vested six months after issue and the remainder after one year. The Company accounts for these plans under APB No. 25, under which no compensation cost is recognized for stock options granted to employees with an exercise price at or above the prevailing market price on the date of the grant. Had compensation cost for these plans been determined 59 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 consistent with the fair value approach required by SFAS No. 123, the Company's net loss and net loss per common share would increase to the following pro forma amounts:
YEAR ENDED DECEMBER 31, -------------------- 1996 1995 -------- -------- Net Loss ($000)................. As Reported (30,003) (18,736) Pro Forma (34,468) (20,197) Net Loss Per Common Share ($)... As Reported (1.55) (1.28) Pro Forma (1.78) (1.38)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for the grants made January 1, 1995, August 3, 1995, August 10, 1995, August 14, 1995, October 17, 1995, December 15, 1995, January 2, 1996 and August 1, 1996 respectively: risk-free interest rates of 7.84%, 6.21%, 6.23%, 6.28%, 5.76%, 5.53%, 5.30% and 6.36% ; expected dividend yields of 0% for each grant; expected lives of 4 years for all grants; expected stock price volatility of 47.6% for all grants. The effects of applying SFAS No. 123 in this pro forma disclosure may not be indicative of future amounts because SFAS No. 123 does not apply to stock options granted prior to January 1, 1995 and additional stock option grants are anticipated in future years. 12. COMMITMENTS AND CONTINGENCIES Litigation In July 1996, the Company, together with MMTV and Tele 59, entered into an agreement to purchase 66% of the shares of Kanal A, a private televison station in Slovenia ('the Kanal A Agreement') for $3,000,000. Scandinavian Broadcast Systems, S.A. ('SBS'), which purportedly has certain rights to the equity of Kanal A pursuant to various agreements, has challenged the validity of the Kanal A Agreement in a United Kingdom court. Both the Company and SBS have been granted injunctions by the United Kingdom courts preventing SBS, in the case of the Company, and the Company, in the case of SBS, from taking certain actions either to enforce such entity's claim to equity in Kanal A or to block the claim of the other entity to equity in Kanal A. The Company has instituted action in a Slovenian court requesting that courts in Slovenia resolve these claims. Payments made by the Company under these agreements totaled $1,000,000 and are classified in developments costs at December 31, 1996. Management believes these amounts will be collected, refunded or will result in an equity interest in Kanal A. The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. The Company is not presently a party to any such litigation which management reasonably expect could have a material adverse effect on its business or operations. 60 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 Ownership and Financial Commitments--Existing Entities The Company's ownership interests and financial commitments regarding existing entities are as follows: Nova TV Current financing requirements are being met by cash generated from the business. The Company does not anticipate that it will need to provide further financing. PRO TV At December 31, 1996, the Company had contributed approximately $20,214,000 of which $2,750,000 is a short term loan. The Company is obligated to pay an additional $536,000 to bring the paid in capital of PRO TV to $20,000,000. Additional funding may be provided to PRO TV, on a temporary basis, until such time as local debt financing can be obtained. Subsequent to December 31, 1996, the Company has funded $4,050,000 to PRO TV. The Company is entitled to 77.5% of the total profits of PRO TV, although the Company's partners hold options which, if exercised, would reduce the Company's stake of PRO TV's profits to not less than 66%. In addition, the Company is entitled to a one-time preferred dividend of approximately $468,000 from PRO TV related to certain reorganization costs of an affiliated entity. The Company would be entitled to receive a preferred dividend equal to any additional future re-organizational costs paid for by the Company. PRO TV is required to contribute 5% of net profits to a reserve fund until equal to at least 20% of share capital. UniMedia At December 31, 1996, the Company had contributed $3,600,000 for a 10% stake in MobilRom, a company which was awarded one of the mobile telecommunication licenses in Romania. The Company's investment in MobilRom is held by UniMedia which is owned 95% by the Company and 5% by Adrian Sarbu. UniMedia is obligated to contribute a further $8,400,000 to MobilRom by June 1997, bringing UniMedia's total contribution to $12,000,000, representing 10% of the equity capital of MobilRom. POP TV At December 31, 1996, the Company had funded approximately $28,196,000 to POP TV, MMTV and Tele 59, which consists of $9,600,000 as equity, $17,346,000 as a loan to POP TV and interest accrued on this loan of $1,250,000 at December 31, 1996. Further funding of the operations and capital needed for POP TV is expected to be obtained from local debt financing, cash generated from the business and additional funding by the Company. Additionally, local debt financing may be used to partly repay the loan from the Company. Subsequent to December 31, 1996, the Company has loaned an additional $1,500,000 to POP TV. PULS At December 31, 1996, the Company had contributed DM 77,661,000 ($50,104,000). Management estimates that DM11,000,000 ($7,097,000) in funding will be required for the first half of 1997 of which DM2,500,000 ($1,613,000) was funded since December 31, 1996. The Company's obligation to provide funding to PULS will be based on its decisions to participate in future capital calls. Funding beyond the percentage of ownership increases the Company's percentage of ownership and accordingly the Company's share of profits or losses. 61 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 FFF At December 31, 1996, the Company had contributed DM20,000,000 ($12,903,000). Management estimates additional funding for operating and capital needs in 1997 will be DM2,000,000 ($1,290,000). The Company has resolved to fund these operations in 1997 of which DM 860,000 ($555,000) has already been funded during the first quarter of 1997. The Company's obligation to provide funding to FFF will be based on its decisions to participate in future capital calls or loans. A partner in FFF is entitled to a one-time preferred distribution of DM 1,900,000 ($1,226,000) out of cumulative profits of FFF when the company has achieved net positive retained earnings. SFF At December 31, 1996, the Company had contributed DM4,350,000 ($2,806,000). Management estimates additional funding for operating and capital needs in 1997 will be DM3,000,000 ($1,935,000). The Company has resolved to fund these operations for 1997 of which DM 2,500,000 ($1,613,000) was funded in the first quarter of 1997. Radio Alfa At December 31, 1996, the Company had agreed to contribute Kc107,000,000 ($3,915,000) to Radio Alfa in the form of loans, a portion of which may be converted into a 21.7% equity interest in Radio Alfa subject to the approval of the Czech Radio and Television Council. At December 31, 1996, Kc101,400,000 ($3,710,000) had been contributed. In the first quarter of 1997 the remaining Kc5,600,000 ($205,000) was contributed. Further funding for operations and capital is expected to be obtained from cash generated from the business and additional funding provided by the Company. Slovak Republic At December 31, 1996, the Company had contributed $38,323,000 to Markiza TV. The Company is not required to provide any additional funding. It is anticipated that any further funding for the project will be obtained from local debt and cash generated from the business. The total funding of $38,323,000 was contributed as $9,000,000 in loans and $29,323,000 in equity. Poland In Poland, the Company has entered into an alliance with the Polish media group ITI, forming TVN Sp. z.o.o. ('TVN') which in May 1995 applied for broadcast licenses in Poland. At December 31, 1996 the licenses had not been formally awarded to TVN (See Subsequent Events Note 16). ITI holds 67% of the equity in TVN and the Company holds the remaining 33%. During 1996, TVN exercised an option to acquire a 49% interest in Telewizja Wisla Sp. z.o.o. ('TV Wisla'), which operates a television station in southern Poland. At December 31, 1995 the Company had contributed $1,650,000 to TVN. During 1995 and 1996, the Company contributed an aggregate of $7,705,000 in equity to an affiliated company of TVN. The Company is obligated to contribute an additional $645,000 to this affiliate. These amounts are classified as investments in Unconsolidated Affiliates at December 31, 1996. At December 31, 1995, the Company's investment in Poland was classified as development costs. The final funding requirements for the Polish project have not been agreed with ITI but it is management's intention that the Company will fund the project to approximately $40,000,000, with the remainder of the project funding to be provided by local bank debt. At December 31, 1996, the Company had contributed $11,500,000 to the Polish operations. Since December 31, 1996, the Company has advanced an additional $1,555,000. 62 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 Ukraine In September 1996 the Company entered into an agreement to acquire a 50% equity interest in the Studio 1+1 Group. At December 31, 1996 the Company has contributed $17,029,000 to acquire this equity interest. In the first quarter of 1997 the Company contributed $2,000,000 as a loan. It is anticipated that the project will require further funding of up to $3,000,000 in 1997 which will be made through loans. The remainder of the funding required for the Studio 1+1 Group is anticipated to be raised through its operations. The Studio 1+1 Group has the right, pursuant to a ten-year television broadcast license held by a Ukrainian-based member of the Studio 1+1 Group, to broadcast programming and sell advertising on UT-2. Competitors and others opposed to the award of the license have indicated a possibility of legal or administrative actions to challenge the license. However, the Company believes that the grant of the license would be upheld. There can be no assurance, however, as to the outcome of such proceedings, if initiated. Videovox Management anticipate that any future funding requirements for Videovox will be met by cash generated from the business. Licenses The Company has no reason to believe that the licenses for stations will not be renewed. However, no statutory or regulatory presumption exists for the current license holder, and there can be no assurance that licenses will be renewed upon expiration of their initial terms. The failure of any such licenses to be renewed may adversely affect the results of the Company's operations. Ownership and Financial Commitments--Future Expansion The Company's ownership interest and financial commitments regarding entities to be considered for future expansion are as follows: Hungary The Company owns 95% of the equity of 2002 Kft., which was awarded a local microwave (MMDS) license in Budapest. The Company's business plan contemplates commencing broadcast operations in Hungary in 1997. 2002 Kft. has signed program contracts or deal memos which call for future payments of approximately $8,900,000 in future periods. At December 31, 1996, approximately $420,000 of program payments had been made. If the Company's Hungarian license bid is unsuccessful, management believes that the program library from these contracts or deal memos will be realised in Hungary through various possible business arrangements or existing program contracts and deal memos may be re-negotiated. Other potential commitments The Company is pursuing additional broadcast development opportunities in other areas. In some of these countries and regions, the Company has entered into preliminary understandings with local strategic and financial partners to seek television broadcast licenses from the local government authorities. 63 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 Currency exchange rate fluctuation The Company generates most of its revenues in German marks ('DM'), Czech korunas ('Kc'), Slovenian tolars ('SIT'), Romanian lei ('ROL'), Slovak korunas ('Sk') Polish zloty ('Zl'), Ukrainian hryvna ('Hrn') and Hungarian forints ('HUF') and incurs expenses in those currencies, as well as in British pounds and U.S. dollars. In addition, certain expenses, primarily for programming, are incurred in U.S. dollars, and certain of the Company's capital and operating commitments are in foreign currencies. Fluctuations in the value of foreign currencies may cause U.S. dollar translated amounts to change in comparison with previous periods. The Company has not hedged against fluctuations in foreign currency rates. Due to the number of currencies involved, the constantly changing currency exposures and the fact that all foreign currencies do not fluctuate in the same manner against the U.S. dollar, the Company cannot anticipate the effect of exchange rate fluctuations on its financial condition. Pension and other post-retirement benefits The Company has no obligation to provide pension and other post-retirement benefits. Station Programming Rights Agreements The Company had programming rights commitments for $43,876,000 and $13,179,000 in respect of future programming which includes contracts signed with license periods starting after December 31, 1996 and 1995, respectively. Lease Commitments In 1994 Nova TV purchased part of the buildings it currently occupies and uses for its Prague television headquarters through a capital lease transaction with a bargain purchase option with an affiliated entity from which it had previously rented the property under the terms of an operating lease. In accordance with the decision to purchase the property, the Company will continue to make quarterly fixed and variable payments until the loan obligation on the property has been repaid at which point title of the property will be transferred to Nova TV. In accordance with the lease agreement, Nova TV must also pay certain taxes, expenses and other amounts. During November and December 1995, POP TV entered into 10 capital leases on vehicles for employees accounted for as capital leases. Minimum future obligations under capital leases, including interest, are expected to be as follows:
PAYMENTS DUE $000s - ---------------------------------------- ------- 1997.................................... 4,030 1998.................................... 4,023 1999.................................... 3,940 ------- 11,993 Less: Amounts representing interest..... (3,079) ------- Total................................... 8,914 Less current maturities................. (1,794) ------- 7,120 ------- -------
For the fiscal years ended December 31, 1996, 1995 and 1994, the Company paid aggregate rent on all facilities of $1,776,000, $340,000 and $2,430,000, respectively. Future minimum lease payments at December 31, 1996 for noncancelable operating leases with remaining terms in excess of one year aggregate $3,564,000, and are payable as follows: 1997--$1,129,000; 1998-- $700,000; 1999--$486,000; 2000--$414,000; 2001--$192,000; 2002 and thereafter in the aggregate--$643,000. 64 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 13. RELATED PARTY TRANSACTIONS Contributed Services Affiliates controlled by certain shareholders of the Company provide various administrative services for the Company and its predecessors. Amounts charged for the years ended December 31, 1996, 1995 and 1994, were $88,000, $357,000 and $733,000, respectively, and are included in corporate operating costs and expenses. Amounts due from Unconsolidated Affiliates During 1996, the Company made payments for programming, goods and services and incurred costs on behalf of unconsolidated affiliates which totaled $1,066,000 and are classified as amounts due from unconsolidated affiliates in the accompanying consolidated balance sheets. These amounts are due from TVN, Markiza TV, and PULS, and certain of the amounts will be applied toward future capital contributions to these entities. Advances to Affiliates The Company has ongoing business relations with television and radio service providers owned by the other equity holders in the various broadcast operations, some of which are the only service providers in their respective field; affiliation agreements, whereby funds are advanced to license holders for expenses to be incurred on behalf of the Company and repaid from advertising sales from regional windows, and has agreed to provide funding as part of the original purchase agreement to license holding companies, as well as to pay related party companies for services rendered by the General Directors. Under affiliate agreements at December 31, 1995, the Company and POP TV had advances to affiliates of $543,000 and $66,000, respectively. At December 31, 1996, PRO TV and POP TV had advances to affiliates under affiliation agreements which total $735,000 and $354,000, respectively. At December 31, 1996 and 1995, PRO TV had $692,000 and $297,000, respectively, of advances to affiliates for future services to be provided. At December 31, 1996, PRO TV and POP TV had advances to affiliates related to financing arrangements to license holders which totaled $1,399,000 and $903,000, respectively. These amounts are to be repaid to the Company from the license holding companies. Loans to Affiliates Upon the initial contribution to the broadcast operations, the Company has, at times, financed the other equity holders' capital contributions into the broadcast operations, entered into certain business arrangements which are beneficial to the broadcast operation, and provided funding to the broadcast operations through loans. During 1995, the Company had contributed $2,000,000 in share capital to PRO TV on behalf of Adrian Sarbu, which was outstanding at December 31, 1996 and 1995. Also during 1995, the Company made a $1,302,000 loan to InterMedia in order to finance InterMedia's purchase of a majority equity interest in a construction company owning PRO TV's television broadcast station which was outstanding at December 31, 1996 and 1995. During 1996, the Company entered into an agreement to lend the General Director of Nova TV funds totaling $5,200,000 to finance his purchase of interests in CET 21 in order to increase his ownership in CET 21 to 60.0% (Note 16). During 1996, the Company provided a series of loans to Markiza TV as part of the funding to the project. At December 31, 1996, $9,224,000 in loans were due from Markiza TV. The loans bear an interest of 6% per annum and are due in 2001. In 1995, the Company had a loan to Radio Alfa of Kc79,000,000 ($2,970,000). In 1996, such loans eliminate in consolidation. 65 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 Advances from Affiliates From time-to-time, the Company has received financing from its majority shareholder, Ronald S. Lauder, and services from related party affiliates and has incurred charges under affiliation agreements and employment agreements. In addition, during the initial start up of a particular station, the Company may owe amounts to the other shareholders in connection to various purchase agreements. Prior to 1995, $7,216,000 was advanced by R.S. Lauder, Gaspar & Co., LP to fund the acquisition of the Nuremberg Station, certain development expenses of PULS and corporate overhead. The total amount of this advance was repaid prior to December 31, 1995. These amounts were non interest bearing. Amounts outstanding at December 31, 1996 and 1995 related to affiliates who provide various administrative services for the Company were $22,500 and $271,000, respectively, and are included in advances from affiliates in the accompanying consolidated balance sheets. Interest of $68,000, $565,000 and $757,000 was charged to income in 1996, 1995 and 1994, respectively, in relation to these loans and the Principal Shareholder Loan (refer to Note 8). At December 31, 1995, interest of $116,000 remained unpaid and is included in Advances from Affiliates in the accompanying consolidated balance sheet. The Company owed $1,766,000 and $450,000 to the other equity holders in PRO TV and POP TV at December 31, 1995 in connection with the original purchase agreements for these entities for shares or assets purchased. At December 31, 1996, PRO TV and POP TV owed $193,000 and $385,000, respectively, under affiliation agreements. At December 31, 1995, POP TV owed $84,000 under affiliation agreements. 66 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 14. SUMMARY FINANCIAL INFORMATION FOR PULS, MARKIZA TV AND FFF
AS AT ------------------------------------------------------- DECEMBER 31, 1996 DECEMBER 31, 1995 --------------------------------- ----------------- PULS MARKIZA TV FFF PULS FFF ------- ---------- ------- ------- ------ $000 $000 $000 $000 $000 ------- ---------- ------- ------- ------ Current assets............. 3,235 10,896 2,694 6,938 2,538 Non-current assets......... 12,260 28,783 2,105 15,971 3,308 Current liabilities........ (3,996) (6,635) (1,270) (5,678) (1,410) Non-current liabilities.... (6,305) (9,222) (11,923) (9,081) (9,526) ------- ---------- ------- ------- ------ Net assets (liabilities)... 5,194 23,822 (8,394) 8,150 (5,090) ------- ---------- ------- ------- ------ ------- ---------- ------- ------- ------ FOR THE YEARS ENDED ------------------------------------------------------- DECEMBER 31, 1996 DECEMBER 31, 1995 --------------------------------- ----------------- PULS MARKIZA TV FFF PULS FFF ------- ---------- ------- ------- ------ $000 $000 $000 $000 $000 ------- ---------- ------- ------- ------ Net revenues............... 3,248 7,462 4,736 3,371 4,410 Operating loss............. (18,812) (3,712) (3,585) (24,387) (5,058) Net loss................... (18,785) (4,230) (3,823) (24,204) (6,027)
The Company's share of the losses of PULS, Markiza TV and FFF accounted for by the equity method were $10,279,000, $3,401,000 and $1,949,000, respectively, for the year ended December 31,1996 (excluding $1,543,000 of goodwill amortization in respect of PULS) and license acquisition costs amortization of $182,000 in respect of Markiza TV. 15. STOCK COMPENSATION CHARGE Under the terms of the Company's contracts with its former President, the Company issued 454,703 shares of Class A Common Stock to a trust nominated by him. Ownership of 194,873 shares had vested by December 31, 1994. Upon the former President's departure in August 1995, 194,872 shares remained unvested. The Company and its former President agreed that 18,000 of these unvested shares would vest on December 31, 1996 and the remaining 176,872 shares were forfeited by the former President. In the year ended December 31, 1995, $858,000 was recognized as the current expense to account for the vesting of 64,958 shares in 1995 under the original plan and for the recognition of the 18,000 unvested shares, which no longer required additional services in order to vest. The deferred compensation charge related to the remaining unvested shares of $2,476,000 was recognized as treasury stock, and the treasury stock was retired in 1996. In addition, the Company granted 203,000 options to officers and employees with an exercise price below market price in the year ended December 31, 1994. The above transactions have resulted in stock compensation charges of $0, $858,000 and $5,833,000 and in the years ended December 31, 1996, 1995 and 1994, respectively. 16. SUBSEQUENT EVENTS 1997 Nova TV Purchase In March 1997, the Company (CME) acquired an additional 5.2% interest in Nova TV as a result of retirement of a $5.2 million loan in exchange for such interest (the '1997 Nova TV Purchase'). The Company is in the process of registering the 1997 Nova TV purchase pursuant to Czech law. On an 67 CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 16. SUBSEQUENT EVENTS--(CONTINUED) ongoing basis, after giving effect to the 1997 Nova TV Purchase, the Company is entitled to 93.2% of the total profits of Nova TV and has 91.2% of the voting power in Nova TV. Stock Options Since December 31, 1996, 10,335 stock options for Class A Common Stock were exercised at prices of $14.00--$20.00. 68 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To IA TV Beteiligungsgesellschaft mbH & Co. Betriebs-KG: We have audited the accompanying balance sheet of IA TV Beteiligungsgesellschaft mbH & Co. Betriebs-KG (a Limited Partnership organized under German law) as of December 31, 1995 and 1996, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IA TV Beteiligungsgesellschaft mbH & Co. Betriebs-KG as of December 31, 1995 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with United States generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As described in Note 3 to the financial statements, the Partnership has incurred significant operating losses during the years 1994 through 1996, and is dependent upon additional capital to fund its operations. These factors raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amount and classification of liabilities that might result should the Partnership be unable to continue as a going concern. ARTHUR ANDERSEN Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft mbH March 5, 1997 Berlin, Germany 69 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG BALANCE SHEET AS OF DECEMBER 31, 1996 AND 1995
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents....................... 1,721 3,015 Accounts receivable............................. 1,018 662 Program rights costs............................ 37 441 Value-added tax receivables..................... 287 534 Other receivables (Note 5)...................... 1,724 2,727 Prepaid expenses................................ 116 43 Contribution receivable......................... 112 2,500 ------------ ------------ Total current assets......................... 5,015 9,922 ------------ ------------ PROPERTY, PLANT & EQUIPMENT, including equipment held under lease, net (Note 6).................. 16,653 20,280 ------------ ------------ BROADCAST LICENSE COSTS, net...................... 44 55 ------------ ------------ OTHER INTANGIBLE ASSETS, net (Note 7)............. 2,306 2,504 ------------ ------------ Total assets................................. 24,018 32,761 ------------ ------------ ------------ ------------ LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Accounts payable and accrued liabilities (Note 8)........................................... 5,603 7,337 Duties and other taxes payable.................. 457 364 Related party payables.......................... 132 419 ------------ ------------ Total current liabilities.................... 6,192 8,120 ------------ ------------ NON CURRENT LIABILITIES: Capital lease obligation........................ 4,117 6,125 Deferred income (Note 9)........................ 5,657 6,861 ------------ ------------ Total non current liabilities................ 9,774 12,986 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 10) PARTNERS' CAPITAL: Contributed Capital............................. 135,575 111,000 Accumulated deficit............................. (127,523) (99,345) ------------ ------------ Total Partners' capital...................... 8,052 11,655 ------------ ------------ Total liabilities and partners' capital...... 24,018 32,761 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of this balance sheet. 70 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 TDM TDM ------- ------- REVENUES: Advertising.......................................... 4,872 4,847 ------- ------- STATION EXPENSES: Amortization of programming rights................... (652) (4,375) Depreciation of station equipment.................... (4,056) (3,846) Other operating costs and expenses................... (7,544) (13,321) Selling, general and administrative expenses......... (20,838) (18,374) ------- ------- Operating loss.................................... (28,218) (35,069) ------- ------- INTEREST AND OTHER INCOME.............................. 581 1,115 INTEREST EXPENSE....................................... (541) (851) ------- ------- 40 264 ------- ------- Net loss.......................................... (28,178) (34,805) ------- ------- ------- -------
The accompanying notes are an integral part of this statement. 71 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG STATEMENT OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Partners' capital, brought forward................ 11,655 8,960 Capital contributions during the year............. 24,575 37,500 Net loss for the year............................. (28,178) (34,805) ------------ ------------ Partners' capital, carried forward................ 8,052 11,655 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of this statement. 72 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 TDM TDM -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss)................................................ (28,178) (34,805) Adjustments to reconcile net (loss) to net cash used in operating activities: Depreciation and amortization.......................... 4,708 8,222 Increase in assets and liabilities: Accounts receivable.................................. (356) 193 Prepaid expenses..................................... (73) (21) Accounts payable and accrued liabilities............. (1,734) 1,360 Program and film rights.............................. (248) (3,368) Related party liabilities............................ (287) (158) Value-added tax receivables.......................... 247 464 Other receivables.................................... 1,003 1,392 Other payables....................................... 93 (1,145) -------- -------- Net cash used in operating activities.................. (24,825) (27,866) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditure....................................... (1,637) (1,295) Additions to other intangible assets...................... (240) (2,516) Disposals................................................. 157 1,039 Deferred income--investment grants and allowances......... 296 1,030 -------- -------- Net cash used in investing activities..................... (1,424) (1,742) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft............................................ 0 (864) Partners' capital contributions, net...................... 26,963 35,000 Capital lease payments.................................... (2,008) (1,857) -------- -------- Net cash provided by financing activities................. 24,955 32,279 -------- -------- Net decrease/increase in cash and cash equivalents.......... (1,294) 2,671 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 3,015 344 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD.................... 1,721 3,015 -------- -------- -------- --------
The accompanying notes are an integral part of this statement. 73 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 1. ORGANIZATION AND BUSINESS IA TV Beteiligungsgesellschaft mbH & Co. Betriebs-KG, Berlin ('IA Fernsehen' or 'the Partnership'), set up under German law as a Limited Partnership, was established in 1993. The management of the Partnership is carried out by IA TV Beteiligungsgesellschaft mbH, Berlin ('IA TV'), the sole general partner of IA Fernsehen. According to the Partnership agreement the general partner is not required to contribute any capital nor does he participate in Partnership profits or losses. IA TV has a supervisory board which monitors the activities of management. IA Fernsehen principally broadcasts television programs in the Berlin/Brandenburg area of Germany. Until the third quarter of 1995 this included the purchase and airing of acquired program rights for films and series. The Partnership limited the acquisition of such rights and has since been pondering more strongly on the broadcasting of self produced news and entertainment features with regional content. In May 1996 the station was relaunched and is since then broadcasting under the name of 'Puls Tv'. The Partnership was awarded the first private regional television license in Germany on August 4, 1993 from the Media Authority of Berlin-Brandenburg. The license is limited to a period of 7 years commencing from the date of broadcasting which was November 28, 1993. The license granted to the Partnership is, under the terms of the license, renewable. However, no statutory or regulatory presumption exists for the current license holder, and there can be no assurance that the Partnership will receive a renewal upon expiration of the initial term of the license. 2. FINANCING OF OPERATING AND CAPITAL NEEDS Under the provisions of the Partnership Agreement the limited Partners were required to contribute fixed capital of DM 10 mio. and variable capital of DM 90 mio. The total amount of fixed and variable capital of DM 100 mio. was called up as of June 30, 1995. According to the bylaws of the Partnership Agreement the partners may decide with a majority of 75 % of votes cast to call variable capital amounts exceeding DM 90 mio. The obligation and the right to contribute in such a case shall exist only for those limited partners who have voted in favour of a corresponding resolution or who give notice in writing to the General Partner within one month following such resolution that they will participate in the increase. The contributions shall be made in proportion to the share in fixed capital of the limited partners participating in the increase. In response to the capital needs of the Partnership the partners have resolved the following capital calls in 1996 that were mainly supported by one major partner:
TDM ------ March 26, 1996........ 10,000 June 19, 1996......... 2,500 August 6, 1996........ 2,500 August 28, 1996....... 2,000 September 17, 1996.... 2,500 September 17, 1996.... 575 November 12, 1996..... 4,500 ------ 24,575 ------ ------
74 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 3. GOING CONCERN Since its inception the Partnership has incurred losses of DM 127.5 mio. The initially agreed fixed and variable capital of DM 100 mio. as well as additional capital of DM 35.5 mio. was nearly used until year-end 1996. Until December 31, 1997, losses are projected to reach DM 15 mio. to DM 20 mio. Due to the amortization of liabilities and capital expenditures the necessary funding for 1997 is beyond DM 15 mio. as well and therefore exceeds the cash presently available and resolved capital calls. To maintain the operation as a going concern until year-end 1997 further capital calls and funding are necessary. Presently the Partnership is unable to fulfil its financial commitments. On September 4, 1996, the Partnership engaged an investment bank to seek a strategic investor who may acquire a share in the Partnership. Meanwhile the Partnership is provided with Partner's capital on a day to day basis. The factors described in the preceding paragraph raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amount and classification of liabilities that might result should the Partnership be unable to continue as a going concern. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Program and Film Rights The book value of film licences reduced from TDM 441 as of December 31, 1995 to TDM 37 as of December 31, 1996. Since the change of the program structure in 1995 the Partnership limited the purchase of film rights. In 1996 the Partnership changed its accounting policy for program and film rights from capitalization and amortization based upon the actual airing to directly expensing the costs for program rights. Production Costs Production costs for self-produced programs are recorded as operating costs. Property, Plant and Equipment and Intangible Assets Fixed and intangible assets are carried at cost and are depreciated on a straight line basis using the shorter of estimated useful lives, the underlying lease period or the term of the television license period. Replacements, renewals and improvements are capitalized. Maintenance and repairs are charged to expense as incurred. Investment grants and allowances that subsidize the assets of IA Fernsehen are recorded as deferred income and disclosed among other liabilities. Accordingly the assets are reported at their acquisition value net of amortization. The amortization of deferred investment grants and allowances relate to the underlying estimated useful lives of fixed assets acquired and are netted with the amortization of such assets. Income Taxes Income taxes have not been recorded in the accompanying financial statements as they are the obligation of the partners. Municipal trade tax on income is payable by the Partnership. No such tax is due for the period ending December 31, 1996 due to losses incurred by the Partnership in this period. 75 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Cash and cash equivalents Cash and cash equivalents include cash in banks and cash on hand. Revenue Recognition Revenues result from the sale of advertising time. Advertising revenue is recognized at the time the commercials are broadcast. Barter Transactions Revenue from barter transactions (television advertising provided in exchange for goods and services) is recognized as income when advertisements are broadcast, and merchandise or services received are charged to expense (or capitalized as appropriate) when received or used. Receivables and payables arising from barter transactions are offset when the services have been rendered to the customer and from the vendor. Barter transactions in 1996 of TDM 944 are included in advertising revenues and the related expenditures of TDM 917 are included in direct operating costs. 5. OTHER RECEIVABLES Other receivables consist of the following:
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Receivable from Deutsche Leasing AG (see Note 10)............................................. 1,497 1,610 Investment subsidies receivable................... 20 1,075 Other receivables................................. 207 42 ------------ ------------ 1,724 2,727 ------------ ------------ ------------ ------------
6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net consist of the following:
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Fixtures and fittings............................. 12,094 12,043 Station machinery and office equipment............ 19,219 17,875 -- thereof relating to assets held under lease: TDM 15,144 (1995: TDM 15,144) ------------ ------------ 31,313 29,918 Less-Accumulated depreciation..................... (14,660) (9,638) ------------ ------------ 16,653 20,280 ------------ ------------ ------------ ------------
76 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 7. OTHER INTANGIBLE ASSETS Other intangible assets, net consist of the following:
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Studio equipment software held under lease........ 2,586 2,500 Financial systems software........................ 578 425 ------------ ------------ 3,164 2,925 Less--Accumulated depreciation.................... (858) (421) ------------ ------------ 2,306 2,504 ------------ ------------ ------------ ------------
The studio equipment software represents a traffic system leased from Enterprise Air-Time Systems Limited, Thames Ditton, U.K. 8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following:
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Accounts payable, trade........................... 4,169 6,152 Vacation accrual.................................. 354 354 Ancillary rental cost............................. 339 245 Consulting fees................................... 241 -- Compensation...................................... 117 214 Contract risks.................................... 70 120 Miscellaneous accruals............................ 313 252 ------------ ------------ 5,603 7,337 ------------ ------------ ------------ ------------
Trade payables include an unsettled liability of TDM 1,980 relating to the operating lease contract with Enterprise Air-Time Systems Limited, Thames Ditton, U.K., for the new traffic system. 9. DEFERRED INCOME On October 5, 1993 the Partnership was awarded a first federal and state funded grant amounting to 23% of capital investment of up to DM 50 mio. between 1993 and 1996. Total investments relating to the underlying budget for this investment grant amounted to DM 37.1 mio. as of August 1996 with the Partnership having received investment grants of TDM 8,544. As all budgeted investments were finalized by that time the approval for investment grants was adjusted from initially TDM 11,287 to TDM 8,544. On August 26, 1996 the Partnership was awarded a second federal and state funded grant amounting to 25% of capital investments of up to DM 13 Mio. between 1996 and 1999. As of December 31, 1996 the Partnership has received investment grants of TDM 349 relating to this second investment grant approval. The Partnership is required to retain the underlying assets acquired, upon which these grants were received, in its business and region for a period of at least 3 years. Furthermore 130 employment positions are guaranteed to be maintained for a period of five years beginning with the first airing in 77 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 9. DEFERRED INCOME--(CONTINUED) November 1993. The second investment grant increases the number of guaranteed labour from 130 to 150 for a period of five years beginning with the completion of the budgeted investments. A failure to meet these two conditions could result in the Partnership having to repay some or all of the grants received. In addition the Partnership has the right, as governed by German tax law, to receive tax free investment subsidies of 5% respectively of 8% of the cost of acquired moveable fixed assets. The allowance is granted subject to the acquired fixed assets remaining in the business for a period of at least 3 years. Deferred investment grants and tax free subsidies are amortized according to the underlying estimated useful lives of fixed assets acquired. The total amount of grants and tax free subsidies received by the Partnership and recorded in the accompanying balance sheet as deferred income is as follows:
DECEMBER 31, DECEMBER 31, 1996 1995 TDM TDM ------------ ------------ Investment grants and subsidies................... 10,308 10,012 Less--Amortization to December 31................. (4,651) (3,151) ------------ ------------ 5,657 6,861 ------------ ------------ ------------ ------------
10. COMMITMENTS AND CONTINGENCIES Commitments under capital leases The Partnership signed a contract with an investment bank, the Deutsche Leasing AG, Berlin (Deutsche Leasing), to finance a part of its investments in studio equipment. The total lease financing of DM 10 mio. represented two thirds of the originally planned volume of investments in studio equipment of DM 15 mio. It was agreed that Deutsche Leasing retains a guarantee of DM 1 mio. at an interest rate payable to IA Fernsehen of 5.35% p.a. The loan of DM 10 mio. is financed at an annual interest rate of 6.9%. The loan has to be repaid to Deutsche Leasing by October 1998 with monthly installments of TDM 201. Deutsche Leasing is entitled to demand immediate repayment of the loan amount outstanding if IA Fernsehen fails to meet the terms of the loan agreement. The corresponding liability to the fixed assets held under finance lease is the DM 4.1 mio. payable to Deutsche Leasing as of December 31, 1996. Additionally, IA Fernsehen records a receivable from Deutsche Leasing of DM 1.5 mio. representing the guarantee (DM 1 mio.) and the unused finance volume (DM 0.5 mio.). The future obligations under the capital leases are as follows:
INTEREST AMORTIZATION TOTAL TDM TDM TDM -------- ------------ ----- 1997.... 239 2,172 2,411 1998.... 64 1,945 2,009 -------- ------------ ----- 303 4,117 4,420 -------- ------------ ----- -------- ------------ -----
78 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED) Commitments under operating leases --TV station headquarters The Partnership entered into an operating lease for the television station headquarters adjacent to the Television tower at the Alexanderplatz in Berlin on May 14, 1993. The lease term commenced on May 1, 1993 and expires on December 31, 1999. The lease provides for a renewal option. For the period ended December 31, 1996, the Partnership paid rent and operating expenses amounting to DM 1.8 mio. Under the agreement the monthly rent amounts to DM 105,000 until April 30, 1998. Thereafter it increases to DM 197,500 per month. In addition the Partnership is obliged to pay certain taxes, insurance costs and operating expenses, as provided in the lease agreement. According to the lease contract the Partnership is liable for possible third party claims arising from restitution filings on the premises leased. The Partnership as tenant cannot obtain valid evidence from the BVS ('Bundesanstalt fur vereinigungs-bedingte Sonderaufgaben'--the former privatization agency of the German Government) regarding any pending restitution claims. Should the Partnership be forced to terminate its rental agreement prior to December 31, 1999, the lessor has agreed to negotiate the amount of capital expenditures incurred to be reimbursed. The management will cooperate with the lessor in order to obtain information on possible restitution claims. According to the lease contract the Partnership is liable to guarantee the pedestrians' safety on all passageways around the rented building. The Partnership has taken steps to provide for such safety. Furthermore the Partnership has to carry out maintenance work relating to the building at its own cost. This obligation may result in additional costs which have not been evaluated and correspondingly not been accrued for. The Company has minimum future obligations under the operating lease relating to the TV station headquarters as follows:
TDM ----- 1997.... 1,620 1998.... 2,360 1999.... 2,730
--Traffic system On May 24, 1995, the Partnership entered into a lease agreement for a traffic system with the Enterprise Air-Time Systems Limited, Thames Ditton, U.K. The lease term commenced on May 24, 1995, and expires on May 24, 2005. The agreement may be terminated by written notice if a party e.g. ceases to carry on its business. The traffic system was capitalized at TDM 2,568 and correspondingly accrued for under trade liabilities. Amortization of TDM 266 for 1996 was expensed. The future payments represent the repayment of the liability and will annually be increased with reference to the 79 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED) development of the Electrical and Electronical Engineering Index. The future obligations under the terms of this operating lease are as follows:
TDM ----- 1997.......... 248 1998.......... 248 1999.......... 248 2000.......... 248 thereafter.... 1,236
Government Regulation Broadcast operations in Germany are subject to extensive Government regulation. Television in Germany is regulated by the Media Authority of each region, and the Media Authority Berlin-Brandenburg ('MABB') is responsible for the activities of the Partnership. Regulations govern the issuance, renewal, transfer and ownership of station licenses, as well as the timing and content of programming and the timing, content and amount of commercial advertising permitted. There are also regulations requiring that certain percentages of programming are being produced or originated in local markets. The ownership of a private TV station is closely monitored to avoid a single shareholder being able to exercise a dominant influence on the business and program of a TV station. The Partnership communicated in writing the changes effected and intended regarding the Partners' capital, the Partners' voting rights and the program structure to MABB and obtained assurance to comply with the rules of the TV license. Employment Agreements The managing directors of the Partnership are employed at the general partner. In 1996 the following persons have been managing directors:
APPOINTMENT PER DISMISSAL PER PARTNERS' PARTNERS' RESOLUTION RESOLUTION -------------------- ----------------------- Dr. Dietmar Straube.... September 19, 1995 September 30, 1996 Stefan Ziegenhagen..... March 26, 1996
In accordance with para 4.1 of the General Partner's Agreement IA TV Beteiligungs--gesellschaft mbH shall have at least two managing directors. The Partnership is aware of this deficiency and will take corrective action. None of the resolutions or changes of 1995 and 1996 have been inscribed in the commercial register. In 1996 an average of 148 employees and 103 freelancers worked for the Partnership. Generally employment agreements may be terminated by either party within 1 to 2 months upon prior written notice. Litigation Various competitors of IA Fernsehen have taken legal action against the Media Authority Berlin-Brandenburg to overturn its decision in awarding the Partnership the broadcast license for IA Fernsehen. The Partnership and legal counsel believe that its broadcast license for IA Fernsehen is in 80 IA TV BETEILIGUNGSGESELLSCHAFT MBH & CO. BETRIEBS-KG NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1995 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED) no danger. The Media Authority has informed the Partnership that these legal actions have no realistic chance of success. The Company is from time to time involved in litigation incidental to the conduct of its business. Management and its counsel believe such pending litigation will not have a material adverse effect on the company's financial condition. 81 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Slovenska televizna spolocnost, s.r.o. We have audited the accompanying balance sheets of Slovenska televizna spolocnost, s.r.o. as of December 31, 1996 and 1995, and the related statements of income and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Slovenska televizna spolocnost, s.r.o. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with United States generally accepted accounting principles. ARTHUR ANDERSEN Bratislava, Slovak Republic 13 March 1997 82 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS)
DECEMBER 31, DECEMBER 31, 1995 1996 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents....................... 15,257 30,756 Accounts receivable (net of allowances of 3,387 TSK)......................................... -- 169,979 Program rights costs, net (Note 3).............. -- 5,155 Amounts due from shareholders................... -- 6 Other assets (Note 4)........................... 52,214 141,681 ------------ ------------ Total current assets......................... 67,471 347,577 ------------ ------------ INVESTMENT (Note 5)............................... -- 100 PROPERTY, PLANT & EQUIPMENT (net of depreciation of 299 SK and 39,843 SK) (Note 6)............... 36,248 682,480 PROGRAM RIGHTS COST, net (Note 3)................. -- 166,618 INTANGIBLE ASSETS (net of amortisation of 27 SK, 1,324 SK) (Note 7).............................. 198 13,782 PRE OPERATIONAL COSTS (net of amortisation of nil, 5,016 SK) (Note 3).............................. 5,459 55,185 ------------ ------------ Total assets................................. 109,376 1,265,742 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................ 4,910 158,537 Accrued Liabilities (Note 8).................... 1,005 24,233 Duties and other taxes payable.................. 167 17,162 Amounts due to Shareholders (Note 9)............ -- 10,521 Amounts due to related parties (Note 10)........ -- 1,192 ------------ ------------ Total current liabilities.................... 6,082 211,645 ------------ ------------ NON CURRENT LIABILITIES: Shareholder loan (Note 9)....................... -- 294,192 ------------ ------------ Total non current liabilities................ -- 294,192 ------------ ------------ SHAREHOLDERS' EQUITY: (Note 13) Capital stock................................... 100 100 Other contributed capital....................... 105,446 893,768 Accumulated deficit............................. (2,252) (133,963) ------------ ------------ Total shareholders' equity................... 103,294 759,905 ------------ ------------ Total liabilities and shareholders' equity... 109,376 1,265,742 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these balance sheets. 83 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. INCOME STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS)
1995 1996 ------ -------- REVENUES: Advertising............................................... -- 227,026 Other..................................................... 1 5,334 ------ -------- 1 232,360 ------ -------- ------ -------- STATION EXPENSES: Depreciation of station equipment......................... (299) (39,544) Amortisation of programming rights........................ -- (74,769) Amortisation of intangibles and pre-operational costs..... (27) (6,313) Other operating costs and expenses........................ (1,908) (177,374) Selling, general and administrative expenses.............. -- (49,966) ------ -------- Operating loss.............................................. (2,233) (115,606) ------ -------- ------ -------- INTEREST AND OTHER INCOME (NOTE 14)......................... 4 7,750 INTEREST EXPENSE (NOTE 15).................................. (23) (23,855) ------ -------- Net loss.................................................... (2,252) (131,711) ------ -------- ------ --------
The accompanying notes are an integral part of these income statements. 84 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS)
1995 1996 -------- ---------- Cash flows from operating activities: Net loss.................................................. (2,252) (131,711) Depreciation and amortization............................. 326 45,857 Depreciation of program rights............................ -- 74,769 Provision for bad debts................................... -- 3,387 -------- ---------- Operating profit before changes in operating assets....... (1,926) (7,698) (Increase) decrease in operating assets: Accounts receivable.................................... -- (173,366) Other assets........................................... (52,214) (84,037) Increase (decrease) in operating liabilities: Accounts payable....................................... 4,910 153,627 Accrued liabilities.................................... 1,005 23,228 Duties and other taxes payable......................... 167 16,995 Amounts due to shareholders............................ -- 10,521 Amounts due to related parties......................... -- 1,192 -------- ---------- Net cash (used)/ from operating activities............. (48,058) (59,538) -------- ---------- -------- ---------- Cash flows from investing activities: Investments in program rights............................. -- (251,978) Investments............................................... -- (100) Net purchase of property, plant & equipment............... (36,547) (685,776) Net purchase of intangible assets......................... (225) (14,881) Pre-operational cost capitalised.......................... (5,459) (54,742) -------- ---------- Net cash (used)/ from investing activities.................. (42,231) (1,007,477) -------- ---------- -------- ---------- Cash flows from financing activities: Increase in shareholder loan.............................. -- 294,192 Capital increase.......................................... 100 -- Increase in other contributed capital..................... 105,446 788,322 -------- ---------- Net cash(used)/ from financing activities................... 105,546 1,082,514 -------- ---------- -------- ---------- Net increase in cash and cash equivalents................... 15,257 15,499 -------- ---------- -------- ---------- Cash and cash equivalents at the beginning of the year.... -- 15,257 -------- ---------- Cash and cash equivalents at end of year.................. 15,257 30,756 -------- ---------- -------- ----------
The accompanying notes are an integral part of this statement. 85 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) (1) ORGANIZATION AND BUSINESS Slovenska televizna spolocnost, s.r.o. (STS or the Company) was established as a Limited Liability Company under the Laws of the Slovak Republic on October 9, 1995, to develop an independent, private television station, TV Markiza, and to both technically secure the preparation of television broadcasting and to provide full scale television programming. Programming prepared by STS, is broadcast by Markiza Slovakia, s.r.o., in accordance with the license granted to Markiza Slovakia, by The Council of the Slovak Republic for Broadcasting and Television Transmission. The license provides for broadcast within the territory of the Slovak Republic utilising terrestrial signals, achieving an initial 65% national coverage. The license is limited for a period of 12 years commencing August 7, 1995. The provision of programming to Markiza Slovakia by STS, is performed in accordance with the terms of an agreement between these parties, under which Markiza Slovakia grants STS the rights to all revenues derived from broadcasting in exchange for a 51% ownership interest and a 20% economic interest in the Company, subject to the repayment of the original capital contribution made by Central Media Enterprises, B.V. (CME). (2) FINANCING OF OPERATING AND CAPITAL NEEDS The share capital of 100 TSK is 51% owned by Markiza Slovakia, s.r.o., a limited liability company established under the Laws of the Slovak Republic, and 41% owned by CME, a Limited Liability Company established under the Laws of The Netherlands. In addition to the share capital provided, contributions amounting to 893,768 TSK have been received from CME for the provision of operating funds to the Company. As a result of this increased contribution, and in accordance with the Participants agreement between the shareholders, CME is entitled to 80% of the Company's profits and losses and 80% of the proceeds upon liquidation of the Company's assets. In addition to shareholders capital, CME have granted loans to the Company amounting to 294,192 TSK, as of December 31, 1996, inclusive of accrued interest of 6,815 TSK. (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements, consisting of the balance sheet as of December 31, 1996 and 1995, and the related statements of income, cash-flow statements and notes to the financial statements for the year ended 31 December 1996 are presented in accordance with US GAAP and, accordingly, give a true and fair view of the Company's net worth, financial position and results. a) Basis of accounting The Company maintains its books of accounts and prepares statements for regulatory purposes in accordance with Slovak accounting principles. The accompanying financial statements are based on the accounting records of the Company, together with appropriate reclassifications necessary for fair presentation in accordance with US GAAP. 86 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) b) Property, Plant and Equipment and Intangible Assets Fixed and Intangible assets are carried at cost less accumulated depreciation. Depreciation is computed using the straight line method over the estimated useful lives of the related assets. (Notes 6 and 7). c) Assets held under Capital Leases Assets held under capital leases are accounted for in accordance with Statement of Financial Accounting Standards No. 13, 'Accounting for Leases', and recorded in Property, Plant and Equipment. The related liability is included in obligations under capital lease. d) Program Rights and Production Costs Program rights acquired by the Company under license agreements and the related obligations incurred are recorded as assets and liabilities when the license period begins, and the assets are amortised to expense using accelerated methods based on the estimated period of usage, ranging from one to five years. Amortisation estimates for program rights are reviewed periodically and adjusted prospectively. Program rights costs are shown net of amortisation of 74,769 TSK. Payments made for program rights for which the license period has not begun before the year end are classified as prepaid expenses and amount to 5,436 TSK at December 31, 1996. (See Note 4). The elements of program rights for which the licence period will expire within one year, amounting to 5,155 TSK have been reclassified as current assets. Production costs for self-produced programs are capitalised, and expensed when first broadcast except where the programming has potential to generate future revenues. When this is the case, production costs are capitalised and amortised on the same basis as programming obtained from third parties. e) Pre Operational Costs The Company has capitalised 60,201 TSK in costs incurred in connection with the organisation and incorporation of the business prior to the commencement of broadcasting of its programming. These costs will be amortised over four years from the commencing of broadcasting of the station. Amortisation of 5,016 TSK has been provided to December 31, 1996. (1995--nil) f) Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, 'Accounting for Income Taxes.' No tax is due for the period ending December 31, 1996 due to losses incurred by the Company in this period. g) Foreign Currency Transactions Transactions denominated in foreign currencies are recorded at the exchange rate in effect at the date of the transaction. Outstanding foreign currency obligations and receivables have been translated at the exchange rate in effect as of the balance sheet date. Translation gains or losses have been charged to other income and expense. 87 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) h) Cash and cash equivalents Cash and cash equivalents include cash in banks and on hand. The Company does not have any restricted cash balances. i) Revenue Recognition Revenues primarily result from the sale of advertising time and are recognized at the time the advertisements are broadcast. j) Barter Transactions Revenue from barter transactions (television advertising provided in exchange for goods and services) is recognised as income when advertisements are broadcast, and programming, merchandise or services received are charged to expense (or capitalised as appropriate) when received or used. Barter revenues and related expenditures of 11,977 TSK have been recognised for the year within advertising revenues and operating expenses respectively. The Company does not believe that the bartered programming has significant value on its second showing on Slovak television as it has been the experience of the industry that first runs, on average, account for a substantial majority of the program's potential revenue. Thus, no asset or liability is recorded on the balance sheet for the potential rebroadcast of bartered programming. The Company records barter transactions at the estimated fair value of the production or services received. In cases where bartered programs can only be obtained through a barter agreement the Company values the barter at the value of the asset given up. In other cases where the Company has elected to enter into barter agreements as an alternate method of payment, strictly for economic reasons, the Company values the barter agreement at the value of the asset received. If merchandise or services are received prior to the broadcast of a commercial, a liability is recorded. Likewise, if a commercial is broadcast first, a receivable is recorded. Receivables and payables arising from barter transactions are offset when the services have been rendered to the customer and the services rendered, or the merchandise received from the vendor. (4) OTHER ASSETS Other assets consist of the following:
DECEMBER 31, 1995 DECEMBER 31, 1996 ----------------- ----------------- Value-added tax......................... 2,189 18,765 Operational advances 50,018 116,413 Prepayments --programming......................... -- 5,436 --other............................... -- 854 Other................................... 7 213 -------- ----------------- 52,214 141,681 -------- ----------------- -------- -----------------
In 1996, the Company entered into an agreement with Slovak Telecom for the provision of the broadcasting infrastructure and signal transmission. In accordance with this, advances of 127,000 TSK were remitted to Slovak Telecom, against future signal transmission charges. This agreement accounts for 50,000 TSK and 108,632 TSK at December 31, 1995 and 1996, respectively. 88 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) (5) INVESTMENTS The Company hold 100% (100 TSK) of the share capital of company, 'Vyhra'. A limited liability company established by STS under the Laws of the Slovak Republic. Vyhra has not traded since its establishment. (6) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net consist of the following:
USEFUL DECEMBER 31, DECEMBER 31, LIVES 1995 1996 ------ --------------- --------------- Land and buildings...................... 25 -- 243,838 Technical Equipment..................... 4-8 1,197 394,595 Other................................... 4 -- 70,552 Construction in progress................ -- 15,102 -- Advances for tangibles.................. -- 20,248 13,338 --------------- --------------- 36,547 722,323 Less--Accumulated depreciation.......... (299) (39,843) --------------- --------------- 36,248 682,480 --------------- --------------- --------------- ---------------
(7) INTANGIBLE ASSETS Intangible assets, net consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1996 --------------- --------------- Software................................ 25 7,013 Other................................... 200 8,093 --------------- --------------- 225 15,106 Less--Accumulated amortisation.......... (27) (1,324) --------------- --------------- 198 13,782 --------------- --------------- --------------- ---------------
(8) ACCRUED LIABILITIES Accrued liabilities consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1996 --------------- --------------- Legal and Professional fees............. -- 194 Personnel accruals...................... 1,005 15,381 Social fund............................. -- 297 Other................................... -- 8,361 --------------- --------------- 1,005 24,233 --------------- --------------- --------------- ---------------
89 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) (9) AMOUNTS DUE TO SHAREHOLDERS Shareholder Loan The Company has borrowed a total of 287,377 TSK over the period from July 10, 1996 to August 26, 1996. These loans are unsecured, repayable after a period of no less than 5 years, maturing in 2007, and bearing interest at the rate of 6% per annum Interest of 6,815 TSK has accrued as at December 31, 1996 relating to the period to this date. Other The Company owes 10,521 TSK to CME as at December 31, 1996, in relation to consultancy services for the six months to the year end and for programming services provided to the Company by CME. (10) AMOUNTS DUE TO RELATED PARTIES The Company has liabilities to Ceska nezavisla televizni spolecnost, s.r.o. (TV Nova) at December 31, 1996, amounting to 1,192 TSK, relating to the purchase of programs. (11) LOAN OBLIGATIONS The Company has no loan obligations other than that disclosed in Note 9. (12) COMMITMENTS AND CONTINGENCIES Commitments under Capital Leases The Company has no material Capital Lease commitments at December 31, 1996. Commitments under Operating Leases The Company has entered into operating leases for three properties located in Bratislava. The lease terms commenced June 15, and July 1, 1996 and expire June 30, 1999 or have unlimited terms. Where a definitive term is set, the lease provides for a renewal option. For the fiscal year ended December 31, 1996, the Company paid aggregate rent on all facilities of 8,083 TSK. The Company has minimum future obligations under operating leases relating to property with definitive terms as follows:
YEAR DM TSK - -------- --- ----- 1996.... 96 1,969* 1997.... 96 1,969 1998.... 96 1,969 1999.... 48 985 --- ----- 336 6,892 --- ----- --- -----
- ------------------ *translated using the exchange rate as at December 31, 1996. Monthly payments relating to leases with unlimited terms amount to 56 TSK. 90 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) Programming Rights Commitments The Company has commitments amounting to 80,122 TSK in respect of rights for future programming. The Company has also entered into certain barter agreements in 1996 that continue through 1997 and beyond, by which television advertising will be provided in exchange for programming. As the value of this advertising time will only be established at the time of broadcast, it is not possible to quantify the impact of these agreements. (13) SHAREHOLDERS' EQUITY The movement on shareholders' equity in the year is as follows:
OTHER TOTAL CONTRIBUTED ACCUMULATED SHAREHOLDERS' SHARE CAPITAL CAPITAL DEFICIT EQUITY ------------- ----------- ----------- ------------- Balance as at December 31, 1995.... 100 105,446 (2,252) 103,294 Contributions...................... -- 788,322 -- 788,322 Loss for the year.................. -- -- (131,711) (131,711) ----- ----------- ----------- ------------- Balance as at December 31, 1996.... 100 893,768 (133,963) 759,905 ----- ----------- ----------- ------------- ----- ----------- ----------- -------------
(14) INTEREST INCOME Interest income consists of the following:
1995 1996 ---- ----- Bank & short term deposit......................... 4 2,509 Realised foreign exchange gains................... -- 190 Other............................................. -- 5,051 ---- ----- 4 7,750 ---- ----- ---- -----
(15) INTEREST EXPENSE Interest expense consists of the following:
1995 1996 ---- ------ Shareholder loan interest......................... -- 6,815 Foreign exchange losses --realised...................................... -- 529 --unrealised.................................... -- 14,333 Other............................................. 23 2,178 ---- ------ 23 23,855 ---- ------ ---- ------
91 SLOVENSKA TELEVIZNA SPOLOCNOST, S.R.O. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (CURRENCY--THOUSANDS OF SLOVAK CROWNS) (16) NUMBER OF EMPLOYEES The number of employees as of December 31, 1996, was 380 full time and 3 part-time. (17) TAXATION The reconciliation between the accounting loss and the taxable base of the Corporate Income Tax is as follows:
1996 -------- Profit for the year............................... (131,711) Permanent differences Non deductible expenses......................... 12,667 Temporary differences Unrealised exchange looses...................... 19,340 Difference with tax depreciation................ 4,124 US GAAP Adjustments............................. (54,733) -------- Taxable income, (loss)............................ (150,313) -------- --------
Following the prudence principle and due to the uncertainty on the recoverability of the tax credit following the current Slovak tax legislation, the Management of STS has decided not to record the tax carry forward (60,125 TSK) or the deferred tax (asset, 21,893 TSK, liability, 9,386 TSK) as of December 31, 1996. 92 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To FF Franken Funk und Fernsehen GmbH: We have audited the accompanying consolidated balance sheet of FF Franken Funk und Fernsehen GmbH (a Limited Partnership organized under German law) and subsidiary as of December 31, 1994 and 1995, and the related consolidated statements of operations, shareholders' and partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mis-statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FF Franken Funk und Fernsehen GmbH and subsidiary as of December 31, 1994 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with United States generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the financial statements, the Company has incurred significant operating losses during the years ended December 31, 1994 through 1996, and is dependent upon additional capital to fund its operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. ARTHUR ANDERSEN WIRTSCHAFTSPRUFUNGSGESELLSCHAFT STEUERBERATUNGSGESELLSCHAFT MBH March 4, 1996 (except for the matters discussed in Note 3, as to which the date is March 5, 1997) Berlin, Germany 93 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995 AND 1994
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ ASSETS Current Assets: Cash and cash equivalents....................... 176 1,753 Accounts receivable............................. 765 745 Related party receivables (Note 5).............. 454 29 Amounts due from shareholder (Note 6)........... 1,752 0 Other assets (Note 7)........................... 429 1,006 Prepaid expenses................................ 55 2 Contribution receivable......................... 0 1,255 ------------ ------------ Total current assets.............................. 3,631 4,790 ------------ ------------ Investments in Uncombined Affiliates (Note 8)..... 78 78 ------------ ------------ Property, Plant & Equipment, including equipment held under lease, net (Note 9).................. 4,546 5,562 ------------ ------------ Intangible Assets (Note 10)....................... 106 105 ------------ ------------ Total Assets...................................... 8,361 10,535 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Bank overdraft.................................. 10 0 Accounts payable................................ 531 1,083 Accrued liabilities (Note 11)................... 430 414 Duties and other taxes payable.................. 273 910 Related party payables (Note 12)................ 773 137 ------------ ------------ Total current liabilities......................... 2,017 2,544 ------------ ------------ Non Current Liabilities: Other liabilities (Note 13)....................... 3,622 2,602 Long term loans (Note 14)......................... 10,000 4,000 ------------ ------------ Total non current liabilities..................... 13,622 6,602 ------------ ------------ Commitments and Contingencies (Note 15) Silent Partners' Capital Initial capital................................. 8,000 8,000 Accumulated deficit............................. (7,431) (3,098) ------------ ------------ Total silent partners' capital.................. 569 4,902 ------------ ------------ Shareholders' Equity Capital stock................................... 1,355 1,355 Accumulated deficit............................. (9,202) (4,868) ------------ ------------ Total shareholders' equity........................ (7,847) (3,513) ------------ ------------ Total liabilities and partners' capital........... 8,361 10,535 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these balance sheets. 94 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 TDM TDM ------- ------- REVENUES: Advertising (Note 16)..................................... 2,935 2,666 Other (Note 17)........................................... 3,407 3,051 ------- ------- 6,342 5,717 ------- ------- STATION EXPENSES: Depreciation of station equipment......................... (1,628) (1,852) Other operating costs and expenses........................ (7,614) (7,324) Selling, general and administrative expenses.............. (4,374) (4,375) ------- ------- Operating loss......................................... (7,274) (7,834) ------- ------- INTEREST AND OTHER INCOME................................... 147 176 INTEREST EXPENSE (Note 18).................................. (1,540) (308) ------- ------- (1,393) (132) ------- ------- Net loss before loss allocation........................ (8,667) (7,966) ------- ------- LOSS PORTION SILENT PARTNER................................. 4,333 3,098 ------- ------- Net loss............................................... (4,334) (4,868) ------- ------- ------- -------
The accompanying notes are an integral part of this statement. 95 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY CONSOLIDATED STATEMENT OF SHAREHOLDERS' AND PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ SHAREHOLDERS' CAPITAL Capital Stock Subscribed capital of FFF.................... 100 100 Minority share of NMF assigned to FFF........ 1,255 1,255 ------------ ------------ Accumulated deficit 1,355 1,355 ------------ ------------ Beginning balance............................ (4,868) 0 Net loss before allocation................... (8,667) (7,966) Less--silent partner portion................. 4,333 3,098 ------------ ------------ Ending balance............................... (9,202) (4,868) ------------ ------------ Total shareholders' capital..................... (7,847) (3,513) ------------ ------------ ------------ ------------ SILENT PARTNERS' CAPITAL Initial capital................................. 8,000 8,000 Accumulated deficit Beginning balance............................ (3,098) 0 Loss portion of the year..................... (4,333) (3,098) ------------ ------------ Ending balance............................... 569 4,902 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of this statement. 96 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 TDM TDM ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) before loss allocation......................... (8,667) (7,966) Adjustments to reconcile net (loss) to net cash used in operating activities Depreciation of station equipment...................... 1,628 1,852 Increase in assets and liabilities: Accounts receivable.................................. (20) (330) Amount due from uncombined affiliates................ (425) 92 Prepaid expenses..................................... (53) 2 Other assets......................................... 577 (724) Accounts payable and accrued liabilities............. (536) 1,122 Duties and other taxes payable....................... (637) 910 Related party liabilities............................ 636 (288) Other liabilities.................................... 1,030 2,485 ------ ------ Net cash used in operating activities.................. (6,467) (2,845) ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (613) (7,498) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Long term loans from silent partner....................... 7,000 2,000 Long term loan from shareholder........................... 0 2,000 Repayment of shareholder loan............................. (1,000) 0 Loan granted to shareholder............................... (1,752) 0 Partners' capital contributions........................... 1,255 8,000 ------ ------ Net cash provided by financing activities................. 5,503 12,000 ------ ------ Net decrease in cash and cash equivalents................. (1,577) 1,657 CASH AND CASH EQUIVALENTS, beginning of period.............. 1,753 96 ------ ------ CASH AND CASH EQUIVALENTS, end of period.................... 176 1,753 ------ ------ ------ ------
The accompanying notes are an integral part of this statement. 97 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 1. ORGANIZATION AND BUSINESS FF Franken Funk und Fernsehen GmbH, Berlin ('FFF' or 'the Company'), set up under German law as a Limited Partnership, began broadcasting on December 10, 1990 ('RTL Regional Window') and on February 23, 1994 (Terrestrial/cable frequency K23) and respectively reaches the Nuremberg metropolitan area of approximately 1.1 million people. On December 10, 1990 the Company was awarded the RTL Regional Window (cable channel K9). This licence was limited until July 1, 1995, prolonged until October 31, 1995 but then cancelled by the supervisory board of the BLM, because FFF had not announced the silent Partnership with CME Medienbeteiligungen GmbH & Co. Media Enterprises KG ('CME') on time. On February 23, 1994 the BLM awarded a full time licence for regional television in the Nuremberg metropolitan area on the terrestrial/cable frequency K23 to the consolidated NMF Neue Medien Franken GmbH & Co. KG ('NMF'), a Partnership of FFF and Mr. Rudolf Wohrl. The license is limited for a period of 7 years commencing on February 27, 1994. The consolidated financial statements consider FFF as parent Company and the Partnership NMF as subsidiary. NMF has been fully consolidated. The minority share of Mr. Rudolf Wohrl has been assigned to FFF as majority shareholder. 2. FINANCING OF OPERATING AND CAPITAL NEEDS The share capital of TDM 100 is fully owned by Perimed Verlag Dr. Dietmar Straube. The minority share of TDM 1,255 legally owned by Mr. Rudolf Wohrl is not separately classified as minority sharecapital, but assigned to FFF. In 1994 FFF signed a silent Partnership agreement with CME Medienbeteiligungen GmbH & Co. Media Enterprises KG, Berlin, which became effective on April 1, 1994. According to this agreement CME Medienbeteiligungen GmbH & Co. Media Enterprises KG granted a silent partner capital of DM 8 mio. to FFF. The silent partner is entitled to 50% of FFF's profits and losses and 50% of the proceeds upon liquidation of its assets. In addition to shareholders' and partners' capital the shareholder and the silent partner granted loans to FFF which amounted to DM 10 mio. as of December 31, 1995. 3. GOING CONCERN Since its inception FFF incurred consolidated losses of DM 22.4 mio. which have been funded with DM 20.0 mio. by the silent partner CME, while the net cash contribution of the single shareholder of FFF, Dr. Dietmar Straube, amounted to DM 2.5 mio. Until December 31, 1997, further cash losses are projected to reach DM 2.5 mio. Due to the present illiquidity of FFF the going concern of the Company depends on day to day cash contributions and financial commitments by the shareholder and the silent partner respectively. The factors described in the preceding paragraph raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. 98 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The subsidiary NMF has been fully consolidated. For true and fair view reasons the minority share of a minority partner in NMF has not been separately shown in the consolidated financial statements. Property, Plant and Equipment and Intangible Assets Fixed and intangible assets are carried at cost and are depreciated on a straight line basis using the shorter of estimated useful lives or the underlying lease period. Replacements, renewals and improvements are capitalized. Maintenance and repairs are charged to expense as incurred. Income Taxes No tax is due for the period ending December 31, 1995 due to losses incurred by the Company in this period. Cash and cash equivalents Cash and cash equivalents include cash in banks and cash on hand. Revenue Recognition Revenues result from the sale of advertising time and from cable charges. Advertising revenue is recognized at the time the commercials are broadcast. 5. RELATED PARTY RECEIVABLES Amounts due from related parties consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ IA TV Beteilgungsgesellschaft mbH & Co. Betriebs-KG..................................... 278 -- CME Medienbeteiligungen GmbH & Co. Media Enterprises KG.................................. 150 -- B.I.S. Ballungsraumfernsehen in Sachen GmbH....... 26 -- Sachsen Funk und Fernsehen GmbH................... -- 27 Compliance Verlag Dr. Straube GmbH................ -- 2 ----- -- 454 29 ----- -- ----- --
6. AMOUNTS DUE FROM SHAREHOLDER On January 31, 1995 the Company granted a loan of TDM 1,632 to Perimed Verlag Dr. Dietmar Straube. The loan bears interest at a rate of 8%. The accrued interest of TDM 120 is included in the total balance as of December 31, 1995 of TDM 1,752. 99 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 7. OTHER ASSETS Other assets consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ Value-added tax............... 115 238 Cable charges................. 100 617 Video-cassettes............... 70 75 Various....................... 144 76 ----- ------------ 429 1,006 ----- ------------ ----- ------------
8. INVESTMENTS IN UNCOMBINED AFFILIATES Investments in uncombined affiliates consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ Mittelfrankische Kabelgesellschaft mbH Region 7... 16 16 Medienbetriebsgesellschaft Oberfranken West mbH... 25 25 NMF-Neue Medien Franken Verwaltungs-GmbH.......... 37 37 ----- ------------ 78 78 ----- ------------ ----- ------------
9. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ Technical equipment............................... 5,552 5,552 -- thereof relating to assets held under lease: TDM 5,552 (1994: TDM 5,552) Other equipment, operational and office equipment....................................... 2,422 1,855 -- thereof relating to assets held under lease: TDM 506 (1994:TDM 392) ------------ ------------ 7,974 7,407 Less--Accumulated depreciation.................... (3,428) (1,845) ------------ ------------ 4,546 5,562 ------------ ------------ ------------ ------------
100 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 10. INTANGIBLE ASSETS Intangible assets, net consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ Software................................ 124 167 Other intangibles....................... 17 20 ----- ------------ 141 187 Less--Accumulated depreciation.......... (35) (82) ----- ------------ 106 105 ----- ------------ ----- ------------
11. ACCRUED LIABILITIES Accrued liabilities consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ Legal and professional fees.................. 162 122 Vacation and overtime accrual................ 152 188 Miscellaneous accruals....................... 116 104 ----- ------------ 430 414 ----- ------------ ----- ------------
12. RELATED PARTY PAYABLES Related party payables consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ CME Medienbeteiligungen GmbH & Co. Media Enterprises KG.................................. 666 -- NMF Neue Medien Franken Verwaltungs-GmbH.......... 49 46 Perimed Verlag Dr. Dietmar Straube................ 47 80 Medienbetriebsgesellschaft Oberfranken West mbH... 11 11 ----- ------------ 773 137 ----- ------------ ----- ------------
101 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 13. OTHER LIABILITIES Other liabilities consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ Capital lease obligation (see Note 15)....... 3,450 2,449 Other........................................ 172 153 ------------ ------------ 3,622 2,602 ------------ ------------ ------------ ------------
14. LONG TERM LOANS Long term loans consist of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 TDM TDM ------------ ------------ CME Medienbeteiligungen GmbH & Co. Media Enterprises KG.................................. 9,000 2,000 Perimed Verlag Dr. Dietmar Straube................ 1,000 2,000 ------------ ------------ 10,000 4,000 ------------ ------------ ------------ ------------
With loan agreements dated June 20, 1995 and September 10, 1995 CME granted loans of DM 6.5 mio. and DM 2.5 mio. to FFF. These loans bear interest at a rate of 10.5%. The loans shall be repayable at the latest on June 6, 1996, if and to the extent the shareholder Dr. Dietmar Straube should until then not have provided shareholder loans to FFF in the same amount. It is anticipated that the loan will be substituted in the amount payable until June 6, 1996, by the contributions of new shareholders. Should this not have happened and should FFF not be able to repay, the parties will reach agreement on a refinancing, such as by converting the loans into a silent Partnership contribution. DM 1.0 mio. of the DM 2.0 mio. loan that the Perimed Verlag Dr. Dietmar Straube granted to the Company in 1994 had been repaid on April 3, 1995. 15. COMMITMENTS AND CONTINGENCIES Commitments under capital leases The Company signed a contract with an investment bank, the Deutsche Leasing AG, to finance most of its studio equipment and parts of its office equipment. The total lease financing amounted to DM 5.6 mio. as of December 31, 1995. The corresponding liability to the fixed assets held under capital lease is the TDM 3,450 payable to Deutsche Leasing AG, which is included in other liabilities. 102 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 15. COMMITMENTS AND CONTINGENCIES--(CONTINUED) The future obligations under the capital leases are as follows:
TOTAL TDM ----- 1996.... 1,714 1997.... 1,598 1998.... 303 1999.... 18 ----- 3,633 ----- -----
Commitments under operating leases The Company entered into an operating lease for the television station facilities in Erlangen with the Perimed Verlag Dr. Dietmar Straube. The lease term commenced on January 1, 1994 and expires on December 31, 2001. For the period ended December 31, 1995, the Company paid rent and operating expenses amounting to TDM 2,635. Under the agreement the yearly rent amounted to TDM 1,000 for the studio facilities and TDM 1,635 for 3,800 m2 of office space, parking lots and utilities. In 1996 the leased office space had been reduced to 3,600 m2 so that the Company has yearly minimum future obligations under operating leases of TDM 2,552 until year end 2001. Government Regulation Broadcast operations in Germany are subject to extensive Government regulation. Television in Germany is regulated by the Media Authority of each region, and the Bayerische Landesmedienanstalt ('BLM') is responsible for the activities of FFF and NMF respectively. Regulations govern the issuance, renewal, transfer and ownership of station licenses, as well as the timing and content of programming and the timing, content and amount of commercial advertising permitted. There are also regulations requiring that certain pecentages of programming be produced or originated in local markets. The ownership of a private TV station is closely monitored to avoid a single shareholder being able to exercise a dominant influence on the business and program of a TV station. The Company lost its licence for the RTL window frequency K9 in October 1995. This cancellation might have a negative impact on the terrestrial/cable frequency K23 as the BLM requested FFF to start negotiations with the new owner of the RTL Regional Window regarding a joint management of the frequency K23. 16. ADVERTISING REVENUES The cancellation of the licence for the 'RTL Regional Window' has a material impact on the economic situation of FFF. For the period from January through October 1995 advertising income from this licence amounted to TDM 980 (1994: TDM 1,596). Comparable advertising income from the terrestrial/cable frequency K23 was TDM 1,955 in 1995 (1944: TDM 1,070). 103 FF FRANKEN FUNK UND FERNSEHEN GMBH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 17. OTHER REVENUES Other revenues consist of the following:
1995 1994 TDM TDM ----- ----- BLM and cable charges.................................. 1,965 2,391 Production and intercompany charges.................... 1,078 538 Other.................................................. 364 122 ----- ----- 3,407 3,051 ----- ----- ----- -----
18. INTEREST EXPENSE Interest expense consists of the following:
1995 1994 TDM TDM ----- ----- Long term loans due to CME Medienbeteiligungen GmbH & Co. Media Enterprises KG...................................... 621 45 Perimed Verlag Dr. Dietmar Straube........................ 132 45 ----- ----- 753 90 Capital Lease Deutsche Leasing AG........................... 600 -- Perimed Verlag Dr. Straube (from acquisition)............... -- 207 Other....................................................... 187 11 ----- ----- 1,540 308 ----- ----- ----- -----
104 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated herein by reference to the section entitled 'Election of Directors' in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 2, 1997. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the sections entitled 'Executive Compensation,' 'Compensation Committee Report on Executive Compensation' and 'Performance Graph' in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 2, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the section entitled 'Security Ownership of Certain Beneficial Owners and Management' in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 2, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference to the section entitled 'Certain Relationships and Related Transactions' in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 2, 1997. 105 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following Financial Statements of the Company are included in Part II, Item 8 of this Report: Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity (Deficit) for the period from December 31, 1993 to December 31, 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements (a)(2) The following Financial Statements of 1A TV Beteiligungsgesellschaft MBH & Co. Betreibs-KG are included in Part II, Item 8 of this Report: Report of Independent Public Accountants Balance Sheet as of December 31, 1996 and 1995 Statement of Operations for the years ended December 31, 1996 and 1995 Statement of Partners' Capital for the years ended December 31, 1996 and 1995 Statement of Cash Flows for the years ended December 31, 1996 and 1995 Notes to Financial Statements (a)(3)The following Financial Statements of Slovenska Televizna Spolocnost, s.r.o are included in Part II, item 8 of this Report: Report of Independent Public Accountants Balance Sheets as of December 31, 1995 and 1996 Income Statements for the periods ended December 31, 1995 and 1996 Statements of Cash Flows for the periods ended December 31, 1995 and 1996 Notes to Financial Statements (a)(4) The following Financial statements of Franken Funk und Fernsehen GmbH are included in Part II, Item 8 of this Report: Report of Independent Public Accountants Consolidated Balance Sheet as of December 31, 1995 and 1994 Consolidated Statement of Operations for the years ended December 31, 1995 and 1994 Consolidated Statement of Shareholders' and Partners' Capital for the years ended December 31, 1995 and 1994 Consolidated Statement of Cash Flows for the years ended December 31, 1995 and 1994 Notes to Consolidated Financial Statements (a)(5) The following exhibits are included in this report: 106 EXHIBIT INDEX
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- -------------------------------------------------------------- ---------- 3.01 -- Memorandum of Association (incorporated by reference to Exhibit 3.01 to the Company's Registration Statement No. 33-80344 on Form S-1, filed June 17, 1994). 3.02 -- Bye-Laws (incorporated by reference to Exhibit 3.02 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994). 3.03 -- Memorandum of Increase of Share Capital (incorporated by reference to Exhibit 3.03 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994). 3.04 -- Memorandum of Reduction of Share Capital (incorporated by reference to Exhibit 3.04 to Amendment No. 2 to the Company's Registration Statement No. 33-80344 on Form S-1, filed September 14, 1994). 3.05 -- Amendment to Bye-Laws (incorporated by reference to Exhibit 3.05 to Amendment No. 2 to the Company's Registration Statement No. 33-80344 on Form S-1, filed September 14, 1994). 4.01 -- Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.01 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994). 10.01 -- Central European Media Enterprises Ltd. Amended and Restated 1994 Stock Option Plan (incorporated by reference to Exhibit 10.01 to Amendment No. 3 to the Company's Registration Statement No. 33-80344 on Form S-1, filed October 13, 1994). 10.01A -- Central European Media Enterprises Ltd. Amended and Restated 1994 Stock Option Plan, as amended to October 17, 1995. (incorporated by reference to Exhibit 10.01A to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.02 -- Central European Media Enterprises Ltd. 1995 Stock Option Plan, as amended to October 17, 1995. (incorporated by reference to Exhibit 10.02A to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.03 -- Partnership Agreement for CEDC Management Services GmbH & Co. CME Betriebs KG, dated May 25, 1993 between CEDC Management Services GmbH and CEDC Management Services GmbH & Co. Media Enterprises KG (incorporated by reference to Exhibit 10.06 to the Company's Registration Statement No. 33-80344 on Form S-1, filed June 17, 1994). 10.04 -- Partnership Agreement for CEDC Management Services GmbH & Co. Television KG between CEDC Management Services GmbH and CEDC Management Services GmbH & Co. Media Enterprises KG (incorporated by reference to Exhibit 10.07 to the Company's Registration Statement No. 33-80344 on Form S-1, filed June 17, 1994). 10.05 -- Partnership Agreement for Schamoni TV Beteiligungsgesellschaft GmbH & Co. Betriebs-KG dated May 14, 1993 (incorporated by reference to Exhibit 10.08 to the Company's Registration Statement No. 33-80344 on Form S-1, filed June 17, 1994).
107
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- -------------------------------------------------------------- ---------- 10.06 -- Memorandum of Association and Investment Agreement dated May 4, 1993, as amended, by and between Central European Development Corporation Management Services GmbH, Ceska Sporitelna, a.s. and CET 21 s.r.o. (incorporated by reference to Exhibit 10.09 to the Company's Registration Statement No. 33-80344 on Form S-1, filed June 17, 1994). 10.07 -- Agreement on the Establishment of a Silent Partnership dated April 19, 1994 between Dr. Dietmar Straube, CEDC Management Services GmbH & Co. Media Enterprises KG and Franken Funk and Fernsehen GmbH (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement No. 33-80344 on Form S-1, filed June 17, 1994). 10.08 -- Amendment to the Agreement on the Establishment of a Silent Partnership, dated January 23, 1995, between Franken Funk und Fernsehen GmbH and CME Medienbeteiligungen GmbH & Co. Media Enterprises KG. (incorporated by reference to Exhibit 10.10A to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.09 -- Services Agreement dated as of July 29, 1994 among Andrew Gaspar, Bukfenc Inc. and Central European Media Enterprises Ltd. (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994). 10.10 -- Administrative Services Agreement, dated as of April 1, 1994 between R.S. Lauder, Gaspar & Co., LP and CME Media Enterprises B.V. (incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994). 10.10A -- Extension for the term of one year, dated as of March 28, 1995, of Administrative Services Agreement, dated as of April 1, 1994, between R.S. Lauder, Gaspar & Co., LP and CME Media Enterprises B.V. (incorporated by reference to Exhibit 10.14A to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.10B -- Extension for the term of one year, dated as of March 14, 1996, of Administrative Services Agreement between R.S. Lauder, Gaspar & Co., LP and CME Media Enterprises B.V. (incorporated by reference to Exhibit 10.11B to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.11 -- Lease Contract, dated as of December 27, 1993, between CNTS and CEDC Praha (incorporated by reference to Exhibit 10.15 to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed on September 13, 1995). 10.11A -- Amendment to Lease Contract, dated as of December 30, 1994, between CNTS and CEDC Praha (incorporated by reference to Exhibit 10.15A to the Company's Registration Statement No. 33-96900 on Form S-1, filed September 13, 1995). 10.12 -- Credit Agreement between Ceska Sportelma, a.s. and Ceska Nezavisla Televizni Spolecnost, s.r.o. (incorporated by reference to Exhibit 10.16 to Amendment No. 1 to the Company's Registration Statement No. 33-80344 on Form S-1, filed August 19, 1994).
108
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- -------------------------------------------------------------- ---------- 10.13 -- Term Promissory Note in favor of Ronald S. Lauder dated September 9, 1994 and Warrant for the Purchase of Shares of Common Stock issued to Ronald S. Lauder dated as of September 9, 1994 (incorporated by reference to Exhibit 10.17 to Amendment No. 2 to Registration Statement No. 33-80344 on Form S-1, filed September 14, 1994). 10.14 -- Consultancy Agreement, dated February 9, 1995, between CME Media Enterprises B.V. and Radio Alfa a.s. (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.15 -- Loan Agreement, dated as of February 9, 1995 between CME Media Enterprises B.V. and Radio Alfa a.s. (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.15A -- Supplementary Loan Agreement, dated March 20, 1995, between CME Media Enterprises B.V. and Radio Alfa a.s. (incorporated by reference to Exhibit 10.19A to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1995). 10.15B -- Second Supplementary Loan Agreement, dated July 14, 1995, between CME Media Enterprises B.V. and Radio Alfa a.s. (incorporated by reference to Exhibit 10.19B to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1995). 10.15C -- Third Supplementary Loan Agreement, dated December 11, 1995, between CME Media Enterprises B.V. and Radio Nova Alfa a.s. (f.k.a. Radio Alfa a.s.) (incorporated by reference to Exhibit 10.16C to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.15D -- Fourth Supplementary Loan Agreement, dated February 29, 1996, between CME Media Enterprises B.V. and Radio Alfa a.s. 10.15E -- Fifth Supplementary Loan Agreement, dated November 29, 1996, between CME Media Enterprises B.V. and Radio Alfa a.s. 10.16 -- Partnership Agreement of Produkcija Plus d.o.o. Ljubljana, dated February 10, 1995 among CME Media Enterprises B.V., Boutique MMTV d.o.o. Ljubljana, and Tele 59 d.o.o. Maribor. (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.17 -- Letter Agreement, dated March 23, 1995, among, Kanal A, Boutique MMTV d.o.o. Ljubljana, Tele 59 d.o.o. Maribor, Euro 3 and Baring Communications Equity as advisor to Baring Communications Equity Limited, regarding Produkcija Plus d.o.o. (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.18 -- Credit Agreement, dated as of November 14, 1994, between Ceska Sportelma, a.s. and Ceska Nezavisla Televizni Spolecnost, s.r.o. (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.19 -- Lease, dated February 2, 1995, between CME Development Corporation Inc. and JRT (Properties) Limited for the term of ten years for the offices at 9 Poland Street and 17, 18 and 19 D'Arblay Street in London. (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
109
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- -------------------------------------------------------------- ---------- 10.19A -- Shareholder Agreement, dated May 25, 1995, between ITI TV Holdings Sp. z.o.o. and CME Media Enterprises B.V. (incorporated by reference to Exhibit 10.24A to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1995). 10.19B -- Stock Purchase Agreement, dated May 25, 1995, between ITI Media Group N.V. and CME Media Enterprises B.V. (incorporated by reference to Exhibit 10.24B to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1995). 10.20 -- Contract for Space Segment Service dated June 9, 1995, between British Telecommunications plc ('BT') and CME Programming Services, Inc. for the provision of programming transmission services by BT and the payment thereon (incorporated by reference to Exhibit 10.25A to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1995). 10.20A -- Guarantee by Central European Media Enterprises Ltd. in respect of obligations due to British Telecommunications plc by CME Programming Services, Inc. dated June 9, 1995 (incorporated by reference to Exhibit 10.25B to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1995). 10.21 -- Employment Agreement, dated as of August 14, 1995, between John A. Schwallie and Central European Media Enterprises Ltd. (incorporated by reference to Exhibit 10.25 to Amendment No.1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.22 -- Employment Agreement, dated as of August 14, 1995, between John A. Schwallie and CME Development Corporation (incorporated by reference to Exhibit 10.26 to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.23 -- Cooperation Agreement among CME Media Enterprises B.V., Ion Tiriac and Adrian Sarbu (incorporated by reference to Exhibit 10.27 to the Company's Registration Statement No.33- 96900 on Form S-1 filed September 13, 1995). 10.24 -- Preliminary Agreement, dated June 12, 1995, between CME Media Enterprises B.V. and Markiza-Slovakia s.r.o. (incorporated by reference to Exhibit 10.28 to the Company's Registration Statement No. 33-96900 on Form S-1, filed September 13, 1995). 10.24A -- Memorandum of Association between CME Media Enterprises, B.V. and Markiza-Slovakia s.r.o. (incorporated by reference to Exhibit 10.28A to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.24B -- Articles of Association of Slovenska Televizna Spolocnost, s.r.o. founded by CME Media Enterprises, B.V. and Markiza-Slovakia s.r.o. (incorporated by reference to Exhibit 10.28B to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.25 -- Modification of the Articles of Association of 2002 Tanacsado es Szolgaltato Karlatolt Felelossegu Tarasag, dated March 1, 1995 (incorporated by reference to Exhibit 10.29 to the Company's Registration Statement No. 33-96900 on Form S-1, filed September 13, 1995).
110
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- -------------------------------------------------------------- ---------- 10.26 -- The Constituent Agreement on the Activity of the Ukrainian-Dutch Joint Venture with Limited Liability 'Gravis', dated September 12, 1995, among Manufacturing-Commercial Firm VGV and Victor K. Leshyk, Olna O. Mykhailova, Pavlo D. Bohdan, Volodymyr P. Popov, and CME Media Enterprises, B.V. (incorporated by reference to Exhibit 10.30 to Amendment No.1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.26A -- Charter of the Ukrainian-Dutch Joint Venture with Limited Liability Gravis, dated September 12, 1995 (incorporated by reference to Exhibit 10.30A to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.27 -- Heads of Agreement, dated September 6, 1995, between Dr. Dietmar Straube, CME Medienbeteiligungen GmbH & Co. Media Enterprises KG and Sachsen Funk und Fernsehen GmbH. (incorporated by reference to Exhibit 10.31 to Amendment No. 1 to the Company's Registration Statement No. 33-96900 on Form S-1, filed October 18, 1995). 10.28 -- Contract of Sale, dated July 7, 1995 between In Razvoj in Svetovanje d.o.o. Ljubljana and Produkcija Plus d.o.o. Ljubljana and Central European Media Enterprises Group (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.29 -- Loan Agreement, dated December 4, 1995, between CME Media Enterprises, B.V., and Inter Media S.R.L. (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.30 -- Loan Agreement, dated as of March 4, 1996, by and between CME Media Enterprises B.V. as lender and Nova Mova TV Company (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.31 -- Contocurrent Credit Contract kept with the Current Account, dated as of November 1, 1995 between Ceska Sporitelna a.s. and Czech Independent Television Company s.r.o. (Ceska Nezavisla Televizni Spolecnost s.r.o.) (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.32 -- Quota Purchase Agreement for Videovox (incorporated by reference to Exhibit 10.01 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 10.32A -- Amendment to the Quota Purchase Agreement for Videovox (incorporated by reference to Exhibit 10.02 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 10.33 -- Transfer Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.03 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 10.33A -- Annex to Transfer Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.04 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 10.34 -- Loan Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.05 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996).
111
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- -------------------------------------------------------------- ---------- 10.35 -- Agreement on a Future Agreement between Ceska Sporitelna and CME BV (incorporated by reference to Exhibit 10.06 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 10.36 -- Bridge Loan Agreement between ING bank and CME BV (incorporated by reference to Exhibit 10.07 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 10.37 -- Share Pledge Agreement between ING bank and CME BV (incorporated by reference to Exhibit 10.08 to the Company's Report on Form 10-Q for the quarterly period ended June 30, 1996). 10.38 -- Loan Agreement beween Vladimir Zelezny and CME dated August 1, 1996 (incorporated by reference to Exhibit 10.01 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.38A -- Amendment to the Loan Agreement of August 1, 1996 and agreements referred to as Security Documents between Vladimir Zelezny and CME, dated as of March 11, 1997. 10.39 -- Promissory Note in Favor of Ronald S. Lauder, dated October 2, 1996 (incorporated by reference to Exhibit 10.02 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.40 -- Ronald S. Lauder Warrant for the Purchase of Shares, dated October 2, 1996 (incorporated by reference to Exhibit 10.03 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.41 -- Articles of Association for Mobil Rom S.A., dated September 26, 1996 (incorporated by reference to Exhibit 10.04 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.42 -- Company Agreement for the creation of Mobil Rom S.A., dated September 26, 1996 (incorporated by reference to Exhibit 10.05 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.43 -- GSM General Agreement, dated September 26, 1996 (incorporated by reference to Exhibit 10.06 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.44 -- Unimedia Assignment of Shares Agreement, dated September 22, 1996 (incorporated by reference to Exhibit 10.07 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.45 -- Additional Agreement for Unimedia, dated September 26, 1996 (incorporated by reference to Exhibit 10.08 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.46 -- Unimedia Warranties, dated September 26, 1996 (incorporated by reference to Exhibit 10.09 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.47 -- Agreement between CME, Boris Fuchsmann, Alexander Rodniansky and Innova Film GmbH in English, dated October 25, 1996 (incorporated by reference to Exhibit 10.10 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.48 -- Agreement between CME, Boris Fuchsmann, Alexander Rodniansky and Innova Film GmbH in German, dated October 25, 1996 (incorporated by reference to Exhibit 10.11 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996).
112
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- -------------------------------------------------------------- ---------- 10.49 -- TVN--Realbud Agreement, dated September 4, 1996 (incorporated by reference to Exhibit 10.12 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.50 -- TVN--Realbud Agreement, dated September 4, 1996 (incorporated by reference to Exhibit 10.13 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.51 -- TVN--Realbud Agreement, dated September 6, 1996 (incorporated by reference to Exhibit 10.14 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.52 -- Appendix to the TVN--Realbud Agreement, dated September 19, 1996 (incorporated by reference to Exhibit 10.15 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.53 -- TVN--Realbud Share Sale Agreement, dated October 30, 1996 (incorporated by reference to Exhibit 10.16 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.54 -- Annex No. 2 to the Supplementary Agreement between TVN and Realbud, dated October 30, 1996 (incorporated by reference to Exhibit 10.17 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.55 -- Poland Street Lease Agreement, dated April 2, 1996 (incorporated by reference to Exhibit 10.18 to the Company's Report on Form 10-Q for the quarterly period ended September 30, 1996). 10.56 -- Share Purchase Agreement between IDOS Praha, spol. s.r.o. and CME Media Enterprises B.V., dated November 15, 1996. 10.57 -- Share Purchase Agreement between Releas, a.s. and CME Media Enterprises B.V., dated December 3, 1996. 10.58 -- Share Purchase Agreement between Ceska Sporitelna a.s. and CME Media Enterprises B.V., dated December 12, 1996. 10.59 -- Agreement on Assignment of Claim between Ceska Sporitelna, a.s. and CME Media Enterprises B.V., dated December 12, 1996. 10.60 -- Assignment of Shares Agreement between Balaclava B.V., Adrian Sarbu (as shareholders of PRO TV Ltd.), CME Media Enterprises B.V., Grigoruta Roxana Dorina and Petrovici Liana, dated December 6, 1996. 10.61 -- Quota Purchase Agreement between and by Magyarhang Dubbing and Production Limited Liability Company and CME Media Enterprises B.V., dated December 23, 1996. 10.62 -- Shareholders Agreement between TVN, Ltd. and Ambresa, dated December 30, 1996. 10.63 -- First Amendment to Stock Purchase Agreement between ITI Media Group N.V. and CME Media Enterprises B.V., dated December 31, 1996. 10.64 -- Net Reimbursement Agreement by and among International Teleservices Limited, International Media Services, Limited and Limited Liability Company 'Prioritet', dated February 13, 1997. 10.65 -- Agreement by and between International Media Services, Ltd and Innova Film GmbH, dated January 23, 1997. 10.66 -- Amended and Restated Charter of the Enterprise 'Inter-Media', dated January 23, 1997. 10.67 -- Amended and Restated Charter of the Broadcasting Company 'Studio 1+1', dated January 23, 1997.
113
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- -------------------------------------------------------------- ---------- 10.68 -- Amended and Restated Foundation Agreement on the Establishment and Operation of the Broadcasting Company 'Studio 1+1,' dated January 23, 1997. 10.69 -- Protocol of the Participants' Assembly of the Broadcasting Company 'Studio 1+1,' dated January 23, 1997. 10.70 -- Marketing, Advertising and Sales Agreement by and between International Media Services Ltd and Innova Film GmbH, dated January 23, 1997. 10.71 -- Marketing and Sales Agreement by and between International Media Services Ltd. and Prioritet, dated January 23, 1997. 10.72 -- Lease between Sony Music Entertainment (UK) Limited and CME Development Corporation, dated December 19, 1996, concerning Great Marlborough Street, London premises. 21.01 -- List of subsidiaries. 23.01 -- Consent of Arthur Andersen & Co. 27.01 -- Financial data schedule.
(b) -- Current Reports on Form 8-K: None (c) -- Exhibits: See (a)(5) above for a listing of the exhibits included as part of this report. (d) -- Report of Independent Public Accountants on Schedule Schedule II--Schedule of Valuation Allowances 114 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. CENTRAL EUROPEAN MEDIA ENTERPRISES LTD. BY: /s/ LEONARD M. FERTIG Leonard M. Fertig President and Chief Executive Officer March 23, 1997 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - -------------------------- ------------------------------------ -------------- /s/ RONALD S. LAUDER Chairman of the Board of Directors March 23, 1997 Ronald S. Lauder /s/ LEONARD M. FERTIG President, Chief Executive Officer March 23, 1997 Leonard M. Fertig and Director (Principal Executive Officer) /s/ JOHN A. SCHWALLIE Vice President--Finance and Chief March 23, 1997 John A. Schwallie Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ NICOLAS G. TROLLOPE Vice President, Secretary and March 23, 1997 Nicolas G. Trollope Director /s/ ANDREW GASPAR Director March 23, 1997 Andrew Gaspar /s/ HERBERT S. SCHLOSSER Director March 23, 1997 Herbert S. Schlosser /s/ ROBERT A. RAYNE Director March 23, 1997 Robert A. Rayne
115 INDEX TO SCHEDULES Report of Independent Public Accountants on Schedule:...................... S-2 Schedule II: Schedule of Valuation Allowances............................. S-3 S-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To: Central European Media Enterprises Ltd.: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Central European Media Enterprises Ltd. included in this filing and have issued our report thereon dated March 24, 1997. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the accompanying index is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen & Co. Hamilton, Bermuda March 24, 1997 S-2 SCHEDULE II SCHEDULE OF VALUATION ALLOWANCES $000s
BALANCE AT CHARGED TO CHARGED TO BALANCE AT JANUARY 1, COSTS AND OTHER DECEMBER 31, 1996 EXPENSES ACCOUNTS DEDUCTIONS 1996 ---------- ---------- ---------- ---------- --------------- Bad debt provision... 1,105 2,095 -- -- 3,200 Development costs.... 4,373 714 -- (4,091) 996
BALANCE AT CHARGED TO CHARGED TO BALANCE AT JANUARY 1, COSTS AND OTHER DECEMBER 31, 1995 EXPENSES ACCOUNTS DEDUCTIONS 1995 ---------- ---------- ---------- ---------- --------------- Bad debt provision... 945 160 -- -- 1,105 Development costs.... 985 3,388 -- -- 4,373
BALANCE AT CHARGED TO CHARGED TO BALANCE AT JANUARY 1, COSTS AND OTHER DECEMBER 31, 1994 EXPENSES ACCOUNTS DEDUCTIONS 1994 ---------- ---------- ---------- ---------- --------------- Bad debt provision... -- 945 -- -- 945 Development costs.... -- 985 -- -- 985
S-3 EX-10.15D 2 FOURTH SUPPLEMENTARY LOAN AGREEMENT Fourth Supplementary Loan Agreement ("Agreement") made on the 29 Feb., 1996 Between (1) CME MEDIA ENTERPRISES B.V., a limited liability company organized and existing under the laws of The Netherlands with its registered office at 29 Leidenplatz, Amsterdam, The Netherlands (hereinafter referred to as the "Lender"), represented by Mr. Loenard Fertig; and (2) RADIO ALFA a.s., a joint stock company organized and existing under the laws of the Czech Republic with its registered office at Na Porici 12, Prague 1, Czech Republic, Company Identification Number 49240935, Bank Account Number CSPO 159650-988/0800 and represented by Ing. Vaclav Kasik (hereinafter referred to as the "Borrower"). WHEREAS: A. The loan agreement which the parties concluded on February 9, 1995 (the "Original Loan Agreement") foresees the possibility of additional loans being provided by the Lender to the Borrower. B. The Lender has already provided three additional loans to the Borrower in the amount of 25 Million CZK under the Supplementary Loan Agreement dated March 30, 1995 and in the amount of 20 Million CZK under the Second Supplementary Loan Agreement dated July 14, 1995 and in the amount of 9 Million CZK under the Third Supplementary Loan Agreement dated December 11, 1995. C. The Lender now to proffer and the Borrower wishes to receive a fourth additional loan facility. The parties have therefore agreed to the following: 1. THE LOAN 1.1 The Lender shall advance to the Borrower an additional loan in the amount of twelve million Czech crowns (12.000.000 CZK) ("the Loan amount"). 2. TERMS AND CONDITIONS 2.1. The terms and conditions of the loan and of the entry into effect of this Agreement shall be identical to those set out in the Original Loan Agreement, except in the following particulars: 2.1.1. In lieu of a payment schedule, the Loan amount shall be disbursed in full to the Borrower's aforementioned bank account, within thirty (30) days of the entry into effect of this Agreement. 2.1.2. Article 8 (Approvals) of the Original Loan Agreement shall not apply to this Agreement. However, the Borrower is obliged to report the terms of this loan to the Czech National Bank pursuant to its obligation under the foreign exchange regulations. 2.1.3. Article 9 (Governing law and Interpretation) of the Original Loan Agreement shall also not apply to this Agreement. 2.2. For the purpose of the securing of this Loan, the equipment of Radio Alfa, a.s. as described in provision 4.1. of the Original Loan Agreement, will be increased with all equipment and receivables, obtained by Radio Alfa, a.s., before the date of this contract. 3. GOVERNING LAW AND ARBITRATION 3.1. This Agreement shall be governed by and construed in accordance with the laws of the Czech Republic. Any dispute that may result from this transaction shall be resolved by Arbitration court attached to the Economic Chamber of the Czech Republic and the Agricultural Chamber of the Czech Republic. Proceedings shall be conducted in the English and Czech language in accordance with the ICC arbitration rules. 4. ENTRY INTO EFFECT 5. COUNTERPARTS, LANGUAGE OF AGREEMENT AND INTERPRETATION 5.1. The Agreement shall be executed in four (4) counterparts, of which each party shall retain two, one in English and one in Czech. 5.2. The Agreement is executed in both the English and the Czech languages, but in the event of any dispute the Czech language version shall govern. In the event of any conflict between the meaning of any provision in the Agreement and that of the Original Loan Agreement, the interpretation which most conforms to this Agreement shall prevail. IN WITNESS HEREOF the parties attach their signatures: Signed Signed /s/ /s/ - ---------------------------- ------------------------------------- for and on behalf of for and on behalf of Radio Alfa, a.s. CME Media Enterprises B.V. EX-10.15E 3 FIFTH SUPPLEMENTARY LOAN AGREEMENT Fifth Supplementary Loan Agreement ("Agreement") made on 29 November, 1996 Between (1) CME MEDIA ENTERPRISES B.V., a limited liability company organized and existing under the laws of The Netherlands with its registered office at 29 Leidenplatz, Amsterdam, The Netherlands (hereinafter referred to as the "Lender"), represented by Mr. Loenard Fertig; and (2) RADIO ALFA a.s., a joint stock company organized and existing under the laws of the Czech Republic with its registered office at Na Porici 12, Prague 1, Czech Republic, Company Identification Number 49240935, Bank Account Number CSPO 159650-988/0800 and represented by Ing. Vaclav Kasik (hereinafter referred to as the "Borrower"). WHEREAS: A. The loan agreement which the parties concluded on February 9, 1995 (the "Original Loan Agreement") foresees the possibility of additional loans being provided by the Lender to the Borrower. B. The Lender has already provided four additional loans to the Borrower. C. The Lender now to proffer and the Borrower wishes to receive a fourth additional loan facility. The parties have therefore agreed to the following: 1. THE LOAN 1.1. The Lender shall advance to the Borrower an additional loan in the amount of twenty million Czech crowns (20.000.000 CZK) ("the Loan amount"). 2. TERMS AND CONDITIONS 2.1. The terms and conditions of the loan and of the entry into effect of this Agreement shall be identical to those set out in the Original Loan Agreement, except in the following particulars: 2.1.1. In lieu of a payment schedule, the Loan amount shall be disbursed in full to the Borrower's aforementioned bank account, within seven (7) days of the entry into effect of this Agreement. 2.1.2. Article 8 (Approvals) of the Original Loan Agreement shall not apply to this Agreement. However, the Borrower is obliged to report the terms of this loan to the Czech National Bank pursuant to its obligation under the foreign exchange regulations. 2.1.3. Article 9 (Governing law and Interpretation) of the Original Loan Agreement shall also not apply to this Agreement. 2.2. For the purpose of the securing of this Loan, the equipment of Radio Alfa, a.s. as described in provision 4.1. of the Original Loan Agreement, will be increased with all equipment, obtained by Radio Alfa, a.s., between 11th December 1995 and the date of this contract. 3. GOVERNING LAW AND ARBITRATION 3.1. This Agreement shall be governed by and construed in accordance with the laws of the Czech Republic. Any dispute that may result from this transaction shall be resolved by Arbitration court attached to the Economic Chamber of the Czech Republic and the Agricultural Chamber of the Czech Republic. Proceedings shall be conducted in the English and Czech language in accordance with the ICC arbitration rules. 4. ENTRY INTO EFFECT 4.1. This Agreement shall enter into effect upon its signature by the Parties. 5. COUNTERPARTS, LANGUAGE OF AGREEMENT AND INTERPRETATION 5.1. The Agreement shall be executed in four (4) counterparts, of which each party shall retain two, one in English and one in Czech. 5.2. The Agreement is executed in both the English and the Czech languages, but in the event of any dispute the Czech language version shall govern. In the event of any conflict between the meaning of any provision in the Agreement and that of the Original Loan Agreement, the interpretation which most conforms to this Agreement shall prevail. IN WITNESS HEREOF the parties attach their signatures: Signed Signed /s/ /s/ - ------------------------ ---------------------- for and on behalf of CME for and on behalf of Media Enterprises B.V. Radio Alfa, a.s. EX-10.38A 4 AMENDMENT TO THE LOAN AGREEMENT Amendment to the Loan Agreement of August 1, 1996 and agreements referred to as Security Documents This Amendment to the Loan Agreement of August 1, 1996 and agreements referred to as Security Documents (hereinafter referred to as the "Amendment") is made as of March 11, 1997 (hereinafter referred to as the "Effective Date") between: 1) PhDr. Vladimir o elezny, an individual residing at Sibeliova 45, Praha 6, the Czech Republic, with birth number 450303/951 (hereinafter referred to as the "Borrower") and 2) CME Media Enterprises B. V., a limited liability company organised and existing under the laws of the Netherlands, with its registered office at Leidseplein 29, Amsterdam, the Netherlands, represented by Leonard Martin Fertig, the Managing Director (hereinafter referred to as the "Lender") The Borrower and the Lender are hereinafter individually referred to as the "Party" and collectively referred to as the "Parties". WHEREAS: A. The General Meeting of CNTS approved on December 17, 1996 such changes which resulted in obtaining the Target Participation Interest in CNTS by CME and such changes have been submitted into the Companies Register. B. The Council of the Czech Republic for Radio and TV Broadcasting abolished the License condition No. 17 of the Licence No. 001/93 on December 17, 1997 which decision shall enter into legal effect and become enforceable on February 25, 1997. Based upon the following the Parties herein declare: 1. That the Lender having fulfilled all the obligations, covenants and /or promises he has had under the Loan Agreement and the underling Security Documents (hereinafter referred to as the "the Loan Agreement"). Insofar as any obligation has not been specifically fulfilled or performed it is hereby by the Lender waived. 2. The Parties further declare that all Release Events have either occurred or are deemed to have occurred. The Parties, therefore, have agreed to completely release the Lender from all of his obligations including but not limited to the repayment of the Loan with any interest which may apply by this Release subject to the fulfilment of the following preceding conditions: 2.1. the Borrower shall submit to the Lender a copy of the binding agreement concluded between the Borrower and other of all the remaining participants of NOVA - Consulting, a. s. (hereinafter referred to as "NOVA - Consulting") who are the shareholders of this company that at all relevant times the Borrower shall obtain the right of the first refusal to obtain the shares of the other remaining shareholder's shares for a fait price, that the Borrower shall notify the Lender of any such offer if and when occurs and that he shall exercise it if so requested or shall solely be authorised to offer such shares to the Lender on the same conditions as stated hereinafter below; and 2.2. that the Borrower shall in writing confirm the obligation to offer all the shares of the entire or any part of NOVA - Consulting Participation Interest in NOVA - Consulting and/or in CNTS on a priority basis to the Lender under the conditions as referred in the Articles of Association and the Investment Agreement of CNTS as amended; and 2.3. that the Borrower shall submit to the Lender a satisfactory unilateral obligation in consideration of this Release and waivers contained herein that the Borrower during the period of duration of the License, or the extension or renewals thereof shall exercise his voting rights in CET 21 s.r.o. to cause CET 21 s.r.o. not to violate any existing or in the future entered into agreements between CET 21 s.r.o. and CNTS or the Lender and CNTS as long as such agreements have been duly entered into between such entities and that in the case of renewal of CET 21 license or an application for renewal the Borrower will exercise his voting rights to ensure that the agreements between CNTS and CET 21 are extended; and 2.4. that the Borrower shall submit in writing his power of attorney granted to a law firm or an attorney of the Lender's choice authorising such attorney to exercise in mortis causa (in the event of his death) his all voting rights associated with his interest in which he may possess in CET 21 s.r.o. or its successor at the time of his death and which power shall not be revoked; and 2.5. that in the event the registration of the Target Participation Interest of CME in CNTS is for any reason not caused by CME declined by the court or prevented due to changes of Czech laws, the validity of the Loan Agreement and Security Documents shall be fully reinstalled and such documents shall become valid and fully enforceable. 3. Should the Borrower violate any of the foregoing commitments the Lender shall be entitled to the contractual penalty in the amount in accordance with a provision 10. 8. of the Memorandum of Association and Investment Agreement of CNTS as approved on November 14, 1996 which does substitute for any claim for damages the Lender may have. 4. Any amendment or waiver of any provision of this Amendment and any waiver of any default under this Amendment shall only be effective if made in writing and signed by the Lender. 5. If any provision of this Amendment is invalid, ineffective, unenforceable or illegal for any reason, such decision shall not affect the validity or enforceability of any or all of the remaining provisions. The Parties agree that should any provision of this Amendment be invalid or unenforceable, they shall promptly enter into good faith negotiations to amend such provision in such a way that, as emended, it is valid and legal and to the maximum extent possible carries out the original intent of the Parties as to the issues or issues in question. 6. The failure of the Lender to exercise any right or power given to it under this Amendment or to insist upon strict compliance with the terms of this Amendment by the other Party, shall not constitute a waiver of the terms and conditions of this Amendment with respect to any subsequent breach thereof, nor a waiver by the Lender of its rights at any time thereafter to require strict compliance with all the terms of this Amendment. 7. The Lender may assign or transfer any of its rights or obligations under this Amendment without the prior consent of the Borrower. The Borrower shall not, without the prior written consent of the Lender, assign or transfer any of its rights and/or obligations under this Amendment, such consent to be withheld or granted by the Lender in its sole discretion. 8. This Amendment shall be governed by and construed in accordance with the laws of the Netherlands without giving effect to the conflicts of laws provisions thereof. 9. All disputes, controversies or claims arising out of or in connection with this Amendment shall be finally settled in accordance with the UNCITRAL Arbitration Rules in force as of the Effective Date; provided, however, that the Lender, and only the Lender, may in its sole discretion elect to commence legal action against the Borrower in the courts (or other relevant tribunal or forum) of the Czech Republic and the Borrower hereby submits to the jurisdiction of such Czech courts, tribunals or forums. For the avoidance of doubt, the Borrower hereby waives any right to commence legal or equitable action arising out of in connection with any dispute, controversy or claim arising out of or in connection with this Amendment in any forum, court or tribunal other than by arbitration in Amsterdam as provided hereinafter below: 9.1. There shall be 3 (in words: three) arbitrators. The appointing authority shall be the President of the Amsterdam Chamber of Commerce. If the appointing authority refuses to act or fails to appoint an arbitrator within 30 (in words: thirty) days of the receipt of the parties' request thereof, any party may request the Secretary-General of the Permanent Court of Arbitration at the Hague to designate an appointing authority. 9.2. The language of arbitration proceedings shall be English; all submissions and awards in relation to the arbitration shall be conducted in English. The place of arbitration shall be Amsterdam. 10. This Amendment is executed in 6 (in words: six) counterparts in the English language, with 3 (in words: three) counterparts for each Party. 11. The provisions of the articles 8., 9. and 10. shall survive the expiration or termination of this Amendment. 12. All notices, consents, requests, instructions, approvals and other communications provided for herein shall be in writing and shall be deemed validly given upon personal delivery or on the day of being sent by telecopy or overnight courier service: 12.1. To the Lender at: CME Media Enterprises B.V. Leidseplein 29 Amsterdam, the Netherlands with a copy to: CME Group 18 D'Arblay Street London W1V 3FP United Kingdom Facsimile: 44-171-292-7901 12.2. To the Borrower at: PhDr. Vladimir o elezny Sibeliova 45 Praha 6, Czech Republic or at such other address and telecopy number as either Party may designate by written notice to the other Party. IN WITNESS WHEREOF, the Parties hereto have executed this Amendment on the Effective Date. _________________________ _________________________ the Lender the Borrower EX-10.56 5 SHARE PURCHASE AGREEMENT SHARE PURCHASE AGREEMENT entered into pursuant to Section 13 and following of Act No. 591/1992 Coll. on Securities and Section 358 and following and Section 409 and following of Act. No. 513/1991 Coll., the Commercial Code This Share Purchase Agreement (hereinafter "the Agreement") has been entered into on November 15, 1996 between 1. IDOS Praha, spol. s r. o., with its registered office at Praha 8, Kubisova 17, IDN: 4387 0660, represented by the Executive Ing. Lubomir Kasak (hereinafter only "the Seller"), bank address: Komercni banka, a. s., pobocka Pribram, bank account: 15800-211/0100, SWIFT CODE: - KOMB CZ PP and 2. CME Media Enterprises B.V., with its registered office at Leidseplein 29, Amsterdam, the Netherlands, represented by JUDr. Martin Radvan, LL. M., advocate at the law office at Praha 1, Jindrisska 20, on the basis of the power of attorney of July 17, 1996 (hereinafter only "the Purchaser"), (hereinafter independently only "the Party" and collectively only "the Parties"). Preamble The Seller represents that it legally owns 1,600 (in words: one thousand and six hundred) registered shares each having a nominal value of CZK 10,000 (in words: ten thousand Czech crowns) in Radio Alfa, a. s., with its registered office at Praha 1, Na po0iei 12, IDN: 4924 0935, (numbers of shares from 2.601 to 4.200) incorporated in the Companies Register maintained at the Regional Court of Commerce in Prague, Part B, Insert No. 2055 (hereinafter only "the Company"), such shares representing 32% of the Company's Registered Capital (hereinafter "the Shares") which is registered at the date of entering of this Agreement on the number of insert hereto. 1 I. Purpose of the Agreement The Seller offers, sells and transfers to the Purchaser, and the Purchaser accepts the offer of, purchases and acquires from the Seller, the Shares in the Company. II. Purchase Price and Terms of Payment 1. The Purchase Price of the Shares has been agreed between the Parties to be CZK 22,000,000 (in words: twenty-two million Czech crowns), and shall be payable as follows: a) Within 14 days from the day of effect of this Agreement the Purchaser shall pay to the Seller's account a sum of CZK 16,000,000 (in words: sixteen million Czech crowns); b) As to the 31st of January of 1997, 1998 and 1999 the Purchaser shall each year pay a sum of CZK 2,000,000 (in words: two million Czech crowns) to the Seller, thereby settling the balance of CZK 6,000,000 (in words: six million Czech crowns) of the total Purchase Price agreed. 2. The day on which the respective sum is credited to the Seller's Account No. 15800-21/0100 at the Pribram office of Komercni banka, a. s., or to a different account the details of which the Seller shall provide to the Purchaser no later than 30 (in words: thirty) days before the instalment is due, shall be regarded as the day of payment. 3. Interest of 0.04 % for each day of delay has been agreed to be payable in case the Purchaser should default on paying the Purchase Price by the dates as above agreed. III. The Seller's Obligations 1. The representative of the Seller is obliged to escrow, with attendance of the representative of the Purchaser, the Shares in time of signing this Agreement to a notary deposit at the notary office of JUDr. Ales Brezina, residing at Praha 1, Petrska 12 (hereinafter only "the Notary"). 2. The representative of the Seller is obliged to appear the Notary, to draw, with the attendance of the representative of the Purchaser, the Shares from the deposit endorse, before the Notary, the Share transfer to the Purchaser on the back of the Share Certificates. The endorsement must be complete with all the required details stipulated in Section 156 of Act No. 513/1991 Coll., the Commercial Code, and Section 11 and the following Sections of Act No. 191/1950 Coll., the Bills of Exchange Act; within 5 (in words: five) days after the payment under the Section II. para 1 point a) will be credit at the Seller's account in order the Shares could be transferred into the Purchaser's ownership. 2 3. A record shall be made of the procedures carried out under paragraphs 1 and 2 above. The record shall be signed by the representative of the Seller and the representative of the Purchaser, and their signatures shall be verified. 4. The Seller shall notify the Company of the Share transfer within 3 (in words: three) days of the day on which it delivers the Shares to the Purchaser. 5. If the Seller was under the obligation to obtain any approval with the sale of the Shares, the Seller hereby declares that all such approvals have been obtained. IV. The Purchaser's Obligations 1. The Purchaser shall in all respects grant its co-operation to the Seller to support the Seller in meeting its obligations under Article III. hereof. 2. The Purchaser shall notify the Company of the Share transfer within 3 (in words: three) days from the day on which the Shares are delivered to the Purchaser. V. Contractual Fine 1. A contractual fine of 1,000 USD (in words: one thousand U. S. dollars) per each day of delay has been agreed between the Parties to be applicable should the Purchaser be in breach of the arrangements of the Article II. The Purchaser is exempt of a contractual fine if he proves that he would give to the bank a proper instruction to pay the respective amount to the account of the Seller in such advance before the respective amount would be payable, that adhering the rules of the international bank communication the amount should be reimbursed to the account of the Seller on time and that the financial resources sufficient to payment of the appropriate amount would be on its account. 2. A contractual fine of CZK 3,000,000 (in words: three million Czech crowns) has been agreed between the Parties to be applicable should either of the Parties be in breach of the arrangements of the Article III. or IV. of this Agreement. 3. The Party in breach shall pay the fine to the other Party irrespective of whether in this connection, and if so to what extent, the other Party has suffered any damage that may be claimed separately. 4. The contractual fine shall be paid to the bank account within 10 (in words: ten) day after the breach of this Agreement. 3 VI. Final Provisions 1. This Agreement is valid and effective upon its signing. If the Purchaser does not fulfil its obligation defined in the Article II. para 1a), the Seller can declare the Agreement invalid. If the Party does not fulfil its obligations defined in Articles II. para 1b), III. and IV. of this Agreement, the second Party has the right to withdraw this Agreement. The declaration of invalidity or the withdrawal must be noticed in written form to the second Party within 30 (in words: thirty) days after the breach. The Agreement shall be in this case withdrawn from the beginning and the Parties are obliged to give the mutually provided fulfilment. 2. This Agreement has been entered into subject to, and shall be governed by the Czech law. 3. This Agreement has been made out in the Czech and English languages. Both language versions are equal. The appropriate disputes shall be decided pursuant to the counterpart in Czech language. 4. This Agreement has been made out in four counterpart copies in each language version. Each of the Parties shall receive two Czech copies and two English copies of this Agreement. 5. Amendments or changes to this Agreement, if any, may only be made in writing, subject to the consent of both Parties hereto. 6. The Parties have agreed that all disputes, if any, arising from or in connection with this Agreement shall first of all be settled in an amicable manner. In the event no amicable solution is reached within 30 (in words: thirty) days. All disputes arising from or in connection with this Agreement finally decided in the arbitration proceedings at the Court of Arbitration attached to the Chamber of Economy of the Czech Republic and the Agrarian Chamber of the Czech Republic by three arbitrators designated pursuant to the Rules. The proceedings shall be governed by the Rules of the Court of Arbitration. 7. If it is not stated in this Agreement otherwise, the relevant provisions of the Act No. 591/1992 Coll. on Securities, and of the Act No. 513/1991 Coll., the Commercial Code, shall be used. This Agreement constitutes a proper and solemn expression of free will of both Parties hereto. In witness whereof, the Parties attach hands of their authorised representatives hereto. ------------------------- ------------------------- the Seller the Purchaser EX-10.57 6 SHARE PURCHASE AGREEMENT SHARE PURCHASE AGREEMENT entered into pursuant to Section 13 and following of Act No. 591/1992 Coll. on Securities and Section 358 and following and Section 409 and following of Act. No. 513/1991 Coll., the Commercial Code This Share Purchase Agreement (hereinafter "the Agreement") has been entered into on December 3, 1996 between 1. Releas, a. s., with its registered office at Praha 8, Chlumeanskeho 5, IDN: 49 24 10 61, represented by Ing. Vladimir Kratina, the Vice-Chairman of the Board of Directors (hereinafter only "the Seller"), bank address: Komercni banka, a. s., pobocka Praha - misto, bank account: 192783300227/0100, SWIFT CODE: KOMB CZ PP and 2. CME Media Enterprises B.V., with its registered office at Leidseplein 29, Amsterdam, the Netherlands, represented by JUDr. Martin Radvan, LL.M., advocate at the law office at Praha 1, Jindrisska 20, on the basis of the power of attorney of July 17, 1996 (hereinafter only "the Purchaser"), (hereinafter independently only "the Party" and collectively only "the Parties"). Preamble The Seller represents that it legally owns 1,000 (in words: one thousand) registered shares each having a nominal value of CZK 10,000 (in words: ten thousand Czech crowns) in Radio Alfa, a. s., with its registered office at Praha 1, Na porici 12, IDN: 4924 0935, (numbers of shares from: 1.601 to 2.600) incorporated in the Companies Register maintained at the Regional Court of Commerce in Prague, Part B, Insert No. 2055 (hereinafter only "the Company"), such shares representing 20% of the Company's Registered Capital (hereinafter "the Shares") which is registered at the date of entering of this Agreement on the number of insert hereto. The Parties concluded on May 24, 1994 the option and they have decided to exercise the option by this Agreement. 1 I. Purpose of the Agreement The Seller offers, sells and transfers to the Purchaser, and the Purchaser accepts the offer of, purchases and acquires from the Seller, the Shares in the Company. II. Purchase Price and Terms of Payment 1. The Purchase Price of the Shares has been agreed between the Parties to be CZK 10,000,000 (in words: ten million Czech crowns), and shall be payable within 14 (in words: fourteen) days after the signing of this Agreement. 2. The day on which the respective sum is credited to the Seller's Account No. 192783300227/0100 in Komercni banka, a. s., pobocka Praha - mesto, or to a different account the details of which the Seller shall provide to the Purchaser no later than at the time of signing of this Agreement. 3. Interest of 0.1 % for each day of delay has been agreed to be payable in case the Purchaser should default on paying the Purchase Price by the dates as above agreed. III. The Seller's Obligations 1. The Seller is obliged at the time of signing to escrow, the Shares to a deposit at the law office of JUDr. Martin Radvan, residing at Praha 1, Jindrisska 20. (hereinafter only "the Depositor"). 2. The Seller is obliged within 10 (in words: ten) days after the payment of the purchase price will be paid to appear the Depositor and to endorse on the back of the Share Certificate the transfer of the Shares with all the required details stipulated in Section 156 of Act No. 513/1991 Coll., the Commercial Code, and Section 11 and the following Sections of Act No. 191/1950 Coll., the Bills of Exchange Act and to give the Shares to the Purchaser. 3. A record shall be made of the procedures carried out under paragraphs 1 and 2 above. The record shall be signed by the Seller and the Purchaser, and their signatures shall be notarised. 4. The Seller shall notify the Company of the Share transfer within 3 (in words: three) days of the day on which it delivers the Shares to the Purchaser. 5. If the Seller was under the obligation to obtain any approval with the sale of the Shares, the Seller hereby declares that all such approvals have been obtained. 2 IV. The Purchaser's Obligations 1. The Purchaser shall in all respects grant its co-operation to the Seller to support the Seller in meeting its obligations under Article III. hereof. 2. The Purchaser shall notify the Company of the Share transfer within 3 (in words: three) days from the day on which the Shares are delivered to the Purchaser. V. Final Provisions 1. A penalty of CZK 1,000,000 ( in words: one million Czech crowns) has been agreed between the Parties to be applicable should either of the Parties be in breach of any of the arrangements hereunder, with the exception of Article II. of this Agreement, which sanction in case of breach is defined independently in the Article II., para 3 of this Agreement. The Party in breach shall pay the penalty to the other Party irrespective of whether in this connection, and if so to what extent, the other Party has suffered any damage that may be claimed separately. 2. This Agreement is valid and effective upon its signing. 3. This Agreement has been entered into subject to, and shall be governed by the Czech law. 4. This Agreement has been made out in the Czech and English languages. Both language versions are equal. 5. This Agreement has been made out in four counterpart copies in each language version. Each of the Parties shall receive two Czech copies and two English copies of this Agreement. 6. Amendments or changes to this Agreement, if any, may only be made in writing, subject to the consent of both Parties hereto. 7. The Parties have agreed that all disputes, if any, arising from or in connection with this Agreement shall first of all be settled in an amicable manner. In the event no amicable solution is reached within 30 (in words: thirty) days. All disputes arising from or in connection with this Agreement finally decided in the arbitration proceedings at the Court of Arbitration attached to the Chamber of Economy of the Czech Republic and the Agrarian Chamber of the Czech Republic by three arbitrators designated pursuant to the Rules. The proceedings shall be governed by the Rules of the Court of Arbitration. 3 8. If it is not stated in this Agreement otherwise, the relevant provisions of the Act No. 591/1992 Coll. on Securities, and of the Act No. 513/1991 Coll., the Commercial Code, shall be used. This Agreement constitutes a proper and solemn expression of free will of both Parties hereto. In witness whereof, the Parties attach their hand hereto. ------------------------- ------------------------- the Seller the Purchaser EX-10.58 7 SHARE PURCHASE AGREEMENT SHARE PURCHASE AGREEMENT entered into pursuant to Section 13 and following of Act No. 591/1992 Coll. on Securities and Section 358 and following of Act No. 513/1991 Coll., the Commercial Code This Share Purchase Agreement (hereinafter "the Agreement") has been entered into on December 12, 1996 between 1. Ceska sporitelna, a. s., with its registered office at Na Prikope 29, Praha 1, PSC 113 98, IDN: 45 24 47 82, represented by JUDr. Karel Kotrba, the Vice-chairman of the Board of Directors and the First Deputy to the General Director, and JUDr. Rudolf Hanus, the member of the Board of Directors and the Deputy to the General Director (hereinafter only "the Seller") and 2. CME Media Enterprises B.V., with its registered office at Leidseplein 29, Amsterdam, the Netherlands, represented by JUDr. Martin Radvan, LL.M., advocate at the law office at Praha 1, Jindrisska 20, on the basis of the power of attorney of July 17, 1996 (hereinafter only "the Purchaser"), (hereinafter independently only "the Party" and collectively only "the Parties"). Preamble The Seller represents that it legally owns 500 (in words: five hundred) registered shares each having a nominal value of CZK 10,000 (in words: ten thousand Czech crowns) in Radio Alfa, a. s., with its registered office at Praha 1, Na porici 12, IDN: 49 24 09 35, (numbers of shares from: 1.101 to 1.600) incorporated in the Companies Register maintained at the Regional Court of Commerce in Prague, Part B, Insert No. 2055 (hereinafter only "the Company"), such shares representing 10% of the Company's Registered Capital (hereinafter "the Shares") which is registered at the date of entering of this Agreement on the number of insert hereto. I. Purpose of the Agreement The Seller is obliged to transfer to the Purchaser the Shares in accordance with terms defined by this Agreement. The Purchaser is obliged to pay the concluded price for the Shares in accordance with terms defined by this Agreement. 1 II. Purchase Price and Terms of Payment 1. The Purchase Price of the Shares has been agreed between the Parties to be CZK 5,500,000 (in words: five million five hundred thousand Czech crowns), and shall be payable within 14 (in words: fourteen) days after the signing of this Agreement. 2. As the date of payment shall be considered the day on which the respective sum pursuant to the point 1. will be credited to the Seller's Account No. 53034-861/0100, variable symbol (v. s.) No.: 471116871, constant symbol (k. s.) No.: 3058 in Komercni banka Praha, SWIFT CODE: KOMB CZ PP or to a different account the details of which the Seller shall provide to the Purchaser no later than at the time of signing of this Agreement. 3. If the Purchaser is in delay with the payment of the Purchase Price, the Purchaser would be obliged to pay an interest of 0.04 % for each day of delay. III. The Seller's Obligations 1. The Seller is obliged within 10 (in words: ten) days after the signing of this Agreement to endorse on the back of the Share Certificate the transfer of the Shares with all the required details stipulated in Section 156 of Act No. 513/1991 Coll., the Commercial Code, and Section 11 and the following Sections of Act No. 191/1950 Coll., the Bills of Exchange Act and to give the Shares to the Purchaser at the Seller's office at Praha 1, Narodni 27. 2. A record shall be made of the procedures carried out under paragraph 1, shall be signed by the Seller and the Purchaser, and their signatures shall be notarised. 4. The Seller shall notify the Company of the Share transfer within 3 (in words: three) days of the day on which it delivers the Shares to the Purchaser. 5. If the Seller was under the obligation to obtain any approval with the sale of the Shares, the Seller hereby declares that all such approvals have been obtained. IV. The Purchaser's Obligations 1. The Purchaser shall in all respects grant its co-operation to the Seller to support the Seller in meeting its obligations under Article III. hereof. 2. The Purchaser shall notify the Company of the Share transfer within 3 (in words: three) days from the day on which the Shares are delivered to the Purchaser. 2 V. Final Provisions 1. A penalty in the amount of 10% (in words: ten percent) of the Purchase Price has been agreed between the Parties to be applicable should either of the Parties be in breach of any of the arrangements hereunder, with the exception of Article II. of this Agreement, which sanction in case of breach is defined independently in the Article II., para 3 of this Agreement. The Party in breach shall pay the penalty to the other Party irrespective of whether in this connection, and if so to what extent, the other Party has suffered any damage that may be claimed separately. 2. This Agreement is valid and effective upon its signing. 3. This Agreement has been entered into subject to, and shall be governed by the Czech law. 4. This Agreement has been made out in the Czech and English languages; in the event of ambiguity the Czech language shall control. 5. This Agreement has been made out in four counterpart copies in each language version. Each of the Parties shall receive two Czech copies and two English copies of this Agreement. 6. This Agreement may only be changed in written form of the Amendments signed by both Parties. 7. The Parties have agreed that all disputes, if any, arising from or in connection with this Agreement shall first of all be settled in an amicable manner. In the event no amicable solution is reached within 30 (in words: thirty) days. All disputes arising from or in connection with this Agreement finally decided in the arbitration proceedings at the Court of Arbitration attached to the Chamber of Economy of the Czech Republic and the Agrarian Chamber of the Czech Republic by three arbitrators designated pursuant to the Rules. The proceedings shall be governed by the Rules of the Court of Arbitration. The proceeding shall take place in Prague in Czech and English languages. 8. If it is not stated in this Agreement otherwise, the relevant provisions of the Act No. 591/1992 Coll. on Securities, and of the Act No. 513/1991 Coll., the Commercial Code, shall be used. 3 This Agreement constitutes a proper and solemn expression of free will of both Parties hereto. In witness whereof, the Parties attach their hand hereto. ------------------------- ------------------------- the Seller the Purchaser ------------------------- the Seller EX-10.59 8 AGREEMENT ON ASSIGNMENT OF CLAIM A G R E E M E N T ON ASSIGNMENT OF CLAIM entered into pursuant to Section 524 and following of Act No. 40/1964 Coll., the Civil Code This Agreement on Assignment of Claim (hereinafter the Agreement") has been entered into on December 12, 1996 between 1. Ceska spo0itelna, a. s., with its registered office at Na Prikope 29, Praha 1, PSC 113 98, IDN: 45 24 47 82, represented by JUDr. Karel Kotrba, the Vice-chairman of the Board of Directors and the First Deputy to the General Director, and JUDr. Rudolf Hanus, the member of the Board of Directors and the Deputy to the General Director (hereinafter only "the Assignor") and 2. CME Media Enterprises B.V., with its registered office at Leidseplein 29, Amsterdam, the Netherlands, represented by JUDr. Martin Radvan, LL.M., advocate at the law office at Praha 1, Jind0isska 20, on the basis of the power of attorney of July 17, 1996 (hereinafter only "the Assignee"), (hereinafter independently only "the Party" and collectively only "the Parties"). I. Representations of the Assignor 1. The Assignor represents that he owns the claim towards the company Radio Alfa, a. s., with its registered office at Praha 1, Na porici 12, IDN: 49 24 09 35 (hereinafter only "the Company"), of the balance (it means, without non-paid accounted interests and fees) of the drawn long-term loan No. 33320-159650-988/0800, based on a loan contract of June 10, 1996 concluded between the Assignor and the Company (hereinafter only "the Loan") in the amount of 17,324,000 CZK (in words: seventeen million three hundred twenty four thousand Czech crowns) at the date of signing (hereinafter only "the Claim") on which the amount 17,324,000 CZK (in words: seventeen million three hundred twenty four thousand Czech crowns) remains due and owing. 2. The Assignor further represents, the Claim validly exists and has not been expired by any agreement between the Assignor and the Company or between the Assignor and any third party and that the Claim is not subject of any legal relation 1 between the Assignor and any third party, including, but not limited that the Claim or any right connected with it has not been assigned to any third party. 3. The Assignor further represents that at this time there is no pending or threatened litigation at the court or any similar authority deciding the disputes, which could suspend the Claim. II. Purpose of the Agreement 1. The Assignor as the creditor of the Company assignees to the Assignee the Claim towards the Company - the balance of the Loan in the amount of 17,324,000 CZK (in words: seventeen million three hundred twenty-four thousands Czech crowns). 2. Non-paid accounted interests of the Loan including fees in the amount of 515,791.80 CZK (in words: five hundred fifteen thousands seven hundred ninety-one Czech Crowns eighty hellers) at the day of the signing of this Agreement, which will remain the obligation of the Company to the Assignor until they will be paid, however, they will not be increased. III. The Payment 1. The Payment of Assignment of the Claim has been agreed between the Parties to be 11,260,600 CZK (in words: eleven million two hundred sixty thousand six hundred Czech crowns) and shall be payable within 14 (in words: fourteen) days after the signing of this Agreement. 2. The day on which the respective sum pursuant to the point 1. is credited to the Assignor's Account No. 159650-988/0800, constant symbol (k. s.) No.: 298, variable symbol (v. s.) No.: 121296 in Ceska sporitelna, a. s., SWIFT CODE: CSPO CZ PP, or to a different account the details of which the Assignor shall provide to the Assignee no later than at the time of signing of this Agreement. 3. If the Assignee is in delay with the payment of the Payment, the Assignee would be obliged to pay an interest of 0.04 % for each day of delay. 2 IV. The Assignor's Obligations 1. The Assignor shall notify the Company of the Assignment of the Claim from the Assignor to the Assignee within 3 (in words: three) days of the day on which the payment pursuant to the Section III. is paid. 2. If the fulfilment of the assigned Claim is secured by the pledge, guarantee or otherwise, the Assignor is obliged to inform about the assignment of the Claim the person, who provided the security of the Claim. 3. If the Assignor was under the obligation to obtain any approval with the assignment of the Claim, the Assignor hereby declares that all such approvals have been obtained. V. The Assignee's Obligation The Assignee is obliged to pay to the Assignor for the assignment the concluded Payment in the amount and in the way defined in the Article III. VI. Final Provisions 1. A penalty of CZK 1,000,000 (in words: one million Czech crowns) has been agreed between the Parties to be applicable should either of the Parties be in breach of any of the arrangements hereunder, with the exception of Article III. of this Agreement, which sanction in case of breach is defined independently in the Article III. The Party in breach shall pay the penalty to the other Party irrespective of whether in this connection, and if so to what extent, the other Party has suffered any damage that may be claimed separately. 2. This Agreement is valid and effective upon its signing. 3. This Agreement has been entered into subject to, and shall be governed by the Czech law. 4. This Agreement has been made out in the Czech and English languages; in the event of ambiguity the Czech language shall control. 5. This Agreement has been made out in four counterpart copies in each language version. Each of the Parties shall receive two Czech copies and two English copies of this Agreement. 3 6. This Agreement may only be changed in written form of the amendments signed by both Parties. 7. The Parties have agreed that all disputes, if any, arising from or in connection with this Agreement shall first of all be settled in an amicable manner. In the event no amicable solution is reached within 30 (in words: thirty) days. All disputes arising from or in connection with this Agreement finally decided in the arbitration proceedings at the Court of Arbitration attached to the Chamber of Economy of the Czech Republic and the Agrarian Chamber of the Czech Republic by three arbitrators designated pursuant to the Rules. The proceedings shall be governed by the Rules of the Court of Arbitration. The proceeding shall take place in Prague in Czech and English languages. 8. If it is not stated in this Agreement otherwise, the relevant provisions of the Civil Code is used. This Agreement constitutes a proper and solemn expression of free will of both Parties hereto. In witness whereof, the Parties attach their hand hereto. ------------------------- ------------------------- the Assignor the Assignee ------------------------- the Assignor EX-10.60 9 ASSIGNMENT OF SHARES AGREEMENT ASSIGNMENT OF SHARES AGREEMENT Concluded between: BALACLAVA B.V. - a limited liability company organized and existing under the laws of the Netherlands with its registered office at 11 Johannes Vermeerplein DV, Amsterdam, represented by Mr. Ion Dinicoiu, as "Assignor Shareholder"; Adrian Sarbu - a citizen of Romania residing in Bucharest, 2-4 Turgheniev Str., Sector 1, Romania, as "Assignor Shareholder" as shareholders of the company PRO TV LTD. registered under the no. J40/24578/1992, following the decision of the General Assembly of the Shareholders from ____________, and CME Media Enterprises B.V. (CME) - a limited liability company organized and existing under the laws of The Netherlands with its registered office at 29 Leidseplein, Amsterdam, represented by Theodore J. Fisher; Grigoruta Roxana Dorina - a citizen of Romania residing in Bucharest, 2 Bozieni Str., Bl. 834, Sc. 2, Et. 10, Ap. 125, Sector 6; Petrovici Liana - a citizen of Romania residing in Bucharest, 10 Radu Boiangiu Str., Bl. 39 A, Sc. A, Et. 7, Ap. 30, Sector 1 as "Third Party Assignees" which agreed the present "Assignment of Shares Agreement", following the decision of The General Assembly of Shareholders of MPI S.A. from 12.07.1996 and of PRO TV Ltd. from ___________ as well as the understandings included in the Cooperation Agreement signed on 04.08.1995, as follows: I. BALACLAVA B.V. - assigns to the "Third Party Assignee" CME Media Enterprises B.V. a number of 2,496 shares, numbered 1,909 to 4,404 inclusive, representing 24,960,000 lei, equivalent to USD 124,800 (at a rate of 200 lei/USD) paid in USD, as contribution in kind, representing 34% of the registered capital. II. ADRIAN SARBU - assigns to the "Third Party Assignees" a number of 1,468 shares, numbered 4,405 to 5,872 inclusive, representing 14,680,000 lei (equivalent to USD 73,400), as contribution in cash, representing 20% of the registered capital, as follows: - - To CME Media Enterprise B.V. - a number of 1,101 shares, numbered 4,405 to 5,505 inclusive, representing 11,010,000 lei (equivalent to USD 55.050), paid in USD, representing 15% of the total registered capital; - - To Grigoruta Roxana Dorina - a number of 183 shares, numbered 5,506 to 5,688 inclusive, representing 1,830,000 lei (equivalent to USD 9,150), paid in lei, representing 2.5% of the total registered capital; - - To Petrovici Liana - a number of 184 shares, numbered 5,689 to 5,872 inclusive, representing 1,840,000 lei (equivalent to USD 9,200), paid in lei, representing 2.5% of the total registered capital; The shares were fully paid by the "Third Party Assignees" to their subscribed and paid value, as follows: CME Media Enterprises B.V. - paid for the assigned shares the amount of USD 179,850 of which USD 124,800 was paid to BALACLAVA B.V. and USD 55,050 to Mr. Adrian Sarbu. Grigoruta Roxana Dorina - paid for the assigned shares the amount of 1,830,000 lei to Mr. Adrian Sarbu. Petrovici Liana - paid for the assigned shares the amount of 1,840,000 lei to Mr. Adrian Sarbu. The "Third Party Assignees" become shareholders according to the provisions of Law no. 31/1990 and they shall have the rights and obligations of a shareholder. The present Agreement was drafted by Petrovici Liana - Lawyer, in 6 copies, \n Bucharest, in Romanian and English languages and authenticated by the Public Notary - Vladica Ratiu Gheorghe. ASSIGNORS ASSIGNEES BALACLAVA B.V. CME MEDIA ENTERPRISE B.V. by ION DINICOIU by, THEODORE J. FISHER /s/ Ion Dinicoiu /s/ Theodore J. Fisher - -------------------- --------------------------- SARBU ADRIAN ROXANA GRIGORUTA DORINA /s/ Sarbu Adrian /s/ Roxana Grigoruta Dorina - -------------------- --------------------------- PETROVICI LIANA /s/ Petrovici Liana --------------------------- AMENDMENT Nr. 6 to the Contract of Association and Statutes of SC PRO TV LTD. authenticated under the no. 12442/11.07.1991 Concluded between: BALACLAVA B.V. - a limited liability company organized and existing under the laws of the Netherlands with its registered office at 11 Johannes Vermeerplein DV, Amsterdam, represented by Mr. Ion Dinicoiu; Adrian Sarbu - a citizen of Romania residing in Bucharest, 2-4 Turgheniev Str., Sector 1, Romania; CME Media Enterprises B.V. (CME) - a limited liability company organized and existing under the laws of The Netherlands with its registered office at 29 Leidseplein, Amsterdam, represented by Theodore J. Fisher; Grigoruta Roxana Dorina - a citizen of Romania residing in Bucharest, 2 Bozieni Str., Bl. 834, Sc. 2, Et. 10, Ap. 125, Sector 6; Petrovici Liana - a citizen of Romania residing in Bucharest, 10 Radu Boiangiu Str., Bl. 39 A, Sc. A, Et. 7, Ap. 30, Sector 1 The shareholders of the company PRO TV LTD. registered under the no. J40/24578/1992, following the decision of the General Assembly of the Shareholders from ____________, agreed to conclude the present Amendment, as follows: 1. Change of capital structure of the Company as a consequence of the Shares Assignment Agreement authenticated under the no._____________ on ______ by the Public Notary - Vladica Ratiu Gheorghe. "The company's registered capital and the book-keeping are expressed in lei. The subscribed registered capital is of 73,400,000 lei (equivalent of 367,000 USD), of which USD 275,050 paid in USD (at a rate of 200 lei/USD) and 18,390,000 lei, paid in cash. The subscribed social capital is composed of: - - 44,000,000 lei, equivalent of USD 220,000, as contribution in kind - - 29,400,000 lei, contribution in cash, of which USD 55.050 in cash was paid in USD. The subscribed registered capital is divided into 7,340 nominative shares of 10,000 lei each. The shares are numbered 1 through 7,340 inclusive and they are held by the shareholders as follows: BALACLAVA B.V. - 19,080,000 lei, equivalent of USD 95,400, holding 1,908 shares, numbered 1 to 1,908 inclusive, representing 26% of the registered capital, paid as follows: 40,000 lei in cash and USD 95,200 contribution in kind. CME MEDIA ENTERPRISES B.V. - 35,970,000 lei (equivalent of USD 179,850), holding 3,597 shares, numbered 1,909 to 5,505 inclusive, representing 49% of the registered capital, paid as follows: USD 55,050 in cash and USD 124,800 contribution in kind. ADRIAN SARBU - 14,680,000 lei (equivalent of USD 73,400) in cash, holding 1,468 shares, numbered 5,873 to 7,340 inclusive, representing 20% of the registered capital. GRIGORUTA ROXANA DORINA - 1,830,000 lei (equivalent of USD 9,150) in cash, holding 183 shares, numbered 5,506 to 5,688 inclusive, representing 2.5% of the registered capital. PETROVICI LIANA - 1,840,000 lei (equivalent of USD 9,200), in cash, holding 184 shares, numbered 5,689 to 5,872 inclusive, representing 2.5% of the registered capital. The registered capital is entirely paid and is the property of the Company. The contribution in kind was entirely transfered to the Company. It was evaluated by the Technical Valuation Report no. 1987/14.02.1982. The contribution in cash was fully paid by the shareholders". Art. 5 of the Contract of Association and Art. 7 of the Statute shall be altered accordingly. The present Amendment was drafted by Liana Petrovici - Lawyer, in 6 copies in English and Romanian languages and authenticated by the Public Notary - Lidia Seceleanu. Liana Petrovici - Lawyer Acting by unanimous consent of the General Assembly of Shareholders of --------------------------------- DECISION of the General Assembly of Shareholders of PRO TV Ltd ---------- The General Assembly of Shareholders was convened for an ordinary meeting. There were present : BALACLAVA B.V. - owner of 60% of the registered capital, represented by Mr. Dinicoiu Ion Adrian Sarbu - owner of 40% of the registered capital. The shareholders representing 100% of the registered capital of PRO TV Ltd were present at the meeting. Agenda 1. Finalizing and drafting of the documents in order to enforce the option right of CME Media Enterprises B.V. set forth in the Cooperation Agreement, signed on 04.08.1995, according to which CME Media Enterprises B.V. intends to aquire 49% of the shares held by PRO TV Ltd. 2. According to that purchasing option, the two shareholders, BALACLAVA B.V. and Adrian Sarbu must to assign 49% of the registered capital of PRO TV Ltd., as follows: I. BALACLAVA B.V. - assigns to the "Third Party Assignee" CME Media Enterprises B.V. a number of 2,496 shares, numbered 1,909 to 4,404 inclusive, representing 24,960,000 lei, equivalent of USD 124,800 (at a rate of 200 lei/USD) paid in USD, as contribution in kind, representing 34% of the registered capital. II. ADRIAN SARBU - assigns to the "Third Party Assignees" a number of 1,468 shares, numbered 4,405 to 5,872 inclusive, representing 14,680,000 lei (equivalent of USD 73.400), contribution in cash, representing 20% of the registered capital, as follows: - - To CME Media Enterprise B.V. - a number of 1,101 shares, numbered 4,405 to 5,505 inclusive, representing 11,010,000 lei (equivalent to USD 55.050), paid in USD, representing 15% of the total registered capital; - - To Grigoruta Roxana Dorina - a number of 183 shares, numbered 5,506 to 5,688 inclusive, representing 1,830,000 lei (equivalent to USD 9,150), paid in lei, representing 2.5% of the total registered capital; - - To Petrovici Liana - a number of 184 shares, numbered 5,689 to 5,872 inclusive, representing 1,840,000 lei (equivalent to USD 9,200), paid in lei, representing 2.5% of the total registered capital; The shares shall be fully paid by the "Third Party Assignees" to their subscribed and paid value, from the setting up of the company. The "Third Party Assignees" become shareholders according to the provisions of Law no. 31/1990 and they shall have the rights and obligations of a shareholder. III. The capital structure shall be modified by Amendment, as follows: "The company's registered capital and the book-keeping are expressed in lei. The subscribed registered capital is 73,400,000 lei (equivalent to 367,000 USD), of which USD 275,050 in USD (at a rate of 200 lei/USD) and 18,390,000 lei, paid in cash. The subscribed social capital is composed of: - - 44,000,000 lei, equivalent to USD 220,000 as contribution in kind; - -29,400,000 lei, contribution in cash, of which USD 55.050 in cash were paid in USD. The subscribed registered capital is divided in 7,340 nominative shares of 10,000 lei each. The shares are numbered 1 through 7,340 inclusive and they are held by the shareholders as follows: BALACLAVA B.V. - 19,080,000 lei, equivalent to USD 95,400, holding 1,908 shares, numbered 1 to 1,908 inclusive, representing 26% of the registered capital, paid as follows: 40,000 lei in cash and USD 95,200 contribution in kind. CME MEDIA ENTERPRISES B.V. - 35,970,000 lei (equivalent of USD 179,850), holding 3,597 shares, numbered 1,909 to 5,505 inclusive, representing 49% of the registered capital, paid as follows: USD 55,050 in cash and USD 124,800 contribution in kind. ADRIAN SARBU - 14,680,000 lei (ecuivalent to USD 73,400) in cash, holding 1,468 shares, numbered 5,873 to 7,340 inclusive, representing 20% of the registered capital. GRIGORUTA ROXANA DORINA - 1,830,000 lei (equivalent to USD 9,150) in cash, holding 183 shares, numbered 5,506 to 5,688 inclusive, representing 2.5% of the registered capital. PETROVICI LIANA - 1,840,000 lei (ecquivalent of USD 9,200), in cash, holding 184 shares, numbered 5,689 to 5,873 inclusive, representing 2.5% of the registered capital. The registered capital is entirely paid and is the property of the Company. The contribution in kind was entirely transfered to the Company. It was evaluated by the Technical Valuation Report no. 1987/14.02.1982. The contribution in cash was fully paid by the shareholders". Acting by unanimous consent, the Shareholders authorize Mrs. Petrovici Liana - Lawyer to fulfil all the requirements of the Law and to sign the Amendment in order to materialize the present decision and to register the Amendment in the Register of Commerce. Shareholders: BALACLAVA B.V. by ION DINICOIU ADRIAN SARBU /s/ Ion Dinicoiu /s/ Adrian Sarbu - ------------------ ---------------- REPRESENTATIONS AND WARRANTIES to the Assignment Agreement concluded between the Assignor - Shareholders Adrian Sarbu and Balaclava B.V. and the Third Party Assignee - CME Media Enterprises B.V. I. The Sole Adminstrator of PRO TV Ltd. warrants and represents that: 1. PRO TV Ltd. is a Romanian legal person existing and functioning under laws No. 31/1990 and No. 35/1991 as modified by the Law 57/1993. 2. The conclusion and execution of this agreement or any other documents by the Assignors or execution of the transactions arising from this contract by the parties: a) do not violate any stipulations of the articles of the Company Agreement, Statute, or any other documents of the Company; b) do not violate or shall not cause the loss of any preemption or option right from any other agreement; c) do not require the authorization, agreement or approval, exemption or any other actions of any other parties; d) do not violate any law or order to which the company is a subject. 3. The company is not in liquidation or reorganization and it is not in litigation with other persons nor has any litigation been threatened that may affect in any way the company or its business. All litigation to which the Company is a Party has been disclosed on the list appended hereto. 4. The Company presented all relevant financial information regarding its activity and this information represents a correct description of the financial situation of the Company as of the date of this Agreement. 5. The Sole Administrator of PRO TV Ltd. presented the accounting balance dated 30.06.1996 to the Third Party Assignee, a copy of which is appended hereto. From the patrimony situation of that date results a certain relationship between the Company' debts and assets, respectively the Company' assets. 6. No assets of the Company have been pleged or otherwise encumbered. 7. The Company has disclosed in writing to Third Party Assignee all significant issues relating to the assets or liabilities of the Company, as well as all material contracts, and any other matter of financial or legal significance. II. The Third Party Assignee - CME Media Enterprises B.V. warrants that: 1. CME is a corporation duly organised, validly existing and it has all requisite power and authority to buy the shares in PRO TV Ltd. 2. As a majority Shareholder, CME shall not make any decision in the General Assembly or in the Company's administration that could result in the restriction, limitation or withdrawal of the Licenses held by PRO TV Ltd. 3. CME shall permanently act in accordance with the requirements of the Romanian laws and shall not cause by any means the violation of the Romanian laws. 4. CME is acquainted with the provisions of the Audio-visual Law, being informed that PRO TV Ltd. is the owner of some TV Licenses, and CME shall not commit any act that could conflict with the Licenses. Executed in 2 copies, in Bucharest, 06.12.1996 We have enclosed the accounting balance of 30.06.1996 herewith. The Sole Administrator of PRO TV Ltd. CME Media Enterprises B.V. ADRIAN SARBU THEODORE J. FISHER /s/ Adrian Sarbu /s/ Theodore J. Fisher - ---------------------- ---------------------- EX-10.61 10 QUOTA PURCHASE AGREEMENT QUOTA PURCHASE AGREEMENT concluded between and by Magyarhang Dubbing and Production Limited Liability Company (1024 Budapest, Keleti Karoly u. 42/a reg.no: 01-09-464-033 repr.: Gyorgy Balo) - hereinafter refereed to as the Seller - and CME Media Enterprise B. V. (Leidseplein 29, 1017 PS Amsterdam, the Netherlands, repr.: Leonard M. Fertig president-CEO) - hereinafter referred to as the Buyer - on the date below, under the following conditions: 1. The Seller is the owner of a quota of Videovox Studio Limited Liability Company (1021 Budapest, Huvosvolgyi ut 64. reg. no.: 01-09-365451) (the "Company") the face value of which is HUF 631,340,000.00 ("Quota"). 2. Upon the terms and subject to the conditions of this Agreement, the Seller sells to the Buyer and the Buyer purchases from the Seller the Quota set forth in Section 1 above. 3. In full consideration for the sale and transfer of the Quota described in Section 1 above, the Buyer shall pay the Seller a purchase price which shall be the US Dollar equivalent of HUF 639,641,000.00 via wire transfer to the Seller's bank account after the execution of this Agreement. The Buyer shall become the owner of the Quota and shall be entitled to exercise the owner's rights attached to the Quota on and from the date of this Agreement. 4. The parties to this Agreement further agree that the Seller is entitled to receive dividend, if any, for the 1996 business year proportionately to the time that has elapsed until the date of this Agreement, if the General Meeting of the Company decides to pay dividend to the members. 5. The Seller hereby declares that it has duly notified the managing director of the Company about its intention to sell the Quota, and the members of the Company have waived their pre-emptive rights attached to the sale of the Quota. 6. The Buyer hereby represents that it is familiar with the terms of the Company's Articles of Association and the amendments thereof and undertakes to be bound by them. 7. This Agreement shall come into force on the date below and the ownership title for the Quota shall be transferred to the Buyer on the same day. 8. This Agreement shall be governed by Hungarian law. For matters which are not included in this Agreement the relevant provisions of Act no. VI. of 1988 on business organizations shall be applicable. December 23, 1996 ................................... ..................................... on behalf of Magyarhang Ltd. on behalf of CME Media Enterprise B.V. Gyorgy Balo managing director Leonard M. Fertig president-CEO EX-10.62 11 SHAREHOLDERS AGREEMENT SHAREHOLDERS AGREEMENT On December 30,1996, in Warsaw TVN Ltd. with its seat in Warsaw, hereinafter referred to as "TVN", represented by the President of the Management Board Mariusz Walter and the Vice-President of the Management Board Wojciech Prokofi and AMBRESA Ltd. with its seat in Warsaw, hereinafter referred to as "AMBRESA", represented by the President of the Management Board Maciejewicz and the Vice-President of the Management Board Anatol Nowik, concluded the following agreement: Whereas, pursuant to the intentions of TVN and the remaining shareholders of Telewizja Wis_a Ltd. (hereinafter referred to as "Wis_a"), AMBRESA, constituting in 100% the affiliate of BRE, shall purchase from PRiKB REALBUD 31 334 shares in the share capital of Wis_a; Whereas TVN, which can ensure respective staffing and financial resources, pursuant to the suggestions of Krajowa Rada Radiofonii i Telewizji, undertakes to establish the federation of regional broadcasters of television programs, achieving this purpose by, among others, the acquisition of the shares in the share capital of Wisla and providing Wisla with necessary program and financial support; Whereas, the realization of the process of establishing the federation of regional broadcasters of television programs shall require strict cooperation of TVN and AMBRESA as the shareholders holding the majority of participation in the share capital of Wisla; The Parties resolve as follows: Article 1 1. The parties undertake to strictly cooperate in the matters which require the adoption of resolutions by the shareholders of Wis_a. AMBRESA, acknowledging that TVN is the only shareholder of Wis_a experienced in the scope of emission of television programs, undertakes to take into account the opinion of TVN in all the matters concerning Wis_a, in the scope which does not infringe upon basic interests of AMBRESA. 2. With reference to the cooperation referred to in par. 1, the parties to this agreement undertake to vote during the next assembly of shareholders of Wis_a, for the adoption of the resolution on the increase of the share capital of Wis_a, by the amount of 11,200,000 (eleven million two hundred thousand) zlotys and for covering the shares and making full contribution in exchange for the shares, pursuant to the following: a) TVN shall acquire 54,880 (fifty four thousand eight hundred and eighty) shares in the increased share capital, in the amount of 100 (one hundred) zlotys each, of the overall value of 5,488,000 (five million four hundred eighty eight thousand) zlotys; b) AMBRESA shall acquire 30,520 (thirty thousand five hundred and twenty) shares in the increased share capital, in the amount of 100 (one hundred) zlotys each, of the overall value of 3,052,000 (three million fifty two thousand) zlotys; Article 2 1. TVN undertakes to purchase or to indicate an entity that shall purchase from AMBRESA on conditions stipulated below: a) 31,334 (thirty one thousand three hundred thirty four) shares in the share capital of Wis_a, which AMBRESA shall purchase from PRiKB REALBUD; b) 30,520 (thirty thousand five hundred and twenty) shares covered pursuant to the provisions of art. 1 par. 2 item b) in the increased share capital of Wis_a; c) any other shares which may be covered or acquired by AMBRESA in the scope of cooperation stipulated in the hereby agreement. The shares referred to in items a) - c), shall be hereinafter referred to jointly as the"Option Shares". 2. The sale price of the Option Shares shall be calculated on the basis of the following formula: the purchase price or the price of covering the shares by AMBRESA (including borne costs, such as stamp duties), increased by 1 %. 3. The obligation on the part of TVN to purchase the Option Shares referred to in par. 1, shall be an irrevocable offer of purchase of the Option Shares. This offer may be accepted by AMBRESA starting from the first day after the lapse of one year from the date of execution of the hereby agreement, for the period of 3 months. 4. AMBRESA hereby grants an irrevocable power of attorney to Altheimer & Gray Polska Ltd. , to accept for and on behalf of AMBRESA the purchase offer regarding the Option Shares. The irrevocable form of the power of attorneys is justified by the form of legal relationship between the parties to the hereby agreement. 5. Should AMBRESA intend to sell or in any other way dispose of the Option Shares, prior to the lapse of the period specified in par. 3, to other entities than stipulated in par. 1, TVN, or the entity appointed by TVN, shall be entitled to pre-emptive right with reference to the Option Shares. Such right may be executed within 3 months from the date of the receipt by TVN of the notification on the content of the agreement on the sale of the Option Shares, or from the date of other legal action on the basis of which the sale of the Option Shares shall be executed. The price, at which TVN shall be entitled to execute its pre-emptive right, shall be the lower amount from the following: (i) the price payable for the Option Shares pursuant to par. 2; and (ii) the price or an economic advantage gained by AMBRESA pursuant to the legal action intending to dispose of the Option Shares. 6. Should, as a result of the acceptance by AMBRESA of the purchase offer regarding the Option Shares within the period specified under par. 3, TVN or the entity appointed by TVN fail to fulfil their obligation to purchase the Option Shares, then the pre-emptive right referred to in par. 5 shall expire, and AMBRESA shall be entitled to dispose of the Option Shares for the benefit of 2 another entity, whereas TVN shall be obliged to pay to AMBRESA as damages, the difference between the amount obtained from the sale of the Option Shares to the third parties, and the price payable pursuant to par. 2. 7. AMBRESA undertakes not to encumber the Option Shares with any obligation or property rights established for the benefit of the third parties. Article 3 In order to ensure performance of the obligations by TVN referred to in art. 2 par. 1, TVN undertakes to make an irregular deposit, in the understanding of art. 845 of the Civil Code, for the period of fifteen months, in form of the amount of 11,409,895.00 zlotys. Article 4 Any amendments to the hereby agreement shall be made in writing, in order to be effective. Article 5 Stamp duty relating to the sale of the Option Shares shall be borne by the buyer. Article 6 This Agreement has been executed in two counterparts, one for each party. TVN Ltd. AMBRESA Ltd. /illegible signatures/ /illegible signatures/ 3 EX-10.63 12 FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT First Amendment, dated as of December 31, 1996 (the "Amendment"), to Stock Purchase Agreement, dated as of May 25, 1995 (the "Neovision Purchase Agreement"), between ITI Media Group N.V., a corporation organized under the laws of the Netherlands Antilles (the "Seller"), and CME Media Enterprises B.V., a corporation organized under the laws of the Netherlands (the "Buyer"). RECITALS A. The Seller and the Buyer have executed and delivered the Neovision Purchase Agreement and have completed the First Closing thereunder. B. The Buyer has made two loans (the "Loans") to the Seller in the aggregate principal amount, taken together, of US$ 4,355,000. C. The Seller and the Buyer desire to amend their agreement relating to the Second Closing under the Neovision Purchase Agreement and to cause all or a portion of the funds delivered by the Buyer to the Seller in connection with the Second Closing to be applied to the repayment in full of the principal amount of the Loans, together with accrued and unpaid interest thereon to the date of such repayment. In consideration of the foregoing, the Seller and the Buyer agree as follows: 1. Capitalized terms used in this Amendment without definition shall have the meanings given to them in the Neovision Purchase Agreement. 2. Section 1.2 of Article I of the Neovision Purchase Agreement is hereby amended in its entirety to read as follows: "1.2 Second Closing. At the second closing (the "Second Closing"), Seller shall sell and transfer to Buyer such number of Shares as shall constitute 24.5% of the aggregate outstanding Shares, and Buyer shall purchase such number of Shares by, at its election, either (i) paying US$ 5 million (the "Second Purchase Price") in immediately available funds to the Seller, or as instructed by the Seller, or (ii) applying a portion (the "Loan Amount") of the Second Purchase Price to the repayment in full of the principal amount of loans extended by the Buyer to the Seller, pursuant to agreements between the Buyer and the Seller dated September 10, 1996 and November 7, 1996 (the "Loan Agreements"), and the payment in full of accrued and unpaid interest thereon up to the date of the Second Closing, and, subject to the condition contained in Section 2.3, paying an amount equal to the excess of (x) the Second Purchase Price over (y) the Loan Amount in immediately available funds to the Seller, or as instructed by the Seller. In the event that the Buyer elects to apply the Loan Amount towards payment of the Second Purchase Price, the Buyer shall also return to the Seller, or destroy, any promissory note or notes relating to loans extended pursuant to the Loan Agreements and shall provide the Seller with such receipt, certificate or other document executed by the Buyer, indicating the release of the Seller from its obligations under the Loan Agreements, as the Seller may reasonably request." 3. Section 1.3 of Article I of the Neovision Purchase Agreement is hereby amended by adding the following sentence to the end thereof: "In the case of the Second Closing, Buyer and Seller shall cause such notarial deed applicable to the Shares purchased by the Buyer at the Second Closing to be executed on Tuesday, December 31, 1996." 4. Section 2.2 of Article II of the Neovision Purchase Agreement is hereby amended by (i) substituting the word "condition" for the word "conditions" in the fourth line thereof, (ii) substituting a period for the semi-colon in the fifth line of paragraph (a) thereof, (iii) deleting the word "and" at the end of paragraph (a) thereof, and (iv) deleting paragraph (b) thereof in its entirety. 5. Article II of the Neovision Purchase Agreement is hereby amended by adding the following section immediately following the end thereof: "2.3 Conditions Subsequent to Second Closing. The obligation of the Buyer to pay any cash portion of the Second Purchase Price is conditioned on the satisfaction or waiver, at or prior to the date of payment thereof, of the following conditions: (a) the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects as of the date of payment thereof and Seller shall have delivered to Buyer a certificate dated such date and to such effect; and (b) ITI TV and CME shall have made the capital contributions required under Section 4.2 of the TVN Shareholder Agreement (the "Second TVN Closing"). 6. Article VI of the Neovision Purchase Agreement is hereby amended by adding the following section immediately following the end thereof: "6.4 Additional Buyer Put. In the event that (a) the Second TVN Closing does not occur on or before the second anniversary of the date of the First Closing; and (b) Buyer has exercised its rights under Section 8.1 of the TVN Shareholder Agreement; then Buyer shall have the right, exercisable at any time during the 180-day period following such second anniversary upon written notice (the "Additional Put Notice") to Seller (which will be deemed validly given if included as a part of the Put Notice), to cause Seller to purchase all of the Shares purchased at the Second Closing at a purchase price, net of applicable Dutch taxes, if any (the "Additional Put Price"), equal to the sum of (i) US$ 5,000,000, less (ii) the amount of any cash portion of the Second Closing Price remaining unpaid by the Buyer as of the date of payment of the Additional Put Price, plus (iii) interest on such aggregate amount at a rate per annum equal to 6% from the date of the Second Closing to the date of payment of the Additional Put Price. Seller shall pay the Additional Put Price in immediately available funds to Buyer (or as directed by it) on the date specified in the Additional Put Notice (which shall be not sooner than five business days from the date of such notice)." 7. Except as amended, modified or waived herein, the Neovision Purchase Agreement shall remain in full force and effect in accordance with its terms. 8. This Amendment shall become effective when duly executed and delivered by the Seller and the Buyer. 9. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. 10. This Amendment shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of law rules thereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first above written. ITI Media Group N.V. By:________________________ Title: CME Media Enterprises B.V. By:________________________ Title: EX-10.64 13 NET REIUMBURSEMENT AGREEMENT NET REIMBURSEMENT AGREEMENT THIS NET REIMBURSEMENT AGREEMENT (this "Agreement"), dated as of February 13, 1997, is entered into by and among INTERNATIONAL TELESERVICES LIMITED, a limited liability company organized under the laws of Belize ("ITS"), INTERNATIONAL MEDIA SERVICES LIMITED, a limited liability company organized under the laws of Bermuda ("IMS"), and LIMITED LIABILITY COMPANY "PRIORITET," a limited liability company organized under the laws of Ukraine ("Prioritet"). WHEREAS, pursuant to that certain Marketing, Advertising and Sales Agreement, dated January 23, 1997, with an effective date of November 18, 1996, by and between Innova Film GmbH, a limited liability company organized under the laws of Germany ("Innova"), and IMS (the "IMS-Innova Agreement"), IMS is obligated to reimburse Innova for certain program production and other costs relating to broadcast operations on (a) the First National Television Channel of Ukraine under an agreement between Innova and the National Television Company of Ukraine (the "Innova-NTCU Agreement") and (b) the Second National Television Channel of Ukraine under an agreement between Innova and Broadcasting Company "Studio 1+1" in the Form of a Limited Liability Company, a limited liability company organized under the laws of Ukraine (together with the Innova-NTCU Agreement, the "Innova Agreements"); WHEREAS, pursuant to that certain Marketing and Sales Agreement, dated January 23, 1997, with an effective date of November 18, 1996, by and between Prioritet and IMS (the "IMS-Prioritet Agreement"), Prioritet is obligated to pay or cause to be paid to IMS certain sums due under contracts entered into or arranged or negotiated between Prioritet and third-party advertisers in connection with the Innova Agreements and all other advertising activities of Prioritet in Ukraine and abroad (including activities relating to non-television media); WHEREAS, by agreement among the parties, due to the initial administrative limitations of IMS, from November 18, 1996 through the date of this Agreement, Prioritet has payed or caused the payment to ITS rather than IMS of the amounts due to IMS under the IMS-Prioritet Agreement; and WHEREAS, the parties wish to provide for ITS to reimburse IMS for the above-referenced payments received and to be received by ITS instead of IMS; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Temporary Receipts and Payments. As used in this Agreement, the term "Temporary Receipts" shall mean any amounts received by ITS that rightly would have been payable to IMS under the terms of the IMS-Prioritet Agreement during the period November 18, 1996 through January 30, 1997 (the "First Reimbursable Period") and during the period January 31, 1997 through February 28, 1997 (the "Second Reimbursable Period" and, together with the First Reimbursable Period, the "Reimbursable Periods"). As used in this Agreement, the term "Temporary Payments" shall mean any amounts paid by ITS to Innova, Enterprise Inter-Media, a legal entity organized under the laws of Ukraine, or Broadcasting Company "Studio 1+1", a limited liability company organized under the laws of Ukraine, that rightly would have been payable by IMS under the terms of the IMS-Innova Agreement during the Reimbursable Periods. It is understood and agreed by the parties that ITS shall have no obligation to pay to IMS any income of ITS received prior to the commencement of the First Reimbursable Period. 2. Temporary Receipts and Payments. The parties acknowledge and agree that Temporary Receipts with respect to the First Reimbursable Period less Temporary Payments with respect to the First Reimbursable Period (the "First Net Reimbursement Amount") equal $810,482.90. The parties agree to determine, on or before February 28, 1997, the amount equal to Temporary Receipts with respect to the Second Reimbursable Period less Temporary Payments with respect to the Second Reimbursable Period (the "Second Net Reimbursement Amount" and, together with the First Net Reimbursement Amount, the "Net Reimbursement Amounts"). 3. Net Reimbursement. Within ten days of the final day of the Second Reimbursable Period, ITS shall pay the Net Reimbursement Amounts, in U.S. dollars as instructed by IMS, to either (a) an account of IMS established at Union Bank of Switzerland in Zug or (b) an account of Innova at such bank and location as IMS shall indicate. 4. Future Receipts and Payments. The parties agree that from the final day of the Second Reimbursable Period, ITS will no longer accept payment, and Prioritet will no longer pay or cause payment to ITS, of any funds rightfully payable to IMS under the terms of the IMS-Prioritet Agreement. 5. Information and Additional Necessary Payments. ITS shall keep IMS fully informed, including by providing such receipts, payment records and other documentation as IMS reasonably may request, of the existence, amounts and dates of any funds received after the last day of the Second Reimbursable Period that are rightfully payable to IMS under the terms of the IMS-Prioritet Agreement. Any such funds received shall be promptly paid over by ITS to IMS, in U.S. dollars to the above-referenced account of IMS or Innova, at the instruction of IMS. 6. Dispute Resolution. Subject to the following sentence, the parties shall make a good faith effort to resolve by negotiation between themselves any dispute, controversy or claim arising out of, relating to, or in connection with, this Agreement, or the breach, termination or validity hereof (a "Dispute"). Any Dispute which the parties shall not have been able to resolve in accordance with the preceding sentence within thirty (30) days after such Dispute has arisen shall be finally settled by arbitration in accordance with (a) the Arbitration Agreement, dated September 30, 1996 (the "Arbitration Agreement"), among ITS, Prioritet and the other parties thereto, until such date as the Arbitration Agreement may be terminated or (b) any arbitration provisions contained in any agreement entered into after September 30, 1996 to which each of ITS, IMS and Prioritet is a party and that by its terms explicitly supersedes the Arbitration Agreement. 7. Further Assurances. Each party hereto shall execute and deliver such other documents and take such other actions as may reasonably be requested by the other party hereto in order to consummate or implement the transactions and arrangements contemplated by this Agreement. 8. Miscellaneous. This Agreement may be executed in several counterparts, each of which shall be deemed original and all of which together shall constitute one and the same instrument. This Agreement shall be governed by and construed and enforced in accordance with the laws of Bermuda. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Net Reimbursement Agreement as of the date first above written. INTERNATIONAL TELESERVICES INTERNATIONAL MEDIA LIMITED SERVICES LTD. By: By: ------------------------ ------------------------- Name: Name: Title: Title: LIMITED LIABILITY COMPANY "PRIORITET" By: ------------------------ Name: Title: By: ------------------------ Name: Title: EX-10.65 14 AGREEMENT THIS AGREEMENT is entered into as of January 23 1997, by and between INTERNATIONAL MEDIA SERVICES LTD., a limited liability company organized under the laws of Bermuda ( "IMS"), and INNOVA FILM GMBH, a limited liability company organized under the laws of Germany ("INNOVA") WHEREAS, pursuant to license no. 00280 dated November 11, 1996 (the "UT-2 License"), the Ukrainian National Council for Television and Radio has granted to Broadcasting Company Studio 1+1, a limited liability company organized under the laws of Ukraine, the right to broadcast on the Second National Television Channel of Ukraine; WHEREAS, the grant of the UT-2 License was conditioned on the termination of Innova's broadcast rights under that certain Agreement on International Cooperation for the Organization of Television Broadcasting on the First National Television Channel of Ukraine, dated July 26, 1995 ad amended, between Innova and the National Television Company of Ukraine ( the "Innova-NTCU Agreement"); and WHEREAS, the parties are also parties to that certain Marketing, Advertising and Sales Agreement, dated January 23, 1997 (the "IMS-Innova Agreement"); NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Previous Arrangements. In the event the UT-2 License shall be declared invalid or otherwise become unenforceable and the Innnova-NTCU Agreement shall be reinstated, the parties shall amend the IMS-Innova Agreement promptly in a manner reflecting the economic and legal arrangements contemplated by that certain Marketing, Advertising and Sales Agreement, dated as of September 30, 1996, to which the parties hereto were signatory, adjusted as reasonably necessary to reflect the particular facts and circumstances of such reinstatement. 2. Dispute Resolution. Subject to the following sentence, the parties shall make a good faith effort to resolve by negotiation among themselves any dispute, controversy or claim arising out of, relating to, or in connection with, this Agreement, or the breach, termination or validity hereof (a "Dispute"). Any Dispute which the parties shall not have been able to resolve in accordance with the preceding sentence within thirty (30) days after such Dispute has arisen shall be finally settled by arbitration in accordance with such arbitration agreement as shall be currently in effect binding the parties hereto. 3. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Agreement as of the date first above written. INNOVA FILM GMBH INTERNATIONAL MEDIA SERVICES LTD. By: By: _______________ --------------------- Name: Name: Title: Title: EX-10.66 15 AMENDED AND RESTATED CHARTER OF THE ENTERPRISE "INTER-MEDIA" EXECUTION COPY "REGISTERED" APPROVED in amended and restated form BY THE FOUNDER: Executive Committee of the "INNOVA FILM GmbH" Council of Peoples' Deputies as represented by of the Shevchenko District Boris Fuchsmann, City of Kyiv General Director January 23, 1997 --------------------- Decision No.__________________ dated _____________, 199__ Certificate No. 7193 Registration No. 23389360 Deputy Head of the Executive Committee - ----------------------------- AMENDED AND RESTATED CHARTER OF THE ENTERPRISE "INTER-MEDIA" Identification No. 23389360 Kyiv - 1997 AMENDED AND RESTATED CHARTER OF THE ENTERPRISE "INTER-MEDIA" ARTICLE 1 GENERAL PROVISIONS 1.1 The Enterprise "Inter-Media" ("Enterprise") has been established pursuant to the Ukrainian Law on Enterprises and other applicable Ukrainian legislation on August 6, 1995, and registered with the Executive Committee of the Council of Peoples' Deputies of the Shevchenko District of the City of Kyiv on August 9, 1995, registration No. 23389360. 1.2 The full name of the Enterprise shall be: in the Ukrainian language - " - " in the English language - Enterprise "Inter-Media". 1.3 The legal address of the Enterprise shall be at 3 Dehtyarivska Street, Kyiv, Ukraine. 1.4 The founder of the Enterprise is the firm "Innova Film GmbH", a legal entity under the laws of Germany, with its legal address at Friedreich-Ebert-Str. 31-33, 40210 Dusseldorf, settlement account No. 4708076 in Dresdener Bank ("Founder"). This Amended Charter ("Charter") amends and replaces in its entirety the charter executed by the Founder on August 6, 1995. 1.5 The Enterprise shall be a legal entity under applicable Ukrainian legislation. The Enterprise shall acquire the rights of a legal entity as of the date of its State registration. The Enterprise shall be created for an indefinite period. Such period may be shortened upon the appropriate decision of the Founder. 1.6 The Enterprise shall have a seal bearing its name which shall be approved by the Founder. The seal may be in the Ukrainian and/or English languages. The Enterprise shall maintain an independent balance sheet, possess trademarks and service marks, letterhead, stamps and other requisites for its activities. 1.7 As a legal entity the Enterprise shall have its own property separate and apart from the property of the Founder and separate and apart from property belonging to any third party. 1.8 The Enterprise shall not be responsible for the obligations of the Founder and the Founder shall only be responsible for obligations of the Enterprise to the extent of the value of property transferred by the Founder in contribution to the Charter Fund of the Enterprise or to the extent that additional obligations are assumed by the Founder pursuant to a written agreement. 1.9 The Enterprise is established for the purpose of facilitating the objects of activity of the Founder and of obtaining profit by carrying out business and other activities not prohibited by applicable legislation. As a legal entity, the Enterprise shall have the following powers: 1.9.1 in its own name and according to applicable Ukrainian legislation, to enter into any agreements and to carry out any business and other activities not specifically prohibited by law; 1.9.2 to participate independently in foreign economic activity necessary for the achievement of the statutory purposes of the Enterprise; 1.9.3 within the limits of applicable Ukrainian legislation, to build, acquire, alienate, sell, lease or rent any movable or immovable property, including the rights to lease and acquire plots of land, buildings and constructions; 1.9.4 to acquire, or to acquire the right to use, proprietary and non-proprietary rights and to ensure legal protection of all its rights and interests; 1.9.5 within the limits permitted by applicable legislation, to open and maintain bank accounts in Ukraine and abroad in both Ukrainian and convertible currency; 1.9.6 to sue and be sued in courts of law and arbitration tribunals (including international arbitration) and to conclude amicable settlements; 1.9.7 in accordance with applicable Ukrainian legislation, to incur loan obligations in both Ukrainian and convertible currency, to secure the repayment of any money borrowed or owing with all or any part of the property or assets of the Enterprise and to issue debentures, bonds and other securities within the limits permitted by applicable Ukrainian legislation; 1.9.8 to purchase, acquire and hold stock, shares, debentures, bonds, obligations and securities issued by any Ukrainian or foreign legal or governmental entity; 1.9.9 to act as trustee in connection with any stocks, 2 bonds, obligations or other securities; 1.9.10 in accordance with applicable Ukrainian legislation, to take part in the formation and management of any company or legal entity; to acquire fully or partially any legal entity or its assets or merge with any other legal entity; 1.9.11 either with or without remuneration, to guarantee the payment of monies or debts of any person or company and to guarantee the performance of any contract or obligation of any person or company; 1.9.12 to sell, improve, manage, develop, exchange, lease, mortgage or dispose of all the property, assets and rights of the Enterprise or any part thereof; to distribute to the Founder in-kind any property of the Enteprise, including any stocks or securities held by the Enterprise in other legal entities; 1.9.13 to appoint attorneys and/or commission agents with either full or restricted powers for the purpose of carrying out and completing all or any of the statutory objects of the Enterprise or to act as an attorney and/or commission agent for any person or company; 1.9.14 to select potential contracting parties and to organize meetings and technical discussions with and between representatives of such parties; 1.9.15 to advertise, organize or participate in exhibitions, seminars or symposia or to participate in trade fairs both in Ukraine and abroad; 1.9.16 to carry out the transmission of information within Ukraine and overseas by means of written correspondence, telegraph, telex, telefax, telephone and other means of communication; and 1.9.17 to carry out any other acts and acquire any other rights and obligations that fall within the authority of a legal entity according to applicable Ukrainian legislation. 1.10 The Enterprise shall carry out its foreign economic activities pursuant to the following guidelines: 1.10.1 foreign economic activities of the Enterprise shall be performed on the basis of monetary self-sufficiency and mutual benefit; 1.10.2 the Enterprise shall have the right independently 3 to establish relationships with foreign legal entities and individuals, and to enter into direct foreign economic agreements with foreign partners; 1.10.3 the Enterprise shall be authorized to carry out any kind of foreign economic transaction with regard to any property, materials, products, works and services within the framework of its principal activities contemplated by this Charter, including its own production needs. 1.11 The Enterprise shall at all times carry out its activities in accordance with the instructions of the Founder and the provisions of this Charter and applicable Ukrainian legislation. Those activities which are subject to licensing in Ukraine shall be carried out by the Enterprise only after obtaining a required special permission (license) pursuant to applicable Ukrainian legislation. 1.12 The Enterprise may form subsidiaries, representative offices and branches on the territory of Ukraine and in other countries in accordance with existing law. When creating a subsidiary, the Founder shall determine all matters relating to the creation, activities and liquidation of such subsidiary. Subsidiaries established as separate legal entities shall not be liable for the obligations of the Enterprise, and the Enterprise shall not be liable for the obligations of such subsidiaries, unless such liability is expressly undertaken by contract. Representative offices and branches established by the Enteprise shall not be separate legal entities and shall operate in the name of, and on behalf of, the Enterprise. ARTICLE 2 PURPOSE AND SUBJECT MATTER OF THE ENTERPRISE - --------- -------------------------------------------- 2.1 The Enterprise shall have the following specific object of activities: 2.1.1 the production of movies, movie products, and the acquisition and sale of rights to movies; 2.1.2 charitable activities; 2.1.3 manufacturing and the sale of folk and hand-made objects and other souvenirs; 2.1.4 publishing, exhibition and advertising activities; 2.1.5 the provision of various services, including informational, marketing and brokerage services; 2.1.6 the carrying out of intermediary, wholesale and retail trade; 4 2.1.7 intermediary activities in advertising; 2.1.8 construction; 2.1.9 service maintenance of automobile machinery of various types; 2.1.10 automobile transportation services; 2.1.11 the establishment and operation of automobile enterprises; and 2.1.12 such other activities which are not expressly prohibited by applicable Ukrainian legislation. ARTICLE 3 PROPERTY; FUNDS; PROFIT - --------- ----------------------- 3.1 The property of the Enterprise ("Property") shall consist of: 3.1.1 funds and property transferred to the Enterprise as a contribution to the Charter Fund; 3.1.2 products or services produced by the Enterprise as a result of its economic activities; 3.1.3 income and profits; and 3.1.4 other property and proprietary rights legally obtained by the Enterprise. 3.2 The Enterprise shall be the owner of the Property. Without restricting the generality of the foregoing, the Property shall include all fixed and current assets and other items as reflected in the independent balance sheet of the Enterprise. 3.3 In order to ensure the operation of the Enterprise, a charter fund of the Enterprise ("Charter Fund") has been established by and from the Founder's contribution in the amount of fifty one thousand one hundred thirty six ($51,136) U.S. dollars which equals eighty eight thousand three hundred fifty (88,350.06) Ukrainian hrynvias and six kopecks (eight billion eight hundred thirty five milliion sixty thousand one hundred (8,835,060,100) Ukrainian karbovantsy) at the exchange rate of the National Bank of Ukraine as of September 12, 1995. The Founder has formed the Charter Fund by providing the Enterprise with the following assets: 3.3.1 automobiles; 3.3.2 office equipment; and 5 3.3.3 other technical equipment. 3.4 The amount of the Charter Fund may be increased or decreased as determined by the Founder. Decisions regarding a change to the Charter Fund shall enter into force from the moment of State registration of the appropriate changes and additions to this Charter. 3.5 The increase of the Charter Fund may be carried out by making additional contributions by the Founder or allocation of the Enterprise's profit or income (or a portion of it) to the Charter Fund. Additional contributions may be made in cash or in the form of other tangible or intangible assets. 3.6 The Founder shall decide upon matters concerning the insurance of the Enterprise's property, proprietary rights and property accountability. 3.7 In addition to the Charter Fund, the Founder may establish such other funds of the Enterprise as it deems necessary. The procedure for the formation of such other funds and their use shall be determined by the Founder. 3.8 The net profits resulting from the Enterprise's activities may be transferred to the Founder as dividends or reinvested in the Enterprise, as determined by the Founder. ARTICLE 4 CONTROL AND MANAGEMENT OF THE ENTERPRISE - --------- ---------------------------------------- 4.1 The Enterprise shall be governed by the Founder and the management body of the Enterprise ("Directorate"). 4.2 The Founder may from time to time designate those actions which will be within its exclusive competence. 4.3 All decisions and resolutions of the Founder shall be binding upon the Enterprise in the event they are in writing and comply with, and are adopted pursuant to, applicable provisions of the Founder's foundation documents. 4.4 The Founder may delegate any of its powers to either the General Director or any other member of the Directorate. Such resolution shall be in writing and include an express list of those powers transferred, as well as the term for which such powers are transferred to either the General Director or any other member of the Directorate. 4.5 The Founder shall appoint a Directorate comprised of a General Director, Deputy General Director, Finance Director (Chief Accountant), a Sales Director and such other positions as may from time to time be determined by the Founder. The Founder shall appoint and dismiss the individuals who shall serve on the Directorate. 6 4.6 The Directorate shall be accountable to the Founder and shall ensure that the decisions of the Founder are carried out. The Directorate shall resolve all matters related to the Enterprise's activities, excluding those within the exclusive competence of the Founder. In the event of a controversy between members of the Directorate, the view or position of the General Director shall prevail. 4.7 Subject to the limitations provided in this Charter, the General Director shall be granted the following authority and responsibilities: 4.7.1 overall authority over all decisions relating to the day-to-day operations and management of the Enterprise and the Enterprise's facilities; 4.7.2 hiring, supervising and dismissing personnel of the Enterprise (except for members of the Directorate); 4.7.3 performance of all other duties which are assigned to the General Director by the Founder. 4.8 The General Director may delegate any of its authority and responsibilities to another member of the Directorate. 4.9 Other members of the Directorate shall have such powers and duties as specified by the Founder. 4.10 The Founder may, from time to time, appoint an audit committee of three members. The scope of powers and responsibilities of the audit committee, as well as the procedures for convening and holding its meetings, shall be determined from time to time by the Founder. ARTICLE 5 ENTERING INTO AGREEMENTS AND OTHER DOCUMENTS - --------- -------------------------------------------- 5.1 Subject to Articles 5.2 and 5.3, the General Director alone (and only the General Director) shall have the authority to enter into documents, agreements and contracts which bind the Enterprise; provided, however, that the General Director may issue written powers of attorney to other members of the Directorate to act in his stead. 5.2 Notwithstanding the foregoing Article 5.1, the entering into, amendment or termination of any agreement, contract or other document (or series of agreements, contracts or documents) or the issuance of any payment order having a value in excess of Ten Thousand ($10,000) U.S. Dollars or which have a duration of more than one (1) calendar year and any act of currency conversion must be signed by at least two (2) members of the Directorate: (i) the General Director and (ii) either the Deputy General Director or the Finance Director (Chief Accountant); provided, however, that all 7 banking transactions with a value of more than $5,000 U.S. dollars must be signed by both the General Director and the Finance Director (Chief Accountant); and further provided, that any banking transactions with a value of $5,000 U.S. dollars or less may be signed by the Finance Director alone. 5.3 To the extent required by Ukrainian law, any foreign economic agreements on behalf of the Enterprise must be signed by the General Director and by a person authorized to sign by a power of attorney issued under the signature of the General Director. ARTICLE 6 FINANCIAL ACTIVITY OF THE ENTERPRISE - --------- ------------------------------------ 6.1 The fiscal year of the Enterprise shall correspond to the calendar year and shall encompass the period from January 1 up to and including December 31 of the current calendar year. 6.2 In accordance with applicable Ukrainian legislation, the Directorate shall be responsible for implementing the procedures established for maintaining and insuring the accuracy of the financial and accounting records of the Enterprise. 6.3 To the extent required by applicable Ukrainian law and/or according to the decision of the Founder, audits of the Founder's financial and economic activities may be carried out by Ukrainian and/or foreign auditing organizations as determined by the Founder. ARTICLE 7 LABOR ISSUES - --------- ------------ 7.1 Issues relating to the Enterprise's employees shall be regulated in accordance with the applicable provisions of the Ukrainian labor legislation. 7.2 The Enterprise shall provide employees with the social guarantees and privileges provided for under applicable legislation. ARTICLE 8 REORGANIZATION AND LIQUIDATION OF THE ENTERPRISE - --------- ------------------------------------------------ 8.1 The Enterprise shall terminate its activity as a result of its reorganization or liquidation. Reorganization of the Enterprise shall result in transfer of all its property, rights and obligations to the Enterprise's legal successor(s). 8.2 The Enterprise may be liquidated or reorganized (merged, acquired, divided, spin-off, modified) upon the decision of the Founder and in cases provided for by the legislation of Ukraine. 8 8.3 In the event that the decision on liquidation is adopted by the Founder, the Founder shall appoint a liquidation committee ("Liquidation Committee") which shall prepare and submit a liquidation account balance to the Founder. Upon appointment of the Liquidation Committee, the powers of the General Director and the Directorate of the Enterprise shall be terminated and shall pass to the Liquidation Committee. 8.4 Upon receiving and approving the liquidation account balance, the Liquidation Committee shall take all measures necessary to satisfy all of the Enterprise's liabilities pursuant to the requirements of applicable Ukrainian legislation. Any remaining property of the Enterprise (including any funds in cash) shall be returned to the Founder. 8.5 The liquidation of the Enterprise shall be registered with the appropriate governmental authority as required by Ukrainian legislation. The Enterprise shall forfeit the rights of a legal entity from the date of its removal from the State register or from such other date as may be specified by applicable legislation. ARTICLE 9 MISCELLANEOUS - --------- ------------- 9.1 This Charter shall enter into force on the date of its State registration. 9.2 Any additions or amendments to this Charter mentioned herein shall constitute an integral part of this Charter. 9.3 The headings in this Charter are for convenience only and shall not govern the interpretation of any provisions of this Charter. 9.4 If any provision of this Charter is or becomes invalid, ineffective, unenforceable or illegal for any reason, this fact shall not affect the validity or enforceability of any or all of the remaining provisions hereof. 9.5 This Charter shall be governed by and construed in accordance with the laws of Ukraine. [Signature page to follow] Executed by the sole Founder: INNOVA FILM GMBH: --------------------- By: Boris Fuchsmann Title: General Director Date: January 23, 1997 EX-10.67 16 AMENDED AND RESTATED CHARTER OF STUDIO 1+1 EXECUTION COPY "REGISTERED" Approved by the Participants' Assembly in amended and restated form in amended and restated District State Administration form on ____________, 1997 of the Pechersk District Protocol No. ___ City of Kyiv Decision No. ____________ Chairman of the Participants' Assembly dated ______________, 1997 Certificate No. ___________ _____________________ Registration No. 23729809 Head of the District State Administration - -------------------------- AMENDED AND RESTATED CHARTER OF THE BROADCASTING COMPANY "STUDIO 1+1" IN THE FORM OF A LIMITED LIABILITY COMPANY ("LLC") Kyiv - 1997 ARTICLE 1 GENERAL 1.1 This Amended and Restated Charter ("Charter") is hereby adopted by: ALEXANDER RODNIANSKII, a citizen of Ukraine, passport No.AC037575; German Residency A03762953 issued on 05.08.96; ("AR"); and ENTERPRISE "INTER - MEDIA", a legal entity organized under the laws of Ukraine, represented by its General Director, Serhiy Viktorovych Chekanov ("Intermedia"). AR and Intermedia are hereinafter collectively referred to as the "Participants" and individually as a "Participant". 1.2 All capitalized terms that are used and defined in this Charter shall have the respective meanings ascribed to them in that certain Amended Foundation Agreement on the Establishment and Operation of the Broadcasting Company "Studio 1+1" in the form of a Limited Liability Company ("Foundation Agreement") entered into by the Parties as of January 23, 1997. 1.3 This Charter is entered into and approved in accordance with the provisions of the Foundation Agreement. In the event of any discrepancy between the provisions of the Foundation Agreement and those of this Charter, the provisions of the Foundation Agreement shall prevail, unless the Participants in each instance unanimously agree to give prevailing force to the terms of this Charter. This Charter amends and replaces in its entirety the Charter of the Broadcasting Company "Studio 1+1" in the form of a Limited Liability Company approved by the Participants' Assembly on June 28, 1996 (and any amendments thereof). 1.4 The official full name of the LLC in Ukrainian shall be as follows: "1+1" . The official full name of the LLC in English shall be as follows: Broadcasting Company "Studio 1+1" in the form of a Limited Liability Company. The abbreviated name of the LLC in Ukrainian shall be as follows: T "1+1", or 1+1. The abbreviated name of the LLC in English shall be as follows: Studio 1+1. 1.5 The address of the LLC shall be: 1b Arsenalna Square, Kyiv, Ukraine. ARTICLE 2 PURPOSE AND SUBJECT MATTER OF THE LLC 2.1 The main purpose of the Company's activities shall be production and commercial activities in accordance with the subject matter of the LLC. 2.2 The subject matter of the LLC shall be as follows: 2.2.1 production of various television, movie, video and audio products either in Ukraine or abroad; 2.2.2 acquisition and disposal of the rights for the use of national and foreign television, movie, video and audio products in any lawful manner either in Ukraine or abroad; 2.2.3 distribution of various television, movie, video and audio products either in Ukraine or abroad; 2.2.4 carrying out television and radio broadcasting activities for broadcasting of television, movie, video and audio products which the LLC has produced or which the LLC has purchased or leased or the rights to which were acquired in any other lawful manner either in Ukraine or abroad; 2.2.5 provision, receipt or exchange of television, movie, video and audio products with other television, movie, video and audio producers in Ukraine or abroad and the re-transmission of news releases, sport programs or other shows; 2.2.6 ownership, creation, maintenance and exploitation of television, video and radio broadcasting facilities (including aerial television and radio channels, cable and satellite networks); 2.2.7 organization and carrying out of conferences, symposia, exhibitions, auctions, competitions, concerts, radio, movie, video and television markets, recitals, premiers, movie concerts and movie presentations and movie shows; 2.2.8 provision of intermediary, agency, distributor, dealer, marketing, manager, producer, training (including internships), advertising and other services in the area of television, movie, video and radio broadcasting, including provision of services in the area of staging, production, interpretation, adaptation, circulation, broadcasting, distribution, licensing, assigning and sale of television, video, movie and audio products either in Ukraine or abroad; 2 2.2.9 charitable and sponsorship activities; and 2.2.10 such other types of activities which are not expressly prohibited by applicable Ukrainian legislation. ARTICLE 3 LEGAL STATUS OF THE LLC 3.1 The LLC shall be a legal entity under applicable Ukrainian legislation. The LLC shall acquire the rights of a legal entity as of the date of its State registration. 3.2 As a legal entity, the LLC shall have its own property separate from the property of its Participants and from property belonging to any third party. The LLC shall also have the right: to acquire on its own behalf all proprietary and non-proprietary rights; to bear responsibilities; and to sue and be sued in any court of law, arbitration court or arbitration tribunal. 3.3 The LLC shall not be responsible for obligations of its Participants and the Participants shall not be responsible for obligations of the LLC (unless such obligations are assumed by a Participant pursuant to a written agreement). A Participant that has not made its contribution in full to the Charter Fund shall be responsible for the obligations of the LLC only to the extent of the unpaid portion of such contribution. 3.4 The LLC shall have a seal (in the Ukrainian and/or English languages) bearing its name which shall be approved by the Participants' Assembly. It shall maintain an independent balance sheet, open accounts in banking institutions, possess trademarks and service marks, and possess letterhead, stamps and other requisites for its activity. 3.5 The LLC shall be created for an indefinite period. Such period may be shortened upon unanimous decision of the Participants' Assembly. 3.6 The LLC, as a legal entity under applicable Ukrainian laws, shall have the following powers: 3.6.1 in its own name and according to applicable Ukrainian legislation, to enter into any agreements not specifically prohibited by law; 3.6.2 to participate independently in foreign economic activity necessary for the achievement of the statutory purposes of the LLC; 3 3.6.3 within the limits of applicable Ukrainian legislation, to build, acquire, alienate, sell, lease or rent any movable or immovable property, including the rights to lease and acquire plots of land, buildings and constructions; 3.6.4 to acquire, or to acquire the right to use, proprietary and non-proprietary rights and to ensure legal protection of all its rights and interests; 3.6.5 within the limits permitted by applicable legislation, to open and maintain bank accounts in Ukraine and abroad in both Ukrainian and convertible currency; 3.6.6 to sue and be sued in courts of law and arbitration tribunals (including international arbitration) and to conclude amicable settlements; 3.6.7 in accordance with applicable Ukrainian legislation, to incur loan obligations in both Ukrainian and convertible currency, to secure the repayment of any money borrowed or owing with all or any part of the property or assets of the LLC and to issue debentures, bonds and other securities within the limits permitted by applicable Ukrainian legislation; 3.6.8 to purchase, acquire and hold stock, shares, debentures, bonds, obligations and securities issued by any Ukrainian or foreign legal or governmental entity; 3.6.9 to act as trustee in connection with any stocks, bonds, obligations or other securities; 3.6.10 in accordance with applicable Ukrainian legislation, to take part in the formation and management of any company or legal entity3; to acquire fully or partially any legal entity or its assets or merge with any other legal entity; 3.6.11 either with or without remuneration, to guarantee the payment of monies or debts of any person or company and to guarantee the performance of any contract or obligation of any person or company; 3.6.12 to sell, improve, manage, develop, exchange, lease, mortgage or dispose of all the property, assets and rights of the LLC or any part thereof; to allocate among Participants in-kind any property of the LLC, including any stocks or 4 securities held by the LLC in other legal entities; 3.6.13 to appoint attorneys and/or commission agents with either full or restricted powers for the purpose of carrying out and completing all or any of the statutory objects of the LLC or to act as an attorney and/or commission agent for any person or company; 3.6.14 to select potential contracting parties and to organize meetings and technical discussions with and between representatives of such parties; 3.6.15 to advertise, organize or participate in exhibitions, seminars or symposia or to participate in trade fairs both in Ukraine and abroad; 3.6.16 to carry out the transmission of information within Ukraine and overseas by means of written correspondence, telegraph, telex, telefax, telephone and other means of communication; and 3.6.17 to carry out any other acts and acquire any other rights and obligations that fall within the authority of a legal entity according to applicable Ukrainian legislation. 3.7 The LLC shall carry out its foreign economic activity pursuant to the following guidelines: 3.7.1 foreign economic activities of the LLC shall be performed on the basis of monetary self-sufficiency and mutual benefit; 3.7.2 the LLC shall have the right independently to establish relationships with foreign legal entities and individuals, and to enter into direct foreign economic agreements with foreign partners; 3.7.3 the LLC shall be authorized to carry out any kind of foreign economic transaction with regard to any property, materials, products, works and services within the framework of its principal activities contemplated by this Charter, including its own production needs. 3.8 The LLC shall at all times carry out its activities in accordance with the provisions of the Foundation Agreement, this Charter and applicable Ukrainian legislation. Those activities which are subject to licensing in Ukraine shall be carried out by the LLC only after obtaining a required 5 special permission (license) pursuant to applicable Ukrainian legislation. 3.9 The LLC may form subsidiaries, representative offices and branches on the territory of Ukraine and in other countries in accordance with existing law. When creating a subsidiary, the Participants' Assembly shall determine all matters relating to the creation, activities and liquidation of such subsidiary. Subsidiaries established as separate legal entities shall not be liable for the obligations of the LLC, and the LLC shall not be liable for the obligations of such subsidiaries, unless such liability is expressly undertaken by contract. Representative offices and branches established by the LLC shall not be separate legal entities and shall operate in the name of, and on behalf of, the LLC. ARTICLE 4 PROPERTY OF THE LLC; CHARTER FUND OF THE LLC; CONTRIBUTIONS OF THE PARTICIPANTS; INTERESTS OF THE PARTICIPANTS IN THE CHARTER FUND 4.1 The property of the LLC shall consist of: 4.1.1 funds and property transferred to the LLC as a contribution to the Charter Fund; 4.1.2 products or services produced by the LLC as a result of its economic activities; 4.1.3 income and profits; and 4.1.4 other property and proprietary rights legally obtained by the LLC. 4.2 The LLC has established a charter fund ("Charter Fund") equal to Ten Thousand (10,000) Ukrainian hryvnias and comprised of contributions from the Participants. The shares of the Participants in the Charter Fund, as well as the timing of each Participant's contribution, the specific assets or amount of cash to be contributed by each Participant and the valuation of such contributions shall be as specified in the Foundation Agreement. 4.3 Contributions to the Charter Fund may be in cash and/or in the form of licenses, permits, buildings, services, equipment, offices, inventories, rights to use land, water and other natural resources, property rights (including inventions and know-how) and other tangible and intangible assets. 4.4 The amount of the Charter Fund may be increased or decreased as determined by the unanimous decision of the Participants' Assembly. 6 4.5 Any increase of the Charter Fund may be carried out either (i) through additional contributions either from one or more of the Participants of the LLC or from third parties, or (ii) through the transfer of unallocated profits of the LLC to the Charter Fund. Additional contributions may be made in cash or in the form of other tangible or intangible assets. In the event that either (i) the Charter Fund is increased through additional contributions of one or more Participants which contribute(s) unequally or (ii) new participants are added to the LLC as provided in this Charter, then the Participants' shares in the Charter Fund and the LLC shall be adjusted in order to reflect such changes. 4.6 The LLC may not decrease the Charter Fund in the event of any creditors' objections. 4.7 All contributions made to the Charter Fund pursuant to the provisions of this Article 4 shall become the exclusive property of the LLC and shall constitute the property or proprietary rights of the LLC. Any surplus of property or proprietary rights of the LLC resulting from the LLC's economic activity shall be the exclusive property of the LLC. The Participants' Assembly shall decide upon matters concerning insurance of the LLC's property, proprietary rights and property accountability. ARTICLE 5 OTHER FUNDS OF THE LLC 5.1 The LLC shall establish a reserve fund ("Reserve Fund") by way of annual deductions from the net profits in the amount of five percent (5%) until the Reserve Fund reaches the amount of twenty-five percent (25%) of the Charter Fund. 5.2 From its profits or income, the LLC may establish such other funds as the Participants' Assembly may from time to time determine necessary. The amount of these funds and the procedure for allocating sums to them shall be as established by the Participants' Assembly. ARTICLE 6 FINANCIAL DOCUMENTS AND PROFITS 6.1 Not later than January 15 of each fiscal year, copies of the annual financial statement, the profit and loss statement of the LLC for the prior fiscal year, tax calculations for the prior fiscal year and any other reports concerning the LLC required by applicable Ukrainian legislation shall be submitted by the Directorate to the Participants' Assembly. All such documents shall be prepared in Ukrainian and English and shall be subject to the approval of the 7 Participants' Assembly. 6.2 At the first regular meeting of the Participants' Assembly in each fiscal year, on the basis of the documents referenced in Article 6.1 hereof, the Participants' Assembly shall determine all allocations to be made from the profits or revenues of the LLC to the funds referred to in Article 5 of this Charter. 6.3 If the Participants' Assembly decides to distribute profits to the Participants, such profits shall be distributed to the Participants in proportion to their shares in the Charter Fund pursuant to the procedures as determined by the Participants' Assembly. The Participants' Assembly may determine that profits are to be distributed in one or more installments during any given financial year. ARTICLE 7 THE PARTICIPANTS ASSEMBLY OF THE LLC 7.1 The highest decision-making body of the LLC shall be the Participants' Assembly. The Participants' Assembly shall be responsible for establishing the overall direction and strategy of the LLC, for making major policy decisions and for reviewing the financial performance and operational achievements of the LLC. The Participants' Assembly shall bear ultimate responsibility for the operations of the LLC. 7.2 The Participants' Assembly shall consist of each Participant who is a physical person and a representative appointed by each Participant which is a legal entity (each a "Representative"). 7.3 Except as provided otherwise in this Charter or the Foundation Agreement, the following powers shall be within the exclusive competence of the Participants' Assembly and shall be subject to and adopted by 75% of all of the outstanding participation interest votes: 7.3.1 the authorization for the acquisition, sale or other disposition of any fixed asset or real property (including any tangible or intangible assets or any kind whatsoever) if the consideration or book value for the same exceeds Twenty Five Thousand ($25,000) U.S. Dollars; 7.3.2 the approval of any capital investment or other capital expenditure or commitment in excess of (when aggregated with any related investment or expenditure or commitment in the same financial period) Ten Thousand ($10,000) U.S. Dollars; 7.3.3 the approval of the granting or issuance of any loans, credit, guarantee, indemnity or similar obligation to, or in respect of, any person, except for any undertaking of such nature which is made or given in the ordinary course of business and does not exceed or involve an obligation of more than Ten Thousand ($10,000) U.S. Dollars; 7.3.4 the raising of loans or credits exceeding Ten Thousand ($10,000) U.S. Dollars; 7.3.5 the approval of any joint venture, partnership (including silent partnership) or consortium with any third party; 7.3.6 the approval of any contract or other business relationship with any related party or affiliate; 7.3.7 determination of the formation, contributions to, and usage of the funds of the LLC as described in Article 5 of this Charter; 7.3.8 the approval of the annual financial report and statement of account, the distribution of profits, interim payments of anticipated profits, and auditor's reports; 7.3.9 determination of the procedure for covering losses incurred by the LLC; 7.3.10 the approval of any material change to the basis of accounting or the accounting principles and policies of the LLC, except as required by law or accounting standards; 7.3.11 determination of a general employment policy for the LLC's personnel; 7.3.12 approval or amendment of any procedures governing the activities of the Directorate or its staff structure and the responsibilities of the Directorate or the expansion of the Directorate; 7.3.13 the decision to issue bonds or other types of securities; 7.3.14 the approval of any decision to license, sell or otherwise dispose of any of the LLC's trade or services marks, logos, trade names, designs or other such requisites to any third party; 7.3.15 the decisions listed in Articles 7.6, 7.7 and 10.2 below. 9 The Participants' Assembly may from time to time adopt resolutions indicating those powers which shall be within the exclusive competence of the Participants' Assembly and the percentage vote to which such decisions shall be subject. 7.4 The following powers shall be within the exclusive competence of the Participants' Assembly and shall be subject to and adopted by the unanimous vote of all of the Participants: 7.4.1 the adoption of changes to the scope of business activities of the LLC; 7.4.2 the adoption of any changes in the Charter Fund or in the shares of the Participants of the LLC in the Charter Fund, as well as approval of any additional contributions by the Participants of the LLC to the Charter Fund; 7.4.3 the establishment, acquisition, transfer or termination of the LLC's subsidiaries, branches and representative offices within Ukraine and abroad, including the modification of their capital and organizational structure; 7.4.4 the decision voluntarily to liquidate or wind-up the LLC; determination of procedures regarding the liquidation of the LLC and all questions arising from such liquidation or winding-up; appointment of a Liquidation Committee, approval of its report and approval of the final liquidation balance of the LLC; 7.4.5 the decision to admit any new Participant to the LLC or, subject to Article 14.2 below, to remove any existing Participant from the LLC; 7.4.6 the appointment of any member of the Directorate; 7.4.7 the decisions listed in Article 9.6 below. 7.5 All decisions of the Participants' Assembly (other than those referred to in Articles 7.3 and 7.4 above) shall be adopted upon a decision of a simple majority of the votes present at a validly convened meeting of the Participants' Assembly; provided, however, that a member of the Directorate may be removed by the vote of 30 percent of all of the ownership interest votes. 7.6 By adoption of a resolution approved by 75% of all of the outstanding participation interest votes, the Participants' 10 Assembly may delegate any of its powers to either the General Director or other members of the Directorate. Such resolution shall be in writing and include an express list of those powers transferred, as well as the term for which such powers are transferred to either the Directorate or the General Director. 7.7 The Representative appointed by Intermedia shall act as the Chairman of the Participants' Assembly. The Participants' Assembly shall also appoint a Secretary of the Participants' Assembly. The term of office for the Secretary of the Participants' Assembly, as well as the procedures for his re-election shall be established by the Participants' Assembly by a resolution approved by 75% of all of the outstanding participation interest votes. 7.8 Notwithstanding any provision herein to the contrary, Intermedia shall nominate, appoint or dismiss legal counsel to the LLC at its sole discretion, and such nomination, appointment or dismissal shall not be within the competence of either the Participants' Assembly or the Directorate. The Participants agree to carry out all actions as may be required in order to implement any such nomination, appointment or dismissal. ARTICLE 8 MEETINGS OF THE PARTICIPANTS' ASSEMBLY 8.1 Regular meetings of the Participants' Assembly shall be held not less than once each fiscal year. The first regular meeting of any fiscal year shall be held not prior to January 20 and not later than January 31 of a current year. Extraordinary meetings of the Participants' Assembly shall be called when the need arises. All costs related to the calling and holding of the regular and extraordinary meetings of the Participants' Assembly shall be borne by the LLC. The meetings of the Participants' Assembly may be held in Ukraine and other countries as determined by the Participants' Assembly. 8.2 Regular and extraordinary meetings of the Participants' Assembly shall be called by the Chairman of the Participants' Assembly. Notice of such meeting must be given in writing to each Participant and Representative not less than thirty (30) days prior to the meeting; provided, however, that in urgent cases and with the unanimous consent of the Participants and Representatives, notification of the convening of the Participants' Assembly shall be permitted without adherence to the designated time period. A notice shall state the day, time, agenda and address of the location of the meeting. The contents of the notice shall be determined by the Chairman. Any Participant or Representative shall have the right to add a matter to the 11 agenda of the Participants' Assembly up to twenty five (25) days prior to that Participants' Assembly. The Chairman shall mail the final agenda to the Participants and Representatives at least seven (7) days prior to the Participants' Meeting; provided, however, that the agenda may be modified by a majority vote of the votes present at a duly convened meeting of the Participants' Assembly. Meetings of the Participants' Assembly may be held by means of a telephone conference call. 8.3 Extraordinary meetings of the Participants' Assembly may be held at any time as the need arises. Such meetings may be called at the request of any Participants or Representatives who hold in aggregate at least 20% of the votes at the Participants' Assembly ("Proposing Group"). The General Director or the Audit Committee may also call such meetings; provided, however, that the Audit Committee may request an extraordinary meeting if the material interests of the LLC are in jeopardy or if any abuse by the LLC's officers is revealed. Such extraordinary meetings may be convened in order to consider any matter proposed by the Proposing Group, the General Director or Audit Committee and related to the LLC's activities. If the Chairman of the Participants' Assembly fails to comply with the request of the Proposing Group, the General Director or the Audit Committee regarding the convening of an extraordinary meeting of the Participants' Assembly within 25 days of the date of such request, then the Proposing Group, the General Director or Audit Committee shall have the right to convene the extraordinary meeting of the Participants' Assembly on its own initiative. 8.4 A Representative or Participant may appoint another person by power of attorney to participate in a meeting in his place, to vote on his behalf and to exercise all other rights and powers of the absent Participant or Representative. A power of attorney may be in the form of a signed letter (or facsimile copy of such a letter) or telex from the delegating Representative or Participant. 8.5 Each Participant of the LLC shall be entitled to a number of votes in proportion to its share in the Charter Fund. In order for a meeting of the Participants' Assembly to be deemed valid and effective, the presence of Participants (either in person or through their Representatives) holding in aggregate more than 71 percent of the votes shall be required; provided, however, that the presence of the Participants (either in person or through their Representatives) representing all 100 percent of the votes shall be required in the event that decisions are to be taken on those matters specified in Article 7.4 hereof. 8.6 Decisions of the Participants' Assembly shall be considered 12 valid and effective only if (i) approved at a valid and effective meeting of the Participants' Assembly and (ii) approved by the requisite vote as required in Article 7 above; provided, however, that a Participant may not participate in the voting of its own expulsion in the event it systematically and materially fails to fulfil its obligations under the Foundation Agreement and this Charter as determined in Article 14.2 below. 8.7 The minutes of a meeting of the Participants' Assembly shall be in Ukrainian and English and shall be signed by all of the Representatives in the meeting. The Ukrainian and English originals shall be kept at the office of the LLC and copies shall promptly be sent to each Representative and Participant. 8.8 A decision signed or approved in writing by all the Representatives and Participants (or their designated appointee(s) pursuant to a power of attorney) shall be as valid and effective as if the same had been made at a meeting of the Participants' Assembly duly called and held. Such a decision may consist of one or more documents in identical form each signed or approved by all the Representatives and Participants. 8.9 Decisions of the Participants' Assembly can only be revoked or amended by means of a separate decision of the Participants' Assembly made in accordance with the provisions of this Charter and the Foundation Agreement. ARTICLE 9 DIRECTORATE 9.1 The day-to-day business operations of the LLC and the fulfilment of the decisions of the Participants' Assembly shall be carried out by a Directorate appointed by the Participants' Assembly as provided herein ("Directorate"). The Directorate shall consist of the General Director, the Deputy General Director, the Financial Director (Chief Accountant), the Sales Director and such other persons as the Participants' Assembly may from time to time appoint. The Directorate shall be headed by the General Director. 9.2 The General Director, the Deputy General Director, the Financial Director (Chief Accountant) and the Sales Director shall be appointed or dismissed by the decision of the Participants' Assembly. Intermedia, and only Intermedia, shall have the right in its sole discretion to nominate individuals for the position of Deputy General Director and Financial Director (Chief Accountant) ("Intermedia Nominees"). AR shall have the right in his sole discretion to nominate individuals for the position of General Director and Sales Director ("AR Nominees"). 13 9.3 The Directorate shall be accountable to the Participants' Assembly and shall ensure that the decisions of the Participants' Assembly are carried out. The Directorate shall resolve all matters related to the LLC's activities, excluding those within the exclusive competence of the Participants' Assembly. In the event of a controversy between members of the Directorate, the view or position of the General Director shall prevail. 9.4 Subject to the limitations provided in this Charter and the Foundation Agreement, the General Director shall be granted the following authority and responsibilities: 9.4.1 overall authority over all decisions relating to the day-to-day operations and management of the LLC and the LLC's facilities; 9.4.2 hiring, supervising and dismissing personnel of the LLC (except for members of the Directorate); 9.4.3 performance of all other duties which are assigned to the General Director by the Participants' Assembly. 9.5 The General Director may delegate any of its authority and responsibilities to another member of the Directorate. 9.6 The General Director shall be employed for a term of two (2) years from the date of its appointment unless otherwise extended by the unanimous vote of the interests present at a duly convened Participants' Assembly. 9.7 Other members of the Directorate shall have such powers and duties as specified by the Participants' Assembly. ARTICLE 10 THE AUDIT COMMITTEE 10.1 The Audit Committee shall be established by the Participants' Assembly and shall consist of three (3) persons elected for such period as determined by the Participants' Assembly. Members of the Directorate may not be members of the Audit Committee. Members of the Audit Committee shall be appointed or dismissed by the decision of the Participants' Assembly. Intermedia, and only Intermedia, shall be entitled to nominate and call for the removal of the members of the Audit Committee. AR shall vote for all individuals nominated by Intermedia for the Audit Committee and shall vote for the dismissal of any member of the Audit Committee as indicated by Intermedia. 10.2 The scope of powers and responsibilities of the Audit 14 Committee, as well as the procedures for convening and holding its meetings, shall be determined from time to time by the Participants' Assembly by means of a 75% vote of the participation interest votes; provided, however, that all decisions of the Audit Committee must be approved by two of the three members of the Audit Committee. ARTICLE 11 FINANCIAL ACTIVITY OF THE LLC 11.1 The fiscal year of the LLC shall correspond to the calendar year and shall encompass the period from January 1 up to and including December 31 of the current calendar year. 11.2 In accordance with applicable Ukrainian legislation, the Directorate shall be responsible for implementing the procedures established for maintaining and insuring the accuracy of the financial and accounting records of the LLC. 11.3 To the extent required by applicable Ukrainian law and/or according to the decision of the Participants' Assembly, audits of the LLC's financial and economic activities may be carried out by Ukrainian and/or foreign auditing organizations. 15 ARTICLE 12 ENTERING INTO AGREEMENTS AND OTHER DOCUMENTS 12.1 Subject to Articles 12.2 and 12.3, the General Director alone (and only the General Director) shall have the authority to enter into documents, agreements and contracts which bind the LLC; provided, however, that the General Director may issue written powers of attorney to other members of the Directorate to act in his stead. 12.2 Notwithstanding the foregoing Article 12.1, the entering into, amendment or termination of any agreement, contract or other document (or series of agreements, contracts or documents) or the issuance of any payment order having a value in excess of Ten Thousand ($10,000) U.S. Dollars or which have a duration of more than one (1) calendar year (irrespective of their value) and (except for any compulsory conversion as may be required by Ukrainian law) any act of currency conversion in an amount over $10,000 U.S. dollars must be signed by at least two (2) members of the Directorate: (i) the General Director and (ii) either the Deputy General Director or the Financial Director (Chief Accountant); provided, however, that all banking transactions with a value of more than $5,000 U.S. dollars must be signed by both the General Director and the Financial Director (Chief Accountant); and further provided, that any banking transactions with a value of $5,000 U.S. dollars or less may be signed by the Financial Director alone. 12.3 To the extent required by Ukrainian law, any foreign economic agreements on behalf of the LLC must be signed by the General Director and by a person authorized to sign by a power of attorney issued under the signature of the General Director. ARTICLE 13 TERMINATION OF THE LLC 13.1 The LLC shall terminate its activity as a result of its reorganization or liquidation. Reorganization of the LLC shall result in transfer of all its property, rights and obligations to the LLC's legal successor. 13.2 The LLC shall be liquidated on the following grounds: 13.2.1 upon the termination of the Foundation Agreement as provided in the Foundation Agreement; 13.2.2 as a result of expiration of the LLC's term; 13.2.3 by a unanimous decision of all Participants at the Participants' Assembly; and/or 16 13.2.4 by a valid court decision or arbitration award. 13.3 Liquidation of the LLC shall be carried out pursuant to applicable Ukrainian legislation and the provisions of this Article 13. 13.4 In the event that the decision on liquidation is adopted, the Participants' Assembly shall appoint a liquidation committee ("Liquidation Committee") which shall prepare and submit a liquidation account balance to the Participants' Assembly. Upon appointment of the Liquidation Committee, the powers of the General Director and the Directorate shall be terminated and shall pass to the Liquidation Committee. 13.5 Upon receiving and approving the liquidation account balance, the Liquidation Committee shall take all measures necessary to satisfy all of the LLC's liabilities. Any remaining property of the LLC (including any funds in cash) shall be distributed to the Participants in proportion to their shares in the Charter Fund. 13.6 The liquidation of the LLC shall be registered with the appropriate governmental authority as required by then-existing legislation. The LLC shall forfeit the rights of a legal entity from the date of its removal from the state register or from such other date as may be specified by applicable legislation. ARTICLE 14 TERMINATION OF PARTICIPATION IN THE LLC AND LEGAL SUCCESSION 14.1 Any Participant shall be deemed to have terminated its participation in the LLC if it (i) withdraws from the LLC or (ii) disposes of its share in the Charter Fund in its entirety or (iii) for any other reason ceases to be a Party to the Foundation Agreement and/or a Participant in the LLC. 14.2 A Participant may not be expelled from the LLC. In the event that this provision becomes ineffective or unenforceable pursuant to applicable Ukrainian legislation, the Participants shall be able to expel a Participant from the LLC under Article 64 of the Ukrainian Law on Business Associations only if an applicable arbitration panel or court has determined that the Participant to be expelled has systematically and materially failed to fulfil its obligations under the Foundation Agreement and this Charter. 14.3 Transfers, pledges or other dispositions of participation interests in the LLC shall be subject to the transfer provisions as specified in the Foundation Agreement. Subject to the transfer provisions of the Foundation Agreement, a successor or heir to a Participant shall become 17 a participant in the LLC and a party to the Foundation Agreement. ARTICLE 15 NOTICES AND MODIFICATIONS 15.1 All modifications to this Charter, and all notices sent pursuant to the provisions of this Charter, except as otherwise provided in this Charter, shall be given in the manner provided in the Foundation Agreement. ARTICLE 16 MISCELLANEOUS 16.1 This Charter shall enter into force on the date of its state registration. 16.2 All disputes arising between the Participants with respect to the interpretation of this Charter and the performance by the LLC or any of the Participants of any obligations specified in this Charter shall be resolved in the manner provided in the Foundation Agreement. 16.3 Any additions to this Charter mentioned herein shall constitute an integral part of this Charter. Signed on January 23, 1997 by the following Participants: [signed] /s/ Alexander Rodnianskii --------------------------- Alexander Rodnianskii ENTERPRISE "INTER - MEDIA" as represented by the Director, Chekanov S.V. [signed] --------------------------- By: Position: [seal] Ky- 18 iv [January 23, 1997, I, Oleksyuk Y.E., a private notary of the Kyiv city notary district, hereby certify the authenticity of the signatures of the director of the Enterprise "Inter - Media", Serhiy Viktorovych Chekanov and the citizen, Alexander Youkhimovich Rodnianskii, which have been made in my presence. The identity of the citizen Rodnianskii A.Y and a representative who have signed the document has been verified. The powers of the representative have been examined. The word "General" which is struck out should not be read. Registered in the register under No. 157-163 Payments have been collected according to an arrangement, including state duty in the amount of 0.68 UAH. PRIVATE NOTARY] [signed] [seal] [seal] [This document contains in total 18 (eighteen) sewn, numbered and sealed pages. Private notary] [signed] , , _ 880071, . .. 7 1991 . 19 EX-10.68 17 AMENDED & RESTATED FOUNDATION AGREEMENT/STUDIO 1+1 "REGISTERED" EXECUTION COPY in amended and restated form by the Executive Committee of the Pechersk District State Administration, in the City of Kyiv, Ukraine. Resolution No. as of _________________, 199__ Certificate No. ______________ Registration No. 23729809 Head of the State Administration (name) AMENDED AND RESTATED FOUNDATION AGREEMENT ON THE ESTABLISHMENT AND OPERATION OF THE BROADCASTING COMPANY "STUDIO 1+1" IN THE FORM OF A LIMITED LIABILITY COMPANY Kyiv - 1997 AMENDED AND RESTATED FOUNDATION AGREEMENT ON THE ESTABLISHMENT AND OPERATION OF THE BROADCASTING COMPANY "STUDIO 1+1" IN THE FORM OF A LIMITED LIABILITY COMPANY This Amended and Restated Foundation Agreement on the Establishment and Operation of the Broadcasting Company "Studio 1+1" in the Form of a Limited Liability Company ("Agreement") is entered into as of January 23, 1997 ("Effective Date") by and between: (1) ALEXANDER RODNIANSKII, a citizen of Ukraine, passport 21 No. AC037575; German Residency AO3762953 ("AR"); and (2) ENTERPRISE "INTER - MEDIA", a legal entity organized under the laws of Ukraine, represented by its General Director, Serhiy Viktorovych Chekanov ("Intermedia"). AR and Intermedia are hereinafter collectively referred to as the "Parties" and individually as a "Party". WHEREAS: (A) AR and Intermedia on June 28, 1996 entered into that certain Foundation Agreement on the Establishment and Operation of the Broadcasting Company "Studio 1+1" in the form of a Limited Liability Company ("Original Agreement"). (B) The Broadcasting Company "Studio 1+1" in the form of a Limited Liability Compay was established pursuant to the Original Agreement and registered by the State Administration of the Pechersk District of the City of Kyiv on July 11, 1996, registration number 23729809. (C) The Parties wish to amend the Original Agreement and replace it in its entirety with this Agreement. NOW THEREFORE, the Parties hereby agree as follows: ARTICLE 1 DEFINITION OF TERMS The following terms, as used in this Agreement, shall have the following respective meanings: 1.1 The term "LLC" shall mean the Broadcasting Company "Studio 1+1" in the form of a Limited Liability Company established herein, which shall be a legal entity under Ukrainian legislation, and which shall be established pursuant to the terms and conditions of this Agreement. 1.2 The term "Charter" shall mean the Amended Charter of the LLC. 1.3 The term "CME" shall mean CME Media Enterprises B.V., a company organized under the laws of the Netherlands. ARTICLE 2 SUBJECT MATTER OF THE AGREEMENT 2.1 The Parties hereby agree to establish a limited liability company which shall be a legal entity under Ukrainian legislation. 2.2 The official full name of the LLC in Ukrainian shall be as follows: " 1+1" . The official full name of the LLC in English shall be as follows: Broadcasting Company "Studio 1+1" in the form of a Limited Liability Company. The abbreviated names of the LLC in Ukrainian shall be as follows: " 1+1", or 1+1. The abbreviated names of the LLC in English shall be as follows: Studio 1+1. 2.3 The address of the LLC shall be: 1b Arsenalna Square, Kyiv, Ukraine. 2.4 This Agreement hereby amends the Original Agreement and replaces the Original Agreement in its entirety. ARTICLE 3 LEGAL STATUS OF THE LLC 3.1 The LLC shall be a legal entity under applicable Ukrainian legislation. The LLC shall acquire the rights of a legal entity as of the date of its State registration. 3.2 The activities of the LLC shall be governed by this Agreement, the Charter and applicable Ukrainian legislation. The provisions of this Agreement shall prevail in the event the provisions of this Agreement and the Charter are in conflict, unless the Parties in each instance unanimously agree to give prevailing force to the terms of the Charter. ARTICLE 4 PURPOSE AND SUBJECT MATTER OF THE LLC 4.1 The Parties hereby agree that the purposes and subjects of the LLC's activity shall be those listed in the Charter. 2 ARTICLE 5 CHARTER FUND OF THE LLC; INTEREST OF THE PARTIES; CONTRIBUTIONS OF THE PARTIES 5.1 The charter fund of the LLC ("Charter Fund") shall be formed by way of contributions from each Party and shall amount to 10,000 hryvnias. 5.2 The value of the contribution of each of the Parties to the Charter Fund and the interest share of each of the Parties in the Charter Fund shall be as follows: AR: 7,000 hryvnias, which constitutes 70% of the Charter Fund; Intermedia: 3,000 hryvnias, which constitutes 30% of the Charter Fund. 5.3 The type of contributions to the Charter Fund made by the Parties is as follows: ============================================================================ =================================== Contributor Evaluation of contribution and type of contribution ============================================================================ =================================== Rodnianskii: seven thousand (7,000) hryvnias. Data base regarding the distributors of audio and visual products (motion picture films and television movies, and television programs) on the territory of the CIS and in the countries of Eastern and Western Europe. ============================================================================ =================================== Intermedia: three thousand (3,000) hrynias. Data base regarding the owners and volume (limits) of proprietary rights for the use of one thousand audio-visual works (motion picture films and television movies, and television programs) produced by the television studios and cinema companies of Germany, France, Italy, Poland, United States, Great Britain, Russia and Ukraine. ============================================================================ ===================================
5.4 The LLC shall have the right to increase or decrease the amount of the Charter Fund. The Charter Fund may be increased only after all Parties have made their contributions in full. The Charter Fund may not be decreased if there are objections by the LLC's creditors. ARTICLE 6 GOVERNING AND CONTROLLING BODIES OF THE LLC 6.1 The highest decision-making body of the LLC shall be the 3 Participants' Assembly ("Participants' Assembly"). The Participants' Assembly shall consist of each Party who is a physical person and a representative appointed by each Party which is a legal entity (each a "Representative"). 6.2 The day-to-day business operations of the LLC and the fulfilment of the decisions of the Participants' Assembly shall be carried out by a Directorate appointed by the Participants' Assembly as provided herein ("Directorate"). The Directorate shall consist of the General Director, the Deputy General Director, the Financial Director (Chief Accountant), the Sales Director and such other persons as the Participants' Assembly may from time to time appoint. The Directorate shall be headed by the General Director. 6.3 The procedure for convening and holding meetings, the scope of authority of the Participants' Assembly, its structure, and the scope of authority and the procedure for carrying out the functions of the Directorate and of each of its members shall, to the extent not specifically provided for in this Agreement, be as specified in the Charter. 6.4 The Representative appointed by Intermedia shall act as the Chairman of the Participants' Assembly. 6.5 The General Director, the Deputy General Director, the Financial Director (Chief Accountant) and the Sales Director shall be appointed or dismissed by the decision of the Participants' Assembly. Intermedia, and only Intermedia, shall have the right in its sole discretion to nominate individuals for the position of Deputy General Director and Financial Director (Chief Accountant) ("Intermedia Nominees"). AR shall have the right in his sole discretion to nominate individuals for the position of General Director and Sales Director ("AR Nominees"). 6.6 Notwithstanding any provision herein to the contrary, Intermedia shall nominate, appoint or dismiss legal counsel to the LLC at its sole discretion, and such nomination, appointment or dismissal shall not be within the competence of either the Participants' Assembly or the Directorate. The Parties agree to carry out all actions as may be required in order to implement any such nomination, appointment or dismissal. 6.7 The Audit Committee shall be established by the Participants' Assembly in accordance with the provisions of the Charter. Intermedia, and only Intermedia, shall be entitled to nominate and call for the removal of the members of the Audit Committee. AR shall vote for all individuals nominated by Intermedia for the Audit Committee and shall vote for the dismissal of any member of the Audit Committee as indicated by Intermedia. 4 ARTICLE 7 DISTRIBUTION OF PROFITS AND LOSSES OF THE LLC 7.1 Upon the decision of the Participants' Assembly, the net annual profit received based upon the activity of the LLC during the previous fiscal year which remains after payment of taxes and other mandatory payments to the state budget, payment for the labor of the LLC's employees, deductions for the LLC's funds and other deductions and payments ("Profit") may be subject to distribution among the Parties in full or in part thereof. The Participants' Assembly shall determine the use of the Profit. 7.2 In the event that the Participants' Assembly approves a decision regarding the distribution of the Profit or any part thereof, the Profit shall be distributed among the Parties in proportion to their shares in the Charter Fund within thirty (30) calendar days after the day of approval by the Participants' Assembly of both the financial statements of the LLC for the previous fiscal year and the decision regarding distribution of the Profit. 7.3 The losses of the LLC shall be subject to compensation from the capital of the reserve fund of the LLC ("Reserve Fund"). The Reserve Fund shall be established as provided in the Charter. ARTICLE 8 RESTRICTIONS ON ASSIGNMENT AND EXPULSION 8.1 AR hereby agrees that during the term of this Agreement he shall not sell, transfer, dispose of, pledge or in any way encumber his participation interests in the Charter Fund and the LLC without having obtained the prior written consent of Intermedia, which consent may be withheld in Intermedia's sole discretion. 8.2 A Party shall cease to be a party to this Agreement if it (i) withdraws from the LLC or (ii) disposes of its share in the Charter Fund in its entirety. 8.3 Intermedia may transfer, pledge, encumber, sell or otherwise dispose of its participation interests in the LLC to a third party in its own discretion and without the approval of AR. AR hereby (i) grants his approval to Intermedia for any such transfer, pledge, encumbrance, sale or other disposition by Intermedia of its participation interests in the LLC and (ii) agrees to execute such documents or adopt such resolutions at the Participants' Assembly as may be 5 necessary in order to carry out any such Intermedia transfer, pledge, encumbrance, sale or other disposition. 8.4 AR agrees that, before offering all or a portion of his participation interests in the LLC to a third party ("Target Participation Interest"), he must first offer such Target Participation Interest to a Ukrainian person or entity designated by Intermedia (by means of a written notice to Intermedia) for purchase at a price equal to its fair market value as determined by an international accounting firm designated by Intermedia ("Accounting Firm"), provided that the designee of Intermedia may not purchase the Target Participation Interest if to do so would result in a violation of any media or other law. In the event that a Target Participation Interest is offered to Intermedia as provided in the previous sentence and Intermedia does not accept such offer within 30 calendar days of receiving (i) such offer and (ii) a fair market value quotation from the Accounting Firm, it may be offered (subject to the restrictions in Article 8.1) to a third party; provided, however, that in such event Intermedia must be notified in writing of the sale terms which have been agreed upon with such third party ("Offered Terms") and Intermedia shall have a right of first refusal to purchase such Target Participation Interest in accordance with the Offered Terms. In the event Intermedia fails to exercise the right of first refusal with respect to the Offered Terms within 15 calendar days of receiving a written notification of such Offered Terms, such Target Participation Interest may be transferred or sold (subject to the restrictions in Article 8.1) to such third party in accordance with the Offered Terms. 8.5 Any assignment or transfer of any portion of any Party's participation interest in the LLC under the terms and conditions hereof shall enter into force only upon performance of all of the following acts, and only after performance of the last of such acts: (i) the person to which a Party assigns or transfers a portion of its participation interest in the LLC ("Transferee") shall become a party to this Agreement and assume all the obligations of the assigning or transferring Party under this Agreement and the Charter on the date of such transfer, (ii) the Transferee shall assume the respective portion of the liabilities which the assigning or transferring Party had assumed in relation to the LLC and other Parties and (iii) appropriate changes to the Agreement and the Charter are entered into the appropriate State register. 8.6 The Parties agree that, upon the unanimous decision of the Participants' Assembly, a third party may make a contribution to the Charter Fund and, upon entering into this Agreement or an amended form of this Agreement agreed 6 by all Parties, become a Party to this Agreement and the LLC. 8.7 The Parties hereby agree that the LLC and/or any appropriate body of state power or management shall be obligated to reject any registration of the transfer of any participation interest in the LLC (or any attempted transfer of any participation interest) in the event such transfer has been carried out with breach of all or any of the provisions of this Article 8 hereof. Any agreement of any Party with any third party shall be deemed null and void ab initio unless requirements of this Article 8 hereof are adhered to. 8.8 A Party may not be expelled from the LLC. In the event that this provision becomes ineffective or unenforceable pursuant to applicable Ukrainian legislation, the Parties shall be able to expel a Party from the LLC under Article 64 of the Ukrainian Law on Business Associations only if an applicable arbitration panel or court has determined that the Party to be expelled has systematically and materially failed to fulfil its obligations under this Agreement and the Charter. ARTICLE 9 MODIFICATION AND AMENDMENTS 9.1 The Parties may at any time modify this Agreement and/or the Charter in a manner consistent with applicable Ukrainian legislation. No modification or amendment of this Agreement or the Charter shall be effective unless it is in writing and signed either by all the Parties or by authorized representatives of each of the Parties. 9.2 In the event appropriate applicable Ukrainian legislation requires the LLC to be re-registered with a new governmental entity or to be restructured into a legal form other than a limited liability company, the Parties agree to carry out such re-registration and restructuring and to ensure that, to the maximum extent possible, such re-registered or restructured entity is able to carry out the same activities and is governed by the same terms and conditions as provided in this Agreement and the Charter. ARTICLE 10 TERM OF THIS AGREEMENT 10.1 This Agreement shall come into force on the Effective Date. 10.2 This Agreement shall remain valid and binding for an unlimited period, but shall be deemed to have expired upon termination of this Agreement as provided in Article 11 of this Agreement. The Parties may agree at any time to shorten the term of this Agreement pursuant to written amendment as specified in Article 9.1 above. 7 ARTICLE 11 TERMINATION OF THIS AGREEMENT 11.1 This Agreement shall be terminated upon the expiration of the term of this Agreement, upon the earlier written mutual agreement of all of the Parties to terminate this Agreement or upon the liquidation of the LLC as provided in the Charter. 11.2 Termination of this Agreement shall result in the liquidation of the LLC pursuant to the provisions of the Charter. ARTICLE 12 PROTECTION OF "KNOW-HOW" AND OTHER PROPRIETARY RIGHTS 12.1 For the purposes of this Article, "know-how" shall mean all written or oral information having technical or commercial value and provided by any of the Parties to the LLC pursuant to this Agreement and any other agreements which are entered into by the Parties and the LLC during the term of this Agreement. 12.2 The LLC may not transfer any know-how to third parties without the prior written consent of the Party supplying such know-how. 12.3 The Parties shall not use or disclose to third parties any know-how without the prior written consent of the Party supplying such know-how. 12.4 The rights of the LLC to intellectual property shall be protected by applicable Ukrainian legislation, including exclusive ownership right to patents, trademarks, service marks and licenses. 12.5 Issues relating to the transfer of rights to intellectual property shall be addressed by the Parties and the LLC through the conclusion of special agreements governing the issue. 12.6 Article 12 of this Agreement shall survive the termination of this Agreement. ARTICLE 13 DISPUTE RESOLUTION 13.1 Notwithstanding any other provision hereof (except for Article 13.2 herein), any dispute, controversy or claim arising out of, relating to, or in connection with, this Agreement, or the breach, termination or validity hereof, 8 shall be finally settled by arbitration in accordance with (a) the Arbitration Agreement, dated September 30, 1996 (the "Arbitration Agreement"), among Innova Film GmbH, International Teleservices Limited, Prioritet, Ltd., the Intermedia, CME Media Enterprises, B.V., Studio 1+1, International Advertising Services Limited, Boris Fuchsmann, Alexander Rodnianskii, Vadim Rabinovich and Irina Shevchenko, until such date as the Arbitration Agreement may be terminated or (b) any arbitration provisions contained in any agreement entered into after September 30, 1996 to which each party hereto is a party that by its terms explicitly supersedes the Arbitration Agreement. 13.2 If any applicable law requires that the seat of the arbitration referred to above in Article 13.1 be Ukraine or any other jurisdiction, the seat of arbitration shall be such jurisdiction. 13.3 The provisions of this Article 13 shall survive the expiration or termination of this Agreement. ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 The Charter and any appendices to this Agreement shall constitute integral parts of this Agreement. 14.2 The headings in this Agreement are for convenience only and shall not govern the interpretation of any provisions of this Agreement. 14.3 Each Party hereby represents and warrants that: 14.3.1 with respect to Intermedia, it is a duly organized and validly existing legal entity under the laws of Ukraine; 14.3.2 he or she has taken all legal steps required under applicable law to enter into this Agreement; 14.3.3 he or she has the full right, power and authority to sign this Agreement and to perform its terms, and that this Agreement is a valid and binding Agreement enforceable against it in accordance with its terms; 14.3.4 with respect to Intermedia, the persons signing this Agreement on its behalf are duly authorized and empowered to do so; 14.3.5 he or she has the full right and power to contribute to the Charter Fund as provided in this Agreement; and 9 14.3.6 he or she has not entered into, or is not aware of, any similar agreement or arrangement which would materially interfere in the operation or financial viability of the LLC. A breach of any of the representations and warranties in this Article 14.3 shall be considered a material breach of this Agreement. 14.4 If any provision of this Agreement is or becomes invalid, ineffective, unenforceable or illegal for any reason, this fact shall not affect the validity or enforceability of any or all of the remaining provisions hereof. In such case, the Parties shall forthwith enter into good-faith negotiations to amend such provision in such a way that, as amended, they are valid and legal and to the maximum extent possible, and so that they carry out the original intent of the Parties as reflected herein with respect to the matter in question. 14.5 Any notice required or permitted by this Agreement shall be in writing. Such notices shall be deemed to have been given (i) when delivered personally, (ii) twenty-four hours after being transmitted by telecopy (facsimile), or (iii) seven days after being sent by air courier. Notices sent to the Parties shall be to the addresses or numbers specified in Article 15 hereof. Any Party may change its address and numbers stipulated for giving notice in accordance with the terms of this Article 14.5 hereof. 14.6 The failure of any Party to exercise any right or power given to it under this Agreement, or to insist upon strict compliance with the terms of this Agreement by any other Party, shall not constitute a waiver of the terms and conditions of this Agreement with respect to any subsequent breach thereof, nor a waiver by each of the Parties of its rights at any time thereafter to require strict compliance with all the terms of this Agreement. 14.7 This Agreement shall be governed and construed in accordance with the laws of Ukraine. 14.8 The Parties shall not be liable for any failure to perform their obligations under this Agreement to the extent that such failure will be due to circumstances of force majeure. The deadlines for performance under this Agreement shall be adjusted for a time period equal to the duration of such circumstances excusing performance. 14.9 This Agreement is drawn up and certified in seven copies in the Ukrainian language, one of which shall be kept in the files of a notary and the remaining copies be delivered to 10 the Parties. ARTICLE 15 LEGAL ADDRESSES OF THE PARTIES 15.1 The Legal addresses of the Parties are as follows: AR: Kyiv, Institutska Street, Building 22/7, Appartment 77. Intermedia: Kyiv, Dehtyarivska Street, Building 3. Signed on the Effective Date by the following Parties: [signed] /s/ Alexander Rodnianskii ------------------------- Alexander Rodnianskii Enterprise "INTER - MEDIA" as represented by the Director, Chekanov S.V. [signed] ------------------------- By: Position: [seal] Ky- 11 iv [January 23, 1997, this agreement has been certified by me, Oleksyuk Y.E., a private notary of the Kyiv city notary district. The agreement has been signed by the parties in my presence. The identity of the citizens who have signed the agreement has been verified, their capacity, and the legal capacity of the Enterprise "Inter - Media", and the powers of its representative have been examined. The inserted Article 14.9 and the addresses should be read, the word "General" which is struck out should not be read. Registered in the register under No. 156 Payments have been collected according to an arrangement, including state duty in the amount of 0.85 UAH. PRIVATE NOTARY] [signed] [seal] [seal] [This document contains in total 11 (eleven) sewn, numbered and sealed pages. Private notary] [signed] , , _ 880071, . .. 7 1991 12 EX-10.69 18 PROTOCOL OF THE PARTICIPANTS' ASSEMBLY EXECUTION COPY PROTOCOL No. __ of the Participants' Assembly of the Broadcasting Company "Studio 1+1" (the "Company") Date of the meeting of the Participants' Assembly: January 23, 1997. The following Participants, representing 100% of the participation interests in the Company, were present at the meeting and waived any requirement to receive notice of the meeting: 1. Alexander Rodnianskii (70%); 2. Enterprise "Inter - Media" (30%) The Participants' Assembly unanimously approved and considered the following agenda: 1. The designation of certain decisions of the Company as being within the exclusive competence of the Participants' Assembly. Having considered agenda item 1, the Participants unanimously RESOLVED: 1. That the following powers shall be within the exclusive competence of the Participants' Assembly and shall be subject to and adopted by 75% of all of the outstanding participation interest votes: (a) the determination of the general business policies and the approval of all financial plans and operating budgets of the Company, including, without limitation, annual financial plans, annual budgets, and any transaction that falls outside an approved plan or budget; (b) the approval of any business transaction or commitment which has not been provided for in the relevant budget or which exceeds the amount allocated to the prospective field of business activity in the relevant budget; (c) the approval of the amendment or termination of agreements, contracts and other documents which require two signatures; (d) the approval of any transaction which is not within the ordinary scope of the Company's business; (e) the approval of the commencement or defence of any litigation or arbitration, or the entering into of any settlement agreement, with a value of more than Ten Thousand ($10,000) U.S. Dollars; (f) the determination of salary, bonuses and other remuneration of any member of the Directorate of the Company; (g) subject to the provisions of Article 10.1 of the Company's Charter, the appointment and dismissal of members of the Audit Committee and the approval of the Audit Committee's reports; (h) designation of those persons authorized to sign any financial documents and to enter into agreements on behalf of the Company; (i) the approval or revocation of any and all powers of attorney to act on behalf of the Company. There being no further business of the Participants' Assembly, the meeting was adjourned. Signatures of the Participants: --------------------------- Alexander Rodnianskii Enterprise "Inter - Media" -------------------------- By: Title: EX-10.70 19 MARKETING, ADVERTISING AND SALES AGREEMENT MARKETING, ADVERTISING AND SALES AGREEMENT THIS MARKETING, ADVERTISING AND SALES AGREEMENT (this "Agreement") is entered into on January 23, 1997, to have effect from and as of November 18, 1996 (the "Effective Date"), by and between INTERNATIONAL MEDIA SERVICES LTD., a limited liability company organized under the laws of Bermuda ("IMS"), and INNOVA FILM GMBH, a limited liability company organized under the laws of Germany ("Innova"). WHEREAS: A. Pursuant to license no. 00280 dated November 11, 1996 (the "UT-2 License"), the Ukrainian National Council for Television and Radio (the "NKTB") has granted to Broadcasting Company "Studio 1+1" in the Form of a Limited Liability Company, a limited liability company organized under the laws of Ukraine ("Studio 1+1"), the right to broadcast on the Second National Television Channel of Ukraine ("UT-2"). B. The grant of the UT-2 License was conditioned on the termination of Innova's broadcast rights under that certain Agreement on International Cooperation for the Organization of Television Broadcasting on the First National Television Channel of Ukraine, dated July 26, 1995, as amended, between Innova and the National Television Company of Ukraine (the "Innova-NTCU Agreement"). C. Pursuant to that certain Contract for International Cooperation between Tele Radiogesellschaft Studio 1+1 and Innova Film GmbH to Produce Programmes for Ukrainian Television, entered into in November, 1996 (the "Innova-Studio 1+1 Agreement"; and, together with the UT-2 License, the "UT-2 Documents"), Studio 1+1 has granted to Innova, inter alia, the exclusive right for the broadcasting of advertising within the television programming produced by Studio 1+1 and transmitted via UT-2. NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Article 1 1.1 IMS confirms that it is aware of the contents of the UT-2 Documents and agrees not to take any action which would threaten Innova's rights thereunder. Article 2 2.1 Innova hereby assigns to IMS the exclusive right to market and sell broadcasting time for advertising which has been allocated to Innova pursuant to the UT-2 Documents, under the following conditions: 2.1.1 marketing and sales activities may be carried out with advertising partners with no restriction as to their nationality; 2.1.2 advertising for political parties or advertising promoting the ideological objectives of any group, association, country or religious community, other than in compliance with Ukraine law, is not permitted; 2.1.3 the images in graphic form should not be offensive; and 2.1.4 the guidelines of Studio 1+1 shall apply in the assignment of broadcasting times. 2.2 In return for receiving the rights specified in Article 2.1, IMS hereby undertakes: 2.2.1 to reimburse Innova and its Ukrainian subsidiary Enterprise Inter-Media for costs incurred in connection with (i) purchasing and producing program material and (ii) adapting program material; provided, however, that such costs must be approved quarterly in advance by IMS in order to be eligible for reimbursement. Innova shall be required to submit a proposed quarterly budget (the "Innova Quarterly Budget") to IMS at least one month in advance of each new quarter. IMS and Innova shall jointly approve and finalize each Innova Quarterly Budget within two weeks of IMS' receipt thereof; 2.2.2 to reimburse costs incurred by Innova in connection with the purchasing of material and the employment of the services of outside individuals and institutes for specific purposes. Such costs may include: (a) staff costs; (b) rental of premises in Kiev and additional costs for power, heating, cleaning and maintenance; (c) costs of transportation, vehicles and freight; (d) travel and insurance costs; (e) administration costs, including office supplies, postage, telephone, legal, advisory and tax-advisory services; (f) other expenses not specifically listed which Innova incurs in carrying out its obligations under the UT-2 Documents; and (g) expenses connected with the adaptation of a variety of audio-visual programs (e.g., cinema and video films, series, shows, sport and music programs and news reports) that can be transmitted on television. For purposes of this Agreement, the term "adapt" shall mean the reworking of broadcasting material to make it suitable for the Ukrainian viewing audience (e.g., translation into Ukrainian commentary); provided, however, that all such costs must be included in the Innova Quarterly Budget in order to be eligible for reimbursement by IMS. 2.3.1 IMS shall bear the cost of all obligations and liabilities of Innova relating to the television operations of Innova in Ukraine that are (a) outstanding at the Effective Date or (b) incurred during the period from the Effective Date through December 31, 1996 ("Ukraine Television Obligations"). The parties agree that Ukraine Television Obligations shall not include any fines, interest, penalty payments or similar assessments levied by any court or fiscal authority against Innova in connection with any tax practices of Innova, or tax return or similar filing made or omitted to be made by Innova with respect to any period, prior to January 1, 1997. IMS shall not bear the cost of or be liable in any way for any obligations or liabilities of Innova through December 31, 1996 other than Ukraine Television Obligations. 2.3.2 IMS shall bear the cost of all obligations and liabilities incurred by Innova from January 1, 1997. IMS shall make promptly such payments to Innova as shall be necessary to meet Ukraine Television Obligations incurred subsequent to such date, including, without limitation, payments due from Innova pursuant to the terms of the Innova-Studio 1+1 Agreement. Article 3 3.1 Throughout the financial year, Innova shall make available to IMS all accounting information and documentation relating to reimbursable expenses incurred by Innova in connection with the UT-2 Documents. 3.2 In addition to the reimbursement of expenses as specified in Articles 2.2 and 2.3 above, Innova shall receive from IMS the following monthly payments (to be paid at the beginning of every month to such account as designated by Innova): 3.2.1 from the Effective Date through December 31, 1996 - $5,000 per month; 3.2.2 from January 1, 1997 - $6,000 per month; 3.2.3 from January 1, 1998 - $7,000 per month; 3.2.4 from January 1, 1999 - $8,000 per month; 3.2.5 from January 1, 2000 - $9,000 per month; 3.2.6 from January 1, 2001 - $9,500 per month; and 3.2.7 from January 1, 2002 - $10,000 per month until the termination of this Agreement. Article 4 4.1 This Agreement shall terminate upon the earlier of (i) the mutual agreement of the parties and (ii) the expiry of the UT-2 License or the Innova-Studio 1+1 Agreement. Article 5 5.1 This Agreement shall be governed by and construed in accordance with the laws of Bermuda. 5.2 Subject to Section 5.3, the parties shall make a good faith effort to resolve by negotiation among themselves any dispute, controversy or claim arising out of, relating to, or in connection with, this Agreement, or the breach, termination or validity hereof (a "Dispute"). 5.3 Any Dispute which the parties shall not have been able to resolve in accordance with Section 5.2 within thirty (30) days after such Dispute has arisen shall be finally settled by arbitration in accordance with such arbitration agreement as shall be currently in effect binding the parties hereto. 5.4 The provisions of this Article 5 shall survive the termination of this Agreement. Article 6 6.1 Any notice required or permitted by this Agreement shall be in writing. Such notices shall be written (i) in English when given to IMS and (ii) in English or German when given to Innova. Such notices shall be deemed to have been given (i) when delivered personally, (ii) twenty-four hours after being transmitted by telecopy (facsimile) or (iii) seven days after being sent by air courier, subject to confirmation of receipt. Notices sent to the parties shall be to the addresses or numbers specified in Article 7. 6.2 If any provision of this Agreement is invalid, ineffective, unenforceable or illegal for any reason, such decision shall not affect the validity or enforceability of any or all of the remaining provisions. The parties agree that should any provision of this Agreement be invalid or unenforceable, they shall promptly enter into good faith negotiations to amend such provision in such a way that, as amended, it is valid and legal and to the maximum extent possible carries out the original intent of the parties as to the issue or issues in question. 6.3 The failure of a party to exercise any right given to it under this Agreement, or to insist upon strict compliance with the terms of this Agreement by the other party, shall not constitute a waiver of the terms and conditions of this Agreement with respect to any subsequent breach thereof, nor a waiver by either of the parties of its rights at any time thereafter to require strict compliance with all the terms of this Agreement. 6.4 This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 6.5 This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and cancels and invalidates all prior commitments or representations which may have been made by the parties either orally or in writing with respect to the subject matter hereof. 6.6 This Agreement may be amended, modified or supplemented only by a written instrument authorized and executed on behalf of the parties. Neither IMS nor Innova may assign or transfer any of its rights or obligations under this Agreement without the prior consent of the other party. 6.7 The terms and provisions of this Agreement shall be binding on the legal successors and permitted assigns, transferees and delegates of each party hereto. 6.8 Each party hereto shall execute and deliver such other documents and take such other actions as may reasonably be requested by the other party hereto in order to consummate or implement the transactions contemplated hereby. Article 7 7.1 The addresses of the parties are as follows: IMS: International Media Services Ltd. Clarendon House Church Street Hamilton HM CX Bermuda Tel: 1 441 295 1422 Fax: 1 441 292 4720 Innova: Innova Film GmbH Friederich-Ebert St. 31-33 40210 Dusseldorf, Germany Fax: 49 211 175 1222 Tel: 49 211 175 102 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Marketing, Advertising and Sales Agreement on the date first above written. INNOVA FILM GMBH INTERNATIONAL MEDIA SERVICES LTD. By:_______________ By:____________________ Name: Name: Title: Title: EX-10.71 20 MARKETING AND SALES AGREEMENT MARKETING AND SALES AGREEMENT THIS MARKETING AND SALES AGREEMENT (this "Agreement") is entered into on January , 1997, to have effect from and as of November 18, 1996 (the "Effective Date"), by and between INTERNATIONAL MEDIA SERVICES LTD., a limited liability company organized under the laws of Bermuda ("IMS"), and LIMITED LIABILITY COMPANY "PRIORITET", a limited liability company organized under the laws of Ukraine ("Prioritet"). WHEREAS: A. Pursuant to license no. 00280 dated November 11, 1996 (the "UT-2 License"), the Ukrainian National Council for Television and Radio has granted to Broadcasting Company "Studio 1+1" in the Form of a Limited Liability Company, a limited liability company organized under the laws of Ukraine ("Studio 1+1"), the right to broadcast on the Second National Television Channel of Ukraine (the "Television Channel"). B. The grant of the UT-2 License was conditioned on the termination of Innova's broadcast rights under that certain Agreement on International Cooperation for the Organization of Television Broadcasting on the First National Television Channel of Ukraine, dated July 26, 1995, as amended, between Innova and the National Television Company of Ukraine (the "Innova-NTCU Agreement"). C. Pursuant to that certain Contract for International Cooperation between Tele Radiogesellschaft Studio 1+1 and Innova Film GmbH to Produce Programmes for Ukrainian Television, entered into in November, 1996 (the"Innova-Studio 1+1 Agreement"; and, together with the UT-2 License, the "UT-2 Documents"), Studio 1+1 has granted to Innova, inter alia, the exclusive right for the broadcasting of advertising within the television programming produced by Studio 1+1 and transmitted via the Television Channel. NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Article 1 1.1 IMS hereby assigns to Prioritet the exclusive right to carry out the marketing and sales of advertising time within the territory of Ukraine (the "Territory") in any form (including, subject to the terms hereof, sponsorship and barter transactions) within the time allotments made available to Innova pursuant to the UT-2 Documents. 1.2 Prioritet shall be fully responsible for (i) the acceptance and execution of advertising orders of domestic and foreign advertisers, (ii) the issuance of invoices and (iii) the production of documents evidencing payments made by all agencies and customers. Prioritet shall bear all costs related to the marketing and sales of advertising time and all salaries, costs and expenses of individuals who carry out the Prioritet activities contemplated in this Agreement, including any activities intended to expand and increase contacts in the international market. 1.3 Prioritet may assign, delegate or otherwise transfer any of its rights and obligations hereunder only with the prior written consent of IMS (which consent may be granted or withheld in IMS' sole discretion). In the event of such assignment, delegation or other transfer, Prioritet shall continue to be liable for the obligations which have been assigned, delegated or transferred and for the actions of its assignee, delegate or transferee. 1.4 In the event the UT-2 License shall be declared invalid or otherwise become unenforceable and the Innova-NTCU Agreement shall be reinstated, the parties shall amend this Agreement promptly in a manner reflecting the economic and legal arrangements contemplated by the Marketing and Sales Agreement, dated as of September 30, 1996, to which the parties hereto were signatory, adjusted as reasonably necessary to reflect the particular facts and circumstances of such reinstatement. Article 2 2.1 Prioritet shall provide the following services to IMS: 2.1.1 Commercial services consisting of: (a) development of business and pricing proposals which will result in the maximum cooperation possible between the Television Channel and advertisers in the Territory through the marketing and sale of advertising time on the Television Channel; (b) carrying out of activities designed to maximize turnover from the sale of advertising time on the Television Channel; and (c) development of proposals regarding the marketing policy of the Television Channel (subject to the requirements of the professional advertising market in the Territory); 2.1.2 Marketing services consisting of: (a) application of Prioritet's marketing experience in the sales of advertising time in the mass-media; (b) carrying out of short- and long-term marketing research with respect to the Television Channel, its programs and their potential audience, including selection of appropriate methods for the performance of qualitative and quantitative research; and (c) the introduction of the Television Channel to potential professional partners who are active in advertising markets within and without the Territory; 2.1.3 Organizational and technical services consisting of: (a) entering into contracts with advertisers as a commission agent of IMS (that is, in Prioritet's own name but on behalf of IMS) and the carrying out of all preliminary and ancillary activities related to such contracts, including acceptance, distribution and confirmation of orders, correspondence with customers, placement of advertisements on the air and the issuance of invoices (including payment orders). 2.2 Prioritet shall: 2.2.1 prepare advertisements to be broadcast on the Television Channel, taking into account their specific features and the customers' wishes; 2.2.2 conduct contingency planning for the placement of customer's advertisements; 2.3 ensure that all advertisements which it prepares for broadcast on the Television Channel comply with all applicable Ukrainian laws; and 2.4 be responsible for the receipt, confirmation and final review of advertising notices, and for ensuring that the advertisements are broadcast as agreed. Article 3 3.1 Prioritet shall ensure that all amounts payable by customers under contracts entered into by Prioritet as provided hereunder are paid, and shall be liable to IMS for the amount of any payment due and not remitted to IMS (either directly or by Prioritet, in accordance with the terms of this Article 3.1) by the payment due date provided in such contract. Subject to the following sentence, all such contracts shall provide that all payments thereunder are to be made directly to IMS in U.S. dollars (or other freely convertible currency acceptable to IMS) and shall not, without the prior consent of IMS, contain payment terms more lenient than those customary to the industry for similar contracts within the Territory. In the event that such payments cannot reasonably be made by customers directly to IMS, they shall be made directly to Prioritet; provided, however, that Prioritet shall forward any payments so received to IMS in U.S. dollars (or other freely convertible currency acceptable to IMS) no later than 7 calendar days after such payments are received by Prioritet. 3.2 Prioritet shall provide IMS with monthly written reports accounting in reasonable detail for (i) all contracts entered into by Prioritet as provided hereunder, (ii) all advertisements placed by Prioritet on the Television Channel, (iii) all monies received by Prioritet and (iv) any other information which IMS may from time to time reasonably request. Article 4 4.1 Price-lists and rules for the broadcast of advertising which are provided to customers shall be established jointly by Prioritet and IMS with a view to obtaining the most favourable business results for IMS. Article 5 5.1 Remuneration paid to Prioritet for carrying out the services contemplated in this Agreement shall equal (i) five percent (5%) of the foreign currency revenues actually received directly by IMS from the sale of broadcast advertising time on the Television Channel through Prioritet, plus (ii) five percent (5%) of the foreign currency revenues actually received by Prioritet on behalf of IMS from the sale of broadcast advertising time on the Television Channel through Prioritet, plus (iii) five percent (5%) of the local currency revenues actually received by Prioritet on behalf of IMS from the sale of broadcast advertising time on the Television Channel through Prioritet. Such remuneration may be modified by IMS and Prioritet from time to time by means of separate written agreements. 5.2 All local currency revenues received by Prioritet (other than the portion of any local currency corresponding to Prioritet's remuneration under Article 5.1) shall be converted by Prioritet into U.S. dollars (at a rate no less favorable to IMS than the best rate commercially available to Prioritet on the date of Prioritet's receipt of such revenues) and transferred to IMS as provided in Article 3.1 above. The cost of such conversion (including, without limitation, any fees, commissions or other costs imposed by any financial institution in connection with the purchase of units of one currency in exchange for units of another currency and the transfer or credit of such converted amounts to an account of IMS) shall be borne by Prioritet. 5.3 IMS shall forward to Prioritet the amount owed to Prioritet as set out in 5.1 above on a quarterly basis and no later than 30 days after receiving the report required under Article 3.2 for the last month of such business quarter. Article 6 6.1 Prioritet may enter into advertising contracts hereunder that include provisions for the barter of goods and services only upon the prior agreement of IMS. Any such barter transactions shall be carried out on a case-by-case and exceptional basis only. Article 7 7.1 This Agreement shall terminate upon the earlier of (i) the mutual agreement of the parties and (ii) the expiry of the UT-2 License or the Innova-Studio 1+1 Agreement. 7.2 IMS may terminate this Agreement upon two months' written notice to Prioritet. Prioritet may not terminate this Agreement prior to the completion of the term specified in Article 7.1 above. Article 8 8.1 This Agreement shall be governed by and construed in accordance with the laws of Bermuda. 8.2 Subject to Section 8.3, the parties shall make a good faith effort to resolve by negotiation among themselves any dispute, controversy or claim arising out of, relating to, or in connection with, this Agreement, or the breach, termination or validity hereof (a "Dispute"). 8.3 Any Dispute which the parties shall not have been able to resolve in accordance with Section 8.2 within thirty (30) days after such Dispute has arisen shall be finally settled by arbitration in accordance with such arbitration agreement as shall be currently in effect binding the parties hereto. 8.4 The provisions of this Article 8 shall survive the termination of this Agreement. Article 9 9.1 Any notice required or permitted by this Agreement shall be in writing. Such notices shall be written in English when given to IMS and in English or Ukrainian when given to Prioritet. Notices shall be deemed to have been given (i) when delivered personally, (ii) twenty-four hours after being transmitted by telecopy (facsimile) or (iii) seven days after being sent by air courier, subject to confirmation of receipt. Notices sent to the parties shall be to the addresses or numbers specified in Article 10. 9.2 If any provision of this Agreement is invalid, ineffective, unenforceable or illegal for any reason, such decision shall not affect the validity or enforceability of any or all of the remaining provisions. The parties agree that should any provision of this Agreement be invalid or unenforceable, they shall promptly enter into good faith negotiations to amend such provision in such a way that, as amended, it is valid and legal and to the maximum extent possible carries out the original intent of the parties as to the issue or issues in question. 9.3 The failure of a party to exercise any right or power given to it under this Agreement, or to insist upon strict compliance with the terms of this Agreement by the other party, shall not constitute a waiver of the terms and conditions of this Agreement with respect to any subsequent breach thereof, nor a waiver by either of the parties of its rights at any time thereafter to require strict compliance with all the terms of this Agreement. 9.4 This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 9.5 This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and cancels and invalidates all prior commitments or representations which may have been made by the parties either orally or in writing with respect to the subject matter hereof. 9.6 This Agreement may be amended, modified or supplemented only by a written instrument authorized and executed on behalf of each party hereto. IMS may assign, delegate or transfer any of its rights or obligations under this Agreement without the prior consent of Prioritet. 9.7 The terms and provisions of this Agreement shall be binding on the legal successors and permitted assigns, transferees and delegatees of each party hereto. 9.8 Each party hereto shall execute and deliver such other documents and take such other actions as may reasonably be requested by the other party hereto in order to consummate or implement the transactions contemplated hereby. Article 10 10.1 The addresses of the parties are as follows: IMS: International Media Services Ltd. Clarendon House Church Street Hamilton HM CX Bermuda Attn: President Tel: 1 441 295 1422 Fax: 1 441 292 4720 Prioritet: Limited Liability Company "Prioritet" 2 Mezhiva Street Kiev, Ukraine Attn: General Director Tel: Fax: IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Marketing and Sales Agreement on the date first above written. LIMITED LIABILITY COMPANY INTERNATIONAL MEDIA "PRIORITET" SERVICES LTD. By: By: Name: Name: Title: Title: By: Name: Title: EX-10.72 21 GREAT MARLBOROUGH STREET LEASE AGREEMENT COUNTERPART LEASE of offices situate on 7th Floor 13 Great Marlborough Street London W1 PARTIES: SONY MUSIC ENTERTAINMENT (UK) LIMITED (1) CME DEVELOPMENT CORPORATION (2) Lawrence Graham 190 Strand London WC2R 1JN 0171-379 0000 AGW-411331-B 19.12.1996 AGW LEASE PARTICULARS - ----------------- ----- ------------------------------------------------------- DATE : the 15th day of January 1997 - ----------------- ----- ------------------------------------------------------- PARTIES: LANDLORD : SONY MUSIC ENTERTAINMENT (UK) LIMITED (Company registration number 4622257) of 10 Great Marlborough Street London W1V2LP TENANT : CME DEVELOPMENT CORPORATION c/o 18 D'Arblay Street London W1V 3FP - ----------------- ----- ------------------------------------------------------- PREMISES : offices on Seventh Floor 13 Great Marlborough Street London W1 as more particularly described in PartI of the First Schedule - ----------------- ----- ------------------------------------------------------- TERM : A term commencing from and including the Term Commencement Date and expiring on the 9th day of September 1998 TERM COMMENCEMENT DATE : the 4th day of January 1997 - ----------------- ----- ------------------------------------------------------- RENT : ONE HUNDRED AND TEN THOUSAND FIVE HUNDRED POUNDS (Pounds 110,500) per annum RENT COMMENCEMENT DATE : the 4th day of January 1997 - ----------------- ----- ------------------------------------------------------- PERMITTED USE : offices - ----------------- ----- ------------------------------------------------------- PRESCRIBED RATE : 4% per annum above the Base Rate - ----------------- ----- ------------------------------------------------------- - ----------------- ----- ------------------------------------------------------- COURT ORDER : an order of The Mayor's and City of London Court (No. MY672546) dated the 31st day of December 1996 in relation to the Premises pursuant to Section 38(4) of the Landlord and Tenant Act 1954 - ----------------- ----- ------------------------------------------------------- THIS LEASE made on the date stated in the Particulars BETWEEN the Parties specified in the Particulars WITNESSES in consideration of the rents and covenants hereinafter reserved and contained as follows:- 1. DEFINITIONS AND INTERPRETATION 1.1 In this lease unless the context otherwise requires the terms defined in this clause and in the Particulars shall have the meanings specified:- "Associated Company" means any company being in relation to the Tenant a member of the same "group" as defined in Section 42(1) of the Landlord and Tenant Act 1954 "Authorised Hours" means the hours between 7.00 a.m. and 11.00 p.m. on Mondays to Fridays (public holidays excepted) "Base Rate" means the base rate of Barclays Bank plc or such other London Clearing Bank as the Landlord may from time to time nominate "Building" means the Landlord's building (of which the Premises form part) known as 13 Great Marlborough Street London W1 "Common Parts" means the entrance hall at ground floor level the lobby and toilets on the seventh floor the stairs shown hatched green on the plan the rear stairs shown hatched yellow on the plan and the lifts of the Building "Landlord" means the party named as "Landlord" in the Particulars and includes the person for the time being entitled to the reversion immediately expectant on the determination of the Term "Particulars" means the descriptions and terms appearing on the preceding pages headed "Lease Particulars" which comprise part of this lease "Quarter Days" means 25th March 24th June 29th September and 25th December in each year "Rent" means the Rent specified in the Particulars "Superior Landlord" means any person or persons for the time being entitled to any estate or estates in the Premises which are reversionary (whether immediate or mediate) upon the Landlord's estate "Superior Lease" means the lease dated 16th September 1993 and made between Sun Alliance and London Assurance Company Limited (1) and Sony Music Entertainment (UK) Limited (2) "Tenant" means the party named as "Tenant" in the Particulars "Term" means the term of years stated in the Particulars "VAT" means value added tax and any other tax of a similar nature 1.2 Where two or more persons are included in the expression "the Tenant" or (where relevant) "the Surety" covenants which are expressed to be made by the Tenant or the Surety shall be deemed to be made by such persons jointly and severally 1.3 The expression "conducting media" shall where the context so requires means all or any sewers drains conduits gutters channels watercourses pipes cables wires ducts and mains and apparatus associated therewith and all equipment and fittings ancillary thereto 1.4 Words importing persons shall include firms companies and corporations and vice versa 1.5 Any covenant by the Tenant not to do any act or thing shall include an obligation not to permit or suffer such act or thing to be done 1.6 Reference to any right of the Landlord to have access to or entry upon the Premises shall be construed as extending to any Superior Landlord and all persons authorised by the Landlord or any Superior Landlord including agents professional advisers contractors workmen and others 1.7 Any provision in this lease requiring the consent or approval of the Landlord shall be deemed to be conditional upon the consent or approval of the Superior Landlord being obtained so far as may be required under the terms of the Superior Lease and the Landlord shall at the request and cost of the Tenant use reasonable endeavours to obtain any such consent or approval as soon as practicable whenever so required 1.8 Any reference to a statute (whether specifically named or not) shall include any amendment or re-enactment of such statute for the time being in force and all instruments orders notices regulations directions bye-laws permissions and plans for the time being made issued or given thereunder or deriving validity therefrom 1.9 The title headings appearing in this lease are for reference only and shall not affect its construction 1.10 Any reference to a clause or schedule shall mean a clause or schedule of this lease 2. DEMISE The Landlord HEREBY DEMISES to the Tenant the Premises TOGETHER WITH the rights specified in Part II of the First Schedule but EXCEPTING AND RESERVING to the Landlord the Superior Landlord and their respective successors in title and assigns and the tenants and occupiers of other parts of the Building and all other persons entitled thereto the easements and rights specified in Part III of the First Schedule TO HOLD the same unto the Tenant SUBJECT to and with the benefit of the matters specified in the Fourth Schedule for the Term YIELDING AND PAYING therefor together with any VAT payable thereon from time to time:- 2.1 during the period (if any) beginning on the Term Commencement Date and ending on the day before the Rent Commencement Date the rent of a peppercorn if demanded and thereafter the Rent payable without deduction by equal quarterly payments in advance on the Quarter Days the first such payment being a proportionate sum in respect of the period beginning on the Rent Commencement Date and ending on the day before the Quarter Day next after the Rent Commencement Date to be paid on the date hereof 2.2 throughout the Term on demand by way of further rent a sum equal to fourteen point two nine per centum (14.29%) of (i) every sum which the Landlord shall from time to time pay to the Superior Landlord as Insurance Rent pursuant to the Superior Lease and (ii) (to the extent that the Landlord may effect the same) every sum which the Landlord may from time to time pay by way of premium (including any increased or additional premium payable by reason of any act or omission of the Tenant or any of the Tenant's servants or agents or by reason of the user of the Premises) for keeping the Building fees rent and property owner's liability risks of the Landlord and the Superior Landlord insured 3. TENANT'S COVENANTS The Tenant HEREBY COVENANTS with the Landlord as follows: 3.1 Payment of rent To pay the reserved rents at the times and in manner aforesaid without deduction or set off 3.2 Payment of outgoings To defray (or in the absence of direct assessment on the Premises to pay to the Landlord on demand (save in so far as the same are paid by way of the service charge) a fair proportion (to be determined by the surveyor for the time being of the Landlord whose decision shall be binding upon the Tenant) of) all existing and future taxes duties assessments charges and impositions levies and outgoings whatsoever whether parliamentary local or otherwise now or hereafter payable by law in respect of the Premises or any part thereof by the owner landlord tenant or occupier thereof other than: 3.2.1 any tax in respect of rents and other payments under this lease (other than VAT or other tax thereon intended by statute to be payable by the Tenant) 3.2.2 any tax or levy in respect of the grant of and arising solely by reason of this lease (and not by reason of the combined effect of the grant of this lease and of some other act or omission on the part of the Tenant) and 3.2.3 any tax in respect of any dealing with the reversion expectant on the Term not arising by reason of some act or omission on the part of the Tenant 3.2.4 business rates in respect of the Premises 3.3 To pay VAT All payments to be made pursuant to this lease shall (save where otherwise specifically provided) be taken to be exclusive of VAT (or any other tax of similar nature that may be substituted for it or levied in addition to it) properly chargeable in respect of the supply or supplies giving rise to such payment and in addition to any moneys due from the Tenant under the terms and provisions of this lease the Tenant shall pay at the respective times when such moneys are due such VAT (or any other tax aforesaid) at the rate for the time being in force as shall be chargeable in respect of any such moneys 3.4 Interest on overdue payments If and so often as any rent (whether formally demanded or not) or any other money due from the Tenant under the provisions of this lease shall be unpaid after the due date on demand by the Landlord to pay interest on such unpaid rent and other unpaid moneys (other than on interest payable under this sub-clause) from the due date until payment (whether before or after judgment) at the Prescribed Rate PROVIDED that if payment shall be received after 2.30 p.m. on any day the same shall be deemed to have been received on the next working day on which the London clearing banks are open for business 3.5 Repairs etcetera 3.5.1 Throughout the Term (damage by fire and such other risks against which the Superior Landlord shall have insured excepted save where the insurance moneys or any part thereof shall be irrecoverable in consequence of any act or default of the Tenant or any person deriving title under the Tenant or any of the servants or agents of the Tenant or of any such person) well and substantially to repair and keep in good and substantial repair and condition the Premises 3.5.2 Not to carry out repairs to any 3.5.2.1 heating cooling and ventilating apparatus 3.5.2.2 sprinkler system 3.5.2.3 fire hoses 3.5.2.4 emergency lighting system 3.5.2.5 fire alarm system and/or 3.5.2.6 other fire prevention and detection system or any equipment belonging thereto within but not exclusively serving the Premises 3.6 Redecoration In the last three months of the Term (howsoever determined) in a proper and workmanlike manner with good quality materials and to the satisfaction in all respects of the Landlord to prepare and paint (with three coats) grain varnish polish wash stop whiten colour or otherwise treat all such parts of the interior of the Premises (including the interior of the window frames) as have been previously or are usually so dealt with and re-paper re-cover or re-line the parts usually papered covered or lined with good quality suitable paper vinyl covering or fabric or other covering PROVIDED ALWAYS that such painting and redecorating (unless determined by forfeiture) shall be carried out in colours tints and patterns first approved in writing by the Landlord 3.7 Yielding up To yield up the Premises (but not with trade and other tenant's fixtures) with vacant possession at the determination of the tenancy hereby created in good and substantial repair and condition in accordance with the covenants herein contained 3.8 Alterations and additions Not to injure cut or maim or permit to be injured cut or maimed any of the timbers walls or partitions or any other part of the Premises or the Building nor make or permit to be made any alteration or addition to the Premises or to the voice data or power wiring or cabling thereof 3.9 Aerials and similar apparatus and interference 3.9.1 Not without the consent in writing of the Landlord to affix or permit to be affixed to the Premises or any part thereof any wireless radio or television aerial or similar apparatus and not to make any claim against the Landlord in respect of interference to reception of wireless radio or television transmissions or to the operation of any appliance in or upon the Premises suffered or alleged to be suffered by reason of the use of electrical or other apparatus on any adjoining or neighbouring property of the Landlord 3.9.2 Not to cause or permit or suffer to be caused interference to others by any radio or electromagnetic signal emitted by the use of apparatus operated or installed in or upon the Premises 3.10 Advertisements Not without the previous written consent of the Landlord to set up or exhibit upon any part of the Premises any placard poster signboard notice or advertisement which shall be visible from outside the Premises 3.11 Permitted Use Not to use or permit or suffer to be used the Premises or any part thereof for any purpose except the Permitted Use 3.12 Nuisance or damage 3.12.1 Not to play or permit to be played in the Premises any musical instrument gramophone radio radiogram television set tape recorder or similar apparatus so as to be audible outside the Premises 3.12.2 Not to do or permit or suffer anything in or upon the Premises or any part thereof or in or upon any other part of the Building or in or upon any other area which the Tenant is by virtue of this lease authorised to use (whether in common with others or not) which may be or become a nuisance or annoyance or cause damage or inconvenience to the Landlord or the tenants and occupiers of any other part of the Building or of other property in the neighbourhood or to the public local or any other authority 3.13 Regulations To observe and cause to be observed at all times (a) regulations imposed by the Landlord in respect of the lifts in the Building and for the general running security orderliness and management of the Building and the services thereof and the curtilage thereof as already or from time to time hereafter notified in writing by the Landlord to the Tenant and (b) the regulations set out in the Third Schedule or as they shall be altered or added to from time to time by notice in writing by the Landlord to the Tenant and this clause 3.13 shall be without prejudice to the generality of any other provision contained in these presents which shall touch and concern the same subjects 3.14 Prohibited alienation Not to assign underlet charge part with or share possession or occupation of the whole or any part or parts of the Premises 3.15 Sharing occupation Notwithstanding the provisions of clause 3.14 if the Tenant is a company the Tenant shall be permitted to share occupation of the Premises with an Associated Company on condition that no tenancy is thereby created 3.16 Notice of re-letting To permit the Landlord at any time after a date six months before the expiration of the Term to affix and retain without interference upon any part of the Premises a notice for re-letting the same PROVIDED ALWAYS that such notice for re-letting shall not obstruct the access of light to the windows of the Premises AND to permit persons with written authority from the Landlord or the agent of the Landlord at reasonable times of the day to view the Premises 3.17 Covenants in Superior Lease To perform and observe the covenants on the part of the tenant contained in the Superior Lease in so far as they relate to the Premises as if the same were incorporated herein except only Clauses 4(1)(a) (2) (3) (4) (5) (6) (12) (13) (15) (16) and (17) of the Superior Lease and the covenant for insurance therein contained and to keep the Landlord indemnified against all claims damages costs and expenses in any way relating thereto PROVIDED ALWAYS that in the event of any inconsistency the covenants on the part of the Tenant contained in the preceding sub-clauses of this clause 3 shall prevail over the tenant's covenants contained in the Superior Lease 4. LANDLORD'S COVENANTS The Landlord HEREBY COVENANTS with the Tenant (but so that the Landlord shall not remain personally liable hereunder after it shall have parted with the reversion to this lease) as follows: 4.1 Quiet enjoyment That the Tenant paying the said rents hereby reserved and performing and observing the covenants on the Tenant's part herein contained shall quietly hold and enjoy the Premises during the Term without interruption by the Landlord or any person rightfully claiming under the Landlord 4.2 To insure To use reasonable endeavours to procure that the Superior Landlord observes and performs the obligations on its part contained in clauses 5(1) 5(2) and 5(3) of the Superior Lease 4.3 Services To use all reasonable endeavours to provide the services specified in the Second Schedule hereto in accordance with the principles of good estate management 4.4 Payment of Superior Lease rents To pay the rents reserved by the Superior Lease in accordance with the provisions thereof 5. PROVISOS PROVIDED ALWAYS AND IT IS HEREBY AGREED by and between the parties hereto as follows: 5.1 Re-entry 5.1.1 If the rents hereby reserved or any part thereof shall at any time be unpaid for twenty one days after becoming payable (whether formally demanded or not) or if any of the covenants on the part of the Tenant herein contained shall not be performed or observed or if there occurs in relation to the Tenant (or where the Tenant comprises more than one person there occurs in relation to any of such persons) a Terminating Event (as hereinafter defined) then and in any such case it shall be lawful for the Landlord at any time thereafter to re-enter upon the Premises or any part thereof in the name of the whole and thereupon this demise shall absolutely determine but without prejudice to the right of action of the Landlord in respect of any antecedent breach of any of the covenants on the part of the Tenant herein contained 5.1.2 For the purposes hereof "Terminating Event" means any of the following: 5.1.2.1 in relation to an individual: 5.1.2.1.1 the individual failing to pay a debt or debts which is or are in the aggregate equal to or in excess of the bankruptcy level from time to time and a statutory demand in respect thereof having been neither complied with nor set aside 5.1.2.1.2 the presentation of a bankruptcy petition in respect of the individual 5.1.2.1.3 the appointment of an interim receiver in respect of the individual's property or any of it 5.1.2.1.4 the making of a bankruptcy order in respect of the individual 5.1.2.2 in relation to a company: 5.1.2.2.1 the presentation of a petition for the winding up of the company 5.1.2.2.2 the passing of a resolution to wind up the company 5.1.2.2.3 the making of a winding up order in relation to the company 5.1.2.2.4 any person becoming entitled to appoint an administrative receiver of the undertaking of the company or any part of it 5.1.2.2.5 the appointment of such an administrative receiver 5.1.2.2.6 the presentation of a petition for the making of an administration order in respect of the company 5.1.2.2.7 the making of an administration order in respect of the company 5.1.2.2.8 the directors of the company proposing a voluntary arrangement 5.1.2.3 in relation to any person (whether an individual or a company): 5.1.2.3.1 the person entering into any agreement or making any arrangement with creditors for liquidation of the person's debts by composition or otherwise 5.1.2.3.2 the appointment of a receiver in respect of any of the person's assets 5.1.2.3.3 any steps being taken to enforce any security over the person's property or to repossess goods in the person's possession under any hire purchase agreement 5.1.2.3.4 any distress or execution being levied on any of the person's assets 5.2 Suspension of rent If the Premises or any part thereof shall at any time during the Term be rendered incapable of or unfit for occupation or use as the result of a peril against which the Building is insured pursuant to the covenant on the part of the Superior Landlord contained in the Superior Lease the rents reserved and for the time being payable hereunder or a fair proportion of the said rents according to the nature and extent of the damage sustained shall be suspended until the Premises shall again be rendered fit for occupation or use PROVIDED that there shall be no cesser of rents if or to such extent as any insurance policy effected by the Superior Landlord or the Landlord shall have been rendered void or voidable or payment of any insurance moneys shall be properly withheld by the insurers due to some act or failure of the Tenant or any person deriving title under the Tenant or any of the servants or agents of the Tenant or of any such person PROVIDED FURTHER that if the Building shall be so damaged as to necessitate demolition and reconstruction the Landlord shall be entitled on giving to the Tenant not less than six months' previous notice in writing to determine the Term and at the expiration of such notice this lease and everything herein contained shall cease and be void and the Tenant shall not be liable for any dilapidations and shall not be entitled to any compensation but without prejudice to the rights and remedies of the Landlord for any arrears of rent PROVIDED ALSO that any dispute as to the proportion (if any) of rent which should be suspended or as to the period of such suspension which may arise under this clause 5.2 shall be referred to the decision of some competent person (acting as an expert and not as an arbitrator) to be agreed upon by the Landlord and by the Tenant or (in the event of failure so to agree) to be nominated on the application of the Landlord or the Tenant by the President for the time being of the Royal Institution of Chartered Surveyors and the decision of such person (including any determination as to the costs of such decision) shall accordingly be final and binding 5.3 Landlord's disclaimer Notwithstanding anything herein contained and unless due to the negligence or default of the Landlord or its servants and save to the extent that the Landlord may be liable under the provisions of the Defective Premises Act 1972 the Landlord shall not be responsible to the Tenant or the Tenant's licensees servants agents or other persons in the Premises or calling upon the Tenant or the Premises for any accident or happening or damage to or loss of any chattel or property sustained in the Building or on any property over which the Tenant exercises rights nor for any loss or inconvenience occasioned by (a) the closing for repairs or other purposes of the lifts or the Common Parts or any part thereof (b) any defects or failure in the said lifts or in the sprinkler system (if any) or in the hot and cold water supply the heating cooling or ventilating apparatus (if any) or in the lighting or in the conducting media (whether of or in the Premises or otherwise) (c) suitable fuel or power not being obtainable through the Landlord's usual sources of supply (owing to strikes lock-outs or other causes) 5.4 Landlord does not warrant permitted user Notwithstanding the covenant as to user on the part of the Tenant herein contained the Landlord does not hereby or in any other way give nor has the Landlord given at any other time any representation or warranty that such or any other user is or will be or will remain a permitted user within the provisions of the Planning Acts and notwithstanding that such user is not a permitted user within such provisions as aforesaid the Tenant shall remain fully bound and liable to the Landlord in respect of the several covenants and conditions herein on the part of the Tenant contained without being entitled to any compensation of any kind whatsoever from the Landlord 5.5 Alterations by Landlord The Landlord may from time to time make such alterations additions or substitutions in or to the Building or any part thereof (excluding the Premises) or any plant or apparatus in the Building or the conducting media or the Common Parts as it shall think fit PROVIDED that in respect of any plant or apparatus or conducting media or the Common Parts remaining available for use by the Tenant or in respect of any new plant apparatus conducting media and the Common Parts provided for such use in substitution for those previously available the same shall be suitable for the enjoyment of the Premises AND PROVIDED that the works of alteration addition or substitution shall during the Authorised Hours be carried out in such manner as to cause to the Tenant as little inconvenience as is reasonably practicable BUT PROVIDED FURTHER that no objection whatsoever may be raised to the manner in which the Landlord may carry out such works outside the Authorised Hours 5.6 Settlement of disputes That in case any dispute or controversy shall arise between the Tenant and any other tenant of the Landlord relating to any party or other wall conducting media or to any other right easement or privilege whatsoever affecting or relating to the Premises or any other part of the Building the same may (if the Landlord so elects) be settled or determined by the Landlord in such manner as it by writing shall direct to which the Tenant shall submit 5.7 Landlord's servants or workmen The servants or workmen of the Landlord shall be under no obligation to furnish attendance or other use of his or their services to the Tenant for the Tenant's private convenience or to accept delivery of any letters telegrams telephone calls messages or parcels addressed to the Tenant and any such furnishing of attendance or other use of services or the acceptance of such letters telegrams telephone calls messages or parcels is to be considered as rendered and accepted by any employee of the Landlord as the servant of the Tenant and the Landlord shall not be liable for and no claim shall be made against it for any loss or damage arising out of or in consequence of such furnishing of attendance or other use of services or acceptance of any such letters telegrams telephone calls messages or parcels as aforesaid 5.8 Landlord free to deal with adjoining or neighbouring property The Tenant shall not be entitled to any right of light or air which will interfere with the free use of any land or buildings adjoining or neighbouring the Premises 5.9 Tenant unable to enforce similar covenants in adjoining property etcetera 5.9.1 Nothing herein contained shall confer on the Tenant any right to the benefit of or to enforce any covenant or agreement contained in any lease or other instrument relating to any other property belonging to the Landlord 5.9.2 Each of the Tenant's covenants herein contained shall remain in full force both at law and in equity notwithstanding that the Landlord shall have waived or released temporarily or permanently revocably or irrevocably or otherwise howsoever a similar covenant or similar covenants affecting adjoining or neighbouring premises of the Landlord 5.10 Landlord can charge for work done by it If and so often as the Tenant shall be obliged under the terms hereof to reimburse the Landlord any costs charges and expenses incurred by it including solicitors' costs and surveyors' fees and other professional costs and fees then in respect of any work done by the Landlord or by any person connected with it or by any person employed by it the Landlord shall be deemed to have incurred or suffered in respect thereof a reasonable fee cost or expense not exceeding that which might properly have been charged or incurred for the same work by an independent person competent to deal with that work in the ordinary course of his business 5.11 Service of notices This deed incorporates the regulations respecting notices contained in Section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1962 Provided Always that any notice to be served on the Tenant shall be served on it at 18 D'Arblay Street London W1V 3FP 6. LANDLORD AND TENANT ACT 1954 Having been authorised to do so by the Court Order the parties hereto agree that the provisions of Sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 shall be excluded in relation to the tenancy hereby created 7. The Tenant irrevocably submits to the jurisdiction of the High Court of Justice in England in relation to matters arising in respect of this Lease 8. CERTIFICATE AS TO AGREEMENT It is hereby certified that there is no agreement for lease to which this lease gives effect IN WITNESS whereof this lease has been executed by the parties as a deed the day and year first above written FIRST SCHEDULE Part I Premises ALL THAT suite of offices situate on the seventh floor of the Building which said suite of offices is for the purpose of identification edged with the colour red on the plan annexed hereto and includes:- (i) all non load-bearing walls within the Premises (and the plaster and finishes thereof) (ii) the plaster and finishes on the internal faces of the boundary walls and on the structure enclosing the Premises (iii) the plaster and finishes on all structural parts of the Building within the Premises (iv) all floors in the Premises (including all false or raised floors (and the joists and/or supports thereof) and all floor boards all wood block flooring and all other floor finishes down to but excluding joists (other than the joists and/or supports aforesaid) or structural slabs) (v) all ceilings of the Premises (up to but excluding joists or structural slabs) (vi) the interior window frames (including for the avoidance of doubt the interior of all window frames which face the exterior) and the glass in all windows of the Premises (vii) all doors and the glass in all doors of the Premises (viii) all fixtures and fittings of the nature of landlord's fixtures or fittings and all sanitary and water apparatus and all conducting media forming part of the Premises and (ix) all other parts of the interior of the Premises other than:- (A) all structural parts of the Building within the Premises (save for the plaster and finishes thereof aforesaid) (B) the heating cooling and ventilating apparatus and the sprinkler system forming part of the Premises together with all fixtures and fittings listed on the Inventory annexed hereto which fixtures and fittings are included wherever reference is hereinafter made to such fixtures and fittings Part II Rights granted to the Tenant The right for the Tenant and persons authorised by the Tenant (in common with others having a like right and so far as necessary for the enjoyment of the Premises): 1. of passage and running of water soil gas electricity and of all other services or supplies as are now used by the Premises through the conducting media passing through or under the adjoining or neighbouring property of the Landlord 2. during the Authorised Hours save where alternative arrangements are made with the approval of the Landlord such approval to be on reasonable terms and not to be unreasonably withheld (and without prejudice to the generality thereof such terms shall include an obligation to give the Landlord not less than forty eight hours notice on each occasion that the Tenant wishes to exercise such rights and to pay the additional security and other proper costs to the Landlord incurred as a result of the exercise of such rights) to use the entrance hall at ground floor level the stairs shown hatched green on the plan and the rear stairs shown hatched yellow on the plan (save that the rear stairs shown hatched yellow on the plan shall be used only in the case of fire or other emergency) 3. during the Authorised Hours save where alternative arrangements are made with the approval of the Landlord such approval to be on reasonable terms and not to be unreasonably withheld (and without prejudice to the generality thereof such terms shall include an obligation to give the Landlord not less than forty eight hours notice on each occasion that the Tenant wishes to exercise such rights and to pay the additional security and other proper costs to the Landlord incurred as a result of the exercise of such rights) to use the lavatories and toilet facilities on the seventh floor of the Building 4. during the Authorised Hours save where alternative arrangements are made with the approval of the Landlord such approval to be on reasonable terms and not to be unreasonably withheld (and without prejudice to the generality thereof such terms shall include an obligation to give the Landlord not less than forty eight hours notice on each occasion that the Tenant wishes to exercise such rights and to pay the additional security and other proper costs to the Landlord incurred as a result of the exercise of such rights) to use the lifts at such times as the same shall be working Part III Exceptions and reservations to the Landlord and others 1. The right of free and uninterrupted passage and running of water soil gas electricity and of all other services or supplies as are now or hereafter to be used from and to adjoining or neighbouring property through such of the conducting media serving such adjoining or neighbouring property now or which may not later than whichever shall be the earlier of (a) the expiration of the Term and (b) the expiration of a period of eighty years from the date hereof hereafter be in or upon the Premises 2. The rights and liberties of entry upon the Premises mentioned in the covenants by the Tenant herein contained and those mentioned in the covenants on the part of the Landlord (as tenant) contained in the Superior Lease 3. The right to let any adjoining or neighbouring property for any purpose 4. The full right of support and shelter and all other easements and rights now or hereafter belonging to or enjoyed by adjacent or neighbouring property 5. The right at any time and from time to time to close temporarily for repairs or any other necessary purposes the lifts in the Building the service roads and footpaths (if any) and any other areas within the curtilage of the Building and any other part of the Building (other than the Premises) which the Tenant is by virtue of this lease authorised to use (whether in common with others or not) 6. The right (on giving the Tenant at least forty eight hours prior notice save in emergency) of access to the Premises in order to maintain service and adjust the air conditioning of access to the riser cupboard and of access to the Premises for all reasonable purposes in connection with the management and maintenance of the Building SECOND SCHEDULE The service charge 1. Comfort cooling and heating to the Premises during the Authorised Hours or outside those hours where agreed with the Landlord 2. Staffed reception on the ground floor of the Building during the Authorised Hours or outside those hours where agreed with the Landlord 3. Lighting and cleaning the Common Parts (including the male and female toilets off the seventh floor lobby) during the Authorised Hours or outside those hours where agreed with the Landlord 4. Cleaning of the exterior windows of the Building whenever reasonably necessary THIRD SCHEDULE Regulations of the Building 1.1 The requirements of the Fire Precautions Act 1971 and the Health and Safety at Work, etc. Act 1974 and all rules and regulations thereunder shall be strictly complied with 1.2 In particular tenants shall 1.2.1 cause sufficient fire officers to be appointed 1.2.2 regularly test inspect and maintain fire detection prevention and fighting equipment within and exclusively serving the Premises and keep and produce to the relevant authorities and to the Landlord and whomsoever the Landlord may direct records in writing of such tests inspections and maintenance 1.2.3 at all times maintain clear access through escape routes 1.2.4 fully participate in fire evacuation drills organised in respect of the Building or parts thereof 2.2 The Landlord shall have sole discretion in considering whether work may be carried out or continued or in deciding what additional safeguards it requires to be taken in addition to those which may be imposed under statute building or other rules regulations or bye-laws 3. Only the lavatories and toilet facilities allocated shall be used 4. There shall be no interference with the heating cooling and ventilating appliances and installations apart from the normal switching on or off of the appliances in the Premises for the comfort of the occupants thereof 5. Apart from any self-operating lifts installed in the Building no person other than the person employed by the Landlord for such purpose shall operate lifts 6. Overloading or permitting of overloading of any of the lifts in the Building is strictly prohibited 7. No goods or merchandise shall (without the consent in writing of the Landlord) be brought into the passenger lifts 8. No goods or merchandise shall be brought into the Building by means of the main entrances to the Building except between the hours of 7.00 a.m. and 8.30 a.m. or 7.00 p.m. and 11.00 p.m. on Mondays to Fridays inclusive and no goods or merchandise shall be brought into the Building in such manner as will damage the Building or any part thereof 9. No tenant or occupier shall use any Common Parts or permit the same to be used for the parking of vehicles 10. Tenants or occupiers shall ensure (so far as they are reasonably able so to do) that no rubbish or litter is left on the Common Parts 11. Tenants or occupiers shall not place or permit or suffer to be placed or remain in or upon the Common Parts any obstruction whatsoever FOURTH SCHEDULE The entries in the Property and Charges Registers of H.M. Land Registry Title Number NGL 711243 SIGNED as a Deed by SONY MUSIC ) ENTERTAINMENT (UK) LIMITED ) acting by:- ) Director Director/Secretary SIGNED as a Deed by CME ) DEVELOPMENT CORPORATION ) acting by:- ) Director DATED 1996 - ------------------------------------------------------------------------------ EX-21.01 22 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.01 Subsidiaries of the Registrant 1. CME Development Corporation, Inc. State of Incorporation--Delaware 2. CME Programming Services, Inc. State of Incorporation--Delaware 3. Central European Media Enterprises N.V. Jurisdiction of Incorporation--Netherlands Antilles 4. CME Media Enterprises B.V. Jurisdiction of Incorporation--Netherlands 5. CME Medienbeteiligungen GmbH Jurisdiction of Incorporation--Germany 6. CME Medienbeteiligungen GmbH and Co. Media Enterprises KG Jurisdiction of Incorporation--Germany 7. Ceska Nezavisla Televizini Spolecnost s.r.o. Jurisdiction of Incorporation--Czech Republic 8. CME Medienbeteiligungen GmbH and Co. Zweite Medienprojekte Berlin KG Jurisdiction of Formation--Germany 9. CME Medienbeteiligungen GmbH and Co. Erste Medienprojekte Berlin KG Jurisdiction of Formation--Germany 10. 1A TV Beteiligungsgesellschaft GmbH & Co. Betriebs KG Jurisdiction of Formation--Germany 11. Franken Funk & Fernsehen GmbH Jurisdiction of Corporation--Germany 12. NMF Neue Medien Franken GmbH & Co. KG Jurisdiction of Incorporation--Germany 13. Tele 59 d.o.o. Maribor Jurisdiction of Formation--Slovenia 14. Boutique MMTV d.o.o. Ljubljana Jurisdiction of Formation--Slovenia 15. Produkcija Plus d.o.o. Ljubljana Jurisdiction of Formation--Slovenia 16. Radio Alfa a.s. Jurisdiction of Formation--the Czech Republic 17. 2002 Tanacsado es Szolgaltato Korlatolt Felelossegu Tarsasag Jurisdiction of Formation--Hungary 18. Media Pro International S.A. Jurisdiction of Formation--Romania 19. CME Ukraine Holding GmbH Jurisdiction of Formation--Austria 20. International Media Services Ltd. Jurisdiction of Formation--Bermuda 21. Innova Film GmbH Jurisdiction of Formation--Germany 22. Intermedia Jurisdiction of Formation--Ukraine 23. Studio 1+1 Jurisdiction of Formation--Ukraine 24. Videovox Kft Jurisdiction of Formation--Hungary 25. Unimedia SRL Jurisdiction of Formation--Romania 26. Mobil Rom SA Jurisdiction of Formation--Romania 27. STS s.r.o. Jurisdiction of Formation--Slovakia 28. Sachsen Fund and Fernsehen GmbH Jurisdiction of Formation--Germany 29. TVN Limited Jurisdiction of Formation--Poland 30. TV Wisla Limited Jurisdiction of Formation--Poland 31. BIS Ballungsraumfernsehen in Sachsen GmbH Jurisdiction of Formation--Germany 32. Sachsen Fernsehen GmbH and Co. Frenseh-Beteriebs KG Jurisdiction of Formation--Germany 33. Sachsen Fernsehen Vewaltungs GmbH Jurisdiction of Formation--Germany EX-23.01 23 CONSENT OF ARTHUR ANDERSEN & CO. EXHIBIT 23.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File No. 333-1560. ARTHUR ANDERSEN & CO. Hamilton, Bermuda March 24, 1997 EX-27.01 24 FINANCIAL DATA SCHEDULE
5 1000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 78,507 2,896 37,342 3,200 0 146,159 58,982 22,317 365,130 60,506 0 0 0 239 249,081 365,130 135,085 135,085 0 126,069 17,845 0 4,670 (12,526) (16,405) (30,003) 0 0 0 (30,003) (1.55) 0.000
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